Econ 340

Lecture 24
Review

Lecture 24 Outline
For each lecture:
• Outline
• Major questions
• Lists of
– Terms
– Acronyms
• Clicker questions
– Especially on graphs

Econ 340, Deardorff, Lecture 24: 2

Review

Lecture 1:
Overview of the World Economy
Overview of the World Economy
• “Globalization”
• What are the
• Elements of the World Economy elements of the
world economy?
• Ways that Countries Interact • How have they
changed?
– Trade • Who trades the
– Capital Flows most?
• Who trades with
– Migration whom?
• Policies that Affect Others
• Institutions
Econ 340, Deardorff, Lecture 24: 3
Review

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 Lecture 1:
Overview of the World Economy
• Terms • Acronyms
– Globalization – CIA
– Openness – IMF
– Gross domestic product – WTO
– Regional trade agreement – GATT
– Capital flow – IBRD
– Shallow integration – FDI
– Supply chain – RTA
– Emerging market – NAFTA
– Beggar they neighbor – SDR
– Bretton Woods

Econ 340, Deardorff, Lecture 24: 4

Review

Lecture 2: Current Tensions in

the International Economy
• NAFTA
• Brexit • What “tensions” do
these refer to?
• Trade War • What tariffs were
levied?
– Metals • On what?
• On whom?
– China • How big?
– Other? • What tariffs were
threatened but not (yet)
• WTO levied?
• Currencies
Econ 340, Deardorff, Lecture 24: 5
Review

Lecture 2: Current Tensions in

the International Economy
• Terms • Acronyms
– Rules of origin – NAFTA
– Brexit (& No Deal Brexit) – ROOs
– Hard border – USMCA
– Irish backstop – EU
– Trade war – WTO
– Truce
– National security
– Developing country
– Appellate body
– Currency manipulation
– Joint venture
– Section 301 Econ 340, Deardorff, Lecture 24: 6
Review

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Lecture 3: Comparative Advantage
and the Gains from Trade
• Why Countries Trade
– Price Differences
– Supply and Demand
• How do you define
– Determinants of Prices comparative
• Ricardian Model of Trade advantage?
– Examples • How does Ricardian
– Wages and Prices in the Ricardian theory reassure a
Model low-productivity
– Lessons from the Ricardian Model country?
• How does Ricardian
• Generality of the Gains from Trade theory reassure a
• Identifying Comparative Advantage high-wage country?
• Critiques of Comparative
Advantage

Econ 340, Deardorff, Lecture 24: 7

Review

Lecture 3: Comparative Advantage

and the Gains from Trade
• Terms
– Absolute advantage
– Comparative advantage
– Opportunity cost
– Consumer surplus
– Producer surplus
– Productivity
– Trade adjustment assistance
– Autarky
– Ricardian model
– Protection
– Mercantilism
Econ 340, Deardorff, Lecture 24: 8
Review

Lecture 4: Modern Theories

and Additional Effects of Trade
• Sources of Comparative Advantage
• The Heckscher-Ohlin Model
– Main Idea • Why is comparative
– Intuition advantage a double
– Does the Theory Work? comparison?
• How do these
• Effects of Trade theories differ in
– Changes in Production their assumptions?
– Factor Price Equalization • How do they differ
• The New Trade Theory in their
– Assumptions implications?
– Implications
• The New New Trade Theory

Econ 340, Deardorff, Lecture 24: 9

Review

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 Lecture 4: Modern Theories
and Additional Effects of Trade
• Terms • Terms
– Scale economies – Intra-industry trade
– Factor of production – Strategic trade policy
– Factor intensity – Heterogeneous firms
– Scarce factor – Increasing returns to scale
– Heckscher-Ohlin Theorem – Intra-firm trade
– Stolper-Samuelson – Capital-intensive industry
Theorem
– Leontief Paradox • Acronyms
– Imperfect competition
– IIT
– Product differentiation

Econ 340, Deardorff, Lecture 24: 10

Review

Lecture 5: Tariffs
• What Are They?
• Who Uses Them?
• Effects of Tariffs
– Small Country Case • Who gains
• Effects on quantities and prices and who
loses from a
• Effects on economic welfare
tariff?
– Large Country Case • Be able to
• Effect on world price analyze all of
• Effect on welfare these cases.
– Size of These Effects
• Addenda on Tariffs

Econ 340, Deardorff, Lecture 24: 11

Review

Lecture 5: Tariffs
• Terms • Acronyms
– Ad valorem – DWL
– Specific tariff – ERP
– Chicken tax
– Dead-weight loss
– Large country case
– Optimal tariff
– Terms of trade
– Partial equilibrium
– Homogeneous product
– Effective protection
– Retaliation
Econ 340, Deardorff, Lecture 24: 12
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 Lecture 6: Nontariff Barriers
• What Are NTBs?
• Quotas
– Effects Equivalent to Tariffs
– Who Gets the Rents
• Other NTBs
• What are these?
– Tariff-Rate Quotas • How are they
– Voluntary Export Restraints (VERs) like tariffs?
– Variable Levies • How are they
– Government Procurement Regulations different?
– Customs Procedures
– Standards
– Unfair Trade Laws
– Export taxes
• Subsidies
Econ 340, Deardorff, Lecture 24: 13
Review

Lecture 6: Nontariff Barriers

• Terms • Terms • Acronyms
– Import quota – Variable levy – NTB
– Quota rent – Anti-dumping – NTM
– Tariff equivalent duty – TRQ
– Import license – Countervailing – VER
duty
– Auction of quota – CAP
– Rent seeking – Export tax
– Quality upgrading – Subsidy
– Procurement
– Tariff-rate quota
regulation
– Common Agricultural Policy
– Buy American
– Customs procedure
Econ 340, Deardorff, Lecture 24: 14
Review

Lecture 7: Reasons for

Protection
• Reasons that DO NOT Make Economic Sense
– Pauper Labor
– Fairness
– Patriotism
– Retaliation
• Reasons the DO Make Economic Sense, with • What are these
Counter-Arguments reasons?
– Revenue • Are there
– Optimal Tariff counter-
– Infant Industry arguments for
– National Security them?
– Culture
– Unfair Trade
– Protect Favored Industry
– Retaliation…
• Production Subsidy versus Tariff
• Why Aren’t Tariffs Higher?
Econ 340, Deardorff, Lecture 24: 15
Review

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 Lecture 7: Reasons for
Protection
• Terms • Acronyms
– Pauper labor – GATT
– Optimal tariff
– Zero-sum game
– Infant industry
– National security
– Retaliation
– Protection for Sale
– Second best
– Economic sanction
– Political economy

Econ 340, Deardorff, Lecture 24: 16

Review

Lecture 8: US Trade Policies and

Institutions
• Parts of the US Government that • What are these
Handle Trade and what do they
do?
• Main Features of US Trade Policies
– Tariffs, Quotas, VERs
– Escape Clause • What are these?
– Unfair Trade Laws • Do other
– Trade Adjustment Assistance countries have
– Fast Track them too?
– GSP
• Dumping and Anti-Dumping • What are
dumping and
• Why the US Protects anti-dumping ?
• Trends in US Trade Policy

Econ 340, Deardorff, Lecture 24: 17

Review

Lecture 8: US Trade Policies

and Institutions
• Terms • Terms • Acronyms
– Trade Commissioner – Wage insurance – METI
– Ways and Means – Fast Track – USTR
– Finance Committee – Dumping – ITA
– Columns 1 and 2 – Countervailing duty – USITC
– Trade restrictiveness – Industrial policy – VER
index – Standing – TAA
– Escape clause – ATAA
– Section 201 – TPA
– Unfair trade – TPP
– Trade Adjustment – GSP
Assistance – CVD
– Predatory dumping
Econ 340, Deardorff, Lecture 24: – MFA 18
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 Lecture 9: World Trade
Arrangements and the WTO
• International Organizations
• World Trade Organization
– History, as GATT
– GATT Rounds
– WTO Today
– Functions • What does the
WTO do?
• Current Issues • How successful
– Seattle Protests and Beyond has it been?
– Doha Round
– Disputes
– Other Issues
• WTO Critiques
Econ 340, Deardorff, Lecture 24: 19
Review

Lecture 9: World Trade

Arrangements and the WTO
• Terms • Terms • Acronyms
– Smoot-Hawley – Plurilateral – GATT
– Ministerial meeting agreement – WTO
– Rounds (Kennedy, – Market-economy – OECD
Tokyo, Uruguay, Doha) status – EU
– Shrimp-turtle dispute – NAFTA
– Swiss Formula
– National treatment – Principal supplier – USMCA
and demander – UNCTAD
– Consensus – ILO
– Dispute settlement – World Bank
– WIPO
– Trade facilitation
– Tariff binding – NGO
– Panel – ITO
– Appellate Body – GATS
Econ 340, Deardorff, Lecture 24:
– TRIPs 20
Review – MFN

Lecture 10: Migration

• Why People Migrate
• Why Wages Differ across
Countries
• Effects of Migration • How is migration
– On Payments to Factors like trade?
• How is it not like
• Labor trade?
• Other
– Other Effects
• Policies to Affect Migration
• Facts about Migration
Econ 340, Deardorff, Lecture 24: 21
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 Lecture 10: Migration
• Terms
– Intangible wealth
– Infrastructure
– Property rights
– Remittances
– Population pyramid
– Guest worker program
– South-south migration
– Balkanization
– Brain drain
– Demand-pull vs. supply-
push
Econ 340, Deardorff, Lecture 24: 22
Review

Lecture 11: Multinationals and

International Capital Movements
• Terminology
– FDI, DFI, MNEs, MNCs
• How is FDI like
– Real Versus Financial Capital trade?
• History • How is it not like
trade?
• Purposes Served by FDI • How is FDI like
– Local Market versus Export migration?
– Reasons for FDI • How is it not like
migration?
• Who Gains and Who Loses? • Who are mostly
– Effects that are Similar to Trade sources?
• Who are mostly
– Effects that are Similar to Migration hosts?
– Other Effects
Econ 340, Deardorff, Lecture 24: 23
Review

Lecture 11: Multinationals and

International Capital Movements
• Terms • Acronyms
– Foreign direct investment – DFI
– Capital flow – FDI
– Source country – MNE
– Host country – MNC
– Export platform – TNC
– Tariff jumping – MOFA =Majority-owned
foreign affiliate
– Transplants

Econ 340, Deardorff, Lecture 24: 24

Review

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 Lecture 12: The Balance of Trade
and International Transactions
• What Is the Balance of Trade?
• What the Balance of Trade Does
Not Mean
• International Transactions • How do
transactions
– Current Account enter the
– Financial Account accounts?
• What does a
• What the Balance of Trade Does deficit really
Mean mean?

– From Balance of Payments

Accounting
– From National Income Accounting
Econ 340, Deardorff, Lecture 24: 25
Review

Lecture 12: The Balance of Trade

and International Transactions
• Terms • Terms
– Trade balance – Investment position
– Current account – Plaza Accord
– Financial Account – Official reserve assets
– Transfer payments – Odious debt
– Credits
– Debits
– Primary income
– Secondary income
– Statistical discrepancy
– Recession

Econ 340, Deardorff, Lecture 24: 26

Review

Lecture 13: Exchange Rates

• In What Forms Are Exchange Rates
Reported?
– Bilateral Nominal Rates
– Multilateral (Trade-Weighted) Rates
– Real Rates • In what forms
are exchange
– Forward Rates rates reported?
• What Determines Exchange Rates? • How are they
– Markets determined?
• Three
– Governments/Central Banks theories
• Theories of Exchange Rates
– Purchasing Power Parity
– Asset Theory
– Supply and Demand Model
Econ 340, Deardorff, Lecture 24: 27
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 Lecture 13: Exchange Rates
• Terms
– Bilateral rate
– Multilateral rate
– Real rate
– Forward rate
– Overvalued/undervalued
– Big Mac Index
– Appreciate/depreciate
– Arbitrage
– Law of one price
– Dirty float
– Devaluation
Econ 340, Deardorff, Lecture 24: 28
Review

Lecture 14:
Pegging the Exchange Rate
• How It’s Done
– Market Intervention
– Bands of Fluctuation
– Hybrids of Pegged and Floating
– The Gold Standard
• Who Pegs? • How are exchange
rates pegged?
• Mechanics of Intervention • What, why, and how
– Reserves is sterilization?
– Money Supply
– Sterilization
• Effects of Pegging
• Chinese Currency Manipulation
Econ 340, Deardorff, Lecture 24: 29
Review

Lecture 14:
Pegging the Exchange Rate
• Terms • Terms
– Pegging – Exchange-rate crisis
– Intervention – Currency manipulation
– Par value – Dollarization
– Managed float
– Leaning against the wind
– Crawling peg
– Gold standard
– International reserves
– Sterilization
– Overvalued/undervalued

Econ 340, Deardorff, Lecture 24: 30

Review

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 Lecture 15: International
Macroeconomics
• Recall Macro from Econ 102
– Aggregate Supply and Demand
• How do macro
– Policies policies affect
• Effects ON the Exchange Market exchange rate?
• How do
– Expansion exchange rate
– Interest Rate changes affect
macro
• Effects OF the Exchange Market economy?
– Depreciation effects via Trade • How do macro
changes in one
– Depreciation effects via Net Wealth country affect
others?
• Effects THOUGH the Exchange
Market
Econ 340, Deardorff, Lecture 24: 31
Review

Lecture 15: International

Macroeconomics
• Terms • Acronyms
– Aggregate supply – LRAS
– Aggregate demand – SRAS
– Natural rate of output – AD
– Monetary
expansions/contraction
– Non-monetary
expansion/contraction
– Fiscal policy
– Trade effect of depreciation
– Wealth effect of depreciation
– Pass-through

Econ 340, Deardorff, Lecture 24: 32

Review

Lecture 16: Currency Manipulation

and Currency Wars
• Currency Manipulation
– What it is
• How is currency
– Chinese currency manipulation manipulation
identified?
– Other currency manipulation • When has, and
has not, China
• Currency Wars manipulated its
currency?
– History • What happens in
a currency war?
– Currency war today?
– Currency war effects
Econ 340, Deardorff, Lecture 16: 33
CurWar

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Lecture 16: Currency Manipulation
and Currency Wars
• Terms • Terms
– Currency manipulation – Silver Purchase Act
– One-sided intervention – Nixon Shock
– Current account surplus – Plaza Accord
– Reserves – Great Recession
– Renminbi – Flight to safety
– Yuan
– Watch list • Acronyms
– Stimulus – ECB
– Key threshold
– Currency war
– Gold standard
Econ 340, Deardorff, Lecture 24: 34
Review

Lecture 17: European Monetary Unification

and the Euro
• What Is It?
• History of the EMU • When was the
euro created, and
• Need for Convergence for whom?
• What is needed
• Pros and Cons of Unification for the single
currency to work?
– Why Adjustment Is Hard • What initiated
and what
– Winners and Losers under EMU terminated the
eurozone crisis?
• What Happened?
• The Eurozone Crisis
Econ 340, Deardorff, Lecture 24: 35
Review

Lecture 17: European Monetary

Unification and the Euro
• Terms • Terms • Acronyms
– Eurozone – Spread – ECB
– Snake in the tunnel and – Banking union – EMU
floating snake – Haircut – EMS
– Maastricht Treaty – Bail-in – ERM
– Convergence – Doom loop – ECU
– Fiscal restraint – Perverse loop – CPI
– Asymmetric shock – Sudden stop – SGP
– Parity – PIGS
– Quantitative easing – PIIGS
– Troika – EZ
– PSI
Econ 340, Deardorff, Lecture 24: 36
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 Lecture 18: Preferential Trading
Arrangements and the NAFTA
• What Are PTAs?
• Examples
– European Union (EU)
– North American Free Trade Agreement • What and where
(NAFTA) are PTAs?
• Effects of PTAs • What is trade
– Not the Same as Free Trade diversion, and
• Trade Creation how does it hurt?
• Trade Diversion • What happened
with NAFTA?
– Market Diagram Illustration
• How does
• NAFTA USMCA differ
– History from NAFTA?
– Analysis
– What Happened?
• NAFTA Renegotiation and USMCA
Econ 340, Deardorff, Lecture 24: 37
Review

Lecture 18: Preferential Trading

Arrangements and the NAFTA
• Terms • Acronyms • Acronyms
– Free trade area – PTA – NAFTA
– Customs union – FTA – ISDS
– Common market – RTA – USMCA
– Anti-dumping duty – GSP – BIT
– Countervailing duty – GATT
– Rules of origin – MFN
– Mercosur – ROO
– Trade creation – EEC
– Trade diversion – CAFTA
– Chapters 11 and 19 – TPP
– Sunset clause
Econ 340, Deardorff, Lecture 24: 38
Review

Lecture 19: International Policies

for Economic Development: Trade
• The Main Issues of Development
• What policies are
• The Washington Consensus recommended for
• Special Problems of Developing developing
Countries countries?
• Are these
• Pros and Cons of Tariffs Used by different than for
Developing Countries developed
– The Infant Industry Argument countries, and
– Primary-Product Specialization why?
• How should
– Growth and Exports / Import Substitution
developed
• Pros and Cons of Subsidies Used by countries behave
Developed Countries differently?
• Policy Recommendations
Econ 340, Deardorff, Lecture 24: 39
Review

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 Lecture 19: International Policies
for Economic Development: Trade
• Terms • Terms • Acronyms
– Washington Consensus – Primary product – LDC
– Copenhagen Consensus – Terms of trade – LIC
– Fiscal discipline – Import substitution – MIC
– Tax reform – Export promotion – HIC
– Privatization – Four Tigers – GSP
– Third world – Subsidy – METI
– Human capital – Demographic
– Economic freedoms transition
– Intangible capital
– Infant industry
– Second best
Econ 340, Deardorff, Lecture 24: 40
Review

Lecture 20: International Policies for

Economic Development: Financial
• The Issues • Are floating
exchange rates
• Choice of Exchange Rate Regime worse for
developing
• Pros and Cons of Free Capital countries?
Movements • Why should, or
should not,
– Debt Problem of the 1980s developing
countries restrict
– The Asian Crisis of 1997 capital flows?
– Capital Controls • Are bailouts and
debt forgiveness
• (How) Should Others Help? good for
developing
• The World Financial Crisis and countries?
Developing Countries
Econ 340, Deardorff, Lecture 24: 41
Review

Lecture 20: International Policies for

Economic Development: Financial
• Terms • Terms • Acronyms
– Bailout – Asian Crisis – OPEC
– Debt forgiveness – Speculative attack – HPAE
– Exchange-rate anchor – Capital controls – HIPC
– Leverage – Contagion
– Currency risk – Moral hazard
– Liquid capital – Technical
– Latin American debt assistance
problems – Economic
– Petrodollars populism
– Loan rescheduling
– Lost decade
Econ 340, Deardorff, Lecture 24: 42
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 Lecture 21: International Policies
for Economic Development: Aid
• Why Should We Care?
• Who gives aid?
• Who Gives Aid? • Does aid help
growth?
• Does Aid Work? • Does aid reduce
poverty?
• How can aid be
• Pros and Cons of Aid made more
effective?
• Policy Recommendations • What are/were
the MDGs and
• Where We Stand in SDGs?
Development
Econ 340, Deardorff, Lecture 24: 43
Review

Lecture 21: International Policies for

Economic Development: Aid
• Terms • Acronyms
– Live Aid / Live 8 – USAID
– Private aid – ODA
– Connectivity – DAC
– Triple transformation – CIAO
– Scalability – MCA
– Accountability – MDG
– Tied aid – SDG
– Food aid
– Doing Business

Econ 340, Deardorff, Lecture 24: 44

Review

Lecture 22:
Outsourcing and Offshoring
• Definitions of OS • What are the
causes and
• Causes of OS effects of
offshoring?
• Effects of OS • Is offshoring
expected to
• Facts about OS increase or
decrease over
• Policies time?

Econ 340, Deardorff, Lecture 24: 45

Review

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 Lecture 22:
Outsourcing and Offshoring
• Terms
– Offshoring
– Outsourcing
– Offshorable vs. not
offshorable
– Made in the world
– Logistics
– Reshoring
– Adjustment assistance

Econ 340, Deardorff, Lecture 24: 46

Review

Lecture 23: Environment, Labor

Standards, and Trade
• The Issues • What
environmental
• Environment problems are
– Examples related to trade?
• Why might trade
– Policies and the WTO be
– International Problems harmful for
– Role of the WTO environmental
and labor
• Labor Standards standards?
• Does the US
– Fundamental ILO Conventions support strong
– United States Role labor standards?
– Issues

Econ 340, Deardorff, Lecture 24: 47

Review

Lecture 23: Environment, Labor

Standards, and Trade
• Terms • Terms • Acronyms
– Externality – Produce-more- – NAFTA
– Maquiladoras pollute-more model – TPP
– Tuna-dolphin – Harmonization – USMCA
– Shrimp-turtle – Fundamental labor – CFC
standard
– Cap and trade – ILO
– Optimal externality – Income elastic – MNE
– Montreal Protocol – Carbon tariff – NGO
– Carbon leakage
– Pollution tax – WTO
– ILO Conventions
– Pollution haven – TRIPs
– Race to the bottom – FTA

Econ 340, Deardorff, Lecture 24: 48

Review

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