Midterm Flashcards
(35 cards)
- Approximate size as a % of global GDP for EU, USA, BRICS, Japan.
USA ~ 25% ● European Union ~ 25% ● Japan ~ 6% ● BRICS~ 25% ● Everyone else ~ 19%
GDP
Gross Domestic Product: The total value of goods produced and services provided within a country.
C
Total Consumption: expenditure of one household
I
Investment: Purchase of goods that are used in the future, not today.
G
Government Spending: Government consumption, investment and transfer payments.
X
Total Exports: All exports of a country.
M
Total Imports: All imports of a country.
(X-M)
Net Exports: The difference between a country’s total value of exports and total value of imports.
How an increase in net exports (X – M) increases real GDP if C + I + G stay the same
i. Suppose the U.S has these numbers (in trillions):
- C = $11, I = $3.5, G = $3.5, X = $2.5 and M = 3
- What if X changed to $4? What changes?
- Nothing has changed!!!
- Since C includes the imports, 11+3 = 14 and 11+4 = 15
- So, X increases by 1 and so does C, thus equaling out the
equation
c. How an increase in net exports (X – M) might not increase real GDP
If net exports increase by the same amount as net imports do through a fair trade, real GDP may not increase, but remain
constant.
d. How a larger trade deficit could be an indicator of an improving economy
A trade deficit can signal that a country’s consumers are wealthy enough to purchase goods than their country produces
ii. Consider the circumstances - are other countries investing in a productive way, or a predatory way?
f. World Bank
The Role of the IBRD. The World Bank offers loans, grants and other financial products through the International Bank of Reconstruction and Development (IBRD) and the International Development Association. The function of the IBRD is to promote financial growth in middle- and low-income countries. - Just an FYI, the IBRD is just another name for the World Bank.
IMF
• Assistance for countries experiencing major financial problems – hyperinflation, ballooning debt, collapsing currency value, etc.
GATT
generalized agreements on tariff and trade –> a series of negotiations focused on reducing trade barrier between all of the countries involved
Before the GATT was formed, the tariff of each country was very high.
WTO
WTO IN BRIEF. In brief, the World Trade Organization (WTO) is the only international organization dealing with the global rules of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
a. What it means if a production point is along, above or below the curve
Along: Producing and using all resources efficiently
● Above: Not possible to produce but CAN CONSUME above
● Below: Not producing goods efficiently or using resources efficiently
(likely in a recession)
- Why different countries have different PPFs
a. Every country has different needs and wants
b. Countries want to produce what they are good at to specialize especially
for trade
c. Every country has capabilities in producing certain goods. This is due to
resources of a country as far as materials are concerned and knowledge/the level of educational in a country.
What comparative advantage means
When one country produces a good at a lower opportunity cost than another good when comparing 2 or more countries.
What opportunity cost means
a. What you give up for something else
b. I.e., Going to class instead of sleeping in (You are giving up sleep for
class)
c. The loss of potential gain from other alternatives when one alternative is
chosen.
How markets bring about the changes in the economy as trade policies change
● If we allow trade, we can specialize in certain products. If we don’t allow
trade, certain countries are not able to specialize in certain products.
● Global trade will lead to increased employment in comparative advantage
industries.
In what way does a country benefit from freer trade?
Long term positive benefits despite the short term unemployment; higher levels of consumption in all economies involved, more specialization (bringing greater efficiency and higher quality goods), lower prices, and reduction in poverty on a world wide scheme
- What does the model indicate in terms of employment gains/losses?
Whatever markets we have we have a comparative disadvantage in, we will see losses in. Those businesses will either shrink or shut down and we can see a loss of employment because of this.
What would likely happen to employment as trade barriers are reduced?
A short-term reduction of employment due to people being laid off or fired from unproductive industries, and a long-term increase back to the status quo due to people being hired in more productive industries
Difference in effects between the import-competing (comparative disadvantage) industries and the exporting (comparative advantage) industries.
■ Lost jobs in industries that have comparative disadvantages because they face competition from cheaper imports.
■ Domestic producers can’t compete so they go out of business or shrink.
■ Comparative advantage will grow overtime producing more jobs.
■ Comparative disadvantage= fewer jobs
