Chapter16 - International Trade MACROECONOMICS Charles I....

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M ACROECONOMICS © 2010 by W. W. Norton & Company. All rights reserved Charles I. Jones International Trade
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2 CHAPTER 16 International Trade 16.1 Introduction In this chapter, we learn: why countries trade goods and services, and why such trade can increase welfare. the roles of comparative advantage and risk-sharing in explaining trade between countries. the relationship between trade and the free flow of labor and capital across countries. that the U.S. trade deFcit represents borrowing by the U.S. economy from the rest of the world, which must be repaid in the future.
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3 CHAPTER 16 International Trade The United States is running a large trade deficit that exceeds 5 percent of GDP. The twin deficits are the trade deficit and the government budget deficit.
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4 CHAPTER 16 International Trade
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5 CHAPTER 16 International Trade 16.2 Some Basic Facts about Trade Imports and exports have been rising as a share of GDP over the last 50 years, in part because of the decline in transportation costs across countries. Countries have also reduced barriers to trade such as tariffs and quotas. The trade balance is net exports or the difference between exports and imports.
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6 CHAPTER 16 International Trade
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7 CHAPTER 16 International Trade For the world as a whole, trade must be balanced because the world is a closed economy. This means that trade deficits in some countries must be offset by trade surpluses in other countries.
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8 CHAPTER 16 International Trade
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9 CHAPTER 16 International Trade 16.3 A Basic Reason for Trade Consider trade within a country – in the United States someone else produces most of the goods an individual consumes. The Robinson Crusoe economy is one in which each person produces all the goods he or she consumes. This is a distinctly inferior way of organizing an economy.
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10 CHAPTER 16 International Trade The motivation for international trade is the same as the reason for trade within a country. People trade because they value goods that other people produce more at the margin than they value what they themselves own
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11 CHAPTER 16 International Trade Individuals can realize gains from trade. Just as welfare is increased when people within an economy trade different goods that they produce, welfare gains are also possible when there is trade between economies.
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12 CHAPTER 16 International Trade 16.4 Trade across Time Trade is balanced if neither economy is running a trade surplus or deficit. Suppose individuals wish to smooth consumption over time, but that shocks such as a natural disaster may reduce the amount of the goods produced in an economy. Countries could trade over time to neutralize the impact of shocks on consumption.
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13 CHAPTER 16 International Trade
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14 CHAPTER 16 International Trade Intertemporal trade is trade over time and is usually characterized by countries running trade surplus in good times and trade deficits in bad times.
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Chapter16 - International Trade MACROECONOMICS Charles I....

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