Chapter 1 Introduction

Slide 1-2 Kernel of the Chapter  What is International Economics About?  International Economics: Trade and Money

Slide 1-3  The study of international economics has never been as important as it is now. Nations are more closely linked through trade in goods and services, through flows of money, and through investment than ever before. Introduction

Slide 1-4 Introduction Figure 1-1 Exports and Imports as a Percentage of U.S. National Income

Slide 1-5 Introduction Figure 1-2 Exports and Imports as Percentages of National Income in 1994

Slide 1-6  International economics deals with economic interactions that occur between independent nations.  Several issues throughout the study of international economics. What is International Economics About?

Slide 1-7  The Gains from Trade When countries sell goods to one another, all countries benefit. Trade and income distribution What is International Economics About?  The Pattern of Trade (who sells what to whom?) Interindustry trade Intraindustry trade

Slide 1-8  How Much Trade? Many governments are trying to shield certain industries from international competition. Debate on the costs and benefits of protection relative to free trade. –Advanced countries’ policies pursue industrial targeting. –Developing countries’ policies promote industrialization: What is International Economics About?

Slide 1-9  The Balance of Payments Is it good to run a trade surplus and bad to run a trade deficit?  Exchange Rate Determination The role of changing exchange rates is at the center of international economics. What is International Economics About?

Slide 1-10 What is International Economics About?  International Policy Coordination How to produce an acceptable degree of harmony among the international trade and monetary policies of different countries without a world government that tells countries what to do.  The International Capital Market Risks associated with international capital markets: –Currency depreciation AND National default

Slide 1-11 International Economics: Trade and Money  International trade analysis focuses primarily on the real transactions in the international economy.  International monetary analysis focuses on the monetary side of the international economy.

Slide 1-12  International trade issues Part I: International Trade Theory Part II: International Trade Policy  International monetary issues Part III: Exchange Rates and Open-Economy Macroeconomics Part IV: International Macroeconomic Policy Structure of the Book