Chapter 1: Introduction Dominick Salvatore John Wiley

1
An Introduction to International Economics

• Chapter 1 Introduction
• Dominick Salvatore
• John Wiley Sons, Inc.

2
What is International Economics?

• International trade in goods and services
• An example Sony Televisions

3
What is International Economics?

• International trade in goods and services
• A key issue its not just imports!
• Exports of Boeing Aircraft
• Exports of Microsoft Software

4
What is International Economics?

• International trade in goods and services
• A key issue its not just imports!
• Its also not just for consumers!
• Trade in component parts
• Monitors for Dell Computers

5
What is International Economics?

• International trade in goods and services
• A key issue its not just imports!
• Its also not just for consumers!
• Services, not just goods!
• Lloyds of London

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What is International Economics?

• International trade in goods and services
• A key issue its not just imports!
• Its also not just for consumers!
• Services, not just goods!
• International trade is expanding

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What is International Economics?

• International trade in goods and services
• A key issue its not just imports!
• Its also not just for consumers!
• Services, not just goods!
• International trade is expanding

Source World Trade Organization
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What is International Economics?

• International trade in goods and services
• International ownership of assets
• Examples
• Foreign stock ownership
• Automobile assembly plants
• Toyota WWW link
• US government debt

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What is International Economics?

• International trade in goods and services
• International ownership of assets
• Currency exchange
• International transactions require conversions
  between currencies
• Foreign exchange markets
• Federal Reserve Bank Exchange Rate Data WWW link

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What is International Economics?

• International trade in goods and services
• International ownership of assets
• Currency exchange
• International organizations
• World Trade Organization
• WWW link
• International Monetary Fund
• WWW link
• European Union
• WWW link

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Standard of Living

• The International Economy generates
  Interdependence
• Economic growth in the United States spurs
  increased demand for imports
• Increased import demand by the United States
  generates economic growth in other countries

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Standard of Living

• The International Economy generates
  Interdependence
• Sources of potential gain
• Access to items not available domestically
• Coffee
• Bananas
• Tin
• Tungsten

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Standard of Living

• The International Economy generates
  Interdependence
• Sources of potential gain
• Access to items not available domestically
• Access to lower cost products
• Access to greater product variety

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Standard of Living

• The International Economy generates
  Interdependence
• Sources of potential gain
• Is it always a gain?
• Import competing sectors may experience
  production and job losses
• This loss is at least partially (and potentially,
  completely) offset by gains in the exporting
  sectors

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Subjects in International Economics

• International Trade Theory
• Analyzes the basis of and the gains from
  international trade
• Focuses on the microeconomic aspects of the
  international economy

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Subjects in International Economics

• International Trade Theory
• International Trade Policy
• Examines the reasons for and the effects of
  restrictions on international trade
• Analyzes the implications for International
  Trade Theory of such restrictions

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Subjects in International Economics

• International Trade Theory
• International Trade Policy
• Balance of Payments
• A summary statement of all the international
  transactions of the residents of a nation with
  the rest of the world during a particular period
  of time, usually a year.
• Provides a statistical summary of the size of
  international trade and international asset
  ownership for a country

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Subjects in International Economics

• International Trade Theory
• International Trade Policy
• Balance of Payments
• Foreign Exchange Markets
• The institutional framework for the exchange of
  one national currency into another
• Part of the study of International Finance (or
  Open-Economy Macroeconomics) that is concerned
  with the macroeconomic implications of the
  International Economy

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Subjects in International Economics

• International Trade Theory
• International Trade Policy
• Balance of Payments
• Foreign Exchange Markets
• Adjustments in the Balance of Payments
• Focuses on the relationship between internal and
  external aspects of the economy
• Examines how disequilibria lead to macroeconomic
  adjustment under difference international
  monetary systems

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Current International Economic Problems

• Trade Protectionism in Industrial Countries
• What are the reasons for this protection?
• What are the implications of this protection for
  the industrial countries?
• What are the implications of this protection for
  the rest of the world?
• How do regional trade blocks (the NAFTA, the
  European Union, etc.) complicate efforts to
  reduce this protection?

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Current International Economic Problems

• Trade Protectionism in Industrial Countries
• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Large exchange rate fluctuations may disrupt
  international trade and harm economic growth
• What is the source of these fluctuations?
• How can the international financial system be
  reformed to eliminate these fluctuations?

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Current International Economic Problems

• Trade Protectionism in Industrial Countries
• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Financial Crises in Emerging Market Economies
• The causes and consequences of a sudden collapse
  in the value of a currency of an emerging economy

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Current International Economic Problems

• Trade Protectionism in Industrial Countries
• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Financial Crises in Emerging Market Economies
• High Structural Unemployment and Slow Growth in
  Europe and Stagnation in Japan

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Current International Economic Problems

• Trade Protectionism in Industrial Countries
• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Financial Crises in Emerging Market Economies
• High Structural Unemployment and Slow Growth in
  Europe and Stagnation in Japan
• Job Insecurity from Restructuring and Downsizing
  in the United States

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Current International Economic Problems

• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Financial Crises in Emerging Market Economies
• High Structural Unemployment and Slow Growth in
  Europe and Stagnation in Japan
• Job Insecurity from Restructuring and Downsizing
  in the United States
• Restructuring Problems of Transition Economies

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Current International Economic Problems

• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Financial Crises in Emerging Market Economies
• High Structural Unemployment and Slow Growth in
  Europe and Stagnation in Japan
• Job Insecurity from Restructuring and Downsizing
  in the United States
• Restructuring Problems of Transition Economies
• Deep Poverty in Many Developing Countries

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Globalization

• What is globalization?
• Increasing international economic connections
• International Trade
• International Asset Ownership

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Globalization

• What is globalization?
• Increasing international economic connections
• Increasing role of International Organizations in
  constraining domestic policies

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Globalization

• What is globalization?
• Increasing international economic connections
• Increasing role of International Organizations in
  constraining domestic policies
• Increasing cultural homogeneity

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Globalization

• What is globalization?
• Increasing international economic connections
• Increasing role of International Organizations in
  constraining domestic policies
• Increasing cultural homogeneity
• Increased domestic economic growth caused by
  expanded international connections
• Potential harm?
• Environmental concerns

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Globalization

• What is globalization?
• The Anti-Globalization movement
• A loose coalition of groups opposed to
  globalization
• Concerns
• Environmental damage
• Loss of domestic labor protections
• Erosion of domestic sovereignty

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Organization of the Text

• Part One Chapters 2-4
• International Trade Theory

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Organization of the Text

• Part One Chapters 2-4
• Part Two Chapters 5-6
• International Trade Policies

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Organization of the Text

• Part One Chapters 2-4
• Part Two Chapters 5-6
• Part Three Chapters 7-9
• International Asset Ownership

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Organization of the Text

• Part One Chapters 2-4
• Part Two Chapters 5-6
• Part Three Chapters 7-9
• Part Four Chapters 10-12
• Balance of Payments and Exchange Rate Markets

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Organization of the Text

• Part One Chapters 2-4
• Part Two Chapters 5-6
• Part Three Chapters 7-9
• Part Four Chapters 10-12
• Part Five Chapters 13-14
• Open-Economy Macroeconomics

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Organization of the Text

• Part One Chapters 2-4
• Part Two Chapters 5-6
• Part Three Chapters 7-9
• Part Four Chapters 10-12
• Part Five Chapters 13-14
• Part Six Chapters 15-16
• The International Economy in Operation