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CHAPTER 1
INTRODUCTION
Chapter Organization
What is International Economics About?
The Gains from Trade
The Pattern of Trade
Protectionism
The Balance of Payments
Exchange-Rate Determination
International Policy Coordination
The International Capital Market
International Economics: Trade and Money
CHAPTER OVERVIEW
The intent of this chapter is to provide both an overview of the subject matter of international
economics and to provide a guide to the organization of the text. It is relatively easy for an
instructor to motivate the study of international trade and finance. The front pages of
newspapers, the covers of magazines, and the lead reports of television news broadcasts
herald the interdependence of the U.S. economy with the rest of the world. This
interdependence may also be recognized by students through their purchases of imports of all
sorts of goods, their personal observations of the effects of dislocations due to international
competition, and their experience through travel abroad.
The study of the theory of international economics generates an understanding of many key
events that shape our domestic and international environment. In recent history, these events
include the causes and consequences of the large current account deficits of the United States;
the dramatic appreciation of the dollar during the first half of the 1980s followed by its rapid
depreciation in the second half of the 1980s; the Latin American debt crisis of the 1980s and
the Mexico crisis in late 1994; and the increased pressures for industry protection against
foreign competition broadly voiced in the late 1980s and more vocally espoused in the first
half of the 1990s. Most recently, the financial crisis that began in East Asia in 1997 and
1
spread to many countries around the gl
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