InternationalEconomics期末总复习.docVIP

International Economics Interdependence: Impact Overall standard of living is higher Access to raw materials energy not available at home Access to goods components made less expensively elsewhere Access to financing and investment not available at home International competition encourages efficiency Other impacts - good bad Curtails inflationary pressures at home Limits domestic wage increases Makes economy vulnerable to external disturbances Limits impact of domestic fiscal policy on economy Comparative advantage (David Ricardo) Nations can gain from specialization, even if they lack an absolute advantage.（ If the relative cost of making two items is different in two countries, each can gain by specializing in the one it makes most cheaply - each has a comparative advantage in that product.Even countries that make nothing cheaply can benefit from specialization.) Why restrict trade? Benefits of free trade come in the long term, and are usually spread widely across society. Costs of free trade are felt rapidly and are usually concentrated in specific sectors of the economy Tariff trade and welfare effects Effects of regional trade agreements Static effects: Trade creation effect (consumption effect, production effect) Trade diversion effect Dynamic effects Economies of scale Greater competition Investment stimulus Current account surplus and deficit Current account and capital financial account balance each other; when one is in surplus the other must be in deficit Current account surplus means exports of goods and services, investment income and transfers exceed imports and outflows Current account deficit means imports of goods and services, and outflows are greater than exports and inflows; must be financed by borrowing (capital account inflows) Foreign exchange quotations. Exchange rate is the price of one currency in terms of another One country’s currency has depreciated when more of it is needed to buy a unit of a foreign currency (is worth less relat