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BUS 313 Midterm
Terms in this set (27)
What is World Bank?
The World Bank is an international organization dedicated to providing
to developing nations to aid their economic advancement.
- supplies qualifying individuals and governments with low-interest loans, zero-interest credits, and grants
- debt borrowings and cash infusions help with global education, healthcare, public administration, etc.
- shares information with world governments through policy advice, research and analysis, and technical assistance.
What is IMF?
International Monetary Fund:
shares information with world governments through policy advice, research and analysis, and technical assistance.
The IMF's primary methods for achieving these goals are monitoring, capacity building, and lending:
1. Surveillance: collects massive amounts of data
2. Capacity Building: provides technical assistance
3. Lending: loans to distressed countries to mitigate financial crisesʻ
What is WTO?
World Trade Organization:
is an international institution that oversees the global trade rules between nations. The WTO is based on agreements signed by the majority of the world's trading nations.
- The WTO oversees global trade rules between nations.
- The WTO has fueled globalization with both positive and negative effects.
- The main focus of the WTO is to provide open lines of communication concerning trade between its members.
What is GATT
What are their roles. How they can effect the policy of other countries. How
General Agreement on Tariffs and Trade (GATT).
The GATT functions through a series of trade rounds in
which countries periodically negotiate a set of
incremental tariff reductions.
Name and discuses elements of International Economic Integration.
he main objective of GATT was to expand international trade by eliminating or reducing quotas, tariffs, and subsidies while preserving significant regulations.
The General Agreement on Tariffs and Trade (GATT) was formed in 1948 after World War II.
GATT became law on Jan. 1, 1948, with the signing by 23 countries.
The GATT held eight rounds in total from April 1947 to September 1986, each with significant achievements and outcomes.
Explain what is Trade to GDP ratio. Compare this ratio of small and
The trade-to-GDP ratio is an indicator of the relative importance of international trade in the economy of a country. It is calculated by dividing the aggregate value of imports and exports over a period by the gross domestic product for the same period.
What is FDI?
Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.
- an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company
Explain about Capital and Labor Mobility?
Capital Flow is financial capital representing paper assets such as
stocks, bonds, currencies, bank accounts, and flows
of capital representing physical assets such as real
estate, factories, and businesses. (through FDI)
- Countries with high savings tend to have high rates of
- Low savings is correlated with low
- Capital would flow from countries with abundant savings and capital to countries with low savings.
What is Labor Mobility?
Labor mobility refers to the ease with which laborers are able to move around within an economy and between different economies.
There are two primary types of labor mobility: geographic and occupational. Geographic mobility refers to a worker's ability to work in a particular physical location, while occupational mobility refers to a worker's ability to change job types. For example, a worker moving from the United States to France illustrates the concept of geographic mobility. An automobile mechanic who changes jobs to become an airline pilot reflects the concept of occupational mobility.
Define Deeper Integration, shallow integration and deep integration.
Deeper Integration: High-income countries have low barriers to imports of manufactured goods. There are some exceptions (processed foodstuffs and
- Import tariffs (taxes on imports) and other barriers such as quotas(quantitative restrictions on imports) are much less
restrictive than they were in the middle of the twentieth century.
What is Shallow Integration?
reduction of tariffs and the elimination of quotas
What is Deep Integration
negotiations over domestic policies that impact international trade
Give examples for free trade area.
In a free-trade area, nations trade goods and services across
international boundaries WITHOUT paying a tariff and without the
limitations imposed by quotas, which are direct limits on imports.
Most free-trade areas such as NAFTA do not allow completely free
trade. Nations usually reserve some restrictions for particularly
With a free-trade area, nations usually keep their own health.
Ex. NAFTA, European Free Trade Area (EFTA) and the
U.S.-Israel Free Trade Agreement.
What is the Role of International Economic Institutions.
By defining the constraints or limits on economic, political, and social
- define the incentive system of a society and help to create stability.
- help reduction of uncertainty
In the international sphere, there are no corresponding levels of government. The establishment of RULES for international trade are dependent on the
voluntary associations of nations in international economic organizations.
Explain the complaints about international institutions.
Sovereignty and Transparency
Sovereignty refers to the rights of nations to be free from unwanted foreign
interference in their affairs.
- violate national sovereignty by imposing unwanted economic policies.
- IMF imposes conditions that amount to a complete rearrangement of national economic policies.
Ex. IMF requirements that:
- countries cut government spending
- privatize their publicly owned enterprises
- open their financial sector to the free movement of capital.
Explain why 2007-2009 crisis happened? Which institutions bailed out
by the US government (name 3).
Explain about The Stolper-Samuelson Theorem.
Factors that are used intensively in the imported goods
sector will find that the demand for their services has
shrunk—and so has their income.
•Conversely, factors used intensively in the export
sector will experience an increase in the demand for
their services and in their incomes.
• In sum, when trade begins, incomes of the factors used
intensively in the import sector fall, and incomes of the
factors used intensively in the export sector rise.
Explain about The Product Cycle.
The concept of product life cycle helps inform business decision-making, from pricing and promotion to expansion or cost-cutting.
The product life cycle is defined by four stages: introduction, growth, maturity, and decline.
It implies that in the product cycle, firms prefer to invest
abroad rather than to export.
Compare Foreign Trade and Foreign Investment (3 cases).
Foreign trade refers to the trade between two or more countries. In other words, it is the act of trading products and services in the international markets.
Foreign trade can be of three types:
Import trade: When goods or services are purchased by a country from another country, in other words, flow of goods from a foreign country to the home country.
Export trade: When one country sells goods or services to another country, in other words, it is the outflow of goods or services from one country to another country.
Entrepot trade: It is also known as re-export. In this type of foreign trade, the goods are purchased from one country and then after some processing sold to another country.
What is Foreign Investment
Foreign investment refers to the investment made by a company or organization in another country. In foreign investment, a company usually establishes manufacturing unit, sales and marketing offices etc, in another country.
Foreign Direct Investment: It is the investment made by foreign company into the production or business of a company based in another country.
Foreign Portfolio Investment: It is the investment made by a foreign company in the stock market of another country.
Foreign Institutional Investment: It is the investment made by a foreign company in the passive holdings of a company based in another country.
Compare the Off-Shoring and Outsourcing
Off-shoring is the movement of some or all of a firm's activities to a location outside the home country.
Companies often offshore manufacturing or services to countries where the hourly labor rate is significantly lower.
Outsourcing is the reassignment of activities to another firm,
either inside or outside the home country.
- Telephone prompter/operator
- Accounting or HR services
What is the intraindustry trade and interindustry trade.
Intraindustry trade is the international trade of products made within the
same industry, for example steel-for-steel or bread-for-bread.
- the distinguishing features of intraindustry trade is
the presence of internal economies of scale.
Interindustry trade is international trade of products between two different
industries (for example, bread-for-steel).
What are economies of scale?
mean that the more units a business produces, the less it costs to produce each unit.
Explain about the internal economies of scale and external economies of
scale. Give examples for each.
Internal economies of scale:
An example is technical economies of scale achieved through the use of large-scale capital machines or production processes, such as the assembly line, which occurs within the company.
External economies of scale describe similar conditions, only for an entire industry instead of a company. For example, if a city creates a better transportation network to service a particular industry, then all companies in that industry will benefit from the new transportation network, and experience decreased production costs.
Why the External Economies of Scale could be useful (3 reasons).
1. First, if the firms in a region produce similar products, there are likely to be knowledge spillovers that help keep all firms a breast of the latest technology and newest developments
2. A second form of external economies of scale occurs when the presence of a large number of producers in one area helps to create a deep labor market for specialized skills. This advantage is particularly important in industries that demand highly technical or scarce
3. Third potential advantage to a large geographical concentration is that it can lead to a dense network of input suppliers
Use supply and demand analysis to explain and illustrate consumer and
producer surplus. Graphically demonstrate the effects of tariffs on prices,
output, and consumption for small and large countries. Determine the consumer and producer surplus after and before the tariff graphically. Determine
the deadweights and government revenue.
Why an important share of world trade consists of countries exporting
the same thing they import.
An example of this occurring is between Canada and the U.S. Here is the largest trade relationship in the world and a large share of it consists of exporting cars and car parts to each other. This reinforces the importance of intraindustry trade, the international trade of products made within the same industry. This creates gains from trade by increasing the size of the market, leading to lower costs and lower prices for consumers.
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