Chapter28 - 11/17/2009 1 Chapter 28 Chapter 28...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 11/17/2009 1 Chapter 28 Chapter 28 International Trade International Trade and Capital Flows and Capital Flows The Principle of Comparative Advantage The Principle of Comparative Advantage Everyone does best when each concentrates on the activity with the lowest opportunity cost. This principle can be applied to international trade: Every country can benefit when trading with each other. International trade is important even to a large economy such as the US. 11/17/2009 2 The Controversy of International Trade The Controversy of International Trade Why is international trade so controversial? 1. Emotional and Strategic reasons 2. Benefits the society broadly but costs are concentrated. International Trade International Trade Exports: goods and services sold to other countries. Imports: goods and services purchased from other countries. Examples: A U.S. company purchases TV sets from Korea using a Greek shipping company. A U.S. citizen takes a flight on Air France. A U.S. citizen vacations in China. 11/17/2009 3 Trade Balance Trade Balance Trade Balance: also called net exports (NX) Value of exports Value of imports Trade Surplus : a positive trade balance Trade Deficit : a negative trade balance US Trade Balance, 1960 US Trade Balance, 1960 - 2007 2007 11/17/2009 4 Capital Flows Capital Flows International capital flows : transactions of real estate and financial assets across international borders Capital inflows : purchases of domestic assets by foreign households and firms Capital outflows : purchases of foreign assets by domestic households and firms Net capital inflows (KI) are capital inflows minus capital outflows Trade Balance (NX) and Net Capital Trade Balance (NX) and Net Capital Inflows (KI) Inflows (KI) Trade balance and net capital inflows always add up to . A country with a trade imbalance must have a compensating capital flow. 11/17/2009 5 The US Case The US Case US has had a trade deficit since late 1970s. Capital flows into US 25% of US Treasury debt is owned by foreigners, up from 13% in 1993. Foreign investment in US businesses, real estate, and other assets increased....
View Full Document

This note was uploaded on 12/07/2009 for the course ECON ECON 1 taught by Professor Foster during the Fall '08 term at UCSD.

Page1 / 19

Chapter28 - 11/17/2009 1 Chapter 28 Chapter 28...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online