International Trade Final

Barbera Martini TU ROME

In Open Economies…

• Saving and investment are not necessarily equal as they are in a closed economy

Government purchases are defined as

• all goods and services purchased by the federal or state government

government transfer payments like social security an unemployment benefits are

not included in government purchases

which one of the following expressions is MOST accurate?

• CA = EX - IM

in an open economy, the CA is equal to

Y-(C+I+G)

Which of the following is TRUE?

• all of the above are true of current trade balances

In a closed economy, national saving…

• always equals investment

for open economies

• s = I + CA

every international transaction automatically enters the balance of payments

once either as a credit or as a debit

the official settlements balance or balance of payments is the sum of

the current account balance, and the account balance, less the non-reserve portion of the financial account balance

an American buys a japanese car paying by writing a check on an account with a ban, how would this be acocunted for in the balance of payments?

• a current account as a US good import and a financial account, a US asset export

you travel to paris and pay 1000 for a dinner with your credit card. How is this accounted for in the balance of payments

financial account, US asset import

The german government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy French currency from its citizens, how is this accounted for in the balance of payments

• financial account, french asset export

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater for 50 pounds if excahnge rate is 1.25/1.50 dollars per one british pound

50 × 1.25 = 62.5

50 × 1.5 = 70

How many British pounds would it cost to buy American jeans at exchange rate of 1.5 dollars per pound

= 45/1.5 = 30

Jeans cost $50 in NY and 100 pound in London

= 50 dollars/100 pounds = 0.5

when a country’s currency. depreciates

• foreigners find that its exports are cheaper and domestic residents find that imports from abroad are expensive

an appreciation of a country’s currency

• raises the relative price of its exports and lowers the relative price of its imports

which of the following statements is most accurate?

• a depreciation of a country’s currency makes its goods cheaper for foreigners

an ________ of a nation’s currency will cause imports to _____ and exports to _______, all things held constant

• depreciation, decrease, increase

if the goods’ money prices do not change, an appreciation of the dollar against the pound

• makes british sweaters cheaper in terms of American jeans

if the goods’ money prices DO NOT change, a depreciation of the dollar against the pound

• makes british sweaters more expensive in terms of American jeans

what is the expected dollar rate of return on Euro deposits if today’s exchange rate is $1.10 per euro, next year’s expected exchange rate is 1.165 per euro, the dollar interest rate is 10%, and euro interest rate is 5% ***************

11%

0) What is the expected dollar rate of return on dollar deposits if today's exchange rate is $1.10 per euro,
next year's expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro interest

FOR PROBLEMS LIKE THIS ITS LITERALLY JUST THE RATE OF THE CURRENCY

specific tariffs are

• import taxes calculated as a fixed charge for each unit of imported goods

ad valorem tariffs are

• import taxes calculated as a fraction of the value of the imported goods

a lower tariff on imported steel would most likely benefit

• domestic consumers of steel

which of the following is a fixed percentage of the value of an imported product?

• ad valorem tariff

a tax of 20 cents per unit of imported garlic is an example of

specific tariffs

the most vocal political pressure for tariffs is generally made by

• producers lobbying for import tariffs

the principal benefit of tariff protection goes to

• domestic procedures of the good produced

the deadweight loss of a tariff

• is a social loss because it promotes inefficient use of national resources

the imposition of tariffs will help a nation attain which of the following goals

• increased amount and variety of goods available for consumers

under the price-specie-flow mechanism, what happens when GB’s CA surplus is greater than its non-reserve financial account balance

• gold reserves will flow into britain

until the united states civil war, the united states has a

• bimetallic monetary standard consisting of silver and gold

under the gold standard era of 1870-1914

Paris was the center of the international monetary system

the gold standard period was

• up until the first world war

once the US civil war broke out, the US moved to a

• silver standard

the great depression that started in 1929 was

• a global phenomenon

a convertible currency is a currency that may be freely exchanged for

• only silver

a person holding dollar deposits during the devaluation of the dollar would

• suffer a monetary loss and see the foreign currency value of dollar assets decrease by the amount of the exchange rate change

a devaluation of the home currency

• makes domestic goods and services relative to those sold abroad

the collapse of the bretton woods system marked

• the end of a fixed exchange rate and move towards a floating system

The European economic and monetary union

• set up a single currency and sole bank for European economic monetary policy

The birth of the euro

• resulted in the fixed exchange rates between all EMU member countries

which of the following is true

• Not all Western European countries are not part of the EMU

which of the following statements is true

• the 1957 Treaty of Rome founded the EU and created a custom union

The 1991 Maastricht Treaty can be described as

• a provision for the introduction of a single European currency and Central bank

the exchange rate between currencies depends on

• the interest rate that can be earned on deposits of those currencies and the expected future exchange rate

Money serves as all of the following except

• a symbol that is made of or can be redeemed for a fixed amount of precious metal

how does an increase in the real exchange rate affect exports and imports

• exports increase, imports change ambiguously

by internal balance, most economists mean

• full employment and price stability

• by external balance, most economists mean

• avoiding excessive imbalances in international payments

did the Treaty of Rome turn the EU Into a truly unified market

• No, although it established a customs union, it failed to remove barriers to the movement of goods and factors within Europe

to join the EMU, a country must have

• a public sector deficit no higher than 3 percent of its gdp in general

to join the emu, a country must have a public debt below or approaching a reference level of

• 60 percent of GDP

the optimum tariff is

• not practial for a large country due to the likelihood of retaliattion

the optimum tariff is most likely to apply to

• a small tariff imposed by a large country

the prohibitive tariff is a tariff that

• is so high that it eliminates imports

the strongest political pressures for a trade policy that results in higher protectionism comes from

• domestic workers lobbying for import restrictions

today US protectionism is conentrated in

• labor-intensive industries

the general agreement on tariffs and trade the WTO have resultd in

• a number of rounds of multilateral trade agreements

when US placed tariffs of French wine, france placed high tariffs on US chickens, this is an example of

• trade war

The WTO was a successor to

• GATT

The WTO was established by the _______ of multilateral trade negotiations

• Uruguay round

the smoot-hawley tariff act of 1930 has generally been associated with

• intensifying the worldwide depression

The WTO provides for all of the following except

bilateral tariff reductions

which organization determines procedures for the settlement of international trade disputes

• WTO

Graph Problems: The Absence of Trade

• look for equilibrium, check the x axis quantity for production

• will also be 60 for consumed, since absence of trade implies closed economy

Graph problems (free trade no tariffs, quantity imported?)

• follow the demand curve down to “world price”, notice the domestic supply at that point and subtract the demand from the actual production, you will have your imports

Q1 Refer to the figure above, which shows domestic supply and demand. If P1 is equal to P2 (the world

price) plus a tariff, then the social loss from the tariff is equal to

a+c

Q2) Refer to the figure above, which shows domestic supply and demand. If P1 is equal to P2 (the world

price) plus a tariff, then government revenue from the tariff is equal to

b