Chapter 5 – International Trade ¾ Ricardian Model of International Trade (constant opportunity cost PPFs, straight line) and gains from trade ¾ Sources of comparative advantage ¾ Heckscher-Ohlin model – main point, a country will have a comparative advantage in a good whose production is intensive in the factors that are abundantly available in that country compared to other countries. ¾ Supply, Demand, and International trade, see handout and slides ¾ Tariffs and Quotas are forms of trade protection and reduce trade, thus they reduce total surplus (sum of consumer plus producer surplus) ¾ Arguments for trade protection Chapters 6 and 7 ¾ Know what fiscal and monetary policy are ¾ Know what a recession, depression, and business cycle are ¾ Know what GDP is and what is included in it ¾ Y= C + I + G + NX, know what each term is and how a transaction affects Y. (see examples in class slides) ¾ Know how to calculate nominal and real GDP in a simple economy as we did in class. (note, there are three ways to calculate nominal GDP mentioned in the
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