MGT302 Exam 1

The shift toward a more integrated and interdependent world economy.

merging of distinctly separate national markets into a global marketplace

the sourcing of goods and services from locations around the world to exploit national differences in the cost and quality of factors of production

declining trade and investment barriers, technological change

microprocessors, internet, transportation technology

very complex, costs of using a nation's factors of production can change (transportation costs, exchange rate fluctuations)

commercial, political, economic, legal, cultural

lowers prices for goods and services, stimulates economic growth, creates jobs

eliminates manufacturing jobs in wealthy countries, decreases wage rates of unskilled workers, encourages companies to move to countries with fewer labor and environmental regulations.

duties imposed by a government on imported or exported goods

any governmental regulation or policy

trade policy that results in one trading partner gaining an advantage at the expense of another nation

cost advantages resulting from increased production

resources used in the production of goods and services (land, labor, capital)

world war II ended, and the world was in a depression. people were looking for anything to dig them out of it.

stagflation occurred

greed, political favoritism, quality and quantity of products

$700 billion bailout program for financial institutions and automakers

$787 billion stimulus package to jumpstart the economy and create and save jobs

one person or party exercises absolute control over all spheres of life. there is often political oppression, no free elections

belief that the state should own enterprises and run them for public good rather than private profit

productive activities are privately owned, good produced through supply and demand, role of government is to promote vigorous free and fair competition.

good and services produced, and quantity produced is planned by government. all businesses are state owned.

attempts to influence the direction of the economy through changes in government taxes or through governmental spending

attempts to influence the economy by controlling interest rates and the supply of money

banking reserve requirements, buying and selling US securities, discount rates

• -past court decisions act as precedents to form future policies.
• -judge plays significant role as a law maker.
• -an action is legal unless prohibited.

• -every law is codified or written into comprehensive codes
• -an action is illegal unless specifically allowed by code
• -duty of the judge is to apply the law as enacted

based on religious teachings (islamic law)

• -quasi-religious system mostly based on the koran and the teachings of the prophet mohammed
• -crimes have pre-established punishment

theory contends a country should maintain a trade surplus to accumulate wealth by exporting more than it imports

countries should engage in trade when they have an absolute advantage in their ability to produce goods efficiently

• -demonstrates that countries can benefit from trade even if a country has an absolute advantage of production in all products
• -a country should specialize in the production of goods that it produces most efficiently and buy other goods

countries should export goods that intensively use factor endowments which are locally abundant and import goods made from locally scarce factors

introduction, growth, maturity, decline

countries sometimes specialize in the production and export of certain products because of economies of scale and first mover advantages

national accounting system that tracks both payments to and receipts from other countries

records transactions involving the import and export of good and services

income earned on assets held abroad

records transactions that involve the purchase or sale of assets

the current, capital, and financial account balances should always add up to zero but never do.

governments payments to domestic producers that lower production costs (grants, tax breaks, low-interest loans)

fixed charge for each unit

proportion of the value of the good

restriction of the quantity of a good to be imported into a country

quota on trade imposed by exporting country, typically at the request of the importing country

requires some specific fraction of a good to be produced domestically

bureaucratic rules designed to make it difficult for imports to enter a country

designed to prevent foreign firms from selling goods below production costs and fair market value

duties assessed if the government believes that the foreign firm has engaged in dumping.

protecting jobs, national security, protecting consumers

infant industry, strategic trade policy

it's a set of rules, a negotiating forum, and a forum for settling disputes

• -agricultural subsidies
• -dispute resolution processes
• -anti-dumping actions

preferential trading arrangements in which member countries agree to coordinate their trade, fiscal, and monetary policies

• -increases world production
• -stimulates economic growth

economic interdependence creates incentives for political cooperation and this reduces potential for violent confrontation

nation as a whole may benefit, but groups within countries may be hurt

only beneficial if it creates more trade than it diverts

free trade leads to substitution of inefficient domestic production for efficient production

efficient non-member production is replaced by inefficient production

• -an agreement impacts substantially all sectors of trade
• -non-members are not exposed to more restrictive trade than before the agreement

• -lowers foreign exchange costs
• -facilitates price comparisons

• -european central bank controls monetary policy for the euro zone
• -the EU is not an optimal currency area

goals of the agreement were to remove barriers to trade and to expand investment opportunities.