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Answer to the questions in our book

Answer to the questions in our book - CHAPTER 1 THE WORLD...

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1 CHAPTER 1 THE WORLD OF INTERNATIONAL ECONOMICS I. Outline Introduction The Nature of Merchandise Trade - The Geographical Composition of Trade - The Commodity Composition of Trade - U.S. International Trade World Trade in Services The Changing Degree of Economic Interdependence Summary Appendix: A General Reference List in International Economics II. Purpose of Chapter The purpose of this introductory chapter is to provide the student with an overview of the current nature of international trade in goods and services for the world in general and for the United States in particular. It is useful to make the student aware not only of the broad nature of international transactions, but also of the increased international interdependence that now characterizes the world economy. Although this chapter contains a great amount of “data,” we have found that discussing this kind of information on the first day of class motivates student interest in the subject and in the course in general.
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2 CHAPTER 2 EARLY TRADE THEORIES: Mercantilism and the Transition to the Classical World of David Ricardo I. Outline Introduction Mercantilism - The Mercantilist Economic System - The Role of Government - Mercantilism and Domestic Economic Policy The Challenge to Mercantilism by Early Classical Writers - David Hume - The Price-Specie-Flow Mechanism - Adam Smith and the Invisible Hand Summary II. Special Chapter Features Case Study 1: The Gephardt Amendment - The New Mercantilism? Box 1: Capsule Summary of the Price-Specie-Flow Mechanism Box 2: Concept Review - Price Elasticity and Total Expenditures Box 3: Adam Smith (1723-1790) III. Purpose of Chapter The purpose of this chapter is to trace out some of the early ideas regarding the basis for international trade and the distribution of the benefits to be gained from trade. It not only provides some historical perspective to trade theory, but it also makes clear why certain contemporary protectionist attitudes can be seen as being based in a Mercantilist view of the world. IV. Answers to End-of-Chapter Questions and Problems 1. Wealth was viewed as synonymous with holdings of precious metals. Nation-states wished to become wealthy and this meant obtaining large holdings of precious metals. It is also argued by some that the shortage of coinage constrained the growth of these nation-states and that precious metals were required to increase the supply of coinage (money) in order for the countries to grow. 2. Critical pillars of Mercantilism: a. the zero-sum nature of international trade; b. the need for strong, powerful governments;
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3 c. the labor theory of value; d. the need to regulate economic activity; e. the need for a positive trade balance. Because wealth was viewed in terms of holdings of precious metals, the objective of economic activity and policy was to foster increased holdings of specie. Mercantilists believed that individuals pursuing their own self interest would not accomplish this objective and that consequently, economic activity had to be closely regulated and supervised.
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