INTERNATIONAL TRADE
Theme 1: Trade & economic growth prospects in the time of severe climate change,
persistent inflation, advancing AI and global uncertainty.
1.1 Explain with the aid of the Keynesian equation in Macroeconomics, what the
role of trade is in generating economic growth. [6]
- Keynesian equation: real GDP Y = C + I + G + (X-M)
- (X-M) = is the net imports of a GDP, therefore international trade directly
contributes to the model
- International trade is the exchange of capital, goods & services across
international borders or territories
Leads to economic prosperity:
- Exploitation of comp adv
- Gains from specialization and economies of scale
- Increased comp
- The breakdown of monopolies
- Incr in variety and quality
- Employment → given that it is closely linked to production
1.2 Explain briefly the current global economic context and global trade and for
economic growth prospects. [10]
Global Economic Context:
- global economy is currently experiencing a period of slow growth
- characterized by low interest rates, weak productivity growth, and stagnant
wages.
- COVID-19 pandemic has exacerbated these issues, leading to a global recession
in 2020.
- economic recovery has been uneven, some countries experiencing significant
economic contractions, while others have shown resilience.
Global Trade:
- has been affected by the pandemic, with a decline in international trade in 2020.
- ongoing trade tensions and competition between major economies, such as the
United States and China, have also impacted trade volumes and patterns.
- revival of global trade is crucial for economic growth, as trade has been a
significant driver of growth in recent decades.
,Economic Growth Prospects:
- economic growth prospects appear mixed.
- 1 = revival of global trade, infrastructure spending, and advances in technology
could drive growth.
- 2 = ongoing trade tensions, climate change, and demographic shifts could create
challenges for economic growth.
Conclusion:
- Current global economic context is characterized by slow growth, trade tensions,
and challenges related to sustainability, inequality, and demographic changes.
- While there are growth prospects, addressing these challenges is crucial for a
more sustainable and inclusive economic recovery.
1.3 Explain the central arguments with which Adam Smith countered the
Mercantilist thought on International trade. [10]
Mercantilists believed:
- gov granted trade monopolies = merchants flourished at home & abroad
- wealth of a nation = how much in treasury (Gold + Silver)
- favoured trade policies designed to accumulate goods & other precious metals
- restricted imports (outflow) & encouraged exports (inflow)
- believed trade is a zero sum game
Counter:
- Wealth = nation’s productive capacity
- Gains acquired through division & specialisation of labour
- Advocate laissez-faire = saw little need for gov control
- Absolute advantage theory = a particular country’s capability to produce more of
a commodity at a lower cost than its competitors = achieved through low-cost
production.
- Division of labour and specialisation are the key methods
- country should specialise in & produce commodities it’s most efficient at making,
ensures price of commodity is competitive
- makes trade mutually beneficial = positive sum game
, 1.4 Explain David Ricardo’s theory of Comparative Advantage with the aid of a
graph so that the gains from trade and the implied policy advice is clear. [15]
Theme 1: Trade & economic growth prospects in the time of severe climate change,
persistent inflation, advancing AI and global uncertainty.
1.1 Explain with the aid of the Keynesian equation in Macroeconomics, what the
role of trade is in generating economic growth. [6]
- Keynesian equation: real GDP Y = C + I + G + (X-M)
- (X-M) = is the net imports of a GDP, therefore international trade directly
contributes to the model
- International trade is the exchange of capital, goods & services across
international borders or territories
Leads to economic prosperity:
- Exploitation of comp adv
- Gains from specialization and economies of scale
- Increased comp
- The breakdown of monopolies
- Incr in variety and quality
- Employment → given that it is closely linked to production
1.2 Explain briefly the current global economic context and global trade and for
economic growth prospects. [10]
Global Economic Context:
- global economy is currently experiencing a period of slow growth
- characterized by low interest rates, weak productivity growth, and stagnant
wages.
- COVID-19 pandemic has exacerbated these issues, leading to a global recession
in 2020.
- economic recovery has been uneven, some countries experiencing significant
economic contractions, while others have shown resilience.
Global Trade:
- has been affected by the pandemic, with a decline in international trade in 2020.
- ongoing trade tensions and competition between major economies, such as the
United States and China, have also impacted trade volumes and patterns.
- revival of global trade is crucial for economic growth, as trade has been a
significant driver of growth in recent decades.
,Economic Growth Prospects:
- economic growth prospects appear mixed.
- 1 = revival of global trade, infrastructure spending, and advances in technology
could drive growth.
- 2 = ongoing trade tensions, climate change, and demographic shifts could create
challenges for economic growth.
Conclusion:
- Current global economic context is characterized by slow growth, trade tensions,
and challenges related to sustainability, inequality, and demographic changes.
- While there are growth prospects, addressing these challenges is crucial for a
more sustainable and inclusive economic recovery.
1.3 Explain the central arguments with which Adam Smith countered the
Mercantilist thought on International trade. [10]
Mercantilists believed:
- gov granted trade monopolies = merchants flourished at home & abroad
- wealth of a nation = how much in treasury (Gold + Silver)
- favoured trade policies designed to accumulate goods & other precious metals
- restricted imports (outflow) & encouraged exports (inflow)
- believed trade is a zero sum game
Counter:
- Wealth = nation’s productive capacity
- Gains acquired through division & specialisation of labour
- Advocate laissez-faire = saw little need for gov control
- Absolute advantage theory = a particular country’s capability to produce more of
a commodity at a lower cost than its competitors = achieved through low-cost
production.
- Division of labour and specialisation are the key methods
- country should specialise in & produce commodities it’s most efficient at making,
ensures price of commodity is competitive
- makes trade mutually beneficial = positive sum game
, 1.4 Explain David Ricardo’s theory of Comparative Advantage with the aid of a
graph so that the gains from trade and the implied policy advice is clear. [15]
