International Economics: Theory and Policy

Table of Contents

• Licensing Information

• Preface

• Chapter 1: Introductory Trade Issues: History, Institutions, and Legal Framework

  • The International Economy and International Economics
  • Understanding Tariffs
  • Recent Trade Controversies
  • The Great Depression, Smoot-Hawley, and the Reciprocal Trade Agreements Act (RTAA)
  • The General Agreement on Tariffs and Trade (GATT)
  • The Uruguay Round
  • The World Trade Organization
  • Appendix A: Selected U.S. Tariffs—2009
  • Appendix B: Bound versus Applied Tariffs

• Chapter 2: The Ricardian Theory of Comparative Advantage

  • The Reasons for Trade
  • The Theory of Comparative Advantage: Overview
  • Ricardian Model Assumptions
  • The Ricardian Model Production Possibility Frontier
  • Definitions: Absolute and Comparative Advantage
  • A Ricardian Numerical Example
  • Relationship between Prices and Wages
  • Deriving the Autarky Terms of Trade
  • The Motivation for International Trade and Specialization
  • Welfare Effects of Free Trade: Real Wage Effects
  • The Welfare Effects of Free Trade: Aggregate Effects
  • Appendix: Robert Torrens on Comparative Advantage

• Chapter 3: The Pure Exchange Model of Trade

  • A Simple Pure Exchange Economy
  • Determinants of the Terms of Trade
  • Example of a Trade Pattern
  • Three Traders and Redistribution with Trade
  • Three Traders with International Trade
  • The Nondiscrimination Argument for Free Trade

• Chapter 4: Factor Mobility and Income Redistribution

  • Factor Mobility Overview
  • Domestic Factor Mobility
  • Time and Factor Mobility
  • Immobile Factor Model Overview and Assumptions
  • The Production Possibility Frontier in the Immobile Factor Model
  • Autarky Equilibrium in the Immobile Factor Model
  • Depicting a Free Trade Equilibrium in the Immobile Factor Model
  • Effect of Trade on Real Wages
  • Intuition of Real Wage Effects
  • Interpreting the Welfare Effects
  • Aggregate Welfare Effects of Free Trade in the Immobile Factor Model

• Chapter 5: The Heckscher-Ohlin (Factor Proportions) Model

  • Chapter Overview
  • Heckscher-Ohlin Model Assumptions
  • The Production Possibility Frontier (Fixed Proportions)
  • The Rybczynski Theorem
  • The Magnification Effect for Quantities
  • The Stolper-Samuelson Theorem
  • The Magnification Effect for Prices
  • The Production Possibility Frontier (Variable Proportions)
  • The Heckscher-Ohlin Theorem
  • Depicting a Free Trade Equilibrium in the Heckscher-Ohlin Model
  • National Welfare Effects of Free Trade in the Heckscher-Ohlin Model
  • The Distributive Effects of Free Trade in the Heckscher-Ohlin Model
  • The Compensation Principle
  • Factor-Price Equalization
  • The Specific Factor Model: Overview
  • The Specific Factor Model
  • Dynamic Income Redistribution and Trade

• Chapter 6: Economies of Scale and International Trade

  • Chapter Overview
  • Economies of Scale and Returns to Scale
  • Gains from Trade with Economies of Scale: A Simple Explanation
  • Monopolistic Competition
  • Model Assumptions: Monopolistic Competition
  • The Effects of Trade in a Monopolistically Competitive Industry
  • The Costs and Benefits of Free Trade under Monopolistic Competition

• Chapter 7: Trade Policy Effects with Perfectly Competitive Markets

  • Basic Assumptions of the Partial Equilibrium Model
  • Depicting a Free Trade Equilibrium: Large and Small Country Cases
  • The Welfare Effects of Trade Policies: Partial Equilibrium
  • Import Tariffs: Large Country Price Effects
  • Import Tariffs: Large Country Welfare Effects
  • The Optimal Tariff
  • Import Tariffs: Small Country Price Effects
  • Import Tariffs: Small Country Welfare Effects
  • Retaliation and Trade Wars
  • Import Quotas: Large Country Price Effects
  • Administration of an Import Quota
  • Import Quota: Large Country Welfare Effects
  • Import Quota: Small Country Price Effects
  • Import Quota: Small Country Welfare Effects
  • The Choice between Import Tariffs and Quotas
  • Export Subsidies: Large Country Price Effects
  • Export Subsidies: Large Country Welfare Effects
  • Countervailing Duties
  • Voluntary Export Restraints (VERs): Large Country Price Effects
  • Administration of a Voluntary Export Restraint
  • Voluntary Export Restraints: Large Country Welfare Effects
  • Export Taxes: Large Country Price Effects
  • Export Taxes: Large Country Welfare Effects

• Chapter 8: Domestic Policies and International Trade

  • Chapter Overview
  • Domestic Production Subsidies
  • Production Subsidies as a Reason for Trade
  • Production Subsidy Effects in a Small Importing Country
  • Domestic Consumption Taxes
  • Consumption Taxes as a Reason for Trade
  • Consumption Tax Effects in a Small Importing Country
  • Equivalence of an Import Tariff with a Domestic (Consumption Tax plus Production Subsidy)

• Chapter 9: Trade Policies with Market Imperfections and Distortions

  • Chapter Overview
  • Imperfections and Distortions Defined
  • The Theory of the Second Best
  • Unemployment and Trade Policy
  • The Infant Industry Argument and Dynamic Comparative Advantage
  • The Case of a Foreign Monopoly
  • Monopoly and Monopsony Power and Trade
  • Public Goods and National Security
  • Trade and the Environment
  • Economic Integration: Free Trade Areas, Trade Creation, and Trade Diversion

• Chapter 10: Political Economy and International Trade

  • Chapter Overview
  • Some Features of a Democratic Society
  • The Economic Effects of Protection: An Example
  • The Consumers’ Lobbying Decision
  • The Producers’ Lobbying Decision
  • The Government’s Decision
  • The Lobbying Problem in a Democracy

• Chapter 11: Evaluating the Controversy between Free Trade and Protectionism

  • Introduction
  • Economic Efficiency Effects of Free Trade
  • Free Trade and the Distribution of Income
  • The Case for Selected Protection
  • The Economic Case against Selected Protection
  • Free Trade as the “Pragmatically Optimal” Policy Choice

• Chapter 12: Introductory Finance Issues: Current Patterns, Past History, and International Institutions

  • GDP, Unemployment, Inflation, and Government Budget Balances
  • Exchange Rate Regimes, Trade Balances, and Investment Positions
  • Business Cycles: Economic Ups and Downs
  • International Macroeconomic Institutions: The IMF and the World Bank

• Chapter 13: National Income and the Balance of Payments Accounts

  • National Income and Product Accounts
  • National Income or Product Identity
  • U.S. National Income Statistics (2007–2008)
  • Balance of Payments Accounts: Definitions
  • Recording Transactions on the Balance of Payments
  • U.S. Balance of Payments Statistics (2008)
  • The Twin-Deficit Identity
  • International Investment Position

• Chapter 14: The Whole Truth about Trade Imbalances

  • Overview of Trade Imbalances
  • Trade Imbalances and Jobs
  • The National Welfare Effects of Trade Imbalances
  • Some Further Complications
  • How to Evaluate Trade Imbalances

• Chapter 15: Foreign Exchange Markets and Rates of Return

  • The Forex: Participants and Objectives
  • Exchange Rate: Definitions
  • Calculating Rate of Returns on International Investments
  • Interpretation of the Rate of Return Formula
  • Applying the Rate of Return Formulas

• Chapter 16: Interest Rate Parity

  • Overview of Interest Rate Parity
  • Comparative Statics in the IRP Theory
  • Forex Equilibrium with the Rate of Return Diagram
  • Exchange Rate Equilibrium Stories with the RoR Diagram
  • Exchange Rate Effects of Changes in U.S. Interest Rates Using the RoR Diagram
  • Exchange Rate Effects of Changes in Foreign Interest Rates Using the RoR Diagram
  • Exchange Rate Effects of Changes in the Expected Exchange Rate Using the RoR Diagram

• Chapter 17: Purchasing Power Parity

  • Overview of Purchasing Power Parity (PPP)
  • The Consumer Price Index (CPI) and PPP
  • PPP as a Theory of Exchange Rate Determination
  • Problems and Extensions of PPP
  • PPP in the Long Run
  • Overvaluation and Undervaluation
  • PPP and Cross-Country Comparisons

• Chapter 18: Interest Rate Determination

  • Overview of Interest Rate Determination
  • Some Preliminaries
  • What Is Money?
  • Money Supply Measures
  • Controlling the Money Supply
  • Money Demand
  • Money Functions and Equilibrium
  • Money Market Equilibrium Stories
  • Effects of a Money Supply Increase
  • Effect of a Price Level Increase (Inflation) on Interest Rates
  • Effect of a Real GDP Increase (Economic Growth) on Interest Rates
  • Integrating the Money Market and the Foreign Exchange Markets
  • Comparative Statics in the Combined Money-Forex Model
  • Money Supply and Long-Run Prices

• Chapter 19: National Output Determination

  • Overview of National Output Determination
  • Aggregate Demand for Goods and Services
  • Consumption Demand
  • Investment Demand
  • Government Demand
  • Export and Import Demand
  • The Aggregate Demand Function
  • The Keynesian Cross Diagram
  • Goods and Services Market Equilibrium Stories
  • Effect of an Increase in Government Demand on Real GNP
  • Effect of an Increase in the U.S. Dollar Value on Real GNP
  • The J-Curve Effect

• Chapter 20: The AA-DD Model

  • Overview of the AA-DD Model
  • Derivation of the DD Curve
  • Shifting the DD Curve
  • Derivation of the AA Curve
  • Shifting the AA Curve
  • Superequilibrium: Combining DD and AA
  • Adjustment to the Superequilibrium
  • AA-DD and the Current Account Balance

• Chapter 21: Policy Effects with Floating Exchange Rates

  • Overview of Policy with Floating Exchange Rates
  • Monetary Policy with Floating Exchange Rates
  • Fiscal Policy with Floating Exchange Rates
  • Expansionary Monetary Policy with Floating Exchange Rates in the Long Run
  • Foreign Exchange Interventions with Floating Exchange Rates

• Chapter 22: Fixed Exchange Rates

  • Overview of Fixed Exchange Rates
  • Fixed Exchange Rate Systems
  • Interest Rate Parity with Fixed Exchange Rates
  • Central Bank Intervention with Fixed Exchange Rates
  • Balance of Payments Deficits and Surpluses
  • Black Markets

• Chapter 23: Policy Effects with Fixed Exchange Rates

  • Overview of Policy with Fixed Exchange Rates
  • Monetary Policy with Fixed Exchange Rates
  • Fiscal Policy with Fixed Exchange Rates
  • Exchange Rate Policy with Fixed Exchange Rates
  • Reserve Country Monetary Policy under Fixed Exchange Rates
  • Currency Crises and Capital Flight
  • Case Study: The Breakup of the Bretton Woods System, 1973

• Chapter 24: Fixed versus Floating Exchange Rates

  • Overview of Fixed versus Floating Exchange Rates
  • Exchange Rate Volatility and Risk
  • Inflationary Consequences of Exchange Rate Systems
  • Monetary Autonomy and Exchange Rate Systems
  • Which Is Better: Fixed or Floating Exchange Rates?