Ap Econ - Chapter 5 (Government’s Role and Government Failure)

Goods and Services Flows (Trade Flows)

The US exports goods and services to other nations and imports goods and services from them.

Capital and labor flows (resource flows)

US firms establish production facilities

Information and Technology Flows

The US transmits info to other nations about US products, prices, interest rates, and investment opportunities. The US receives the same info from abroad.

Financial Flows

Money is transferred between the US and other countries for several purposes: paying for imports, buying foreign assets, paying on debt, purchasing foreign currencies by tourists, and providing foreign aid.

Trade deficit

Occurs when imports exceed exports

Trade Surplus

When exports outweigh imports.

Comparative Advantage

Occurs when a nation can produce a product at a lower domestic opportunity cost than a potential trading partner can.

Foreign Exchange Market

Market in which various national currencies are exchanged together.

Exchange Rates

The rate at which the currency of one nation can be exchanged for the currency of another nation.

Depreciation

Occurs when the exchange rate between countries rises.

Appreciation

Occurs when the exchange rate b/w two countries lowers.

Protective Tariffs

Excise taxes or duties placed on imported goods. Protective tariffs shield domestic partners from foreign competition.

Import Quotas

Limits on the quantities or total volume of items that may be imported. Once a quota is "filled," further imports of that item ate cut off.

Non tariff Barriers (Non

quota Barriers)

Export Subsidies

Consists of gov't spending to domestic producers of export goods(or services). By reducing production costs, the subsidies enable producers to charge lower prices and to sell more exports in world markets.

Smoot

Hawley Tariff Act(1930)

Reciprocal Trade Agreements Act(1934)

Had two main features: 1) Negotiating Authority authorized the president to negotiate with foreign trade agreements that would reduce existing US tariffs by 50%. Those reductions were contingent on the actions other nations took to lower tariffs on US exports.

Generalized Reductions

Specific tariff reductions negotiated between the US and any particular nation were generalized through most

Generalized Reductions (Part 2)

These clauses stipulate that any subsequently reduced US tariffs, resulting from negotiation with any other nation would apply equally to any nation that signed the original agreement.

Normal Trade Relations (NTR) Status

Modern name for most

General Agreement on Tariffs and Trade

1. Equal, non discriminatory trade treatment for all nations, 2) the reduction of tariffs by multilateral negotiation, and 3) the elimination of import quotas

World Trade Organization

European Union

Formerly the European Economic Committee, the EU has sought to reduce tariffs by creating free trade zones.

EU Member Nations

France, Germany, England, Italy, Belgium, The Netherlands, Luxembourg, Denmark, Ireland, Greece, Portugal , Austria, Finland, Lithuania, Latvia, Estonia, Slovenia, Malta, Cyprus, Bulgaria, and Romania.

NAFTA(North American Free Trade Agreement)

Formed in '93 as a major trade bloc between Mexico, the IS, and Canada. Established a free trade zone that has about the same output as the EU but covers a broader geographic area. NAFTA had eliminated tariffs and other trade barriers b/w Mexico, the US, and Canada for most goods and services.

Trade Adjustment Assistance Act(2002)

Introduced new elements to help those hurt by shifts in international trade patterns. The law provides cash assistance to displaced workers for up to 78 weeks if those workers search for training, education, or jobs. Relocation allowances, refundable tax credits for health insurance are also components of the TAAA.