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74 Cards in this Set

  • Front
  • Back
Ad valorem tariff
a fixed percentage tax on traded commodities
specific tariff
a fixed sum per traded unit of commodity
compound tariff
combination of ad valorem and specific tariff
consumption, production, and trade effects
what happens to these 3 when a tariff is imposed
voluntary export restraint
when the exporting nation voluntarily restricts its exports to a numerical limit
-to reduce likelihood of importing country imposing other trade barrier
-same as quotas, but rent goes to the foreign producer
when (1) the sales price in importing country is lower than in exporting country or (2) the sales price on importing country is lower than production costs
persistent dumping
continuous sale of commodity at higher price in domestic market than in international market
predatory dumping
temporary sale of commodity at below cost or at a lower price abroad than at home in order to drive out foreign producers, after which prices are raised to maximize profits
sporadic dumping
occasional sale of commodity at below cost or lower price abroad than domestically in order to unload an unforeseen urplus of a commodity without having to reduce domestic prices
production cost subsidy
i.e. tax rlief, zero interest loans
Trade Promotion Authority (TPA)
-president can negotiate agreements
-congress can only vote up/down without changes or modifications
Preferential trade arrangements
-provides lower barriers on trade among participating nations than on trade with non-members
-i.e. British Commonwealth
Free Trade Area
-removes all barriers to trade among members but each nation retains barriers against non-members
-i.e. NAFTA
Customs Union
-no barriers among members and harmonizes trade policies towards rest of world
Common Market
-removes all barriers among members, harmonizes policies toward rest of world, allows free movement of labor and capital among members states
-i.e. EU as of 1993
Economic Union
-all in common market + unifies monetary, fiscal, and tax policies of members
Benefits from Customs Unions
-increased competition
-economies of scale production
-stimulus to investment
Gravity Model
Tij = A x Yi x Yj x 1/Dij

value of trade = A x size of country i x size of country j x 1/distance between i and j
Current Account
-goods balance
-service balance
-income receipts (earnings on investments)
-unilateral transfers (foreign aid, pensions to citizens abroad, etc.)
Capital Account
net unilateral transfer of assts (debt forgiveness, etc.)
Financial Account
-private assets
-foreign assets in U.S.
-long-term and short-term portfolios
purchase of a non-controlling share of business
Long-term Portfolio
assets with maturity of more than 1 year
Short-term Portfolio
assets with maturity of less than 1 year
1-10 yrs.
less than 1 year
more than 10 years
Official Reserve Assets
central band transactions involving purchases of foreign assets (gold, SDRs, foreign currency denominated assets)
official settlements balance
net change in a country's official reserves (domestic-foreign)
Flow Variable
per unit of time (i.e. over a year, etc.)
Stock Variable
at a given point in time
Financial Account Surplus
you buy more foreign assets than they buy of yours
exchange rate
price of foreign currency in terms of the domestic currency
effective exchange rate
exchange index based on trade wights (captures overall picture of what's happening to the dollar)
With a fixed exchange rate, if you run out of reserves and continue to face a BOP deficit you can...
-devalue your currency
-let exchange rate float
foreign price
price in foreign currency
domestic price
Net supply of forex
(pbar/E)X - pbar*M = TB*

export spending in foreign currency terms - import spending in foreign currency terms = trade balance in foreign currency
Marshall-Lerner Condition
effect of a devaluation on trade balance:
-a devaluation reduces the real quantity of imports
-devaluation also increases real quantity of exports
-any given quantity of exports earns less foreign exchange
result of a currency devaluation to trade balance:
-negative valuation (exports bring in less foreign currency)
-improvements in TB
-Martshall-Lerner condition satisfied

-usually takes 3-5 years to happen in full
National Savings (S)
= Spvt + Sgov
Privat Savings (Spvt)
= private disposable income (Y + NFP + TR + INT - T) - consumption
Government Savings (Sgov)
= Net gov't income (T-TR-INT) - gov't purchases
Current Account equation
CA = S - I
NX = S - I
Current Deficit figure
7% of GDP
Current debt figure
23-24% of GDP
If renminbi is revalued...
-imports won't change because production would just move to other low cost regions
-only benefit might be that China would buy more American products now that they're relatively cheaper
-no real big improvement in current account deficit
1950s--Americans set up accounts abroad in dollars (deposits denominated in currency other than that of the country)
-was a way to get around regulations
Market thickness, thinness
thickness = highly liquid
thinness = less liquid
OPEC countires put lots of dollar surplusses into Euromarkets which were then lent out to developing countries
- when interest rates rose in the 1980s these countries couldn't pay them back, resulting huge financial crises
currency board system
100% reserve backing
-stronger form of fixed exchange rate
-i.e. Hong Kong
bid-ask spread
cost of trading forex (very low, making it cheap to trade so a lot occurs)
-difference between bid-price and ask-price
price at which a bank wants to sell currency
price at which a bank is willing to purchase currency
vehicle currency
currency used in financial market
double coincidence of wants
each party must have something that the other wants (innefficient)
-reason for vehicle currencies
disadvantage to dollar being a reserve currency
fluctuations in demand abroad has a greater effect domestically
advantage to dollar being a reserve currency
in exchange for dollars, US gets goods and services...only cost is printing money
forward discount
% per year by which the forward rate is below the spot rate
forward premium
% per year by which the forward rate is above the spot rate
fd or fp
= [(F-S)S] x 4 x 100
forex futures
forward currency contracts for standardized currency amounts and select dates
forex options
a right, but not an obligation, to buy (call option) or sell (put option) a standard amount of a traded currency on a stated date (European option) or anytime before a stated date (American option) at a stated price (strike price)
-there's an initial transaction cost, even if there's no transaction
fd + iuk
Byrd ammendment
encourages companies to file antidumping lawsuits by awarding the revenues collected from the resulting tariffs to the litigating companies
Slow pace of Doha talks
-National/coalition positions
-minesterial mandates
-WTO mercantilist ethic
national/coalition positions at Doha
-Countries not looking at what’s best overall—only immediate concerns
-The “blame game”
Minesterial mandates at Doha
-Developing countries have understood the meaning of the talks to be simply developed country concessions (results in little talk of services, just agriculture, etc.)
-“special” and “sensitive” industries are allowed to be left out
WTO mercantilist ethic at doha
-Political opposition to lowering barriers actually hurts the home country—trade not a zero sum game
How to renew the TPA
-Importance of Doha will need to be emphasized to Congress
-Must emphasize foreign policy cost of abandoning regional trade agreements
-Bush must give concessions to democratic congress
Results of a failed Doha
-Forgone welfare gains
-Slow weakening of the WTO—make trade disputes problematic, especially for smaller developing countries
-Increased regionalism—new bilateral FTAs among developed countries (hurts developing world)
-Increased protectionism
-Adverse shocks in financial market
Saving in the USA
-Saving estimates don’t include education, R&D, etc. that are like savings in today’s information-based economy
-Increases in relative price of houses also represent effective saving
-U.S. companies save a lot!.....even if individuals don’t
Ways to reduce China's surplus without revaluing the renminbi
-Work to build a functioning foreign exchange market
-Reduce some of its import tariffs
-Relax controls on outward movement of capital