Term
| The Stolper Samuelson Theorem shows the effect of trade on what? |
|
Definition
| The distribution of income within a country |
|
|
Term
| If the relative price of the capital-intensive good increases, workers are _______ and capitalists are _______, no matter how they spend incomes |
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Definition
|
|
Term
| In the short run, all factors connected to the rising sectors (gain/lose) ? |
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Definition
|
|
Term
| In the short run, those who consume the cheaper imports will (gain/lose) |
|
Definition
|
|
Term
| In the long run, what will happen if you are an abundant factor? |
|
Definition
| You will gain from trade by getting a higher real income (based on Stolper Samuelson) |
|
|
Term
| In the long run, what will happen if you are a scarce factor? |
|
Definition
| You will lose from trade by getting a lower real income (based on Stolper Samuelson) |
|
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Term
| What did Heckscher and Ohlin say the underlying reason is why a country has a CA in a particular good? |
|
Definition
| The difference in factor endowments |
|
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Term
| What are the two crucial assumptions to the HO world? |
|
Definition
| Perfect competition and constant returns to scale |
|
|
Term
| What two things do HO predict? |
|
Definition
| Less trade among industrialized countries and greater NS trade |
|
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Term
| What are the two approaches to challenging the HO theorem? |
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Definition
| Extending the HO framework/Replace HO |
|
|
Term
| A significant share of world trade, especially manufacturing, is? |
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Definition
|
|
Term
| How do we measure intra industry trade |
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Definition
|
|
Term
| What are two cases regarding why we have intra industry trade with homogeneous goods? |
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Definition
| Transportation case and seasonal considerations |
|
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Term
| The transportation case of intra industry trade says? |
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Definition
| That when goods are too heavy or expensive to transport, iit will exist |
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Term
| The demand side of IIT in non-homogenous trade explains what? |
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Definition
| How a higher income translates into more variety demanded by the consumers in a country |
|
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Term
| The main theory regarding demand side IIT is what? |
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Definition
| The Preference Similarity Hypothesis (Spillover Theory) |
|
|
Term
| What are the two kinds of supply side considerations? |
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Definition
|
|
Term
| Internal supply side considerations (economies of scale) say what? |
|
Definition
| Average Cost of a firm decreases as their output increases, spreads large fixed costs |
|
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Term
| External supply side considerations say? |
|
Definition
| The firm's average cost decreases as output of the industry increases |
|
|
Term
| This is applied only when there is increasing returns to scale, says that trade will be beneficial even if countries are identical in every way, but the trade pattern is unpredicatable |
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Definition
|
|
Term
| The more varieties of product, according to Kemp's model, leads to what? |
|
Definition
|
|
Term
| This says that tastes of consumers is conditioned by the income level |
|
Definition
| Preference Similarity Hypothesis |
|
|
Term
| Says that the higher the income of consumers, the more variety they seek in the products they buy |
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Definition
| Product Differentiation Theory |
|
|
Term
| Trade based on CA is likely to be greater when what? |
|
Definition
| The difference in factor endowments between nations is greater |
|
|
Term
| IIT is likely to be greater among? |
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Definition
| Similar sized economies with similar factor proportions |
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Term
| This relaxes the assumption of HO that both countries have the same technology, assumes that tech is not equal and that there is delay in the transmission of technology from one nation to another |
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Definition
|
|
Term
| The time taken from the first appearance in N1 and when firms in N2 bring revision to market |
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Definition
|
|
Term
| The time between appearance in N1 and when comsumers in N2 want it as a substitute for currently produced goods |
|
Definition
|
|
Term
| Builds on the Imitation Lag hypothesis and shows the importance of delay in the diffusion of technology |
|
Definition
| Product Life Cycle Theory |
|
|
Term
| What are the two kinds of restrictions on the import side of commercial policy? |
|
Definition
| Tariff and Non tariff barriers |
|
|
Term
| A tax levied on a commodity when it crosses a national boundary |
|
Definition
|
|
Term
| What are three kinds of tariffs? |
|
Definition
| Specific, ad valorem, combination |
|
|
Term
| Stipulates money per physical unit of import ($2 per tv set) |
|
Definition
|
|
Term
| What is the problem with specific tariffs? |
|
Definition
| As the price of the import goes up, the tariff rate declines |
|
|
Term
| What is the equation for specific tariffs? |
|
Definition
|
|
Term
| A percentage of the estimated market value of the importing good is called |
|
Definition
|
|
Term
| What is the equation for an ad valorem tariff |
|
Definition
|
|
Term
| In less developed countries, what is a major source of revenue? |
|
Definition
|
|
Term
| In developed countries, what has replaced tariffs? |
|
Definition
|
|
Term
| Tells us the extent of interference in a country's tariff schedule |
|
Definition
|
|
Term
| How do I calculate the unweighted average tariff rate? |
|
Definition
|
|
Term
| How do I calculate the weighted average tariff rate? |
|
Definition
| (t1p1 + t2p2 +t3p3) / ptotal |
|
|
Term
| The rate listed in a country's tariff schedule whether it be ad-valorem or specific |
|
Definition
|
|
Term
| The percentage change in the Value Added in an industry because of a tariff structure |
|
Definition
| Effective tariff rate (Effective Rate of protection) |
|
|
Term
| How do I calculate Value Added under free trade? |
|
Definition
| VA (under free trade) = Pf - (PA + PB) |
|
|
Term
| How do I calculate Value added under protection? |
|
Definition
| Solve for prices of A and B and Pf, then same formula as free trade |
|
|
Term
| What is the equation for the effective rate of protection (ERP) |
|
Definition
|
|
Term
| This occurs when nominal tariff rates on the imports of manufactured goods is greater than nominal tariff rates on intermediate inputs and raw materials |
|
Definition
| Escalated tariff structure |
|
|
Term
| This is the situation when tariff rates are applied to an import according to its geographical source |
|
Definition
|
|
Term
| (T/F) A country with preferential treatment pays higher tariff |
|
Definition
|
|
Term
| Name an example of preferential duties |
|
Definition
| The Generalized System of Preferences (GSP) |
|
|
Term
| Represents an element of non-discrimination in tariff policy, now called Normal Trade Relations in the US |
|
Definition
|
|
Term
| According to this, the tariff in practice on a good becomes lower than the tariff rate listed in the tariff schedule, now called the Production-sharing Arrangements |
|
Definition
| Offshore Assembly Provision |
|
|
Term
| (T/F) A tariff does cause some to gain and others to lose, but losers lose more than gainers gain |
|
Definition
|
|
Term
| A direct restriction on imports is called |
|
Definition
|
|
Term
| With a quota, the price MUST rise to Pw + t. Why? |
|
Definition
| Because at that price the total supply is equal to total demand |
|
|
Term
|
Definition
| Voluntary Export Restriction |
|
|
Term
| Protecting domestic producers against import competition helps and hurts who? |
|
Definition
| Helps producers, hurts nation and world as a whole |
|
|
Term
| Signed in 1947 by the major industrial nations of the noncommunist world |
|
Definition
| General Agreement on Tariffs and Trade (GATT) |
|
|
Term
| What are the three principles on which GATT was based? |
|
Definition
| Liberalized trade, nondiscrimination, no unfair encouragement to exports |
|
|
Term
| In 1994, the GATT's name became? |
|
Definition
| WTO (World Trade Organization) |
|
|
Term
| Where are the headquarters for the WTO located? |
|
Definition
|
|
Term
| What are two ways quotas can be disguised? |
|
Definition
| Import licensing and VERs |
|
|
Term
| (T/F) A quota and tariff are equivalent in their effects on price and quantity |
|
Definition
|
|
Term
| Why would governments want quotas rather than tariffs? |
|
Definition
| Limits further import spending, gov's power to raise tariff rates limited |
|
|
Term
| The most prevalent form of NTBs |
|
Definition
|
|
Term
| What are the three kinds of import quotas? |
|
Definition
| Unilateral, bilateral, multilateral |
|
|
Term
| A quota that is imposed without considering the other country |
|
Definition
|
|
Term
| Quota that is set after consultation and negotiation |
|
Definition
| Bilateral or multilateral |
|
|
Term
| (T/F) The WTO does not permit import quotas |
|
Definition
|
|
Term
| (T/F) VERs tend to be more effective than quotas in limiting trade |
|
Definition
|
|
Term
| (T/F) Protection is an expensive and inefficient way to expand employment |
|
Definition
|
|
Term
| Restrictive laws pertaining to product quality, enforced in name of health, sanitation, safety and environment |
|
Definition
|
|
Term
| Importer must buy a certain percentage of the final product locally, called |
|
Definition
| Domestic content requirements |
|
|
Term
| The U.S. Constitution forbids these, even though other restrictions are allowed |
|
Definition
|
|
Term
| Why would a country want to tax exports? |
|
Definition
| Pressure from domestic consumers to keep the domestic price low |
|
|
Term
| Why would a large country want to tax exports? |
|
Definition
| Export taxes may be used to increase world prices that foreign buyers pay |
|
|
Term
| (T/F) A sufficiently high export tariff will eliminate exports |
|
Definition
|
|
Term
| A financial aid given by the government to a firm for goods that it exports |
|
Definition
|
|
Term
| Why would a country want to give an export subsidy? |
|
Definition
| If a country is alone in subsidizing then the producers gain and so will lobby for the subsidy |
|
|
Term
| (T/F) An export subsidy does NOT violate international agreements based on GATT |
|
Definition
|
|
Term
| A financial aid given by the government to a firm for goods that it exports |
|
Definition
|
|
Term
| Why would a country want to give an export subsidy? |
|
Definition
| If a country is alone in subsidizing then the producers gain and so will lobby for the subsidy |
|
|
Term
| (T/F) An export subsidy does NOT violate international agreements based on GATT |
|
Definition
|
|
Term
| (T/F) Countries try to hide export subsidies |
|
Definition
|
|
Term
| What are some ways in which governments try to get around the restriction of export subsidies? |
|
Definition
| Low interest loans to exporters, governments help exporters by direct promotional expenditures, tax rules are twisted to give tax relief |
|
|
Term
| (T/F) An export subsidy will lower price for the domestic consumer |
|
Definition
|
|
Term
| (T/F) A subsidy on exports is implicitly subsidizing imports since it increases the exchange rate value |
|
Definition
|
|
Term
| What was the 1993 Uruguay Round? |
|
Definition
| This promised to decrease agricultural subsidies |
|
|
Term
| Besides dumping, what is one kind of action that might be harmful to domestic interests? |
|
Definition
| Facing imports from countries that are illegally subsidized |
|
|
Term
| The sale of a commodity at a price that is lower abroad than at home |
|
Definition
|
|
Term
| The popular notion of dumping connotes |
|
Definition
|
|
Term
| What are the three types of dumping? |
|
Definition
| persistent, predatory, sporadic |
|
|
Term
| This is really international price discrimination and is a continuous tendency to maximize profits by selling at a higher price domestically than abroad |
|
Definition
|
|
Term
| What three conditions must be met to have successful persistent dumping? |
|
Definition
| No resale possible, different elasticities, monopoly power |
|
|
Term
| This is a temporary sale at a lower price to drive foreign products out of business, and then to increase prices |
|
Definition
|
|
Term
| (T/F) The most harmful form of dumping is persistent |
|
Definition
|
|
Term
| The occasional sale to unload unforeseen or temporary surplus without having to decrease domestic price |
|
Definition
|
|
Term
| In the US, how are industries protected? |
|
Definition
| Direct action by the president, antidumping duties, countervailing duties, escape clause relief, section 301 retailiation |
|
|
Term
| What happens should dumping be proved? |
|
Definition
| GATT sanctions anti-dumping duties |
|
|
Term
| (T/F) anti-dumping duties are very common in industrialized nations |
|
Definition
|
|
Term
| What is the goal of countervailing duties? |
|
Definition
| To raise the US price of the foreign good (impose a tariff) to countervail the effect of the foreign subsidy |
|
|
Term
| Why would a country want to limit exports (impose an export quota) ? |
|
Definition
| To ensure domestic availability of a good in short supply, to control the supply to regulate the price, To control the export of strategic items to hostile countries |
|
|
Term
| This is a clause in the US and GATT rules that permits a temporary tariff if an industry can show that a sudden surge of imports has caused harm |
|
Definition
|
|
Term
| The price of foreign exchange (foreign currency) in terms of the domestic currency |
|
Definition
|
|
Term
| What is the precise definition of the exchange rate? |
|
Definition
| The price of foreign exchange in terms of the domestic currency |
|
|
Term
| What are the two basic types of exchange rates? |
|
Definition
| Spot exchange rate and forward rate |
|
|
Term
| The immediate (within two business days) exchange rate |
|
Definition
|
|
Term
| The price we agree on today on an exchange to take place at a specified time in the future, say 30, 90, or 180 days |
|
Definition
|
|
Term
| The price of foreign exchange (foreign currency) in terms of the domestic currency |
|
Definition
|
|
Term
| What is the precise definition of the exchange rate? |
|
Definition
| The price of foreign exchange in terms of the domestic currency |
|
|
Term
| What are the two basic types of exchange rates? |
|
Definition
| Spot exchange rate and forward rate |
|
|
Term
| The immediate (within two business days) exchange rate |
|
Definition
|
|
Term
| The price we agree on today on an exchange to take place at a specified time in the future, say 30, 90, or 180 days |
|
Definition
|
|
Term
| (T/F) If the spot rate is higher than the forward rate, then foreign currency is at a forward discount with respect to the domestic currency |
|
Definition
|
|
Term
| (T/F) If the spot rate is lower than the forward rate, then foreign currency is at a forward premium |
|
Definition
|
|
Term
| This is the spot sale of a currency combined with a forward repurchase of the same currency |
|
Definition
|
|
Term
| The difference between the spot and forward ratesr is called the |
|
Definition
|
|
Term
| Economists give 3 reasons why anyone would hold foreign currency. Name them. |
|
Definition
| For trade and investment purposes, for interest rate arbitrage, and speculation. |
|
|
Term
| When speculators buy currencies when the exchange rate is low on the bet that it will rise, speculation is? |
|
Definition
|
|
Term
| When speculators sell currencies when the exchange rate is low on the bet that it will fall even more, speculation is |
|
Definition
|
|
Term
| The avoidance of a foreign exchange risk by buying in the forward market is known as |
|
Definition
|
|
Term
| The opposite of hedging is called |
|
Definition
|
|
Term
| Who are the four main participants in the foreign currency markets? |
|
Definition
| Retail customers, commercial banks, foreign exchange brokers, central banks |
|
|
Term
| Due to currency fluctuations, the future rate may be different from the current one, so losses may be incurred because the exchange rate changes. This is known as |
|
Definition
|
|
Term
| What is the mechanism for dealing with exchange rate risk? |
|
Definition
| the forward exchange rate and the forward market |
|
|
Term
| The market coordinating the buying and selling of currencies for future deliveries is called |
|
Definition
|
|
Term
| What establishes the interest rate? |
|
Definition
| Demand and supply of money in the domestic money market |
|
|
Term
| What establishes the exchange rate? |
|
Definition
| Demand and supply of dollars in the exchange market |
|
|
Term
| According to this, the equilibrium value of an exchange rate will be the level that will buy the same quantity of a good home and abroad |
|
Definition
|
|
Term
| The purchasing power parity is used to determine? |
|
Definition
| Long run determination of exchange rates |
|
|
Term
| While PPP is working in the background, more immediate forces (strength of a country's economic growth) are also working in the background |
|
Definition
| Medium run determinants of exchange rates |
|
|
Term
| A very important short run force in the determination of exchange rates is? |
|
Definition
| The flow of financial capital |
|
|
Term
| What two variables play a large role in causing short-run capital flows? |
|
Definition
| Interest rates and expectations about future interest rates |
|
|
Term
| Refers to the process by which capital flows internationally to earn the highest returns |
|
Definition
|
|
Term
| Refers to the spot purchase of the foreign exchange currency to make the investment and off-setting forward sale of the foreign currency to cover the foreign exchange risk |
|
Definition
| Covered interest rate arbitrage |
|
|
Term
| The difference between the spot and forward rates reflects what? |
|
Definition
| The expected appreciation or depreciation of the home currency |
|
|
Term
| When there is no incentive for more funds to flow to a country, their currency is at |
|
Definition
| Covered interest arbitrage parity (CIAP) |
|
|
Term
| The interest rate parity condition is defined by |
|
Definition
| (Home interest rate) - (Foreign interest rate) = (Forward exchange rate) - (Nominal exchange rate) / (Nominal exchange rate) |
|
|
Term
| The set of rules established by a country for governing the value of its domestic currency relative to the foreign currencies |
|
Definition
|
|
Term
| (T/F) The collapse of the gold standard and the passing of the Smoot-Hawley Act drastically reduced international trade flows |
|
Definition
|
|
Term
| Why did the gold standard collapse? |
|
Definition
| At the beginning of WWI many countries stopped the convertibility of their currencies into gold |
|
|
Term
| Act of June 1930 raised US tariffs to historically high levels, original intention was to increase the protection afforded domestic farmers against foreign agricultural imports |
|
Definition
|
|
Term
| 44 countries met in 1944 in a small resort in NH and that historic conference that led to the establishment of a world monetary system |
|
Definition
|
|
Term
| The Bretton Woods Conference led to the creation of the |
|
Definition
| IMF (International Monetary Fund) |
|
|
Term
| What two others institutions were formed from the Bretton Woods Conference? |
|
Definition
|
|
Term
| The exchange rate established by the Bretton Woods Conference was the |
|
Definition
| pegged but adjustable exchange rate system |
|
|
Term
| Every country after the Bretton Woods Conference chose its currency value with respect to the dollar (or with gold), known as |
|
Definition
| dollar standard exchange rate system |
|
|
Term
| Since it was used by all countries for international transactions, the dollar became what after the Bretton Woods Conference? |
|
Definition
|
|
Term
| The unwillingness of U.S.to devalue and other countries to revalue brought about the collapse of what? |
|
Definition
| The World exchange system |
|
|
Term
| A country will allow the par value to be primarily determined by market forces but will intervene from time to time |
|
Definition
|
|
Term
| What are four different types of exchange rate systems used today? |
|
Definition
| Dollarization, crawling peg, currency basket peg, currency board |
|
|
Term
| The most common rationale for adopting this is for a country to reduce exchange rate volatility |
|
Definition
|
|
Term
| Countries that peg their currencies usually adopt a band around the parity value which allows the exchange rate to fluctuate by a certain percentage. This band is called |
|
Definition
|
|
Term
| A crawling peg plus an exchange rate band is known as |
|
Definition
|
|
Term
| A nation may peg its currency to a weighted average of several foreign currencies, known as |
|
Definition
|
|
Term
| A dramatic approach to an exchange rate system in which the currency of another country becomes legal tender |
|
Definition
|
|
