International Trade: Theory and Policy 10th Edition

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 1 Introduction 1.1 What Is International Economics About? 1) Historians of economic thought often describe ________ written by ________ and published in ________ as the

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 1 Introduction Chapter Organization What Is International Economics About? The Gains from Trade The Pattern of Trade How Much Trade? Balance of Payments Exchange Rate Determination International

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 10 The Political Economy of Trade Policy 10.1 The Case for Free Trade 1) The efficiency case made for free trade is that as trade

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 10 The Political Economy of Trade Policy Chapter Organization The Case for Free Trade Free Trade and Efficiency Additional Gains from Free Trade Rent Seeking Political Argument for Free

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 11 Trade Policy in Developing Countries 11.1 Import-Substituting Industrialization 1) The infant industry argument was an important theoretical basis for A) neo-colonialist theory of international

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 11 Trade Policy in Developing Countries Chapter Organization Import-Substituting Industrialization The Infant Industry Argument Promoting Manufacturing Through Protectionism Case Study: Mexico Abandons Import-Substituting Industrialization Results of Favoring Manufacturing: Problems of

2015 Pearson Education, Inc. 2015 Pearson Education, Inc. 2015 Pearson Education, Inc. Chapter 12 Controversies in Trade Policy Chapter Organization Sophisticated Arguments for Activist Trade Policy Technology and Externalities Imperfect Competition and Strategic Trade Policy Box: A Warning from Intels Founder

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 12 Controversies in Trade Policy 12.1 Sophisticated Arguments for Activist Trade Policy 1) The existence of positive externalities due to the impossibility of full appropriability

14 Copyright 2015 Pearson Education, Inc. 14 Copyright 2015 Pearson Education, Inc. 14 Copyright 2015 Pearson Education, Inc. 32) Discuss the effects of government deficits on the current account. Answer: A hard and difficult issue. During the Reagan administration, the creation of twin deficits, where by slashing taxes, government deficits

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 13 (Finance Ch 2) National Income Accounting and the Balance of Payments 13.1 The National Income Accounts 1) A country's gross national product (GNP) is

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 13 (2) National Income Accounting and the Balance of Payments Chapter Organization The National Income Accounts National Product and National Income Capital Depreciation and International Transfers Gross Domestic Product National

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 14 (3) Exchange Rates and the Foreign Exchange Market: An Asset Approach Chapter Organization Exchange Rates and International Transactions Domestic and Foreign Prices Exchange Rates and Relative Prices The Foreign Exchange

18 Copyright 2015 Pearson Education, Inc. 18 Copyright 2015 Pearson Education, Inc. 18 Copyright 2015 Pearson Education, Inc. 13) For the following 15 cases, compare the dollar rates of return on dollar and euro deposits. Answer: Page Ref: 352-361 Difficulty: Moderate Answer: Page Ref: 352-361 Difficulty: Moderate Answer:

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 14 (3) Exchange Rates and the Foreign Exchange Market: An Asset Approach 14.1 Exchange Rates and International Transactions 1) How many dollars would it cost

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 15 (4) Money, Interest Rates, and Exchange Rates 15.1 Money Defined: A Brief Review 1) The exchange rate between currencies depends on A) the interest

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 15 (4) Money, Interest Rates, and Exchange Rates Chapter Organization Money Defined: A Brief Review Money as a Medium of Exchange Money as a Unit of Account Money as a

14 Copyright 2015 Pearson Education, Inc. 14 Copyright 2015 Pearson Education, Inc. 14 Copyright 2015 Pearson Education, Inc. 15.6 Money, the Price Level, and the Exchange Rate in the Long Run 1) An economy's long-run equilibrium is A) the equilibrium that would occur if prices were perfectly flexible. B)

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 16 (5) Price Levels and the Exchange Rate in the Long Run 16.1 The Law of One Price 1) Which of the following statements is

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 16 (5) Price Levels and the Exchange Rate in the Long Run Chapter Organization The Law of One Price Purchasing Power Parity The Relationship between PPP and the Law of One Price

16 Copyright 2015 Pearson Education, Inc. The rise in the interest rate from to creates a momentary excess supply of real U.S. money balances at the prevailing price level . However, since under this. Monetary Approach, prices are assumed to be flexible, prices will immediately adjust from to , thus

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 17 (6) Output and the Exchange Rate in the Short Run 17.1 Determinants of Aggregate Demand in an Open Economy 1) How does an increase

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 17 (6) Output and the Exchange Rate in the Short Run Chapter Organization Determinants of Aggregate Demand in an Open Economy Determinants of Consumption Demand Determinants of the Current Account

18 Copyright 2015 Pearson Education, Inc. 18 Copyright 2015 Pearson Education, Inc. 18 Copyright 2015 Pearson Education, Inc. 17.6 Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together 1) Imagine that the economy is at a point that is above both AA and DD, where

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 18 (7) Fixed Exchange Rates and Foreign Exchange Intervention Chapter Organization Why Study Fixed Exchange Rates? Central Bank Intervention and the Money Supply The Central Bank Balance Sheet and the Money Supply

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 18 (7) Fixed Exchange Rates and Foreign Exchange Intervention 18.1 Why Study Fixed Exchange Rates? 1) Central banks often intervene in currency markets. This activity

16 Copyright 2015 Pearson Education, Inc. 16 Copyright 2015 Pearson Education, Inc. 16 Copyright 2015 Pearson Education, Inc. 8) Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate. Answer: The initial equilibrium rests at point 1. If the central

21 Copyright 2015 Pearson Education, Inc. 21 Copyright 2015 Pearson Education, Inc. 21 Copyright 2015 Pearson Education, Inc. 16) Explain how a country with a current account surplus is a ripe candidate for currency revaluation. Answer: If a country like Germany had a current account surplus, it would sell its

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 19 (8) International Monetary Systems: An Historical Overview 19.1 Macroeconomic Policy Goals in an Open Economy 1) A country seeking to maintain internal balance would

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 19 (8) International Monetary Systems: An Historical Overview Chapter Organization Macroeconomic Policy Goals in an Open Economy Internal Balance: Full Employment and Price Level Stability External Balance: The Optimal Level of

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 2 World Trade: An Overview 2.1 Who Trades with Whom? 1) Approximately what percent of all world production of goods and services is exported to

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 2 World Trade: An Overview Chapter Organization Who Trades with Whom? Size Matters: The Gravity Model Using the Gravity Model: Looking for Anomalies Impediments to Trade: Distance, Barriers, and Borders

21 Copyright 2015 Pearson Education, Inc. 21 Copyright 2015 Pearson Education, Inc. 21 Copyright 2015 Pearson Education, Inc. 28) Describe the role of offshore banking and of offshore currency (eurocurrencies) trading Answer: Both have mushroomed due to increased international trade, increased multinational corporations and globalization. Students should also emphasize banks'

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 20 (9) Financial Globalization: Opportunity and Crisis Chapter Organization The International Capital Market and the Gains from Trade Three Types of Gains from Trade Risk Aversion Portfolio Diversification as a

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 20 (9) Financial Globalization: Opportunity and Crisis 20.1 The International Capital Market and the Gains from Trade 1) If you are offered a gamble

32 Copyright 2015 Pearson Education, Inc. 32 Copyright 2015 Pearson Education, Inc. 32 Copyright 2015 Pearson Education, Inc. 39) Who is the Basel Committee? Discuss both their involvement in the Concordat as well the role of the Concordat in international banking. Answer: In 1975, the Basel Committee reached an agreement,

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 21 (10) Optimum Currency Areas and the Euro 21.1 How the European Single Currency Evolved 1) The European Economic and Monetary Union A) set up

16 Copyright 2015 Pearson Education, Inc. 16 Copyright 2015 Pearson Education, Inc. 16 Copyright 2015 Pearson Education, Inc. 16) Which one of the following statements is TRUE for Norway, a non-euro country? A) Of course, owners of capital that cannot be moved cannot avoid more of the economic stability loss

17 Copyright 2015 Pearson Education, Inc. 17 Copyright 2015 Pearson Education, Inc. 17 Copyright 2015 Pearson Education, Inc. 7) A considerable advantage that richer countries have over poorer ones is exemplified by the fact that A) richer countries do not have to denominate their foreign debts in their own currencies.

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 22 (11) Developing Countries: Growth, Crisis, and Reform Chapter Organization Income, Wealth, and Growth in the World Economy The Gap between Rich and Poor Has the World Income Gap Narrowed Over

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 22 (11) Developing Countries: Growth, Crisis, and Reform 22.1 Income, Wealth, and Growth in the World Economy 1) The world's economies can be divided into

12 Copyright 2015 Pearson Education, Inc. 12 Copyright 2015 Pearson Education, Inc. 12 Copyright 2015 Pearson Education, Inc. 25) An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model 3.1 The Concept of Comparative Advantage 1) Trade between two countries can benefit both countries if

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model Chapter Organization The Concept of Comparative Advantage A One-Factor Economy Relative Prices and Supply Trade in a One-Factor World Determining the Relative

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 4 Specific Factors and Income Distribution 4.1 The Specific Factors Model 1) The Ricardian model of international trade demonstrates that trade can be mutually beneficial.

12 Copyright 2015 Pearson Education, Inc. 12 Copyright 2015 Pearson Education, Inc. 12 Copyright 2015 Pearson Education, Inc. 39) Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If there is an increase in the wage rate, the new equilibrium is

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 4 Specific Factors and Income Distribution Chapter Organization The Specific Factors Model Box: What Is a Specific Factor? Assumptions of the Model Production Possibilities Prices, Wages, and Labor Allocation

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 5 Resources and Trade: The Heckscher-Ohlin Model 5.1 Model of a Two-Factor Economy 1) In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 5 Resources and Trade: The Heckscher-Ohlin Model Chapter Organization Model of a Two-Factor Economy Prices and Production Choosing the Mix of Inputs Factor Prices and Goods Prices Resources and

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 6 The Standard Trade Model 6.1 A Standard Model of a Trading Economy 1) The meaning of "terms of trade" is A) the price of

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 6 The Standard Trade Model Chapter Organization A Standard Model of a Trading Economy Production Possibilities and Relative Supply Relative Prices and Demand The Welfare Effect of Changes in the

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 7 External Economies of Scale and the International Location of Production Chapter Organization Economies of Scale and International Trade: An Overview Economies of Scale and Market Structure The Theory of External Economies Specialized

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 7 External Economies of Scale and the International Location of Production 7.1 Economies of Scale and International Trade: An Overview 1) If a firm's output

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises 8.1 The Theory of Imperfect Competition 1) A monopolistic firm A) will never

1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. 1 Copyright 2015 Pearson Education, Inc. International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 9 The Instruments of Trade Policy 9.1 Basic Tariff Analysis 1) Specific tariffs are A) import taxes stated in specific legal statutes. B) import taxes

2015 Pearson Education Limited 2015 Pearson Education Limited 2015 Pearson Education Limited Chapter 9 The Instruments of Trade Policy Chapter Organization Basic Tariff Analysis Supply, Demand, and Trade in a Single Industry Effects of a Tariff Measuring the Amount of Protection Costs and