International Economics, Salvatore - Solutions, summaries, and outlines. 2022 updated

CHAPTER 1

*(Core Chapter)



INTRODUCTION



OUTLINE



1.1 The Globalization of the World Economy

1.1A We Live in a Global Economy

Case Study 1-1: The Dell PCs, iPhones and iPads Sold in the U.S. Are

Anything But American!

Case Study 1-2: What Is an "American" Car?

1.1B The Globalization Challenge

Case Study 1-3: Is India’s Globalization Harming the United States?



1.2 International Trade and The Nation's Standard of Living

Case Study 1-4: Rising Importance of International Trade to the United States



1.1 The International Flow of Goods, Services, Labor and Capital

1.3A The International Flow of Goods and Services: The Gravity Model

1.3B The International Flow of Labor and Capital

Case Study 1-4: Major Net Exporters and Importers of Capital



1.4 International Economic Theories and Policies

1.4A Purpose of International Economic Theories and Policies

1.4B The Subject Matter of International Economics

,1.5 Current International Economic Problems



1.6 Organization and Methodology of the Book

1.6A Organization of the Text

1.6B Methodology of the Text



Appendix: A1.1 Basic International Trade Data

A1.2 Sources of Additional International Data and Information




Key Terms

Globalization Foreign exchange markets

Anti-globalization movement Balance of payments

Interdependence Adjustment in the balance of payments

Gravity model Microeconomics

International trade theory Macroeconomics

International trade policy Open economy macroeconomics

New protectionism International finance



Lecture Guide



1. As the first chapter of the book, the general aim here is to define the field of
study of international economics and its importance in today's interdependent
world.

, The material in this chapter can be covered in two classes. I would utilize one
class to cover Sections 1 to 3 and the second class to cover Sections 4 to 6. I would
spend most of the second class on Section 3 on the major current international
economic problems facing the United States and the world today and to show how
international economics can suggest ways to solve them. This should greatly
enhance students' motivation.



Answer to Problems



1. a) International economic problems reported in our daily newspapers are likely to
include:

 Slow growth and high unemployment in advanced economies;
 trade controversies between the United States, Europe, Japan, and China;

 excessive volatility of exchange rates;

 huge and unsustainable trade deficits of the United States;

 structural unemployment in advanced economies and insufficient restructuring
in transition economies;

 deep poverty in many developing nations;

 resource scarcity, environmental degradation and climate changes




b) The effect of each of the above problems on the U.S. economy are:



● stagnant standard of living and economic suffering;

● increased protectionism and the danger of trade wars;

 discourages foreign trade and investments;

 can result in trade protectionism and/or deep dollar depreciation;

 reduces advanced countries' imports of goods and services from the rest of the
world;

 can lead to political instability abroad that would adversely affect the U.S.;

,  endangers future standard of living in the U.S. and abroad.




c) The effect of each of the current international economic problems can affect

each of us, as follows:

● Can lose job and suffer financial losses;
● pay higher prices for imported products;

 great fluctuations in the price of imported products and cost of foreign travel;

 can lead you to support demands for trade protection;

 slower growth of wages and incomes;

 can lead to higher taxes to help poor countries;

 can result in higher taxes and price of fuel and other products.



2. a) Five industrial nations not mentioned are: France, Italy, Spain, Sweden,

and Austria.



b) See Table 1A.



Note that, generally, smaller nations have higher percentages of imports and

exports to GDP. The exception is Spain, which though economically smaller than

Italy, has a smaller percentage of imports and exports to GDP than Italy.




Table 1A

Economic Interdependence as Measured by Imports
and Exports as a Percentage of GDP, 2010

Exports as a
Imports as a
Nation percent of GDP percent of GDP

France 27.7 25.4

Italy 28.5 26.7