Key Points fromPeriod 3


Key Points


  • Foreign exchange : the banks and other financial institutions  that facilitate buying and selling of foreign currencies.
  • Strong and weak currency: As the dollar becomes stronger, American exports decline. As the dollar becomes weaker, American exports rise.
  • Determining the rate of exchange: When it comes to determining the rate of exchange one must calculate the exchange rates.
  • Fixed exchange rate systems: a currency system which governments try to keep the value of their currencies constant against one another.
  • The Bretton Woods Conference: Occurred in 1944, Bretton Woods, New Hampshire. 44 countries met to discuss financial arrangements for a postwar world after the expected defeat of Japan.
  • Flexible exchange rate systems: a currency system that allows the exchange rate to be determined by supply and demand.
  • Understanding the balance of trade: the relationship between a nations imports and its exports.
  • The United States trade deficit: the results of a nation exporting more than it imports.
  • Reducing the Trade deficit: to export more than to import. Its a way of decreasing the deficit.


17.2Trade Barriers and Arguments

Trade Barriers

         Most countries have trade barriers that hinder trade.

         Trade Barrier: A means of preventing a foreign product or servicefrom entering a nation.

         Their are different forms of a trade barrier:

         Import Quote (Law): a limit on the amount of a good that can beimported.

o        Example: 2 cows from India, 4 Canada, 1 Mexico

         Voluntary Export Restraint (VER): a self-imposed limitation on thenumber of products shipped to a particular country.

         Example: A county limits restrains in order to attempt to reducetrade barriers.

         Customs Duty: a tax on certain items purchased abroad.

         Example: tax on stuff at the airport

         Tariff: A tax on imported goods. Paid by individuals andbusinesses.

         Licenses in order to sell goods

         Health and safety regulation

Effects ofTrade Barrier

         Producers of many products may benefit from trade barriers,consumers lose out.

         Trade barriers result in higher prices.

         Economic conflict is another possible outcome of trade barrier

         Trade war: a cycle of increasing trade restrictions.

         Example: Smoot-Hawley tariff in 1930,

         Beef War of 1999

         Steel Tariff of 2002

Arguments forProtection

         Protectionism: the use of trade to protect a nation's industriesfrom foreign competition.

         Protecting workers, infant industries and safeguard nationalsecurity.

         Protecting jobs

         It shelters work in industries that would be hurt by foreigncompetition.

         Protecting Infant Industries

         Protectionism protects new industries to learn so that they cancompete

         Infant Industry: a new industry

         Safeguarding National Security

         They want to protect American industry to insure security in caseof a natural disaster.


         They want to encourage free trade in order to pursue comparativeadvantage, raise living standards, and further international peace.

         International Free Trade Agreement: Agreement that results fromcooperation between at least two countries to reduce trade barriers and tariffsand to trade with each other.

         The Reciprocal Trade Agreement Act of 1934 gives the president thepower to reduce tariffs by 50%.

         General Agreement on Tariffs and Trade (GATT) established toreduce tariffs and expand trade.

         World Trade Organizations (WTO) is a world organization whose goalis free global trade and lower tariffs. (Acts as a referee)

         Many countries join customs union which are agreements among unionmembers and the adopt uniform tariffs for nonmembers.

         European Union (EU) a regional trade organization made up ofEuropean nations.

         Euro: a single currency that replaces individual currencies amongmembers of the EU.

         Free Trade Zones: a region where a group of countries agree toreduce or eliminate trade barriers.

         North American Free Trade Organization (NAFTA) agreement that willeliminate all tariffs and other trade barriers between Canada, Mexico, and theUS

1.       No tariffs on farm product & other 10,000 goods >15 years

2.       Automobile tariffs are to be phased pot over 15 yrs.

3.       A special judge can resolve trade dispute.

4.       No agreement to over ride national or state environment, health orsafety laws.

5.       Trucks are to have free access along border.

Asia- PacificEconomic Cooperation (APEC): nonbinding agreement to reduce trade barriersamong their nations.

SouthernCommon Market (MERCOSUR) similar to EU, Brazil, Argentina, Paraguay andUruguay.

The CaribbeanCommunity and Common Market (Caricom) includes countries from South America andCaribbean.

Amultinational corporation (MNCS) is a large corporation that sells goods andservices throughout the world.

can gainexcess political power.




l      Eachcountry in the world possesses different types and quantities of land labor andcapital resources which affects how nations trade. With the diversity ofresources that is spread amongst the world this causes a lot of import andexport between different nations.

l      Differenteconomic patterns in countries can determine how much and when the country willspend on traded resources.

l      Fivemajor economic activities are producing, exchanging, consuming, saving andinvesting.

l      UnitedStates is biggest exporter, and it shows because of our debt. Even though weimport the most in the world are exports exceeds are imports.

l      Tradeallows nations to specialize in a limited amount of goods while consuming agreater variety of goods. However specialization can also dramatically change anations employment pattern


l      AbsoluteAdvantage: the ability to produce more of a given product using a givenamount of resources.

l      ComparativeAdvantage: the ability to produce a product most efficiently given all ofthe other products that can be produced.

l      Lawof Comparative Advantage: the idea that a nation is better off when itproduces goods and services for which it has a comparative advantage.

l      Export:a good that is sent to another country for sell

l      Import:a good that is brought from another country for sell



Section 18.1Levels of Development

               Development: the process by which a nation improves the economic, political, and social well-being of its people

               Developed nations have a higher average level of material well-being, whereas less developed countries (LDCs) include the poorest countries: Bangladesh, Nepal, Albania, Central and Southern Africa, Mexico, Poland, Saudi Arabia, former USSR nations

Ways to tell a developed nation:

o       Per capita GDP: Total worth divided by total population

o       Industrialization: organization of an economy for the purpose of manufacture

o       Labor force: skilled workers vs. unskilled, unemployment rate

o       Consumer goods: how many goods are produced per capita

o       Literacy Rate: percent of people over 15 who can read or write, measures the overall level of education of a country

o       Life Expectancy: average expected life span of citizens

o       Infant Mortality Rate: number of deaths in first year of life per 1000 live births

Stages of development levels

o       Primative Equilibrium: no formal organization, based on tradition

o       Transition: Cultural traditions crumble, new patterns are adopted

o       Takeoff: New industries grow

o       Semidevelopment: Economy expands, enters international market

o       Highly developed: Basic human needs are met easily, economy focuses on consumer goods and public services



Key Points

Section 18.2: Issues In Development


  • Less developed countries (LDCs) face a variety of complex issues:
  • Rapid population growth results in depletion of natural resources in some LDCs.
  • For some LDCs, there is plenty natural resources but they have no means to process the raw materials.
  • A lack of physical capital creates a lack of economic productivity.
  • Malnutrition is a huge issue. A lack of food is caused in part by the rapid population growth and the food supply is being depleted exponentially.
  • Lack of education does not allow for technological growth, which in turn doesnt allow for economic growth.
  • Brain Drain- the loss of educative systems throughout LDCs.
  • Leaders make decisions to benefit themselves and fellow elites, instead of taking care of their countries people.
  • Massive debt accrues because of massive loans leaders will take out that cannot be paid back.