©2004 prentice hall publishing ayers/collinge, 1/e 1 chapter 27 “into the international...

1 ©2004 Prentice Hall Publishing Ayers/Collinge, 1/e

Chapter 27“Into The International

Marketplace”

Chapter 27“Into The International

Marketplace”

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

1.1. Identify the balance of payments accounts and Identify the balance of payments accounts and their significance.their significance.

2.2. Analyze how international trade cost jobs in some Analyze how international trade cost jobs in some industries and creates jobs in others.industries and creates jobs in others.

3.3. Interpret exchange rates and explain how forces Interpret exchange rates and explain how forces of supply and demand determine.of supply and demand determine.

4.4. Describe why an appreciating dollar helps U.S. Describe why an appreciating dollar helps U.S. consumers, but hurts U.S. producers.consumers, but hurts U.S. producers.

5.5. Describe why immigration policies are Describe why immigration policies are controversial.controversial.

1.1. Identify the balance of payments accounts and Identify the balance of payments accounts and their significance.their significance.

2.2. Analyze how international trade cost jobs in some Analyze how international trade cost jobs in some industries and creates jobs in others.industries and creates jobs in others.

3.3. Interpret exchange rates and explain how forces Interpret exchange rates and explain how forces of supply and demand determine.of supply and demand determine.

4.4. Describe why an appreciating dollar helps U.S. Describe why an appreciating dollar helps U.S. consumers, but hurts U.S. producers.consumers, but hurts U.S. producers.

5.5. Describe why immigration policies are Describe why immigration policies are controversial.controversial.


27.1 27.1 MEASURING INTERNATIONAL MEASURING INTERNATIONAL TRANSACTIONSTRANSACTIONS

27.1 27.1 MEASURING INTERNATIONAL MEASURING INTERNATIONAL TRANSACTIONSTRANSACTIONS• Countries trade with one another in order to Countries trade with one another in order to

increase their standard of living.increase their standard of living.• Each country records the details of trade in its Each country records the details of trade in its

balance of payments.balance of payments.• The balance of payments contains sub-accounts The balance of payments contains sub-accounts

that categorize the major types of international that categorize the major types of international economic interactions.economic interactions.

• The two primary sub-accounts are:The two primary sub-accounts are:– The current accountThe current account

– The capital and financial accountThe capital and financial account

• Countries trade with one another in order to Countries trade with one another in order to increase their standard of living.increase their standard of living.

• Each country records the details of trade in its Each country records the details of trade in its balance of payments.balance of payments.

• The balance of payments contains sub-accounts The balance of payments contains sub-accounts that categorize the major types of international that categorize the major types of international economic interactions.economic interactions.

• The two primary sub-accounts are:The two primary sub-accounts are:– The current accountThe current account

– The capital and financial accountThe capital and financial account


The Current AccountThe Current AccountThe Current AccountThe Current Account

$ A country A country exportsexports goods and when it sells them to goods and when it sells them to another country.another country.

$ A country A country importsimports goods and services when it goods and services when it purchases them from another country.purchases them from another country.

$ The current account measures the value of;The current account measures the value of;$ Exports of goods and services,Exports of goods and services, along with along with

income received from abroad.income received from abroad.$ Imports of goods and services,Imports of goods and services, along with along with

income payments made abroad.income payments made abroad.$ Net transfers,Net transfers, including gifts and foreign aid. including gifts and foreign aid.

$ A country A country exportsexports goods and when it sells them to goods and when it sells them to another country.another country.

$ A country A country importsimports goods and services when it goods and services when it purchases them from another country.purchases them from another country.

$ The current account measures the value of;The current account measures the value of;$ Exports of goods and services,Exports of goods and services, along with along with

income received from abroad.income received from abroad.$ Imports of goods and services,Imports of goods and services, along with along with

income payments made abroad.income payments made abroad.$ Net transfers,Net transfers, including gifts and foreign aid. including gifts and foreign aid.


The Current AccountThe Current AccountThe Current AccountThe Current Account

$ The current account balance is the dollar value of The current account balance is the dollar value of exports minus the dollar value of imports, exports minus the dollar value of imports, adjusted for international incomes and net adjusted for international incomes and net transfers.transfers.

$ The current account divides trade into categories The current account divides trade into categories of merchandise and services.of merchandise and services.$ The The balance of tradebalance of trade refers to the merchandise refers to the merchandise

portion only.portion only.$ The balance of trade is in The balance of trade is in deficitdeficit when the value when the value

of imported merchandise exceeds the value of of imported merchandise exceeds the value of exported merchandise.exported merchandise.

$ The current account balance is the dollar value of The current account balance is the dollar value of exports minus the dollar value of imports, exports minus the dollar value of imports, adjusted for international incomes and net adjusted for international incomes and net transfers.transfers.

$ The current account divides trade into categories The current account divides trade into categories of merchandise and services.of merchandise and services.$ The The balance of tradebalance of trade refers to the merchandise refers to the merchandise

portion only.portion only.$ The balance of trade is in The balance of trade is in deficitdeficit when the value when the value

of imported merchandise exceeds the value of of imported merchandise exceeds the value of exported merchandise.exported merchandise.


Leading U.S. Merchandise Exports Leading U.S. Merchandise Exports and Importsand Imports

Leading U.S. Merchandise Exports Leading U.S. Merchandise Exports and Importsand Imports


The Capital and Financial Account

The Capital and Financial Account

o The The capital accountcapital account looks at flows of investment looks at flows of investment into and out of the country.into and out of the country.

o There are two primary types of investments.There are two primary types of investments.o Direct investmentsDirect investments include foreign include foreign

investments involving the purchase of investments involving the purchase of income-producing property in the home income-producing property in the home country (foreign investments in the U.S.)country (foreign investments in the U.S.)

o Financial investmentsFinancial investments are primarily are primarily purchases of stocks and bonds.purchases of stocks and bonds.

o The The capital accountcapital account looks at flows of investment looks at flows of investment into and out of the country.into and out of the country.

o There are two primary types of investments.There are two primary types of investments.o Direct investmentsDirect investments include foreign include foreign

investments involving the purchase of investments involving the purchase of income-producing property in the home income-producing property in the home country (foreign investments in the U.S.)country (foreign investments in the U.S.)

o Financial investmentsFinancial investments are primarily are primarily purchases of stocks and bonds.purchases of stocks and bonds.


The Capital and Financial The Capital and Financial AccountAccount

The Capital and Financial The Capital and Financial AccountAccount

o The balance of the capital account is the dollar The balance of the capital account is the dollar value of capital inflows minus the dollar value value of capital inflows minus the dollar value of capital outflows.of capital outflows.

o Capital inflows represent dollars that Capital inflows represent dollars that foreigners spend on investments in the U.S.foreigners spend on investments in the U.S.

o Capital outflows represent dollars that U.S. Capital outflows represent dollars that U.S. citizens and firms spend on investments citizens and firms spend on investments abroad.abroad.o Capital inflows are similar to exports.Capital inflows are similar to exports.o Capital outflows are similar to imports.Capital outflows are similar to imports.

o The balance of the capital account is the dollar The balance of the capital account is the dollar value of capital inflows minus the dollar value value of capital inflows minus the dollar value of capital outflows.of capital outflows.

o Capital inflows represent dollars that Capital inflows represent dollars that foreigners spend on investments in the U.S.foreigners spend on investments in the U.S.

o Capital outflows represent dollars that U.S. Capital outflows represent dollars that U.S. citizens and firms spend on investments citizens and firms spend on investments abroad.abroad.o Capital inflows are similar to exports.Capital inflows are similar to exports.o Capital outflows are similar to imports.Capital outflows are similar to imports.


Balance of Payments AccountBalance of Payments AccountBalance of Payments AccountBalance of Payments Account


U.S. Exports and ImportsU.S. Exports and ImportsU.S. Exports and ImportsU.S. Exports and Imports


Balancing PaymentsBalancing PaymentsBalancing PaymentsBalancing Payments

The balance of payments accounts taken The balance of payments accounts taken as a whole must have a balance that as a whole must have a balance that equals zero.equals zero.

To force the accounts into balance it is To force the accounts into balance it is necessary to include an entry termed necessary to include an entry termed statistical discrepancy.statistical discrepancy.


The U.S. Balance of PaymentsThe U.S. Balance of PaymentsThe U.S. Balance of PaymentsThe U.S. Balance of Payments


27.227.2THE IMPACT OF INTERNATIONAL THE IMPACT OF INTERNATIONAL COMMERCECOMMERCE

27.227.2THE IMPACT OF INTERNATIONAL THE IMPACT OF INTERNATIONAL COMMERCECOMMERCEOpportunities in specific industries and types of Opportunities in specific industries and types of

occupations can change markedly because of occupations can change markedly because of international trade.international trade.

By increasing the return to human capital in the By increasing the return to human capital in the U.S., international trade opens up attractive U.S., international trade opens up attractive employment opportunities for those who have employment opportunities for those who have acquired skills and abilities.acquired skills and abilities.

The return to a is higher than it would be The return to a is higher than it would be without international trade.without international trade.

Job opportunities for low-skilled labor in the Job opportunities for low-skilled labor in the U.S. are harmed by international trade.U.S. are harmed by international trade.

Opportunities in specific industries and types of Opportunities in specific industries and types of occupations can change markedly because of occupations can change markedly because of international trade.international trade.

By increasing the return to human capital in the By increasing the return to human capital in the U.S., international trade opens up attractive U.S., international trade opens up attractive employment opportunities for those who have employment opportunities for those who have acquired skills and abilities.acquired skills and abilities.

The return to a is higher than it would be The return to a is higher than it would be without international trade.without international trade.

Job opportunities for low-skilled labor in the Job opportunities for low-skilled labor in the U.S. are harmed by international trade.U.S. are harmed by international trade.


The Impact of International TradeThe Impact of International TradeThe Impact of International TradeThe Impact of International Trade

EXAMPLES OF U.S. JOBS GAINED FROM EXPORTS AND LOST TO IMPORTSEXAMPLES OF U.S. JOBS GAINED EXAMPLES OF U.S. JOBS LOSTAircraft workers Textile workersSoftware designers ShoemakersStockbrokers Electronics assembly line workersTV and movie castmembers SteelworkersTravel agents Autoworkers


Effects of Capital Flows and Effects of Capital Flows and ImmigrationImmigration

Effects of Capital Flows and Effects of Capital Flows and ImmigrationImmigration

International investment can substitute for International investment can substitute for trade.trade. For example, Japanese automobile companies have For example, Japanese automobile companies have

built manufacturing plants in Ohio and Kentucky, built manufacturing plants in Ohio and Kentucky, instead of relying on importing cars from Japan.instead of relying on importing cars from Japan.

Immigration can also substitute for trade by Immigration can also substitute for trade by affecting trade patterns and the distribution of affecting trade patterns and the distribution of income within a country.income within a country. In the case of labor, governments commonly limit In the case of labor, governments commonly limit

the number overall, and from particular countries.the number overall, and from particular countries.

International investment can substitute for International investment can substitute for trade.trade. For example, Japanese automobile companies have For example, Japanese automobile companies have

built manufacturing plants in Ohio and Kentucky, built manufacturing plants in Ohio and Kentucky, instead of relying on importing cars from Japan.instead of relying on importing cars from Japan.

Immigration can also substitute for trade by Immigration can also substitute for trade by affecting trade patterns and the distribution of affecting trade patterns and the distribution of income within a country.income within a country. In the case of labor, governments commonly limit In the case of labor, governments commonly limit

the number overall, and from particular countries.the number overall, and from particular countries.


27.327.3EXCHANGE RATESEXCHANGE RATES27.327.3EXCHANGE RATESEXCHANGE RATES Each country has its own currency.Each country has its own currency. Different monies can be exchanged for one Different monies can be exchanged for one

another in the currency markets, also known as another in the currency markets, also known as the foreign exchange market.the foreign exchange market.

The amount of one country’s currency that The amount of one country’s currency that trades for a unit of another country’s currency trades for a unit of another country’s currency is called an is called an exchange rate.exchange rate.

Some have argued that exchange rates will Some have argued that exchange rates will adjust until there is adjust until there is purchasing power parity,purchasing power parity, meaning that prices would be the same around meaning that prices would be the same around the world for easily tradable items.the world for easily tradable items.

Each country has its own currency.Each country has its own currency. Different monies can be exchanged for one Different monies can be exchanged for one

another in the currency markets, also known as another in the currency markets, also known as the foreign exchange market.the foreign exchange market.

The amount of one country’s currency that The amount of one country’s currency that trades for a unit of another country’s currency trades for a unit of another country’s currency is called an is called an exchange rate.exchange rate.

Some have argued that exchange rates will Some have argued that exchange rates will adjust until there is adjust until there is purchasing power parity,purchasing power parity, meaning that prices would be the same around meaning that prices would be the same around the world for easily tradable items.the world for easily tradable items.


Currencies of the WorldCurrencies of the WorldCurrencies of the WorldCurrencies of the World


The Foreign Exchange MarketThe Foreign Exchange MarketThe Foreign Exchange MarketThe Foreign Exchange Market

Quantity of YenQuantity of Yen

Dol

lars

per

Yen

Dol

lars

per

Yen

DemandDemand

Q*Q*

XRXR**

SupplySupply

JapanJapan

¥¥

U.S.

$$


The Price of a Big MacThe Price of a Big MacThe Price of a Big MacThe Price of a Big Mac

Australia $3.00 (Australian dollars) $1.69Canada $2.99 (Canadian dollars) $2.19China 9.90 Yuan $1.19Japan 294 Yen $2.50Mexico 21.9 Pesos $2.22Russia 35 Rouble $1.10South Africa 9.7 Rand $0.96Switzerland 6.3 Swiss francs $4.23

COUNTRY IN LOCAL CURRENCY IN U.S. DOLLARS


Currency Appreciation and Currency Appreciation and DepreciationDepreciation

Currency Appreciation and Currency Appreciation and DepreciationDepreciation

• Currency appreciationCurrency appreciation occurs when a currency occurs when a currency gets stronger.gets stronger.

• DepreciationDepreciation occurs when the currency becomes occurs when the currency becomes weaker.weaker.

• Governments sometimes try to influence Governments sometimes try to influence market exchange rates.market exchange rates.

• The value of currencies exchanged worldwide The value of currencies exchanged worldwide in a single week exceeds the value of an entire in a single week exceeds the value of an entire year’s worth of U.S. output.year’s worth of U.S. output.

• Currency appreciationCurrency appreciation occurs when a currency occurs when a currency gets stronger.gets stronger.

• DepreciationDepreciation occurs when the currency becomes occurs when the currency becomes weaker.weaker.

• Governments sometimes try to influence Governments sometimes try to influence market exchange rates.market exchange rates.

• The value of currencies exchanged worldwide The value of currencies exchanged worldwide in a single week exceeds the value of an entire in a single week exceeds the value of an entire year’s worth of U.S. output.year’s worth of U.S. output.


Dollar Depreciating and Dollar Depreciating and Yen AppreciatingYen Appreciating

Dollar Depreciating and Dollar Depreciating and Yen AppreciatingYen Appreciating

Quantity of YenQuantity of Yen

Dol

lars

per

Yen

Dol

lars

per

Yen

00

DemandDemand

Supply(assumed constant)

DemandDemand

Dollar depreciates

(result: Japanese products cost more.)

U.S. importers buy more yen.


Fixed vs. Floating Exchange RatesFixed vs. Floating Exchange RatesFixed vs. Floating Exchange RatesFixed vs. Floating Exchange Rates

In 1944 The Bretton Woods Agreement pegged In 1944 The Bretton Woods Agreement pegged the dollar to gold and all other currencies to the the dollar to gold and all other currencies to the dollar - implying fixed exchange rates.dollar - implying fixed exchange rates.

Since 1972, that system was abandoned in favor Since 1972, that system was abandoned in favor of a system where the exchange rates adjust of a system where the exchange rates adjust according to what the market dictates - according to what the market dictates - Floating exchange rates.Floating exchange rates.

The system is referred to as a The system is referred to as a managed float, or managed float, or dirty float.dirty float.

In 1944 The Bretton Woods Agreement pegged In 1944 The Bretton Woods Agreement pegged the dollar to gold and all other currencies to the the dollar to gold and all other currencies to the dollar - implying fixed exchange rates.dollar - implying fixed exchange rates.

Since 1972, that system was abandoned in favor Since 1972, that system was abandoned in favor of a system where the exchange rates adjust of a system where the exchange rates adjust according to what the market dictates - according to what the market dictates - Floating exchange rates.Floating exchange rates.

The system is referred to as a The system is referred to as a managed float, or managed float, or dirty float.dirty float.


Comparative Advantage and Comparative Advantage and Exchange RatesExchange Rates


o Companies that import and export product do Companies that import and export product do so in response to market prices, prices that so in response to market prices, prices that depend centrally upon exchange rates.depend centrally upon exchange rates.

o Relatively higher prices at home than abroad Relatively higher prices at home than abroad lead to imports.lead to imports.

o Relatively lower prices at home than abroad Relatively lower prices at home than abroad cause exports.cause exports.

o When a country has a lower opportunity cost in When a country has a lower opportunity cost in producing a product than another country it is producing a product than another country it is said to have a said to have a comparative advantage.comparative advantage.

o Companies that import and export product do Companies that import and export product do so in response to market prices, prices that so in response to market prices, prices that depend centrally upon exchange rates.depend centrally upon exchange rates.

o Relatively higher prices at home than abroad Relatively higher prices at home than abroad lead to imports.lead to imports.

o Relatively lower prices at home than abroad Relatively lower prices at home than abroad cause exports.cause exports.

o When a country has a lower opportunity cost in When a country has a lower opportunity cost in producing a product than another country it is producing a product than another country it is said to have a said to have a comparative advantage.comparative advantage.


27.4 EXPLORE & APPLY 27.4 EXPLORE & APPLY Immigration Policy DebateImmigration Policy Debate

27.4 EXPLORE & APPLY 27.4 EXPLORE & APPLY Immigration Policy DebateImmigration Policy Debate

Increasingly, many countries, including the U.S. Increasingly, many countries, including the U.S. are increasingly ambivalent about the ideal of the are increasingly ambivalent about the ideal of the national melting pot.national melting pot.

Opposition to immigration arises from the Opposition to immigration arises from the following root causes.following root causes. Ethnic tensions arising prior to the assimilation Ethnic tensions arising prior to the assimilation

of newcomers into the existing culture.of newcomers into the existing culture. A backlash stemming from concerns that A backlash stemming from concerns that

immigration has high economic cost.immigration has high economic cost. Concerns that immigration exposes the country Concerns that immigration exposes the country

to terrorism.to terrorism.

Increasingly, many countries, including the U.S. Increasingly, many countries, including the U.S. are increasingly ambivalent about the ideal of the are increasingly ambivalent about the ideal of the national melting pot.national melting pot.

Opposition to immigration arises from the Opposition to immigration arises from the following root causes.following root causes. Ethnic tensions arising prior to the assimilation Ethnic tensions arising prior to the assimilation

of newcomers into the existing culture.of newcomers into the existing culture. A backlash stemming from concerns that A backlash stemming from concerns that

immigration has high economic cost.immigration has high economic cost. Concerns that immigration exposes the country Concerns that immigration exposes the country

to terrorism.to terrorism.


Many countries make special provisions for Many countries make special provisions for guest workers.guest workers.

Guest workers are temporary immigrants who Guest workers are temporary immigrants who are granted limited rights to work and live in a are granted limited rights to work and live in a country.country.Sometimes guest become permanent.Sometimes guest become permanent.

Without the entrepreneurial drive of Without the entrepreneurial drive of yesteryears immigrants, the U.S. would not yesteryears immigrants, the U.S. would not have produced the economy that beckons to so have produced the economy that beckons to so many more immigrants.many more immigrants.

Many countries make special provisions for Many countries make special provisions for guest workers.guest workers.

Guest workers are temporary immigrants who Guest workers are temporary immigrants who are granted limited rights to work and live in a are granted limited rights to work and live in a country.country.Sometimes guest become permanent.Sometimes guest become permanent.

Without the entrepreneurial drive of Without the entrepreneurial drive of yesteryears immigrants, the U.S. would not yesteryears immigrants, the U.S. would not have produced the economy that beckons to so have produced the economy that beckons to so many more immigrants.many more immigrants.

Immigration Policy DebateImmigration Policy DebateImmigration Policy DebateImmigration Policy Debate


The development of an immigration policy for The development of an immigration policy for the U.S. should consider the following factors:the U.S. should consider the following factors: The effect of immigration on wages and skill The effect of immigration on wages and skill

differentials.differentials.The country of origin of the immigrants, The country of origin of the immigrants,

including whether you think a quota is including whether you think a quota is desirable for each country.desirable for each country.

The effect of immigration on the national The effect of immigration on the national culture.culture.

Any factors you consider to be significant.Any factors you consider to be significant.

The development of an immigration policy for The development of an immigration policy for the U.S. should consider the following factors:the U.S. should consider the following factors: The effect of immigration on wages and skill The effect of immigration on wages and skill

differentials.differentials.The country of origin of the immigrants, The country of origin of the immigrants,

including whether you think a quota is including whether you think a quota is desirable for each country.desirable for each country.

The effect of immigration on the national The effect of immigration on the national culture.culture.

Any factors you consider to be significant.Any factors you consider to be significant.

Immigration Policy DebateImmigration Policy DebateImmigration Policy DebateImmigration Policy Debate


Terms Along the WayTerms Along the WayTerms Along the WayTerms Along the Way

• balance of payments balance of payments accountaccount

• exportsexports• importsimports• current accountcurrent account• balance on the balance on the

current accountcurrent account• trade deficittrade deficit

• balance of payments balance of payments accountaccount

• exportsexports• importsimports• current accountcurrent account• balance on the balance on the

current accountcurrent account• trade deficittrade deficit

• capital accountcapital account• foreign exchange foreign exchange

marketsmarkets• exchange rateexchange rate• purchasing power purchasing power

parityparity• appreciationappreciation• depreciationdepreciation

• capital accountcapital account• foreign exchange foreign exchange

marketsmarkets• exchange rateexchange rate• purchasing power purchasing power

parityparity• appreciationappreciation• depreciationdepreciation


Test YourselfTest YourselfTest YourselfTest Yourself

1.1. The balance of payments accounts refer to The balance of payments accounts refer to a.a. the value of exports minus the value of the value of exports minus the value of

imports.imports.b.b. the value of all international transactions the value of all international transactions

between a particular country and other between a particular country and other countries.countries.

c.c. a statement of all international transactions a statement of all international transactions among all nations.among all nations.

d.d. a record of spending and taxes collected by a record of spending and taxes collected by the federal government.the federal government.

1.1. The balance of payments accounts refer to The balance of payments accounts refer to a.a. the value of exports minus the value of the value of exports minus the value of

imports.imports.b.b. the value of all international transactions the value of all international transactions

between a particular country and other between a particular country and other countries.countries.

c.c. a statement of all international transactions a statement of all international transactions among all nations.among all nations.

d.d. a record of spending and taxes collected by a record of spending and taxes collected by the federal government.the federal government.



2.2. In the balance of payments accounts, In the balance of payments accounts, the current account includesthe current account includes

a.a. capital flows and merchandise trade.capital flows and merchandise trade.b.b. trade in goods and services.trade in goods and services.c.c. immigration and trade.immigration and trade.d.d. capital flows and services.capital flows and services.

2.2. In the balance of payments accounts, In the balance of payments accounts, the current account includesthe current account includes

a.a. capital flows and merchandise trade.capital flows and merchandise trade.b.b. trade in goods and services.trade in goods and services.c.c. immigration and trade.immigration and trade.d.d. capital flows and services.capital flows and services.



3.3. Which statement best describes a trade Which statement best describes a trade deficit?deficit?

a.a. The value of exported goods is less than the The value of exported goods is less than the dollar value of imported goods.dollar value of imported goods.

b.b. Both the dollar value of imports and the Both the dollar value of imports and the dollar value of exports decrease.dollar value of exports decrease.

c.c. The foreign exchange value of a country’s The foreign exchange value of a country’s currency has increased.currency has increased.

d.d. A country invest too much overseas.A country invest too much overseas.

3.3. Which statement best describes a trade Which statement best describes a trade deficit?deficit?

a.a. The value of exported goods is less than the The value of exported goods is less than the dollar value of imported goods.dollar value of imported goods.

b.b. Both the dollar value of imports and the Both the dollar value of imports and the dollar value of exports decrease.dollar value of exports decrease.

c.c. The foreign exchange value of a country’s The foreign exchange value of a country’s currency has increased.currency has increased.

d.d. A country invest too much overseas.A country invest too much overseas.



4.4. New international investments are New international investments are measured by the measured by the

a.a. current account.current account.

b.b. capital account.capital account.

c.c. statistical discrepancy.statistical discrepancy.

d.d. trade deficits.trade deficits.

4.4. New international investments are New international investments are measured by the measured by the

a.a. current account.current account.

b.b. capital account.capital account.

c.c. statistical discrepancy.statistical discrepancy.

d.d. trade deficits.trade deficits.



5.5. The Euro will strengthen against the The Euro will strengthen against the dollar whendollar when

a.a. the demand for euros increases.the demand for euros increases.

b.b. the supply of euros increases.the supply of euros increases.

c.c. the demand for dollars increases.the demand for dollars increases.

d.d. the dollar also strengthens against the the dollar also strengthens against the euro.euro.

5.5. The Euro will strengthen against the The Euro will strengthen against the dollar whendollar when

a.a. the demand for euros increases.the demand for euros increases.

b.b. the supply of euros increases.the supply of euros increases.

c.c. the demand for dollars increases.the demand for dollars increases.

d.d. the dollar also strengthens against the the dollar also strengthens against the euro.euro.



6.6. Depreciation in a country’s currency will Depreciation in a country’s currency will causecause

a.a. the country’s exports to drop.the country’s exports to drop.b.b. an increase in the number of tourist visiting an increase in the number of tourist visiting

that country.that country.c.c. windfall gains to speculators holding large windfall gains to speculators holding large

quantities of that country’s currency.quantities of that country’s currency.d.d. widespread fear of contracting the disease, widespread fear of contracting the disease,

and hence a reluctance to accept payment in and hence a reluctance to accept payment in that currency.that currency.

6.6. Depreciation in a country’s currency will Depreciation in a country’s currency will causecause

a.a. the country’s exports to drop.the country’s exports to drop.b.b. an increase in the number of tourist visiting an increase in the number of tourist visiting

that country.that country.c.c. windfall gains to speculators holding large windfall gains to speculators holding large

quantities of that country’s currency.quantities of that country’s currency.d.d. widespread fear of contracting the disease, widespread fear of contracting the disease,

and hence a reluctance to accept payment in and hence a reluctance to accept payment in that currency.that currency.


The End!The End!Next Chapter 28Next Chapter 28““Policy Toward Policy Toward

Trade"Trade"

©2004 prentice hall publishing ayers/collinge, 1/e 1 chapter 27 “into the international...

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