Type:
Solution Manual
Resource:
Introduction to International Economics
Edition:
2nd Edition
Author(s):
Kenneth A. Reinert
Salvatore’s Introduction to International Economics, 2nd Edition
Instructor’s Manual
*CHAPTER 1 (Core Chapter) INTRODUCTION TO THE GLOBAL ECONOMY OUTLINE 1.1 We Live in a Global Economy Case Study 1-1 The Dell PC Is Anything But American! Case Study 1-2 What Is an “American” Car? 1.2 The Globalization Challenge Case Study 1-3 Is India’s Globalization Harming the United States? 1.3 International Trade and the Nation’s Standard of Living Case Study 1-4 Rising Importance of International Trade to the United States 1.4 The International Flow of Labor and Capital Case Study 1-5 Major Net Exporters and Importers of Capital 1.5 The Subject Matter of International Economics 1.6 Current International Economic Problems 1.7 International Organizations and the World Economy 1.8 Organization of the Text Appendix: International Trade Data, Sources and Information A1.1 International Trade Data A1.2 Sources of Additional International Data and Information KEY TERMS Globalization Anti-globalization movement Interdependence International trade theory International trade policy Balance of payments Foreign exchange markets Adjustment in the balance of payments
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Microeconomics Macroeconomics Open-economy macroeconomics International finance World Trade Organization (WTO) World Bank International Monetary Fund (IMF) United Nations (UN)
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Salvatore’s Introduction to International Economics, 2nd Edition
Instructor’s Manual
LECTURE GUIDE 1.
As the first chapter of the text, the general aim here is simply to define the field of study of international economics and point out its importance in today's globalized world.
2.
The material in this chapter can be covered in two classes. I would utilize one class to cover Sections 1 and 2 and the second class to cover Sections 3 to 7. I would spend most of the second class on Section 6 to identify the major current international economic problems facing the United States and the world and to show how international economics can suggest ways to solve them. This should greatly enhance students' motivation.
ANSWERS TO REVIEW QUESTIONS AND PROBLEMS 1.
Globalization refers to the openness and the free exchange of goods, services, resources, technologies, capital, and ideas around the world. Globalization is important because it increases efficiency; it is inevitable because international competition requires it. The anti-globalization movement blames globalization for increased world poverty and income inequalities, child labor, environmental pollution and many other problems.
2.
Nations usually impose restrictions on the free international flow of goods, services and factors. Differences in language, customs and laws also hamper these international flows. In addition, international flows of goods, services and resources may involve receipts and payments in different currencies, which may change in value in relation to one another through time. International relations are to be contrasted with the interregional relations, which face no such restrictions as tariffs and are conducted in terms of the same currency, usually in the same language, and under basically the same set of customs and laws.
3.
A rough measure of the degree of economic interdependence of a nation with the rest of the world is given by the ratio or percentage of its exports to its gross domestic product (GDP). For small, developed nations, such as the Netherlands and Belgium, the ratio can reach as high as 60 to 90. For large nations, such as Germany, England, France and Italy, the ratio ranges from 25 to 35. For the United States it is between 12 and 17 and growing.
4.
The United States relies less on international trade for its high standard of living than most other developed nations because it is continental in size with immense natural and human resources. As such, it can produce with relative efficiency most of the products it needs. Contrast this to the position of a small nation, such as Switzerland, which can specialize and export only a small range of commodities and imports all the others. In general, and as Figure 1.1 in the text shows, the larger the nation the smaller its economic interdependence with the rest of the world is.
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Salvatore’s Introduction to International Economics, 2nd Edition
Instructor’s Manual
5.
Even though the United States relies only to a relatively small extent on international trade, a significant part of its high standard of living depends on it. The United States must import many commodities that it cannot produce and several needed minerals that it does have. More important quantitatively to its economic well-being, however, are the many commodities that the United States could produce domestically but only at relatively higher cost.
6.
The benefit that the United States receives from immigration is the inflow of skilled workers and technical people that are required for continued high growth in the future without the cost of training them. The cost is that many unskilled people also migrate that lower wages and job opportunities with low-skilled Americans.
7.
International capital flows arise from the opportunities that they provide for higher returns and risk diversification for individuals and corporations, and for nations to borrow or lend to other nations.
8.
The most serious international trade problem facing the world today is the rising protectionism in advanced countries in the context of a rapidly globalizing world. The most serious inter- national monetary problems are the excessive volatility of exchange rates and their large and persistent misalignments, as well as the frequent international financial crises. Other serious international economic problems are the slow growth in Europe and Japan and the need for economic restructuring in these areas and in the former communist countries of Central and Eastern Europe, the deep poverty in developing countries, and the sustainability of continued world growth and development in the face of resource scarcity and environmental degradation and climate change.
9.
The most important international institutions are: --World Trade Organization (WTO) with authority over international trade in goods and services. --World Bank, which provides loans to developing countries for development programs. --International monetary Fund (IMF), which oversees international finance and provides loans to nations in temporary balance of payments difficulties. --United Nations (UN) with stated aims are to facilitate cooperation in international law international security, economic development, social progress, and human rights issues.
10.
The major problems facing the world today affect the United States are: (1) Trade controversies between with Europe, Japan, and China as a result of the globalization of the world economy. These can lead to trade restrictions or even trade wars, which would reduce the volume and the gains from trade and investments for the United States; (2) volatility and misalignments of exchange rates discourage foreign trade and investments, and thus reduce specialization in production and the benefits from trade, and can lead major trade disagreements and protectionism; (3) financial crises in emerging market economies could spread to the United States (as
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Salvatore’s Introduction to International Economics, 2nd Edition
Instructor’s Manual
financial crises in the United States spread to the rest of the world ); (4) structural unemployment and slow growth in Europe, stagnation in Japan, and insufficient restructuring in the former communist countries in Central and Eastern Europe reduce U.S. imports and the benefits from trade for the United States; (5) deep poverty in many developing nations in the world can lead to political instability and wars, and these would adversely affect the United States and other countries; (6) resource scarcity, environmental degradation, and climate change endanger sustainable development in developing countries and growth in advanced countries, and harm the United States both directly and indirectly in our interdependent and globalized world. The major problems facing the world today affect you personally as follows: (1) Trade controversies can lead higher prices for imported products; (2) volatility and misalignments of exchange rates lead to great fluctuations and increases in the price of imported products and in the cost of foreign travel; (3) financial crises in emerging market economies can lead to losses on your foreign investments (such as on your pension plans); (4) structural unemployment and slow growth in Europe, and stagnation in Japan reduce European and Japanese imports and increases the chances that you will have to change job; (5) job insecurity and stagnant wages in the United States can lead you to support demands for trade protection in the United States; (6) deep poverty in many developing nations in the world can result in your paying higher taxes to provide foreign aid to these nations; (7) resource scarcity, environmental degradation, and climate change endanger sustainable development in developing countries and growth in advanced countries, and they are causing price of gasoline, food and other products that you pay to rise.
SAMPLE TEST QUESTIONS 1. Globalization: a. increases efficiency in production b. may lead to job losses c. is inevitable d. all of the above 2. The anti-globalization movement blames globalization for a. increasing poverty and world income inequalities b. child labor c. environmental pollution d. all of the above
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