Professional Documents
Culture Documents
International
Trade and
Exchange Rates
McGraw-Hill/Irwin
12-2
Deficit
+10.0
Australia
Belgium
The U.S.
trade deficit
with China
was $257
billion in
2007.
+9.8
Canada -67.0
China
Germany -45.3
Japan
-85.0
Mexico
-77.3
Netherlands
-250
LO: 12-1
-256.6
+14.3
10 20
Source: BEA
12-3
Germany
United States
China
Japan
France
Netherlands
United Kingdom
Italy
10
12
9.20
8.59
8.02
5.38
4.06
3.83
3.71
3.40
Source: World Trade Organization
LO: 12-1
12-4
Specialization and
Comparative Advantage
Specialization and trade increase the productivity of
a countrys resources and allow for greater total
output and income.
Specialization results in more efficient production.
12-5
Avocado
20
24
40
60
Soybeans
15
10
Product
Avocado
30
33
60
90
Soybeans
30
20
19
10
LO: 12-2
12-6
12-7
12-8
LO: 12-2
12-9
12-10
12-11
Sl
Depreciation is a
Exchange
Rate: $2 = 1
$3
Dollar
Depreciates
(Pound
Appreciates)
$2
Appreciation is an
Dollar
Appreciates
(Pound
Depreciates)
$1
Dl
0
LO: 12-3
Ql
Quantity of Pounds
12-12
Determinants of Exchange
Rates
Factors that cause a countrys currency to
appreciate or depreciate are:
Tastes
Relative Income
Relative Price Levels
Relative Interest Rates
Speculation
LO: 12-3
12-13
Protectionism or Free
Trade?
Argument for
protectionism
Save U.S. jobs
restrict imports
Cheap foreign labor
pulls down wages in
the U.S.
Tariffs are needed to
protect against
dumping.
Rebuttal
Import restrictions alter the composition
of employment but dont affect total
employment; they also lead to less
effective resource allocation.
Gains from trade are based on
comparative advantage. Specialization
through trade increases labor
productivity and wages.
Dumping is prohibited by most countries
that impose anti-dumping duties. Cases
of dumping are rare.
12-15