Unit 5
International and
Global Economics
Ch 17 – International Trade
Ch 18 – Comparative Economic Systems
Ch 19 – Developing Countries
Ch 20 – Global Economic Challenges
Ch 17 – International Trade
• Trade
• The key to trade is _______________.
One area/country will specialize in
something + another area/country will
specialize in something else. They will
then trade these goods/services as
___________.
• You can tell what a country specializes
in by looking at its exports (the
goods/services it ________ + _____ to
other nations).
• Imports are goods/services that one
country ______ from another.
• Why should a
country import
instead of
making goods
themselves?
1. It doesn’t have an absolute
advantage (the ability to produce
a product more ___________).
2. It doesn’t have a comparative
advantage (the ability to produce
a product _________ more
efficiently, or at a lower
_________________).
•
Although 2 particular countries might
both be able to produce coffee beans
w/ the same efficiency, 1 of them might
be able to produce bananas relatively
more efficiently than the other, so it
grows more bananas, + the other
country grows more coffee beans.
End Section 1
• Barriers to
•
international
trade
•
•
Some people dislike international trade b/c it can
displace selected industries + groups of workers
(__________________).
2 main ways of restricting international trade:
1. Tariffs – a ____ placed on ______ to
their
price in the domestic market.
• Protective tariffs – a tariff high enough
to protect ______________ domestic
industries. This type of tariff makes
the imports MORE ___________ than
the domestic competition.
• Revenue tariffs – a tariff high enough
to generate _______ for the gov.’t w/o
prohibiting imports. This type of tariff
allows the imports to be ___________
than the domestic competition.
2. Quotas – a ____ placed on the quantities of a
product that can be imported.
Other ways of restricting trade include tougher
______________ for imports + requiring a ______
for foreign countries to import certain goods.
• Reasons for • Protectionists are people who favor trade
barriers to protect domestic industries.
“protection”
• So why are they against free trade?
1. ______________ – (best argument – but what is
necessary for national security?) afraid that a
country could become too specialized + thus too
dependent on foreign countries for other goods.
2. _______________________ – new or emerging
industries need to be protected from foreign
competition (but removing barriers later is difficult).
3. ________________________ – (most common
argument) if American goods are too expensive,
people will buy foreign goods putting American
workers out of jobs (but inefficient + problem gets
worse).
4. ____________________ – less $ goes to foreign
countries (but $ usually comes back for exports).
5. __________________________________ – the
difference b/w the $ a country pays out to, +
receives from other nations (but $ usually comes
back for exports).
• The free trade • The benefits of trade barriers to protect
movement
domestic industries + jobs works only if other
countries do not respond w/ _____________
___________.
• If they do, ________________ b/c they
have neither efficient production nor
access to less costly products + raw
materials.
• Trade barriers lead to a
in ____________
____. Remember the Smoot-Hawley tariff of
1930 from Ch 14? World trade
_____%!
• Trade
organizations
• The World Trade Organization (WTO) is
an international agency that administers
trade _________, settles trade ________
b/w gov.’ts, organizes trade __________,
+ provides technical assistance + training
for developing nations.
• Due to the __________ in tariffs +
quotas, international trade has .
• The North American Free Trade
Agreement (NAFTA) is an agreement b/w
the US, Canada, + Mexico to _________
trade barriers. Begun in 1993.
• Trade b/w the 3 countries has
_____________ since.
End Section 2
• Financing
• To trade w/ other countries, we must pay them
international
in their _________ (Ex. British imports must be
trade
paid for in pounds, Japanese imports must be
paid for in yen, etc…). So American dollars
must be ________ for the necessary currency.
• The foreign exchange rate is the price of 1
country’s currency in terms of another country’s
currency. Ex. 1 USD = .75 Euro or 1 Euro =
1.33 USD.
• When converting money, you must also
pay a small __________________.
• A fixed exchange rate is a system under which
the price of 1 currency is fixed in terms of
another ________________ so the price does
not change.
• A flexible (or floating) exchange rate is when
the forces of ______ + _______ determine the
value of each country’s currency.
• Balance
of trade
• A trade surplus occurs whenever the
value of a nation’s exports is ________
than the value of its imports.
• So it’s __________ more than it’s
buying.
• A trade deficit occurs whenever the
value of a nation’s exports is ____ than
the value of its imports.
• So it’s __________ more than it’s
selling.
• A persistent trade deficit tends to
___________________ of a country’s
currency on foreign exchange markets.
End Section 3
Ch 18 – Comparative Economic
Systems
• Types of
economies
• Economics deals w/ the decisions a
society makes on how to use ______
________ to fulfill _____________ +
__________.
• There are 3 ?s they must
answer:
1. ________ to produce?
2. _______ to produce it?
3. ____________ to produce it?
• How a society answers these
questions determines what kind
of economy it has.
• Capitalism
• An economic system in which the means of
production are ________________, supply +
demand determine prices, + businesses
operate to make a _______.
• Advantages:
• ___________
• Freedom
• Highly decentralized
• High degree of consumer satisfaction
• Flexibility to accommodate _________
• _________
• Disadvantages:
• Doesn’t satisfy everyone’s ________
• Socialism
• An economic system in which the
gov.’t owns + runs some of the
basic productive resources in order
to distribute output in ways deemed
to be in the __________ of society.
• They are usually ______________.
• Advantages:
• Satisfies the ___________ of
all members of society
• Still enjoy some __________
• People can vote out the gov.’t
if it isn’t doing an effective job
• Disadvantages:
• Less _______ than capitalism
• _______ are high
• Communism
• A political + economic framework where all
factors of production are collectively owned +
directed by the __________.
• Theoretically a ____________ society.
• Gov.’t answers the 3 economic questions
• Advantages:
• It can change _________ in a relatively
short time
• Many health + other public services are
provided for everyone at little or no cost
(although _________ may not be good)
• Disadvantages:
• No individual ___________
• No ____________________
• Fails to meet the needs/wants of
consumers
• ______________
• Lack flexibility
End Section 1
• The rise of
communism
in the USSR
• Communism started there in 1917 when ________
_________ overthrew the Russian gov.’t.
• ________________ was outlawed + factories were
turned over to the workers who didn’t know how to
run them. Production
in factories + on ______.
• ______ came into power in 1927 + proclaimed that
USSR was far behind western powers in
development + tried to close the gap quickly w/ the
1st 5-year plan (plan for the development of the
USSR). It set impossibly _________ for production
for items like steel, coal, oil, etc…
• Led to ________ of consumer goods,
+ although most goals weren’t met,
many _______ were made.
• A 2nd 5-year plan had similar results.
• Also sought to control _________ production
• Seized private farms + combined
them into large, gov.’t owned farms
called collective farms. The crops
were given to the state to _________.
• Some peasants burned their crops
rather than turn them over to the
state + were ___________________.
• Central planning
• The Gosplan was the central
_________________ for the USSR.
They determined what was made,
how much of it was made, + when it
was made.
• This is a very __________ process.
Imagine trying to plan how many
shoes to make, what would you
have to consider?
• How many shoes to make
• What type to make (sandals,
boots, sneakers, etc)
• How many of each size to make
• How much of each input will be
needed (leather, thread, laces,
dye, glue, labor – which must all
be planned as well)
• How much will it cost to make
them
• How much should be charged
for them
• They planned out ______________
production as well.
• Problems that occurred
• Agriculture was less ___________
than in the US (25% of Soviet labor
was in agriculture compared to 3%
in the US).
• Peasants were ___ based on the #
of items they produced (the gov.’t
set the prices).
• Factory workers were paid based
on the # of items they produced as
well – to make the necessary
_______, workers would often rush
production at the end of the month
leading to _____________ items.
• The Soviets had a reputation
for producing some of the
world’s _______ consumer +
industrial goods.
• ____________ supply of consumer
goods.
• Bribery + ________ were common.
• The beginning of the • In 1982, Mikhail Gorbachev was chosen
end of the USSR
as the communist party’s new general
secretary (most __________ man in the
USSR).
• Gorbachev believed in communism, but
thought it only needed to be ________.
• Gorbachev blamed many of the
country’s problems on poor ________
___________.
• Began a policy known as
perestroika (economic + gov.’t
restructuring) which allowed more
decisions on things such as
prices + wages to be made at a
_______________.
• This + other factors would lead to
the USSR ___________ in 1991.
End Section 2
• Transition
problems
• The switch from communism to capitalism is
painful. Problems include:
1. Privatization (the conversion of stateowned property to ______ ownership).
2. Loss of __________________ for the
communist party. Some find less than
_______ ways of remaining in power.
Some just no longer call themselves
communists but remain in power in a
new political party.
3. Dealing w/ problems inherent in a
capitalist system such as social unrest,
__________________, inflation, etc…
4. People must learn to make _________
on their own that the gov.’t used to
make for them.
• Chinese
communism
• By 1949, China was controlled by
communists under ___________.
• The communists attempted radical
reforms (farms were collectivized +
companies nationalized, etc) which had
_________ effects on China’s economy
+ people.
• China created ________ as well + while
some industrialization occurred, so did
major ____________.
• Since the mid-1970s, China’s gov.’t has
allowed some _________ economic
reform, but the Communist party
crushes any attempts to reform the
___________.
End Section 3
• Japan’s
capitalism
• Although Japan has a capitalist economy,
it’s gov.’t is very involved in the activities of
the private sector. It’s gov.’t typically favors
aiding businesses over ______________.
• Reasons for success:
• Close employer/employee working
_____________
• Pride in _________ of work
• Much of their work is done by machine
or robot (very ___________)
• The gov.’t works to limit __________
competition (protectionist)
• This has led to a very _______
of living.
• Some of these characteristics had changed
or decreased since it suffered a recession in
the 1990s.
End Section 4
Ch 19 – Developing Countries
• Developing
countries
• Countries whose average ___________
_________ is a fraction of that of more
industrialized countries.
• Most are located in _____, ____, + Latin
America.
• Why should we help them?
• Humanitarian reasons
• Build _____________
• Source of _______________
• Potential market for our _______
• Politics (ex. Cold War)
• To stabilize the ___________
• Obstacles to
development
• __________
quickly due to high
birth rates + greater life expectancy.
• Many have limited __________ (or
control over their resources) +/or
harsh climate + _____________.
• Lack of __________ + technology.
• __________ beliefs.
• External debt – $ borrowed from
foreign banks + gov.’ts. They may
end up having to default (to not pay
back _______).
• Capital flight – the legal or illegal
export of a nation’s currency.
• Gov.’t + business _____________.
• ________.
• International • The United Nations (UN) It’s goals are to
agencies
maintain international _______ + security, to
develop friendly relations b/w all nations, + to
promote _________ + cooperation to solve
__________________ problems.
• The World Health Organization (WHO) combats
heath problems in underdeveloped countries.
• The International Monetary Fund (IMF)
promotes international ________ + provides
monetary __________.
• The International Bank for Reconstruction and
Development (World Bank) makes _______ for
projects in ____________ countries.
• The United Nations Educational, Scientific, +
Cultural Organization (UNESCO) promotes
many programs.
• The _______________________ consists of 15
judges selected for 9 yr terms. Located in The
Hague, the Netherlands. It hears cases
brought by members + nonmembers.
End Section 1
• Stages of
• Note that this is not absolute – just a rough
economic
framework.
development 1st Stage: Primitive equilibrium – there is no formal
________________________ (traditional economic
system).
2nd Stage: _________ – the society breaks away from
tradition + move towards economic/cultural
changes. The economy doesn’t ____ at this stage,
but people begin questioning the status quo.
3rd Stage: ______ – the barriers of primitive equilibrium
are overcome + economic growth occurs. New
techniques are used +/or they may get aid from
other countries. More $ is saved + ___________.
4th Stage: Semi-development – national ________
faster than the ________ leading to a
per capita
income.
5th Stage: ____ Development – most people have their
basic needs/wants met. Instead of emphasizing
industry, the country emphasizes ____________.
• Priorities for
developing
countries
• According to the World Bank developing
countries should focus on the following:
• Investing more in their __________ –
_________, family planning, nutrition, +
health care.
• Improve the climate of enterprise. Allow
_______ + _________ to answer the 3
economic ?s w/ less interference from
the __________.
• Free ____ to promote imports + exports.
• Follow policies that curb inflation,
borrowing, +
_________.
End Section 2
• Developing
developing
countries
• In order to develop, a country must have $. This is
hard to obtain w/o a certain degree of __________
__________.
• Development w/ internal funds – the only way a
country will generate internal funds is if it makes
more than it ___________ + saves $.
• Development w/ external funds – b/c it’s very
difficult to develop an economy w/ internal funds
alone, developing countries try to obtain external
funds. There are 3 ways to do this:
1. Attract private funds from ______________
who are interested in their natural resources.
-This can be difficult if the country has
a history of expropriation (taking over
foreign property w/o _______ in return).
2. __________ from foreign gov.’ts.
3. Obtaining a ______ from an international
agency (like World Bank).
• Regional
• Sometimes countries join together to form a freecooperation
trade area (an agreement in which 2 or more
countries reduce ______________ + ______ among
themselves) or a customs union (an agreement in
which 2 or more countries agree to abolish ______ +
trade restrictions among themselves + adopt ______
________ for nonmember countries).
• The EU (European Union) is the most __________
example of regional cooperation. About ______ of
Europe is in the EU. There are no internal barriers
regulating the flow of ________, financial capital, or
goods + services. Citizens have a common ______
(except for Britain), can vote in European
_______, + many member countries use
the common currency the euro.
• A cartel is a group of producers or sellers who agree
to limit the production or sale of a product to control
_____. OPEC (Organization of Petroleum Exporting
Countries) is a cartel that has managed to ________
world oil prices by limiting oil production. End Section 3
Ch 20 – Global Economic Challenges
• The global
• Thomas Malthus wrote in Essay on the
population issue Principle of Population (1798) that the world’s
pop. was growing _____ than its ability to ____
itself. Originally, he said that the only factors
checking pop. growth were war, ________, +
disease (he later added ______ restraint). But
he said these factors were not enough.
• Since then, in some _____________________
countries, the population has either stopped
or has actually . Why?
• B/c in these countries, children are a
_____________________.
• The world’s pop. is about ______% per yr.
• It’s predicted that by 2050, the world’s pop. will
reach __________, the vast majority of this
growth will be in ___________ countries.
• Nonrenewable
energy
resources
•
pop. puts more pressure on
_________________.
• Most of our energy comes from
nonrenewable resources (resources
that cannot be _________ once they
are used).
• Most of our nonrenewable resources
are fossil fuels. They include:
• ______ – most used fossil fuel
• _______________
• ____ – most plentiful fossil fuel
• _______________ – produces
highly hazardous byproducts
which are hard to dispose of
• Renewable
energy
resources
• Renewable resources are natural
resources that can be replenished for
future use.
• They include:
• _____________________ (or
hydropower) – comes from
water
• _________ – comes from wood,
peat, straw, corn, tires, landfill
gasses, fish oils, + other waste
• ___________ – comes from the
sun
• __________
End Section 1
• Incentives
• Ensure economic systems work _________.
• _____________ incentives encourage more
widespread + lasting results than programs
that rely on conscience, patriotism, or other
motivations.
• The _________ – buyers buy more at
lower prices, but producers produce
more at higher prices.
• ___________ – producers have an
incentive to pollute – lower production
_____. Pollution can be controlled by
either legislating ________________
standards (setting minimum standards
of purity for air, water, etc) or by
providing _________________ (taxing
companies based on the amount of
pollution they release).
End Section 2
• Applying
economics
• Economics is all about __________ + making
______. Applying economics can help lead to
reasoned decision making. Suggested steps
for solving economic problems can be applied
to virtually all problems involving choices:
1. State the problem or issue.
2. Determine the _____(s) to be attained.
3. Consider the various ways of _______
the goal(s).
4. Determine the ________ of each
alternative.
5. Decide which alternative best leads to
the attainment of the ____ goals or the
most ___________ goals.
• This involves using a cost-benefit analysis
(comparing the costs of an ________ to its
benefits).
End Section 3