IRN test 3 - Balance of trade deficitA situation that...

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Balance of trade deficit- A situation that results when a state buys more from abroad than it sells. The balance measures both the value of merchandise goods and services imported and exported. To correct a payments deficit, a country has available three basic options. 1- its government can initiate deflationary policies at home by raising interest rates to tighten budgets; 2- it can restrict the outflow of money by imposing higher tariffs, import quotas, or other restrictions; 3- it can borrow in capital markets or liquidate its foreign exchange reserves. Balance of Payments- A calculation summarizing a country’s financial transactions with the external world, determined by the level of credits (export earnings, profits from foreign investment, etc) minus the country’s international debts (imports, interest payments, etc). A favorable balance of payment is achieved when a country’s international credits exceed its national debts. Devaluation- the lowering of the official exchange rate of one country’s currency relative to the value of all other state’s currencies, usually in hope that the devaluation will encourage foreign investors to purchase products at the artificially reduced price. Protectionism- A policy of creating barriers to foreign trade, such as tariffs and quotas, that protect local industries from competition. A number of mercantilist policies to keep foreign goods out of a country and to subsidize the export of goods to encourage foreigners to buy domestically produced goods. Reasons: National Security (military goods, etc.), Future Economic Growth (American firms made to help Americans, NIEs with prospects of growth in a poor economy), Adjust to New Competitors (government intervenes on their behalf, government intervened when Japanese competition was overwhelming Detroit, so government intervened with VERs), and Democratic Politics (says that states have ability to pursue whatever their interests are. States want to protect their national well being. Beggar-thy neighbor policies- Seek to enhance domestic welfare by promoting trade surpluses that can be realized only at other countries’ expense. They reflect a government’s efforts to reduce unemployment through currency devaluations, tariffs, quotas, export subsidies, and other strategies to adversely affect trade partners. These strategies seek unequal exchanges between exporters and importers. Import quotas- Specify the quantity of a particular product that can be imported from abroad. In the late 1950s, the United States established import quotas on oil to protect national security. The government determines amount and source of imports, not the marketplace. Export quotas- Result from negotiated agreements between producers and consumers that restrict the flow of goods from the producer to the consumer. An Orderly Market Arrangement (OMA) is a formal agreement where a country agrees to limit their exports that might impair workers in the importing countries. Exporting
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This note was uploaded on 04/17/2008 for the course CHM 2046L taught by Professor Horvath during the Spring '08 term at University of Florida.

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IRN test 3 - Balance of trade deficitA situation that...

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