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why do people/countries/buisnesses trade?
because they believe they will benefit from the trade
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comparative advantage
in order to maximize trade, each country specializes in goods it produces most cheaply, (example China in electronics, US in furniture?)
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What are the largest categories of US exports?
services and capital goods
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What is the largest category for US imports?
industrial supplies and materials i.e. oil
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What is a trade surplus?
value of exports exceeds value of imports in a given period of time
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What is a trade deficit?
value of imports exceeds value of exports in a given period of time
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The value of US imports and exports has steadily ________ (increased/decreased) over time.
increased
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The US faces a trade ________ (surplus/deficit)
deficit
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Trade Restrictions
actions by gov't to limit trade
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Tariff
tax on imports. Increases price of imports to put foreign producers at disadvantage.
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Quota
limit gov't puts on amount of product that may be imported.
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Quotas target imports from ____________ __________.
particular countries
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What are two problems with trade restrictions?
- trade war
- slowing of introduction of new goods
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Overall the trend has been toward _______ (lower/higher) tariffs
lower
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free trade
international trade with no restrictions made by gov'ts
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free trade leads to ____________ (decreased/ increased) competition among buisnesses.
increased
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What do buisnesses have to do to compete when there is free trade?
- 1) increase productivity
- 2) pay workers less
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How can free trade be achieved?
gov'ts can join other countries to create common markets or sign mutilateral agreements
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What are fixed exchanged rate systems?
exchange rates fixed by gov'ts
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What are flexible exchange rate systems?
exchange rate determined by supply and demand
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Are fixed or flexible exchange rates more common today?
flexible
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What are three reasons US citizens might need foreign currency?
- 1) to buy foreign goods
- 2) to invest in another country (stock market)
- 3) to buy and sell (speculate) foreign exchange to make a profit
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appreciation
demand for american products increases, demand for USD increases, so value of USD increases
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depreciation
demand for american products decreases, demand for USD decreases, so value of USD decreases
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