Brief Contents
Chapter 1: Introduction
Part One: International Trade Theory
Chapter 2: The Law of Comparative Advantage
Chapter 3: The Standard Theory of International Trade
Chapter 4: Demand and Supply, Offer Curves, and the Terms
of Trade
Chapter 5: Factor Endowments and the Heckscher-Ohlin Theory
Chapter 6: Economies of Scale, Imperfect Competition,
and International Trade
Chapter 7: Economic Growth and International Trade
Part Two: International Trade Policy
Chapter 8: Trade Restrictions: Tariffs
Chapter 9: Nontariff Trade Barriers and the New Protectionism
Chapter 10: Economic Integration: Customs Unions and Free
Trade Areas
Chapter 11: International Trade and Economic Development
Chapter 12: International Resource Movements
and Multinational Corporations
Part Three: Foreign Exchange Markets, Exchange
Rates, and the Balance of Payments
Chapter 13: Foreign Exchange Markets and Exchange Rates
Chapter 14: Balance of Payments
Part Four: Open-Economy Macroeconomics: Adjustment
in the Balance of Payments
and Domestic Stability
Chapter 15: The Price Adjustment Mechanism Under a Flexible
and a Fixed Exchange Rate System
Chapter 16: The Income Adjustment Mechanism and Synthesis
of Automatic Adjustments
Chapter 17: Open-Economy Macroeconomics: Adjustment Policies
Chapter 18: Prices and Output in an Open Economy: Aggregate
Demand and Aggregate Supply
Chapter 19: The Monetary and Portfolio Balance Approaches
Chapter 20: Flexible Versus Fixed Exchange Rates, the European
Monetary System, and Macroeconomic Policy
Coordination
Chapter 21: The International Monetary System:
Past, Present, and Future
Answers to Selected Problems
Glossary of Key Terms
Name Index
Subject Index
Contents
Suggested core chapters and sections for a one-semester course in Interna-
tional Economics for students with background in Principles of Economics
only.
CHAPTER 1 Introduction
1.1 The Importance of International Economics
Case Study 1-1: Even the IBM PC Isn't All-American
1.2 International Trade and the Nation's Standard of Living
Case Study 1 -2: The Rising Importance of International Trade
to the United States
1.3 The Subject Matter of International Economics
1.4 The Purpose of International Economic Theories and Policies
1.5 Current International Economic Problems
l.5a The Rising Trade Protectionism in Developed Countries
l.5b The Excessive Flnrctuqtions and Large Disequilibria in
Exchange Rates
l.5c The High Stmctural Unemployment in Europe
l.5d The Restructuring Problems Facing Eastern Europe
and the Former Soviet Union
l.5e The Deep Pnvfirtv of Some of the Poorest Developing
Countries
1.6 Organization and Methodology of the Text
l.6a Organization of the Text
l.6b Methodology of the Text
Summary ?A Look Ahead ?Key Tenns ?Questions for
Review ?Problems
Appendix: Al.l Basic Country Characteristics
Al.2 Sources ofAdditional Intemational Data and
Information
Selected Bibliography
PART ONE INTERNATIONAL TRADE THEORY
CHAPTER 2 The Law of Comparative Advantage
2.1 Introduction
2.2 The Mercantilists' Views on Trade
Case Study 2-1: Munn's Mercantilistic Views on Trade
2.3 Trade Based on Absolute Advantage: Adam Smith
2.3a Absolute Advantage
2.3b Illustration of Absolute Advantage
2.4 Trade Based on Comparative Advantage: David Ricardo
2.4a The Law of Comparative Advantage
2.4b The Gains from Trade
2.4c Exception to the Law of Comparative Advantage
2.4d Comparative Advantage with Money
2.5 Comparative Advantage and Opportunity Costs
2.5a Comparative Advantage and the Labor Theory of Value
Case Study 2-2: The Petition of the Candlemakers
2.5b The Opportunity Cost Theory
2.5c The Production Possibility Frontier Under Constant
Costs
2.5d Opportunity Costs and Relative Commodity Prices
2.6 The Basis for and the Gains from 'Trade Under Constant Costs
2.6a Illustration of the Gains from Trade
2.6b Relative Commodity Prices with Trade
2.7 Empirical Tests of the Ricardian Model
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A2.1 Comparative Advantage with More Than Two
Commodities
A2.2 Comparative Advantage with More Than Two Nations
Selected Bibliography
CHAPTER 3 The Standard Theory of International
Trade
3.1 Introduction
3.2 The Production Frontier with Increasing Costs
3.2a Illustration of Increasing Costs
3.2b The Marginal Rate of Transformation
3.2c Reasons for Increasing Opportunity Costs and Different
Production Frontiers
3.3 Community Indifference Curves
3.3a Illustration of Community Indifference Curves
3.3b The Marginal Rate of Substitution
3.3c Some Difficulties with Community Indifference Curves
3.4 Equilibrium in Isolation
3.4a Illustration of Equilibrium in Isolation
3.4b Equilibrium Relative Commodity Prices and Comparative
Advantage
3.5 The Basis for and the Gains from Trade with Increasing Costs
3.5a Illustrations of the Basis for and the Gains from Trade
with Increasing Costs
Case Study 3-1: Comparative Advantage of the United States,
the European Union, and Japan
3.5b Equilibrium Relative Commoditv Prices with Trade
3.5c Incomplete Specialization
3.5d Small Country Case with Increasing Costs
3.5e The Gains from Exchange and from Specialization
3.6 Trade Based on Differences in Tastes
Case Study 3-2: Reallocating Labor in the United States:
Comparative Advantage at Work
3.6a Illustration ofTrade Based on Differences in Tastes
Summary ?A Look Ahead Key Terms Questions for
Review ?Problems
Appendix: A3.1 Production Functions, Isoquants, Isocosts, and
Equilibrium
A3.2 Production Theory with Two Nations. Two
Commodities, and Two Factors
A3.3 Derivation of the Edgeworth Box Diagram and
Production Frontiers
A3.4 Some Important Conclusions
Selected Bibliography
CHAPTER 4 Demand and Supply, Offer Curves, and the
Terms of Trade
4.1 Introduction
4.2 The Equilibrium Reiative Commodity Price with Trade--Partial
Equilibrium Analysis
4.3 Offer Curves
CONTENTS
Case Study 4-1: The Index of Export to Import Prices for the
United States
4.3a Origin and Definition of Offer Curves
4.3b Derivation and Shape of the Offer Curve of Nation 1
4.3c Derivation and Shape of the Offer Curve of Nation 2
4.4 The Equilibrium Relative Commodity Price with Trade--
General Equilibrium Analysis
4.5 Relationship Between General and Partial Equilibrium
Analyses
4.6 The Terms of Trade
4.6a Definition and Measurement of the Terms of Trade
4.6b Illustration of the Terms of Trade
4.6c Usefulness of the Model
Case Study 4-2: The Terms of Trade of Developing and
Developed Countries
Summary ?A Look Abead ?Key Terms ?Questions for
Review ?Problems
Appendix: A4.1 Derivation of a Trade Indifference Curve for Nation 1
A4.2 Derivation of Nation 1 's Trade Indifference
Map
A4.3 Formal Derivation of Nation l's Offer Curve
A4.4 Outline of the Formal Derivation of Nation 2's Offer
Curve
A4.5 General Equilibrium of Production, Consumption,
and Trade
A4.6 Multiple and Unstable Equilibria
Selected Bibliography
CHAPTER 5 Factor Endowments and the Heckscher-Ohlin
Theory
5.1 Introduction
5.2 Assumptions of the Theory
5.2a The Assumptions
5.2b Meaning of the Assumptions
5.3 Factor Intensity, Factor Abundance, and the Shape of the
Production Frontier
5.3a Factor Intensity
5.3b Factor Abundance
5.3c Factor Abundance and the Shape of the
Production Frontier
Case Study 5-1: Relative Resource Endowments of Leading
Industrial Countries
Case Study 5-2: Capital-Labor Ratios of Selected Countries
5.4 Factor Endowments and the Heckscher-Ohlin Theory
5.4a The Heckscher-Ohlin Theorem
5.4b General Equilibrium Framework of the Heckscher-Ohlin
Theory
5.4c Illustration of the Heckscher-Ohlin Theory
Case Study 5-3: Patterns of Comparative Advantage in Leading
Industrial Countries
5.5 Factor-Price Equalization and Income Distribution
5.5a The Factor-Price Equalization Theorem
5.5b Relative and Absolute Factor-Price Equalization
5.5c Effect of Trade on the Distribution of Income
5.5d Empirical Relevance
Case Study 5-4: Convergence of Real Wages Among Industrial
Countries
5.6 Empirical Tests of the Heckscher-Ohlin Model
5.6a Empirical Results-The Leontief Paradox
5.6b Explanations of the Leontief Paradox
5.6c Factor-Intensity Reversal
Case Study 5-5: Capital and Labor Requirements in U.S.
Trade
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A5.1 The Edgeworth Box Diagram for Nation 1 and
Nation 2
A5.2 Relative Factor-Price Equalization
A5.3 Absolute Factor-Price Equalization
A5.4 Effect of Trade on the Short-Run Distribution of Income:
The Specific-Factors Model
A5.5 Illustration of Factor-Intensity Reversal
A5.6 The Elasticity of Substitution and Factor-Intensity
Reversal
A5.7 Empirical Tests of Factor-Intensity Reversal
Selected Bibliography
CHAPTER 6 Economies of Scale, Imperfect Competition,
and Intemational Trade
6.1 Introduction
6.2 The Heckscher-Ohlin Model and New Trade Theories
6.3 Economies of Scale and International Trade
6.4 Imperfect Competition and International Trade
6.4a Trade Based on Product Differentiation
Case Study 6-1: U.S. Intra-Industry Trade in Automotive
Products
6.4b Measuring Intra-Industry Trade
6.4c Formal Model of Intra-Industry Trade
Case Study 6-2: Intra-Industry Trade of Leading Industrial
Countries
6.5 Trade Based on Dynamic Technological Differences
and Synthesis of Trade Theories
6.5a The Technological Gap and Product Cycle Models
6.5b Illustration of the Product Cycle Model
6.5c Synthesis of Trade Theories
6.6 Transportation Costs, Environmental Standards, and International
Trade
6.6a Transportation Costs and Nontraded Commodities
6.6b Transportation Costs and the Location of Industry
Case Study 6-3: The Maquiladoras: U.S. Plants Along
the U.S.-Mexican Border
6.6c Environmental Standards, Industry Location, and
Intemational Trade
Summary A Look Ahead Key Terms Questions for
Review Problems
Appehdix: A6.1 External Economies and the Pattern of Trade
A6.2 Dynamic External Economies. and Specialization
Selected Bibliography
CHAPTER 7 Economic Growth and International Trade
7.1 Introduction
7.2 Growth of Factors of Production
7.2a Labor Growth and Capital Accumulation Over Time
7.2b The Rybczynski Theorem
7.3 Technical Progress
7.3a Neutral, Labor-Saving, and Capital-Saving Technical
Progress
7.3b Technical Proeress and the Nation's Production
Frontier
Case Study 7-1: Changes in Relative Resource Endowments
of Leading Industrial Countries
Case Study 7-2: Factor Growth and Changes in Comparative
Advantage
Case Study 7-3: Changes in Capital-Labor Ratios of Selected
Countries
7.4 Growth and Trade: The Small Country Case
7.4a The Effect of Growth on Trade
7.4b Illustration of Factor Growth, Trade, and Welfare
7.4c Technical Progress, Trade, and Welfare
7.5 Growth and Trade: The Large Country Case
7.5a Growth and the Nation's Terms of Trade and Welfare
7.5b Immiserizing Growth
7.5c Illustration of Beneficial Growth and Trade
7.6 Growth, Change in Tastes, and Trade in Both Nations
7.6a Growth and Trade in Both Nations
7.6b Change in Tastes and Trade in Both Nations
Case Study 7-4: Changes in the Pattern of Comparative Advantage
in the Leading Industrial Countries
Summary ?A Look Ahead ?Key Terms ?Questions for
Review ?Problems 209
Appendix: A7.1 Formal Proof of the Rybczynski Theorem
A7.2 Growth with Factor Immobility
A7.3 Graphical Analysis of Hicksian Technical Progress
Selected Bibliography
PART TWO INTERNATIONAL TRADE POLICY
CHAPTER 8 Trade Restrictions: Tariffs
8.1 Introduction
8.2 Partial Equilibrium Analysis of a Tariff
Case Study 8-1: Average Tariffs for Major Developed Countries
and Products
8.2a Partial Equilibrium Effeets of a Tariff
8.2b Effect of a Tariff on Consumer and Producer Surplus
8.2c Costs and Benefits of a Tariff
Case Study 8-2: The Welfare Effects of Tariffs on Some U.S.
Products
8.3 The Theory of Tariff Structure
8.3a The Rate of Effective Protection
8.3b Generalization and Evaluation of the Theory of Effective
Protection
Case Study 8-3: Rising Tariff Rates with Degree of Domestic
Processing
Case Study 8-4: Nominal and Effective Tariff Rates in the United
States, the EU, and Japan
8.4 General Equilibrium Analysis of a Tariff in a Small Country
8.4a General Equilibrium Effects of a Tariff in a Small
Country
8.4b Illustration of the Effects of a Tariff in a Small Country
8.4c The Stolper-Samuelson Theorem
8.5 General Equilibrium Analysis of a Tariff in a Large Country
8.5a General Equilibrium Effects of a Tariff in a Large
Country
8.8b Illustration of the Effects of a Tariff in a Large Country
8.6 The Optimum Tariff
8.6a The Meaning of the Concept of Optimum Tariff
and Retaliation
8.6b Illustration of the Optimum Tariff and Retaliation
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A8.1 Partial Equilibrium Effects of a Tariff in a
Large Nation
A8.2 Derivation of the Formula for the Rate of Effective
Protection
A8.3 The Stolper-Samuelson Theorem Graphically
A8.4 Exception to the Stolper-Samuelson Theorem-
The Metzler Paradox
A8.5 Short-Run Effect of a Tariff on Factors' Income
A8.6 Measurement of the Optimum Tariff
Selected Bibliography
CHAPTER 9 Nontariff Trade Barriers and the New
Protectionism
9.1 Introduction
9.2 Import Quotas
9.2a The Effects of an Import Quota
9.2b Comparison of an Import Quota to an Import Tariff
9.3 Other Nontariff Barriers and the New Protectionism
9.3a Voluntary Export Restraints
9.3b Technical, Administrative, and Other Regulations
Case Study 9-1: Voluntary Export Restraint Arrangements
Case Study 9-2: Voluntary Export Restraints on Japanese
Automobiles to the United States
9.3c International Cartels
9.3d Dumping
9.3e Export Subsidies
Case Study 9-3: Agricultural Subsidies in Industrial
Countries
Case Study 9-4: Administered Protection in the United States
and Other Countries
9.4 The Political Economy of Protectlonism and Strategic Trade
and Industrial Policy
9.4a Fallacious and Questionable Arguments for Protection
Case Study 9-5: Nontariff Trade Barriers in the U.S., the EU,
and Japan
9.4b The Infant-Industry and Other Qualified Arguments
for Protection
9.4c Strategic Trade Policy
9.4d The U.S. Response to Foreign Industrial Targeting and
Strategic Trade Policy
9.4e Who Gets Protected?
9.5 History of U.S. Commercial Policy
9.5a The Trade Agreements Act of 1934
Case Study 9-6: Welfare Effects of Removing U.S. Trade
Restrictions
9.5b The General Agreement on Tariff and Trade (GATT)
9.5c The 1962 Trade Expansion Act and the Kennedy Round
9.5d The Trade Reform Act of 1974 and the Tokyo Round
9.5e The 1984 and 1988 Trade Acts
9.6 The Umguay Round and Outstanding Trade Problems
9.6a The Uruguay Round
Q.6b Outstanding Trade Problems
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A9.1 Centralized Cartels
A9.2 International Price Discrimination
A9.3 Taxes or Subsidies to Correct Domestic
Distortions
A9.4 Strategic Trade and Industrial Policy with Game
Theory
Selected Bibliography
CHAPTER 10 Economic Integration: Customs Unions and Free Trade Areas
10.1 Introduction
10.2 Trade-Creating Customs Unions
10.2a Trade Creation
10.2b Illustration of a Trade-Creating Customs Union
10.3 Trade-Diverting Customs Unions
10.3a Trade Diversion
lO.3b Illustration of a Trade-Diverting Customs Union
10.4 The Theory of the Second Best and Other Static Welfare Effects
of Customs Unions
10.4a The Theory of the Second Best
10.4b Conditions More Likely to Lead to Increased Welfare
10.4c Other Static Welfare Effects of Customs Unions
10.5 Dynamic Benefits from Customs Unions
10.6 History of Attempts at Economic Integration
lO.6a The Economic Union
Case Study 10-1: Economic Profiles of the EU, NAFTA,
Lnd Japan
Case Study 10-2: Gains from the Single EU Market in 1992
10.6b The European Free Trade Association
10.6c U.S. Free Trade Agreements and the North American Free
Trade Agreement
10.6d Attempts at Economic Integration Among Developing
Countries
10.6e Economic Integration in Eastern Europe and in the Former
Soviet Republics
Summary A Look Ahead KeyTerms Questions for
Review Problems
Appendix: AlO.l General Equilibrium Analysis of the Static Effects of a
Trade-Diverting Customs Union
A1.02 Membership of Selected Regional Trade Arrangements
and Recent Initiatives
Selected Bibliography
CHAPTER 11 Intemational Trade and Economic
Development
11.1 Introduction
11.2 The Importance of Trade to Development
11.2a Trade Theory and Economic Development
ll.2b Trade as an Engine of Growth
11.2c The Contributions of Trade to Development
11.2d International Trade and New Theories of Endogenous
Growth
11.3 The Terms of Trade and Economic Development
ll.3a The Various Terms of Trade
ll.3b Alleged Reasons for Deterioration in the Commodity Terms
of Trade
ll.3c Historical Movement in the Commodity and Income Terms
of Trade
11.4 Export Instability and Economic Development
11.4a Cause and Effects of Export Instability
llAb Measurements of Export Instability and Its Effect
on Development
11.4c Ihtemational Commodity Agreements
11.5 Import Substitution Versus Export Orientatior
11.5a Development Through Import Substitution Versus
Exports
11.5b The Experience with Import Substitution
Case Study 11-1: Economic Performance of Developing Countries
According to Their Trade Orientation
11.5c Recent Trade Liberalization and Growth in Developing
Countries
11.6 Current Problems and Demands ofDeveloping Countries
11.6a Poverty in Developing Countries
11.6b The International Debt Problem of Developing
Countries
Case Study 11-2: The International Debt Burden of Developing
Countries
11.6c Trade Problems of Developing Countries
11. Gd Demands for a New International Economic Order
Case Study 11-3: Foreign Aid Flows to Developing
Countries
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: All.l Income Inequalities by Traditional and Purchasing-
Power Parity (PPP) Measures
Selected Bibliography
CHAPTER 12 International Resource Movements and
Multinational Corporations
12.1 Introduction
12.2 Some Data on International Capital Flows
12.3 Motives for International Capital Flows
12.3a Motives for International Portfolio Investments
12.3b Motives for Direct Foreign Investments
Case Study 12-1: The Rise and Fall of Foreign Direct Investment
Flows to the United States
12.4 Welfare Effects of Intemational Capital Flows
12.4a Effects on the Investing and Host Countries
12.4b Other Effects on the Investing and Host Countries
12.5 Multinational Corporations
12.5a Reasons for the Existence 01 Multinational
Corporations
12.5b Problems Created by Multinational Corporations in the
Home Country
Case Study 12-2: The World's Largest Multinational
Corporations
12.5c Problems Created by Multinational Corporations in the Host
Country
12.6 Motives for and Welfare Effects of International Labor
Migration
12.6a Motives for Intemational Labor Migration
12.6b Welfare Effects of International Labor Migration
12.6c Other Welfare Effects of International Labor Migration
Case Study 12-3: British and Russian Brain Drain Is U.S. Brain
Gain
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A12.l The Transfer Problem
Selected Bibliography
PART III FOREIGN EXCHANGE MARKETS, EXCHANGE
RATES, AND THE BALANCE OF PAYMENTS
CHAPTER 13 Foreign Exchange Markets and Exchange
Rates
13.1 Introduction
13.2 Functions of the Foreign Exchange Markets
Case Study 13-1: The Foreign Exchange Market
13.3 Foreign Exchange Rates
13.3a Equilibrium Foreign Exchange Rates
Case Study 13-2: Foreign Exchange Quotations
13.3b Arbitrage
13.3c Spot and Forward Rates
13.3(1 Currency Swaps
13.3e Foreign Exchange Futures and Options
Case Study 13-3: Quotations on Foreign Currency Futures
and Options
13.4 Foreign Exchange Risks, Hedging, and Speculation
13.4a Foreign Exchange Risks
I3.4b Hedging
13.4c Speculation
13.5 Interest Arbitrage and the Efficiency of Foreign Exchange
Markets
13.5a Uncovered Interest Arbitrage
13.5b Covered Interest Arbitrage
13.5c The Efficiency of Foreign Exchange Markets
13.6 Introduction to Exchange Rate Theories
13.6a Trade or Elasticities Approach to Exchange Rate
Determination
I3.6b Purchasing-Power Parity Theory of Exchange Rate
Determination
I3.6c Monetary Approach to Exchange Rate Determination
and Overshooting
13.6d Portfolio-Balance Approach to Exchange Rate
Determination
Summary A Look Ahead Key Tenns Questions for
Review Problems
Appendix: Al3.1 Description of the Eurocurrency Markets
A13.2 Operation and Effects of Eurocurrency Markets
Al3.3 Eurobond and Euronote Markets
Al3.4 Covered Interest Arbitrage and Interest Parity
Theory
A13.5 Derivation of the Formula for the Covered Interest
Arbitrage Margin
Selected Bibliography
*CHAPTER 14 Balance of Payments
14.1 Introduction
14.2 Balance-of-Payments Accounting Principles
14.2a Debits and Credits
14.2b Double-Entry Bookkeeping
14.3 The International Transactions of the United States
14.4 Accounting Balances and Disequilibrium in International
Transactions
14.4a Aceounting Balances
14.4b Disequilibrium in International Transactions
14.5 Brief Postwar International Monetary History of the
United States
Case Study 14-1: The Major Commodity Exports and Imports
of the United States
Case Study 14-2: The Major Trade Partners of the
United States
14.6 The International Investment Position of the United States
Case Study 14-3: The United States as a Debtor Nation
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: Al4.1 The IMF Method of Reporting International
Transactions
A14.2 The Case of the Missing Surplus
Selected Bibliography
PARTIV OPEN-ECONOMY MACROECONOMICS:
ADJUSTMENT IN THE BALANCE OF
PAYMENTS AND DOMESTIC STABILITY
CHAPTER 15 The Price Adjustment Mechanism Under
a Flexible and a Fixed Exchanse
Rate System
15.1 Introduction
15.2 Adjustment with Flexible Exchange Rates
15.2a Balance-of-Payments Adjustments with Exchange Rate
Changes
15.2b Derivation of the Demand Curve for Foreign Exchange
15.2c Derivation of the Supply Curve for Foreign Exchange
15.2d Effect of Exchange Rate Changes on Domestic Prices
and the Terms of Trade
15.3 Stability of Foreign Exchange Markets
15.3a Stable and Unstable Foreign Exchange Markets
15.3b The Marshall-Lerner Condition
15.4 Elasticities in the Real World
15.4a Elasticity Estimates
15.4b The J-Curve
Case Study 15-1: Estimated Price Elasticities in International
Trade
Case Study 15-2: The Effective Exchange Rate of the Dollar and
the LJ.S. Current Account Balance
15.5 Purchasing-Power Parity
15.5a Absolute Purchasing-Power Parity Theory
15.5b Relative Purchasing-Power Parity Theory
Case Study 15-3: Big MacCurrencies
Case Study 15-4: Empirical Test of the Purchasing-Power
Parity Theory
15.6 Adjustment Under the Gold Standard
15.6a The Gold Standard
15.6b The Price-Specie-Flow Mechanism
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: Al5.1 The Effect of Exchange Rate Changes on Domestic
Prices
A15.2 Derivation of the Marshall-Lerner Condition 507
A15.3 Stability of Foreign Exchange Markets
Once Again
A15.4 Derivation of the Gold Points and Gold Flows
Under the Gold Standard
Selected Bibliography
CHAPTER 16 The Income Adjustment Mechanism and
Synthesis of Automatic Adjustments
16.1 Introduction
16.2 Income Determination in a Closed Economy
16.2a Determination of the Equilibrium National Income
in a Closed Economy
16.2b The Multiplier in a Closed Economy
16.3 Incpme Determination in a Small Open Economy
16.3a The Import Function
16.3b Determmation of the Equilibrium National Income in a
Small Open Economy
Case Study 16-1: The Income Elasticity of Imports
16.3c Graphical Determination of the Equilibrium National
Income
16.3d The Foreign Trade Multiplier
16.4 Foreign Repercussions
16.5 The Absorption Approach
16.6 Monetary Adjustments and Synthesis of the Automatic
Adjustments
16.6a Monetary Adjustments
16.6b Synthesis of Automatic Adjustments
Case Study 16-2: Interdependence in the World Economy
16.6c Disadvantages of Automatic Adjustments
Summary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A16.l Derivation of Foreign Trade Multipliers with Foreign
Repercussions
A16.2 The Transfer Problem Once Again
Selected Bibliography
CHAPTER 17 Open-Economy Macroeconomics: Adjustment
Policies
17.1 Introduction
17.2 Internal and External Balance with Expenditure-Changing
and Expenditure-Switching Policies
17.3 Equilibrium in the Goods Market, in the Money Market,
and in the Balance of Payments
17.4 Fiscal and Monetary Policies for Internal and External Balance
with Fixed Exchange Rates
17.4a Fiscal and Monetary Policies from External Balance
and Unemployment
17.4b Fiscal and Monetary Policies from External Deficit
and Unemployment
17.4c Fiscal and Monetary Policies with Elastic Capital Flows
Case Study 17-1: Relationship Between U.S. Current
Account and Budget Deficits
17.5 The Policy Mix and Price Changes
17.5a The Policy Mix and Internal and External Balance
17.5b Evaluation of the Policy Mix with Price Changes
17.5c Policy Mix in the Real World
Case Study 17-2: U.S. Monetary and Fiscal Policies
in the 1980s and Early I990s
17.6 Direct Controls
17.6a Trade Controls
17.6b Exchange Controls
17.6c Other Direct Controls and International Cooperation
Case Study 17-3: Direct Controls on International Transactions
Around the World
Sununary A Look Ahead Key Terms Questions for
Review Problems
Appendix: A17.l Derivation of the IS Curve
A17.2 Derivation of the LM Curve
A17.3 Derivation of the FE Curve
A17.4 The IS-LM-FE Model with Exchange Rate
Changes
A17.5 Mathematical Summary
Selected Bibliography
CHAPTER 18 Prices and Output in an Open Economy:
Aggregate Demand and Aggregate
Supply
18.1 Introduction
18.2 Aggregate Demand, Aggregate Supply, and Equilibnum
in a Closed Economy
18.2a Aggregate Demand in a Closed Economy
18.2b Aggregate Supply in the Long Run and in tne snort
Run
18.2c Short-Run and Long-Run Equilibrium in a Closed
Economy
Case Study 18-1: Deviations of Short-Run Outputs from the
Natural Level in the United States
18.3 Aggregate Demand in an Open Economy Under Fixed and Flexible
Exchange Rates
18.3a Aggregate Demand in an Open Economy Under Fixed
Exchange Rates
18.3b Aggregate Demand in an Open Economy Under Flexible
Exchange Rates
18.4 Effect of Economic Shocks and Macroeconomic Policies on
Aggregate Demand in Open Economies with Flexible Prices
18.4a Real-Sector Shocks and Aggregate Demand
18.4b Monetary Shocks and Aggregate Demand
18.4c Fiscal and Monetary Policies and Aggregate Demand
in Open Economies
18.5 Effect of Fiscal and Monetary Policies in Open Economies with
Flexible Prices
Case Study 18-2: Central Bank Independence and Inflation
in Industrial Countries
18.6 Macroeconomic Policies to Stimulate Growth and Adjust to Supply
Shocks
18.6a Macroeconomic Policies for Growth
18.6b Macroeconomic Policies to Adjust to Supply Shocks
Cose Study 18-3: Petroleum Shocks and Stagflation in the United
States
Summary A Look Ahead Key Terms Questions for
Review Problems
Selected Bibliography
CHAPTER 19 TAe Monetary and Portfolio Balance
Approaches
19.1 Introduction
19.2 The Monetary Approach Under Fixed Exchange Rates
19.2a Causes and Adjustment of External Imbalances
19.2b Further Aspects of the Adjustment Process
19.2c Control Over the Nation's Money Supply
19.3 Policy Implications of the Monetary Approach Under Fixed
Exchange Rates and Inflation in the World Economy
19.3a Policy Implications of the Monetary Approach Under Fixed
Exchange Rates
19.3b The Monetary Approach and Inflation in the World
Economy Under Fixed Exchange Rates
19.4 The Monetary Approach Under Flexible Exchange Rates
19.5 The Portfolio Balance Approach and Exchange Rate Dynamics
19.5a The Portfolib Balance Approach
I9.5b Exchange Rate Dynamics
Case Study 19-1: Exchange Rate Uvershooting
of the U.S. Dollar
19.6 Evaluation and Empirical Tests of the Monetary and Portfolio
Balance Approaches
Case Study 19-2: Monetary Growth and Inflation and the
Monetary Approach
Case Study 19-3: Nominal and Real Exchange Rates and the
Monetary Approach
Case Study 19-4: Interest Differentials, Exchange Rates, and the
Monetary Approach
Summary A Look Ahead Key Terms Questions for
Review Problems 641
Appendix: A19.1 A Mathematical Model of the Monetary Approach
A19.2 The Exchange Rate Under the Monetary Approach
A19.3 A Mathematical Model of the Portfolio Balance
Approach
Selected Bibliography
CHAPTER 20 Flexible Versus Fixed Exchange Rates,
the European Monetary System, and
Macroeconomic Policy Coordination
20.1 Introduction
20.2 The Case for Flexible Exchange Rates
20.2a Market Efficiency
20.2b Policy Advantages
20.3 The Case for Fixed Exchange Rates
20.3a Less Uncertainty
20.3b Stabilizing Speculation
20.3c Price Discipline
Case Study 20-1: Macroeconomic Performance Under Fixed and
Flexible Exchange Rate Regimes
20.4 Optimum Currency Areas and the European Monetary System
20.4a Optimum Currency Areas
20.4b The European Monetary System
Case Study 20-2: Anatomy of a Currency Crisis: The Collapse
of the EU Exchange Rate Mechanism
20.5 Exchange Rate Bands, Adjustable Pegs, Crawling Pegs,
and Managed Floating
20.5a Exchange Rate Bands
20.5b Adjustable Peg Systems
20.5c Crawling Pegs
20. 5d Managed Floating
Case Study 20-3: Exchange Arrangements of the
IMF Members
20.6 International Macroeconomic Policy Coordination
Summary A Look Ahead Key Terms Questions for
Review Problems 678
Appendix: A20.1 Exchange Rate Arrangements
Selected Bibliography
CHAPTER 21 The International Monetary System:
Past, Present, and Future
21.1 Introduction
21.2 The Gold Standard and the Interwar Experience
21.2a The Gold Standard Period (1880-1914)
21.2b The Interwar Experience
21.3 The Bretton Woods System
21.3a The Gold-Exchange Standard (1947-1971)
21.3b Borrowing from the International Monetary Fund
21.4 Operation and Evolution ofthe Bretton Woods System
21.4a Operation of the Bretton WoodS System
21.4b Evolution of the Bretton Woods System
Case Study 21-1: Macroeconomic Performance Under Different
Exchange Rate Regimes
21.5 U.S. Balance-of-Pavments Deficits and Collapse of the Bretton
Woods System
21.5a U.S. Balance-of-Payments Deficits
21.5b Collapse of the Bretton Woods System
21.6 The International Monetary System: Present and Future
21.6a Operation of the Present System
21.6b Current IMF Operation
21.6c Problems with Present Exchange Rate Arrangements
21.6d Proposals for Reforming Present Exchange Rate
Arrangements
Case Study 21 -2: Exchange Rate Volatility and Misalignments
Since 1967
21.6e Other Current International Economic Problems
Case Study 21 -3: Trade Imbalances Among the Leading
Industrial Nations
Summary Key Terms Questions for Review
Problems
Appendix: A21.1 International Reserves. 1950--1993
Selected Bibliography
Answers to Selected Problems
Glossary of Key Terms
Name Index
Subject Index
Case Studies
1-1 Even the IBM PC Isn't All-American
1-2 The Rising Importance of International Trade to the
United States
2-1 Munn's Mercantilistic Views on Trade
2-2 The Petition of the Candlemakers
3-1 Comparative Advantage of the United States,
the European Union, and Japan
3-2 Reallocating Labor in the United States: Comparative
Advantage at Work
4-1 The Index of Export to Import Prices for the United States
4-2 The Terms of Trade of Developing and Developed Countries
5-1 Relative Resource Endowments of Leading
Industrial Countries
5-2 Capital-Labor Ratios of Selected Countries
5-3 Patterns of Comparative Advantage in Leading Industrial
Countries
5-4 Convergence of Real Wages Among Industrial Countries
5-5 Capital and Labor Requirements in U.S. Trade
6-1 U.S. Intra-Industry Trade in Automotive Products
6-2 Intra-Industry Trade of Leading Industrial Countries
6-3 The Maquiladoras: U.S. Plants Along the
U.S.-Mexican Border
7-1 Changes in Relative Resource Endowments of Leading
Industrial Countries
7-2 Factor Growth and Changes in, Comparative Advantage
7-3 Changes in Capital-Lahor Ratios of Selected Countries
7-4 Changes in the Pattern of Comparative Advantage
in the Leading Industrial Countries
8-1 Average Tariffs for Major Developed Countries and Products
8-2 The Wel'fare Effects of Tariffs on Some U.S. Products
8-3 Rising Tariff Rates with Degree of Domestic Processing
8-4 Nominal and Effective Tariff Rates in the United States,
the EU, and Japan
9-1 Voluntary Export Restraint Arrangements
9-2 Voluntary Export Restraints on Japanese Automobiles
to the United States
9-3 Agricultural Subsidies in Industrial Countries
9-4 Administered Protection in the United States and
Other Countries
9-5 Nontariff Trade Barriers in the United States, the EU,
and Japan
9-6 Welfare Effects of Removing U.S. Trade Restrictions
10-1 Economic Profiles of the
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