chap06lecture notes - CHAPTER SIX THE UNITED STATES IN THE...

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CHAPTER SIX THE UNITED STATES IN THE GLOBAL ECONOMY INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. State two reasons why international trade is vital to the United States. 2. Name three of our principal imports and exports and our most important trading partner. 3. List four reasons for the growth in global trade. 4. Recognize how inclusion of global trade modifies the circular flow diagram. 5. Explain the principle of comparative advantage. 6. Explain how foreign exchange rates are determined and how they link price levels of different nations. 7. Describe four ways that governments interfere with free trade among nations. 8. List at least five provisions of the 1993-94 GATT and identify the World Trade Organization. 9. Explain what is meant by a trade bloc or free-trade zone and name two prominent regional trade blocs. 10. Define and identify terms and concepts at the end of the chapter. LECTURE NOTES I. Introduction A. Even on a wilderness backpacking trip, Americans are not leaving the world behind. Much of backpacking equipment may be imported, not to mention the vehicle they used to arrive at the trail, the coffee they sip, etc. B. Why Trade? Many “American” products are made with components from abroad or are manufactured there. For example, the Chevrolet Lumina is made in Canada; Gerber baby food is owned by a Swiss company; Burger King, Holiday Inn, Standard Oil (BP) is owned by British corporations, Japanese companies own CBS and Firestone tires. Another example is the production of the new “American” Boeing 777 airplane. Many of the components are manufactured abroad (see Figure 6-1). C. This chapter introduces the basic economic principles underlying the global economy. 1. First the factors that cause world trade to grow are considered. 2. The circular flow diagram is modified to account for international trade flows. Next we explore the basis for world trade, and look at the system of exchange rates which facilitate it. 3. Finally, we study the major effects of several restrictive trade practices. II. World Trade A. Volume and Pattern: 72
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The United States in the Global Economy 1. Table 6-1 gives an index of the importance of world trade to several countries. 2. Figure 6-2 reveals the growth in U.S. imports and exports over past decades. Exports and imports are 10 percent and 11 percent of GDP currently which is double their importance of thirty years ago. 3. U.S. is world’s leading trading nation, although its share has diminished from post World War II level of one-third of total trade to one-eighth today . B. Dependence: 1. U.S. depends on imports for many food items (bananas, coffee, tea, spices); raw silk, industrial diamonds, natural rubber, much petroleum. 2. On export side, agriculture relies on foreign markets for one-fourth to one-half of sales; chemical, aircraft, auto, machine tool, coal, and computer industries also sell major portions of output in international markets (see Table 6-2).
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