International Economics, Study Guide, 7th Edition

by Dominick Salvatore (Fordham Univ.)

• ISBN13: 9780471401957
• ISBN10: 0471401951
• Edition: 7th
• Format: Paperback
• Copyright: 2000-11-01
• Publisher: Wiley

Summary

Work more effectively and gauge your progress as you go along! This Study Guide that is designed to accompany Salvatore's International Economics, 8th Edition includes chapter outlines, summary and reviews for each chapter, problems and questions with solutions for each chapter, and diagrams for each chapter. Dominick Salvatore's International Economics offers students the cutting-edge content, accessible presentation, and real-world focus they need to keep pace with our rapidly changing world. Thoroughly updated and revised, the new Eighth Edition presents the crucial changes that have recently taken place in the world economy from serious trade disputes among the United States, the European Union, Japan, and developing countries, to the introduction of the euro as the second most important international currency in the world.

Table of Contents

Introduction	p. 1
Importance of International Economics	p. 1
International Trade and the Nation's Standard of Living	p. 4
The Subject Matter of International Economics	p. 7
Purpose of International Economic Theories and Policies	p. 8
Current International Economic Problems	p. 9
Organization and Methodology of the Text	p. 12
Summary	p. 14
A Look Ahead	p. 15
Key Terms	p. 15
Questions for Review	p. 16
Problems	p. 16
Basic International Trade Data	p. 17
Sources of Additional International Data and Information	p. 21
Selected Bibliography	p. 23
Internet	p. 25
International Trade Theory	p. 27
The Law of Comparative Advantage	p. 29
Introduction	p. 29
The Mercantilists' Views on Trade	p. 30
Trade Based on Absolute Advantage: Adam Smith	p. 33
Trade Based on Comparative Advantage: David Ricardo	p. 35
Comparative Advantage and Opportunity Costs	p. 40
The Basis for and the Gains from Trade Under Constant Costs	p. 44
Empirical Tests of the Ricardian Model	p. 47
Summary	p. 50
A Look Ahead	p. 52
Key Terms	p. 52
Questions for Review	p. 52
Problems	p. 53
Comparative Advantage with More Than Two Commodities	p. 54
Comparative Advantage with More Than Two Nations	p. 56
Selected Bibliography	p. 57
Internet	p. 57
The Standard Theory of International Trade	p. 59
Introduction	p. 59
The Production Frontier with Increasing Costs	p. 60
Community Indifference Curves	p. 62
Equilibrium in Isolation	p. 65
The Basis for and the Gains from Trade with Increasing Costs	p. 66
Trade Based on Differences in Tastes	p. 73
Summary	p. 77
A Look Ahead	p. 78
Key Terms	p. 78
Questions for Review	p. 78
Problems	p. 79
Production Functions, Isoquants, Isocosts, and Equilibrium	p. 80
Production Theory with Two Nations, Two Commodities, and Two Factors	p. 82
Derivation of the Edgeworth Box Diagram and Production Frontiers	p. 83
Some Important Conclusions	p. 86
Selected Bibliography	p. 87
Internet	p. 88
Demand and Supply, Offer Curves, and the Terms of Trade	p. 89
Introduction	p. 89
The Equilibrium Relative Commodity Price with Trade--Partial Equilibrium Analysis	p. 90
Offer Curves	p. 91
The Equilibrium-Relative Commodity Price with Trade--General Equilibrium Analysis	p. 96
Relationship between General and Partial Equilibrium Analyses	p. 97
The Terms of Trade	p. 99
Summary	p. 103
A Look Ahead	p. 104
Key Terms	p. 104
Questions for Review	p. 104
Problems	p. 105
Derivation of a Trade Indifference Curve for Nation 1	p. 106
Derivation of Nation 1's Trade Indifference Map	p. 107
Formal Derivation of Nation 1's Offer Curve	p. 107
Outline of the Formal Derivation of Nation 2's Offer Curve	p. 110
General Equilibrium of Production, Consumption, and Trade	p. 110
Multiple and Unstable Equilibria	p. 113
Selected Bibliography	p. 114
Internet	p. 114
Factor Endowments and the Heckscher-Ohlin Theory	p. 115
Introduction	p. 115
Assumptions of the Theory	p. 116
Factor Intensity, Factor Abundance, and the Shape of the Production Frontier	p. 118
Factor Endowments and the Heckscher-Ohlin Theory	p. 124
Factor-Price Equalization and Income Distribution	p. 129
Empirical Tests of the Heckscher-Ohlin Model	p. 138
Summary	p. 145
A Look Ahead	p. 147
Key Terms	p. 147
Questions for Review	p. 147
Problems	p. 148
The Edgeworth Box Diagram for Nation 1 and Nation 2	p. 150
Relative Factor-Price Equalization	p. 150
Absolute Factor-Price Equalization	p. 153
Effect of Trade on the Short-Run Distribution of Income: The Specific-Factors Model	p. 154
Illustration of Factor-Intensity Reversal	p. 156
The Elasticity of Substitution and Factor-Intensity Reversal	p. 157
Empirical Tests of Factor-Intensity Reversal	p. 158
Selected Bibliography	p. 159
Internet	p. 162
Economies of Scale, Imperfect Competition, and International Trade	p. 165
Introduction	p. 165
The Heckscher-Ohlin Model and New Trade Theories	p. 166
Economies of Scale and International Trade	p. 168
Imperfect Competition and International Trade	p. 170
Trade Based on Dynamic Technological Differences	p. 178
Costs of Transportation, Environmental Standards, and International Trade	p. 181
Summary	p. 189
A Look Ahead	p. 190
Key Terms	p. 190
Questions for Review	p. 190
Problems	p. 191
External Economies and the Pattern of Trade	p. 192
Dynamic External Economies and Specialization	p. 194
Selected Bibliography	p. 195
Internet	p. 107
Economic Growth and International Trade	p. 199
Introduction	p. 199
Growth of Factors of Production	p. 200
Technical Progress	p. 203
Growth and Trade: The Small Country Case	p. 206
Growth and Trade: The Large Country Case	p. 212
Growth, Change in Tastes, and Trade in Both Nations	p. 218
Summary	p. 222
A Look Ahead	p. 224
Key Terms	p. 224
Questions for Review	p. 224
Problems	p. 225
Formal Proof of the Rybczynski Theorem	p. 226
Growth with Factor Immobility	p. 228
Graphical Analysis of Hicksian Technical Progress	p. 229
Selected Bibliography	p. 231
Internet	p. 232
International Trade Policy	p. 233
Trade Restrictions: Tariffs	p. 235
Introduction	p. 235
Partial Equilibrium Analysis of a Tariff	p. 236
The Theory of Tariff Structure	p. 242
General Equilibrium Analysis of a Tariff in a Small Country	p. 247
General Equilibrium Analysis of a Tariff in a Large Country	p. 252
The Optimum Tariff	p. 254
Summary	p. 256
A Look Ahead	p. 257
Key Terms	p. 258
Question for Review	p. 258
Problems	p. 258
Partial Equilibrium Effects of a Tariff in a Large Nation	p. 260
Derivation of the Formula for the Rate of Effective Protection	p. 262
The Stolper-Samuelson Theorem Graphically	p. 263
Exception to the Stolper-Samuelson Theorem--The Metzler Paradox	p. 265
Short-Run Effect of a Tariff on Factors' Income	p. 266
Measurement of the Optimum Tariff	p. 267
Selected Bibliography	p. 269
Internet	p. 271
Nontariff Trade Barriers and the New Protectionism	p. 273
Introduction	p. 273
Import Quotas	p. 274
Other Nontariff Barriers and the New Protectionism	p. 276
The Political Economy of Protectionism	p. 287
Strategic Trade and Industrial Policies	p. 289
History of U.S. Commercial Policy	p. 295
The Uruguay Round and Outstanding Trade Problems	p. 300
Summary	p. 307
A Look Ahead	p. 309
Key Terms	p. 309
Questions for Review	p. 310
Problems	p. 310
Centralized Cartels	p. 312
International Price Discrimination	p. 313
Tariffs, Subsidies and Domestic Goals	p. 314
Selected Bibliography	p. 315
Internet	p. 319
Economic Integration: Customs Unions and Free Trade Areas	p. 321
Introduction	p. 321
Trade-Creating Customs Unions	p. 322
Trade-Diverting Customs Unions	p. 324
The Theory of the Second Best and Other Static Welfare Effects of Customs Unions	p. 326
Dynamic Benefits from Customs Unions	p. 328
History of Attempts at Economic Integration	p. 330
Summary	p. 342
A Look Ahead	p. 344
Key Terms	p. 344
Questions for Review	p. 344
Problems	p. 345
General Equilibrium Analysis of the Static Effects of a Trade-Diverting Customs Union	p. 346
Postwar Chronology of Regionalism	p. 347
Selected Bibliography	p. 351
Internet	p. 354
International Trade and Economic Development	p. 355
Introduction	p. 355
The Importance of Trade to Development	p. 356
The Terms of Trade and Economic Development	p. 361
Export Instability and Economic Development	p. 367
Import Substitution versus Export Orientation	p. 372
Current Problems Facing Developing Countries	p. 375
Summary	p. 384
A Look Ahead	p. 385
Key Terms	p. 386
Questions for Review	p. 386
Problems	p. 387
Income Inequalities by Traditional and Purchasing-Power Parity (PPP) Measures	p. 388
Selected Bibliography	p. 388
Internet	p. 393
International Resource Movements and Multinational Corporations	p. 395
Introduction	p. 395
Some Data on International Capital Flows	p. 396
Motives for International Capital Flows	p. 399
Welfare Effects of International Capital Flows	p. 404
Multinational Corporations	p. 406
Motives for and Welfare Effects of International Labor Migration	p. 412
Summary	p. 419
A Look Ahead	p. 420
Key Terms	p. 420
Questions for Review	p. 420
Problems	p. 421
The Transfer Problem	p. 422
Selected Bibliography	p. 423
Internet	p. 425
The Balance of Payments, Foreign Markets, and Exchange Rates	p. 427
Balance of Payments	p. 429
Introduction	p. 429
Balance-of-Payments Accounting Principles	p. 430
The International Transactions of the United States	p. 434
Accounting Balances and Disequilibrium in International Transactions	p. 438
The Postwar Balance of Payments of the United States	p. 439
The International Investment Position of the United States	p. 444
Summary	p. 447
A Look Ahead	p. 448
Key Terms	p. 448
Questions for Review	p. 448
Problems	p. 449
The IMF Method of Reporting International Transactions	p. 450
The Case of the Missing Surplus	p. 452
Selected Bibliography	p. 453
Internet	p. 454
Foreign Exchange Markets and Exchange Rates	p. 455
Introduction	p. 455
Functions of the Foreign Exchange Markets	p. 456
Foreign Exchange Rates	p. 460
Spot and Forward Rates, Foreign Currency Swaps, Futures, and Options	p. 467
Foreign Exchange Risks, Hedging, and Speculation	p. 472
Interest Arbitrage and the Efficiency of Foreign Exchange Markets	p. 479
Eurocurrency and Offshore Financial Markets	p. 485
Summary	p. 492
A Look Ahead	p. 493
Key Terms	p. 493
Questions for Review	p. 494
Problems	p. 495
Derivation of the Formula for the Covered Interest Arbitrage Margin	p. 496
Selected Bibliography	p. 497
Internet	p. 499
Exchange Rate Determination	p. 501
Introduction	p. 501
Purchasing-Power Parity Theory	p. 502
Monetary Approach to the Balance of Payments and Exchange Rates	p. 509
Asset Market Model and Exchange Rates	p. 518
Exchange Rate Dynamics	p. 524
Empirical Tests of the Monetary and the Asset Market Models and Exchange Rate Forecasting	p. 528
Summary	p. 532
A Look Ahead	p. 533
Key Terms	p. 534
Questions for Review	p. 534
Problems	p. 535
Formal Monetary Approach Model	p. 536
Formal Asset Market Model and Exchange Rates	p. 538
Selected Bibliography	p. 539
Internet	p. 543
Open Economy--Macroeconomics and the International Monetary System	p. 545
The Price Adjustment Mechanism with Flexible and Fixed Exchange Rates	p. 547
Introduction	p. 547
Adjustment with Flexible Exchange Rates	p. 548
Effect of Exchange Rate Changes on Domestic Prices and the Terms of Trade	p. 553
Stability of Foreign Exchange Markets	p. 555
Elasticities in the Real World	p. 557
Adjustment Under the Gold Standard	p. 566
Summary	p. 569
A Look Ahead	p. 570
Key Terms	p. 570
Questions for Review	p. 570
Problems	p. 571
The Effect of Exchange Rate Changes on Domestic Prices	p. 572
Derivation of the Marshall-Lerner Condition	p. 573
Stability of Foreign Exchange Markets Once Again	p. 576
Derivation of the Gold Points and Gold Flows Under the Gold Standard	p. 577
Selected Bibliography	p. 578
Internet	p. 580
The Income Adjustment Mechanism and Synthesis of Automatic Adjustments	p. 583
Introduction	p. 583
Income Determination in a Closed Economy	p. 584
Income Determination in a Small Open Economy	p. 588
Foreign Repercussions	p. 596
Absorption Approach	p. 600
Monetary Adjustments and Synthesis of the Automatic Adjustments	p. 603
Summary	p. 607
A Look Ahead	p. 608
Key Terms	p. 609
Questions for Review	p. 609
Problems	p. 610
Derivation of Foreign Trade Multipliers with Foreign Repercussions	p. 611
The Transfer Problem Once Again	p. 613
Selected Bibliography	p. 615
Internet	p. 616
Open-Economy Macroeconomics: Adjustment Policies	p. 619
Introduction	p. 619
Internal and External Balance with Expenditure-Changing and Expenditure-Switching Policies	p. 622
Equilibrium in the Goods Market, in the Money Market, and in the Balance of Payments	p. 625
Fiscal and Monetary Policies for Internal and External Balance with Fixed Exchange Rates	p. 628
The IS-LM-BP Model with Flexible Exchange Rates	p. 635
Policy Mix and Price Changes	p. 640
Direct Controls	p. 646
Summary	p. 649
A Look Ahead	p. 651
Key Terms	p. 651
Questions for Review	p. 651
Problems	p. 652
Derivation of the IS Curve	p. 654
Derivation of the LM Curve	p. 655
Derivation of the BP Curve	p. 657
Mathematical Summary	p. 658
Selected Bibliography	p. 659
Internet	p. 661
Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply	p. 663
Introduction	p. 663
Aggregate Demand, Aggregate Supply, and Equilibrium in a Closed Economy	p. 664
Aggregate Demand in an Open Economy Under Fixed and Flexible Exchange Rates	p. 669
Effect of Economic Shocks and Macroeconomic Policies on Aggregate Demand in Open Economies with Flexible Prices	p. 673
Effect of Fiscal and Monetary Policies in Open Economies with Flexible Prices	p. 677
Macroeconomic Policies to Stimulate Growth and Adjust to Supply Shocks	p. 679
Summary	p. 688
A Look Ahead	p. 689
Key Terms	p. 689
Questions for Review	p. 689
Problems	p. 690
Selected Bibliography	p. 691
Internet	p. 693
Flexible versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination	p. 695
Introduction	p. 695
The Case for Flexible Exchange Rates	p. 696
The Case for Fixed Exchange Rates	p. 699
Optimum Currency Areas, the European Monetary System, and the European Monetary Union	p. 705
Currency Board Arrangements and Dollarization	p. 714
Exchange Rate Bands, Adjustable Pegs, Crawling Pegs, and Managed Floating	p. 717
International Macroeconomic Policy Coordination	p. 723
Summary	p. 725
A Look Ahead	p. 726
Key Terms	p. 727
Questions for Review	p. 727
Problems	p. 728
Exchange Rate Arrangements	p. 729
Selected Bibliography	p. 732
Internet	p. 735
The International Monetary System: Past, Present, and Future	p. 737
Introduction	p. 737
The Gold Standard and the Interwar Experience	p. 739
The Bretton Woods System	p. 742
Operation and Evolution of the Bretton Woods System	p. 744
U.S. Balance-of-Payments Deficits and Collapse of the Bretton Woods System	p. 747
The International Monetary System: Present and Future	p. 752
Summary	p. 770
Key Terms	p. 772
Questions for Review	p. 773
Problems	p. 773
International Reserves: 1950-2001	p. 774
Selected Bibliography	p. 776
Internet	p. 779
Answers to Selected Problems	p. 781
Glossary of Key Terms	p. 795
Name Index	p. 809
Subject Index	p. 815
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