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An Introduction to International Economics

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  1. An Introduction to International Economics Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. Dale R. DeBoer University of Colorado, Colorado Springs

  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! • Lloyd’s of London

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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?

  21. 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?

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

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

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

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

  30. 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

  31. 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

  32. Organization of the Text • Part One: Chapters 2-4 • International Trade Theory

  33. Organization of the Text • Part One: Chapters 2-4 • Part Two: Chapters 5-6 • International Trade Policies

  34. Organization of the Text • Part One: Chapters 2-4 • Part Two: Chapters 5-6 • Part Three: Chapters 7-9 • International Asset Ownership

  35. 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

  36. 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

  37. 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