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è "When America sneezed, Japan and Europe

used to catch a coldơ

è "No nation is immune to economic events

that occur in far away placesƠ

è "Surely there is no closed economy in the

real-world, except the world economy!"
 '

"When East and West Germany were

united, the cost was high for West
Germany. It had to borrow money
extensively from international
sources, raising interest rates. This
caused high interest rates all over the
Europe.ơ
 '
"As Toyotas flooded the US market, producers in
the US faced a hard choice: to either trim their
budgets or close their doors. Many workers lost
their jobs, and louder and louder calls for
'protection from ruinous foreign competition'
were heard. As a result, the country that
championed free trade in the world economy
had second thoughts about the benefits of free
trade.Ơ

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K The study of international economics has

never been as important as it is now
è At the beginning of the 21st century,
nations are more closely linked through
trade in goods and services, through flows
of money, and through investment in each
othersƞ economies than ever before
|
 
 
 


X International Economics studies how a number

of distinct economies interact with one another
in the process of allocating scarce resources to
satisfy human wants
X Whereas economic theory deals with the
problems of a single closed economy,
International Economics focuses on the
problems of two or more economies
Why is the trade between Finland and Japan
different from the trade between Helsinki
and Oulu districts of Finland?
K TWO reasons:
1) Since international trade crosses national borders,
governments can monitor this trade
K CAN impose taxes or quotas on goods imported
from Japan
- Have to decide whether to do so or not!

2)International trade involves the use of different

national currencies!
K Finns will pay in Euros for Japanese cars but
Japanese want to be paid in Yens
- we have created international payments
 
!

K International
Economics can be divided
into two major branches:

K International Trade

K International Finance
 
!
ü International Trade
Why and What is traded?
Trade flowsƦ
Trade policy

ü International Finance
Exchange rates
Balance of payments problems
 
!

K International Trade is the exchange of goods

and services among residents/ companies of
different countries
> the approach is microeconomic in nature;
long run focus
X International Finance deals with the foreign
exchange market and the balance of payments
> the approach is mainly macroeconomic in
nature; short run focus

 
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