Lecture Notes

1. Lecture Notes December 2, 2003 Unit 6 – The International Economy Readings: text, Ch. 17, 18 Krugman, Ch. 10, Appendix, Epilogue

2. December 2, 2003 2 Globalization International trade, capital flows have increased much more rapidly than GDP Political, economic unification (Europe) Reform of regulations on trade, capital flows A hot-button term for radicals: “globalization now is what used to be called imperialism” “privatization” Some truth to this: in many respects the global economy looks like it did in the pre-WW I era

3. December 2, 2003 3 Ch. 17 -- International Trade and Public Policy International trade – economic theory gives more guidance here than in most areas of macroeconomics With some qualifications, international trade is beneficial But it’s very controversial politically Seen as threatening jobs Bush agricultural, steel tariffs

4. December 2, 2003 4 The case for international trade Two countries, Chipland and Shirtland The populations are the same Chipland is more productive in both chips and shirts Chipland can produce more of either chips or shirts than Shirtland Chipland has an absolute advantage in both shirts and chips But a comparative advantage in chips Shirtland has a comparative advantage in shirts

5. December 2, 2003 5 Production possibility curves