Intb Test One Chapter 1-8 Questions And Correct Solutions

International integration benefits - -Technological innovation -Less expensive products -Greater investments in capital scarce regions Measures for judging the degree of integration - Trade flows Capital flows People flows Similarity of prices in separate markets Three Aspects of International Economic Integration - The Growth of World Trade (Flow of Goods) Capital and Labor Mobility (Flow of capital and people) Movements of prices in different markets (Similarity of prices in separate markets) Factor movements - indicators of economic integration Two important points regarding international capital flows - 1. Savings and investment are highly correlated 2. Technology improvements increase financial capital flows Three features of contemporary international economic relations - -Deeper integration -Multilateral organizations -Regional trade agreements Shallow Intergration - Eliminating the traditional barriers to trade, tariffs, and quotas, because it just changes policies "at the border" Deeper intergration - Eliminating or reducing non-trade-related domestic policy differences that create trade barriers is much more comlicated Free Trade in Goods is predicted to - - Provide consumers with lower prices an greater variety. - Increase competition for workers and firms Increasing Free Trade may - Increase Competition/Innovation Bring a variety of choices to consumers Promote efficient allocation of resources. To support the assertion that open economies grow faster than countries that are closed to the world economy - 1.Causal Empirical Evidence 2.Economics Logic and Deductive Reasoning 3.Evidence of Statistical Comparisons of Countries Economists overwhelmingly support more open markets because trade - leads to a better allocation of scarce resources Bretton Woods - -meetings between the Allies in July 1944 -Help countries avoid the mistakes of the 1920's and 1930s -outcome: exchange rate system, IBRD aka World Bank, International monetary Fund (IMF) These international economic institutions are an important feature of the world economy. - The IMF, World Bank, and the GATT (WTO) Institutions - a set of rules governing behavior, whether written or not Formal institutions - Written sets of rules that explicitly state what is and is not allowed Informal institutions - Customs or traditions that define appropriate behavior, but without legal enforcement The International Monetary Fund (IMF) - Founded by 29 nations at the Bretton Woods meetings The 184 member (2006) IMF is the central monetary institution in today's international economy Funding for the IMF comes from its membership fee, or quota(the price of membership) depends on the member's size and status determines the member's voting weight Functions of the IMF: Prevents crisis in a financial system by promoting sound macroeconomic policy, which includes Balanced expansion of trade Stable exchange rates Avoidance of competitive devaluations Orderly corrections of Balance of Payments problems From GATT to World Trade Organization (WTO) - The GATT functioned through trade rounds: Times when countries periodically negotiate a set of incremental tariff reductions The Uruguay Round established the WTO (1994) WTO members meet every two years to set WTO policy objectives Has a more effective dispute settlement mechanism Monitors national trade practices more consistently Membership now totals 153 (2008) WTO - serves as a forum for trade discussions and the development of trade rules. Regional trade Agreements (RTA) - form a key part of the institutional structure of the world economy Regional trade agreements are bilateral (two countries) or plurilateral (several countries) Five types of Regional trade Agreements (RTA) - partial Trade Free-trade area Customs union common market economic union Regional Trade Agreements and the WTO - Since 1948, over 400 agreements have been listed with the WTO; 75% of those since 1995 225 of these agreements are still active (2008) The WTO and GATT allow RTAs, assuming they create more new trade than they destroy - trade creation The Role of International Economic Institutions - The primary difference between international institutions and national governments is that the former have limited enforcement power However, international institutions help provide order and reduce uncertainty -Order and certainty are public—intangibles that are different from most goods and services