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| QUICK REVIEW 6-1 |
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- World trade has increased globally and
nationally. In terms of volume
the United States is the world's leading international
trader
with exports and imports of about 12 to 14 percent of GDP.
- Advances in transportation and
communicationstechnology
declines in tariffs
and peaceful relations among major
industrial countries all have helped expand world trade.
- The United States
Japan
and the western
European nations dominate world trade. Recent new traders are the "Asian tigers"
(Hong Kong
Singapore
South Korea
and Taiwan)
China
the eastern European nations
and
the newly independent states formerly constituting the Soviet Union.
- The circular flow model with foreign trade
includes flows of exports from our domestic product market
imports to our domestic
product market
and the corresponding flows of resources and spending.
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| QUICK REVIEW 6-2 |
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- A country has a comparative advantage in a
product when it can produce that product at a lower domestic opportunity cost than can a
potential trading partner.
- Specialization based on comparative advantage
increases the total output available for nations which trade with one another.
- The foreign exchange market is the market where
the currencies of nations are exchanged for one another.
- An appreciation of the dollar is an increase in
the international value of the dollar relative to the currency of some other nation; a
dollar now buys more units of that currency. A depreciation of the dollar is a decrease in
the international value of the dollar relative to another currency; a dollar now buys
fewer units of that currency.
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| QUICK REVIEW 6-3 |
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- Governments promote exports and reduce imports
through tariffs
quotas
nontariff barriers
and export subsidies.
- The various "rounds" of the General
Agreement on Tariffs and Trade (GATT) have established multinational reductions in tariffs
and import quotas among the 125 member nations.
- The Uruguay Round of GATT
which went into effect
in 1995 and will be fully implemented by 2005
(a) reduces tariffs worldwide; (b)
liberalizes rules impeding barriers to trade in services; (c) reduces agricultural
subsidies; (d) creates new protections for intellectual property; (e) phases out quotas on
textiles and apparel; and (f) sets up the World Trade Organization.
- The European Union (EU) and the North American
Free Trade Agreement (NAFTA) have reduced internal trade barriers among their members by
establishing large free-trade zones.
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