CHAPTER 1INTRODUCTION As the first chapter of the book, the general aim here is simply to define the field of study of international economics and its importance in todays interdependent world. 1.1 Importance of International Economics Some knowledge of international economics is necessary to understand what goes on in the world today and to be informed consumers, citizens, and voters. Some of the concerns are:1. Trade controversy between the US and Europe2. Inadequate economic policy coordination among the leading industrial countries may lead to the spread of recessionary pressures internationally and to an unstable world economy.3. Legal and illegal migrants taking away jobs at home4. Foreign investments and multinational corporations transferring American technology abroad5. Financial crises and international financial instability1.2 International Trade and The Nations Standard of Living For developing nations, exports provide employment opportunities and earnings to pay for the many products that they cannot produce at home and for the advanced technology they need. 1. GDP 2. Interdependence In general, the economic interdependence among nations has been increasing over the years, as measured by the more rapid growth of world trade than world production. FIGURE 1-1 Imports and Exports as a Percentage of GDP in Various Countries in 2001.FIGURE 1-2 Growth of World Production and Trade, 1990-2001 (annual percentage changes).FIGURE 1-3 Imports and Exports as a Percentage of U.S. GDP, 1965-2001.1.3 The Subject Matter of International Economics1. International trade theoryThe basis and gains from trade2. International trade policyThe reasons for and the effects of trade restrictions3. Balance of payment A nations total receipts from and the total payments to the rest of the world 4. International finance, Open-economy macroeconomics5. Foreign exchange marketsThe institutional framework for the exchange of one national currency for others 1.4 Current International Economic Problems 1. Trade protectionism in industrial countries2. Excessive fluctuations and large disequilibria in exchange rates3. Financial crises in emerging market economies4. High structural unemployment and slow growth in Europe and stagnation in Japan5. Job insecurity from restructuring and downsizing in the United state6. Restructuring problems of transition economies7. Deep poverty in many developing countries Key TermsInterdependenceAdjustment in the balance of paymentsPure theory of tradeMicroeconomics Theory of commercial policyMacroeconomicsNew protectionismOpen economy macroeconomics Foreign exchange marketsInternational finance Balance of payments Multiple-Choice Questions1. A rough measure of the degree of economic interdependence of a nation is given by:C a. the size of the nations population b. the percentage of its population to its GDP c. the percentage of a nations imports and exports to its GDP d. all of the above 2. Economic interdependence is greater for:D a. small nations b. large nations c. developed nations d. developing nations 3. International economics deals with:D a. the flow of goods, services and payments among nations b. policies directed at regulating the flow of goods, services and payments c. the effects of policies on the welfare of the nation d. all of the aboveMultiple-Choice Questions4. International trade is similar to interregional trade in that both must overcome: I DONT KNOW,IT MAY DEPENDS ON THE FALLOWING CHAPTERS. a. distance and space b. trade restrictions c. differences in currencies d. differences in monetary systems5. The opening or expansion of international trade usually affects all members of society:THE SAME a. positively b. negatively c. most positively but some negatively d. most negatively but some positively6. An increase in the dollar price of a foreign currency usually:THE SAME a. benefit U.S. importers b. benefits U.S. exporters c. benefit both U.S. importers and U.S. exporters d. harms both U.S. importers and U.S. exportersMultiple-Choice Questions7. International trade theory refers to:A a. the microeconomic aspects of international trade b. the macroeconomic aspects of international trade c. open economy macroeconomics or international finance d. all of the above 8. Which of the following is not the subject matter of international finance?D a. foreign exchange markets b. the balance of payments c. the basis and the gains from trade d. policies to adjust balance of payments disequilibria 9. Economic theory:D a. seeks to explain economic events b. seeks to predict economic events c. abstracts from the many detail that surrounds an economic event d. all of the aboveMultiple-Choice Questions10.Which of the following is not an assumption generally made in the study of internationaleconomics? a. two nations b. two commodities c. perfect international mobility of factors d. two factors of production11. In the study of international economics: a. international trade policies are examined before the bases for trade b. adjustment policies are discussed before the balance of payments c. the case of many nations is discussed before the two-nations case d. none of the above Multiple-Choice Questions12. International trade is similar to interregional trade in that both must overcome: a. distance and space b. trade restrictions c. differences in currencies d. differences in monetary systems13. The opening or expansion of international trade usually affects all members of society: a. positively b. negatively c. most positively but some negatively d. most negatively but some positively 14. An increase in the dollar price of a foreign currency usually: a. benefit U.S. importers b. benefits U.S. exporters c. benefit both U.S. importers and U.S. exporters d. harms both U.S. importers and U.S. exporters Elementswww.animationfactory.com