克鲁格曼国际经济学第十版英文版

Chapter 6The Standard Trade Model⏹Chapter OrganizationA Standard Model of a Trading EconomyProduction Possibilities and Relative SupplyRelative Prices and DemandThe Welfare Effect of Changes in the Terms of TradeDetermining Relative PricesEconomic Growth: A Shift of the RS CurveGrowth and the Production Possibility FrontierWorld Relative Supply and the Terms of TradeInternational Effects of GrowthCase Study: Has the Growth of Newly Industrializing Countries Hurt Advanced Nations?Tariffs and Export Subsidies: Simultaneous Shifts in RS and RDRelative Demand and Supply Effects of a TariffEffects of an Export SubsidyImplications of Terms of Trade Effects: Who Gains and Who Loses?International Borrowing and LendingIntertemporal Production Possibilities and TradeThe Real Interest RateIntertemporal Comparative AdvantageSummaryAPPENDIX TO CHAPTER 6: More on Intertemporal Trade⏹Chapter OverviewPrevious chapters have highlighted specific sources of comparative advantage that give rise to international trade. This chapter presents a general model that admits previous models as special cases. This “standard trade model” is the workhorse of international trade theory and can be used to address a wide range of issues. Some of these issues, such as the welfare and distributional effects of economic growth, transfers between nations, and tariffs and subsidies on traded goods, are considered in this chapter.© 2015 Pearson Education LimitedThe standard trade model is based upon four relationships. First, an economy will produce at the point where the production possibilities curve is tangent to the relative price line (called the isovalue line). Second, indifference curves describe the tastes of an economy, and the consumption point for that economy is found at the tangency of the budget line and the highest indifference curve. These two relationships yield the familiar general equilibrium trade diagram for a small economy (one that takes as given the terms of trade), where the consumption point and production point are the tangencies of the isovalue line with the highest indifference curve and the production possibilities frontier, respectively.You may want to work with this standard diagram to demonstrate a number of basic points. First, an autarkic economy must produce what it consumes, which determines the equilibrium price ratio; and second, opening an economy to trade shifts the price ratio line and unambiguously increases welfare. Third, an improvement in the terms of trade (ratio of export prices to import prices) increases welfare in the economy. Fourth, it is straightforward to move from a small country analysis to a two-country analysis by introducing a structure of world relative demand and supply curves, which determine relative prices.These relationships can be used in conjunction with the Rybczynski and the Stolper-Samuelson theorems from the previous chapter to address a range of issues. For example, you can consider whether the dramatic economic growth of China has helped or hurt the United States as a whole and also identify the classes of individuals within the United States who have been hurt by China’s particular growth biases. In teaching these points, it might be interesting and useful to relate them to current events. For example, you can lead a class discussion on the implications for the United States of the provision of forms of technical and economic assistance to the emerging economies around the world or the ways in which a world recession can lead to a fall in demand for U.S. exports.The example provided in the text considers the popular arguments in the media that growth in China hurts the United States. The analysis presented in this chapter demonstrates that the bias of growth is important in determining welfare effects rather than the country in which growth occurs. The existence of biased growth and the possibility of immiserizing growth are discussed. The Relative Supply (RS) and Relative Demand (RD) curves illustrate the effect of biased growth on the terms of trade. The new termsof trade line can be used with the general equilibrium analysis to find the welfare effects of growth. A general principle that emerges is that a country that experiences export-biased growth will have a deterioration in its terms of trade, while a country that experiences import-biased growth has an improvement in its terms of trade. A case study argues that this is really an empirical question, and the evidence suggests that the rapid growth of countries like China has not led to a significant deterioration of the U.S. terms of trade nor has it drastically improved China’s terms of trade.The second area to which the standard trade model is applied is the effects of tariffs and export subsidies on welfare and terms of trade. The analysis proceeds by recognizing that tariffs or subsidies shift both the relative supply and relative demand curves. A tariff on imports improves the terms of trade, expressed in external prices, while a subsidy on exports worsens terms of trade. The size of the effect depends upon the size of the country in the world. Tariffs and subsidies also impose distortionary costs upon the economy. Thus, if a country is large enough, there may be an optimum, nonzero tariff. Export subsidies, however, only impose costs upon an economy. Internationally, tariffs aid import-competing sectors and hurt export sectors, while subsidies have the opposite effect.The chapter then closes with a discussion of international borrowing and lending. The standard trade model is adapted to trade in consumption across time. The relative price of future consumption is defined as 1/(1 r), where r is the real interest rate. Countries with relatively high real interest rates (newly industrializing countries with high investment returns for example) will be biased toward future consumption and will effectively “export” future consumption by borrowing from established developed countries with relatively lower real interest rates.Chapter 6 The Standard Trade Model 29Answers to Textbook Problems1.If the relative price of palm oil increases in relation to the price of lubricants, this would increase theproduction of palm oil, because Indonesia exports palm oil. Similarly, an increase in relative price of lubricants leads to a shift along the indifference curve, towards lubricants and away from palm oil for Indonesia. This is because Palm oil is relatively expensive, hence reducing palm oil consumption in Indonesia.Expensive palm oil increases the relative income of Indonesia. The income effect would induce more for the consumption of palm oil whereas the substitution effect acts to make the economy consume less of palm oil and more of lubricants. However, if the income effect outweighs the substitution effect, then the consumption of palm oil would increase in Indonesia.2.In panel a, the re duction of Norway’s production possibilities away from fish cause the production of fish relative to automobiles to fall. Thus, despite the higher relative price of fish exports, Norway moves down to a lower indifference curve representing a drop in welfare.In panel b, the increase in the relative price of fish shifts causes Norway’s relative production of fish to rise (despite the reduction in fish productivity). Thus, the increase in the relative price of fish exports allows Norway to move to a higher indifference curve and higher welfare.3. The terms of trade of the home country would worsen. This is because a strong biased productiontowards cloth would increase the home country’s supply of cloth and shifts the supply curve to the right. At the same time, the production of wheat would decline relative to the production of cloth. An increased supply of cloth would reduce the price at the domestic and at the international market. The reduction in international price of cloth would worsen the terms of trade of the home country as the home country exports. On the other hand, if the home country’s production grows in favor of wheat, the terms of trade would improve in favor of the home country. This is because wheat is imported by the home country.© 2015 Pearson Education Limited。

Chapter 11Trade Policy in Developing Countries⏹Chapter OrganizationImport-Substituting IndustrializationThe Infant Industry ArgumentPromoting Manufacturing Through ProtectionismCase Study: Mexico Abandons Import-Substituting IndustrializationResults of Favoring Manufacturing: Problems of Import-Substituting IndustrializationTrade Liberalization since 1985Trade and Growth: Takeoff in AsiaBox: India’s BoomSummary⏹Chapter OverviewThe final two chapters on international trade, Chapters 11 and 12, discuss trade policy considerations in the context of specific issues. Chapter 11 focuses on the use of trade policy in developing countries and Chapter 12 focuses on new controversies in trade policy.Although there is great diversity among developing countries, they share some common policy concerns. These include the development of domestic manufacturing industries, the uneven degree of development within the country, and the desire to foster economic growth and improve living standards. This chapter discusses both the successful and unsuccessful trade policy strategies that have been applied by developing countries in attempts to address these concerns.Many developing countries pose the creation of a significant manufacturing sector as a key goal of economic development. One commonly voiced argument for protecting manufacturing industries is the infant industry argument, which states that developing countries have a potential comparative advantage in manufacturing and can realize that potential through an initial period of protection. This argument assumes market failure in the form of imperfect capital markets or the existence of externalities in production. Such a market failure makes the social return to production higher than the private return. Without some government support, the argument goes, the amount of investment that will occur in this industry will be less than socially optimal levels. Government support can theoretically raise investment up to the socially optimal level. Given these arguments, many nations have attempted import-substituting industrialization, where government support is focused on those industries that compete directly with imports. In the 1950s and 1960s, the strategy was quite popular and did lead to a dramatic reduction in imports in some countries. The overall result, though, was not a success. The infant industry argument did not always hold, as protection could let young industries survive but could not make them efficient. The methods used to protect industries© 2015 Pearson Education Limited60 Krugman/Obstfeld/Melitz •International Economics: Theory & Policy, Tenth Editionwere often complex and overlapped across industries, in some cases leading to exorbitantly high rates of protection. Furthermore, protection often led to an inefficiently small scale of production within countries by creating competition over monopoly profits that would not have existed without protection. By the late 1980s, most countries had shifted away from the strategy, and the chapter includes a case study of Mexico’s change from import substitution to a more open strategy.Since 1985, many developing countries have abandoned import substitution and pursued (sometimes aggressively) trade liberalization. The chapter notes two sides of the experience. On the one hand, trade has gone up considerably and changed in character. Developing countries export far more of their GDP than prior to liberalization, and more of it is in manufacturing as opposed to primary commodities. On the other hand, the growth experience of these countries has not been universally good, and it is difficult to tell if the success stories are due to trade or due to reforms that came at the same time as liberalization. While countries such as the “Asian Tigers,” China and India, have experienced spectacular rates of growth following trade liberalization, only part of this growth can be attributed to trade reform. Furthermore, countries such as Brazil and Mexico that have also moved toward freer trade have not experienced the same rates of economic growth.Answers to Textbook Problems1. The countries that seem to benefit most from international trade include many of the countries of thePacific Rim: South Korea, Taiwan, Singapore, Hong Kong, Malaysia, Indonesia, and others. Though the experience of each country is somewhat different, most of these countries employed some kind of infant industry protection during the beginning phases of their development but then withdrew protection relatively quickly after industries became competitive on world markets. Concerningwhether their experiences lend support to the infant industry argument or argue against it is still a matter of controversy. However, it appears that it would have been difficult for these countries to engage in export-led growth without some kind of initial government intervention. Similarly, both China and India have experienced rapid economic growth following economic liberalization and increased openness. Although part of their growth may be attributed to a reduction in trade barriers, other factors certainly played a role. This disparity is underscored by the fact that nations such as Mexico and Brazil also liberalized trade but have yet to see comparable rates of economic growth. 2. The Japanese example gives pause to those who believe that protectionism is always disastrous.However, Japanese success does not demonstrate that protectionist trade policy was responsible for that success. Japan was an exceptional society that had emerged into the ranks of advanced nations before World War II and was recovering from wartime devastation. It is arguable that economicsuccess would have come anyway, so the apparent success of protection represents a “pseudo-infant industry” case of the kind discussed in the text.3. a. The initial high costs of production would justify infant industry protection if the costs to thesociety during the period of protection were less than the future stream of benefits from a mature, low-cost industry.b. An individual firm does not have an incentive to bear development costs itself for an entireindustry when these benefits will accrue to other firms. The first firm will not factor in how itsinvestment benefits other firms, yielding an inefficiently low level of investment relative to thesocial optimum. There is a stronger case for infant industry protection in this instance because of the existence of market failure in the form of the appropriability of technology.© 2015 Pearson Education Limited4. India ceased being a colony of Britain in 1948; thus, its dramatic break from all imports in favor ofhomemade products following WWII was part of a political break from colonialism. In fact, thepreference for homemade clothing production over British-produced textiles was one of the early battles leading up to independence in India. The presence of a domestic manufacturing lobby inMexico (as opposed to recently deposed colonial firms in India) may have helped keep Mexico open to importing capital goods necessary in the manufacturing process.5. In some countries, the infant industry argument simply did not appear to work well. Such protectionwill not create a competitive manufacturing sector if there are basic reasons why a country does not have a competitive advantage in a particular area. This was particularly the case in manufacturing where many low-income countries lack skilled labor, entrepreneurs, and the level of managerialacumen necessary to be competitive in world markets. The argument is that trade policy alone cannot rectify these problems. Often manufacturing was also created on such a small scale that it made the industries noncompetitive where economies of scale are critical to being a low-cost producer.Moreover protectionist policies in less-developed countries have had a negative impact on incentives, which has led to “rent-seeking” or corruption.。

Chapter 12Controversies in Trade Policy⏹Chapter OrganizationSophisticated Arguments for Activist Trade PolicyTechnology and ExternalitiesImperfect Competition and Strategic Trade PolicyBox: A Warning from Intel’s FounderCase Study: When the Chips Were UpGlobalization and Low-Wage LaborThe Anti-Globalization MovementTrade and Wages RevisitedLabor Standards and Trade NegotiationsEnvironmental and Cultural IssuesThe WTO and National IndependenceCase Study: A Tragedy in BangladeshGlobalization and the EnvironmentGlobalization, Growth, and PollutionThe Problem of “Pollution Havens”The Carbon Tariff DisputeSummary⏹Chapter OverviewAlthough the text has shown why, in general, free trade is a good policy, this chapter considers two controversies in trade policy that challenge free trade. The first regards strategic trade policy. Proponents of activist government trade intervention argue that certain industries are desirable and may be underfunded by markets or dominated by imperfect competition and warrant some government intervention. The second controversy regards the recent debate over the effects of globalization on workers, the environment, and sovereignty. While the anti-globalization arguments often lack sound structure, their visceral nature demonstrates that the spread of trade is extremely troubling to some groups.As seen in the previous chapters, activist trade policy may be justified if there are market failures. One important type of market failure involves externalities present in high-technology industries due to their knowledge creation. Existence of externalities associated with research and development and high technology make the private return to investing in these activities less than their social return. This means© 2015 Pearson Education, Inc.64 Krugman/Obstfeld/Melitz •International Economics: Theory & Policy, Tenth Editionthat the private sector will tend to invest less in high-technology sectors than is socially optimal. Although there may be some case for intervention, the difficulties in targeting the correct industry and understanding the quantitative size of the externality make effective intervention complicated. To address this market failure of insufficient knowledge creation, the first best policy may be to directly support research and development in all industries. Still, although it is a judgment call, the technology spillover case for industrial policy probably has better footing in solid economics than any other argument.Another set of market failures arises when imperfect competition exists. Strategic trade policy by a government can work to deter investment and production by foreign firms and raise the profits of domestic firms.An example is provided in the text that illustrates the case where the increase in profits following the imposition of a subsidy can actually exceed the cost of a subsidy to an imperfectly competitive industryif domestic firms can capture profits from foreign firms. Although this is a valid theoretical argument for strategic policy, it is nonetheless open to criticism in choosing the industries that should be subsidized and the levels of subsidies to these industries. These criticisms are associated with the practical aspects of insufficient information and the threat of foreign retaliation. The case study on the attempts to promote the semiconductor chips industry shows that neither excess returns nor knowledge spillovers necessarily materialize even in industries that seem perfect for activist trade policy.The next section of the chapter examines the anti-globalization movement. In particular, it examines the concerns over low wages in poor countries. Standard analysis suggests that trade should help poor countries and, in particular, help the abundant factor (labor) in those countries. Protests in Seattle, which shut down WTO negotiations, and subsequent demonstrations at other meetings showed, though, that protestors either did not understand or did not agree with this analysis.The concern over low wages in poor countries is a revision of arguments in Chapter 2. Analysis in the current chapter shows again that trade should help the purchasing power of all workers and that if anyone is hurt, it is the workers in labor-scarce countries. The low wages in export sectors of poor countriesare higher than they would be without the export-oriented manufacturing, and although the situation of these workers may be more visible than before, that does not make it worse. Practically, the policy issue is whether or not labor standards should be part of trade pacts. Although such standards may act in ways similar to a domestic minimum wage, developing countries fear that such standards would be used as a protectionist tool. A case study on the 2013 collapse of a garment factory in Bangladesh highlights this tension. The Bangladeshi garment industry would not be globally competitive if it had to raise labor standards to rich country standards. Bangladeshi garment workers, though very poorly paid by rich country standards, earn more than workers in non-export sectors. A potential solution would be for consumers in rich countries to pay more for goods certified to have been produced under improved labor standards, thereby giving producers in poor countries both the means and the incentive to improve labor standards,Anti-globalization protestors were by no means united in their cause. There were also strong concerns that export manufacturing in developing countries was bad for the environment. Again, the issue is whether these concerns should be addressed by tying environmental standards into trade negotiations, and the open question is whether this can be done without destroying the export industries in developing countries. Globalization raises questions of cultural independence and national sovereignty. Specifically, many countries are disturbed by the WTO’s ability to overturn laws that do not seem to be trade restrictions but which nonetheless have trade impacts. This point highlights the difficulty of advancing trade liberalization when the clear impediments to trade—tariffs or quotas—have been removed, yet national policies regarding industry promotion or labor and environmental standards still need to be reformed.© 2015 Pearson Education LimitedThe final section of the chapter examines the link between trade and the environment. In general, production and consumption can cause environmental damage. Yet, as a country’s GDP per capita grows, the environmental damage done first grows and then eventually declines as the country gets rich enough to begin to protect the environment. As trade has lifted incomes of some countries, it may have been bad for the environment—but largely by making poor countries richer, an otherwise good thing. In theory, there could be a concern about “pollution havens,” that is countries with low environmental standards that attract “dirty” industries. There is relatively little evidence of this ph enomenon thus far. Furthermore, the pollution in these locations tends to be localized and is therefore better left to national rather than international policy. The chapter concludes with a discussion of the cap and trade system for greenhouse gases (an example of transboundary pollution) currently being debated in the U.S. Congress. Part of this policy aimed at reducing carbon emissions is an imposition of a “carbon tariff” on imports from countries that do not have their own carbon taxes. Proponents argue that such tariffs are necessary to prevent production from shifting to pollution havens and to reduce the overall level of carbon emissions, while opponents argue that these tariffs are simply more protectionism masquerading as environmental regulation.Answers to Textbook Problems1. The main disadvantage is that strategic trade policy can lead to both “rent-seeking” and beggar-thy-neighbor policies, which can increase one country’s welfare at the other country’s expense. Such policies can lead to a trade war in which every country is worse off, even though one country could become better off in the absence of retaliation. This is the danger in enacting strategic trade policy: It often provokes retaliation, which, in the long run, can make everyone worse off. Furthermore, it can be difficult to identify both which industries to subsidize and how much to subsidize them. Failure to correctly identify these factors can lead to a net loss from a subsidy.2. Globalization has many pros and cons, well-illustrated in famous controversies—like the onestimulated by Joseph Stiglitz’s book, Globalization and Its Discontents. Initiatives like the Doha Development Agenda try to address some of them and find solutions acceptable to every country. 3. The results of basic research may be appropriated by a wider range of firms and industries thanthe results of research applied to specific industrial applications. The benefits to the United States of Japanese basic research would exceed the benefits from Japanese research targeted to specific problems in Japanese industries. A specific application may benefit just one firm in Japan, perhaps simply subsidizing an activity that the market is capable of funding. General research will provide benefits that spill across borders to many firms and may be countering a market failure, externalities present in the advancement of general knowledge.4. The reason why strategic trade policies attract retaliation from other countries is because they presentthe same problems that are faced when considering the use of a tariff to improve the terms of trade.Strategic policies are, in essence, a type of beggar-thy-neighbor policies that increase one country’s welfare at other countries’ expense. A good example is represented by export quot as on scarcemineral ores—like the one adopted by China for Rare Earth Elements (REE) exports since 2006—that have already provoked filing a complaint to the WTO by the US, the EU, and Japan.。

国际经济学克鲁格曼英文版Here is an essay on the topic of "International Economics by Krugman (English Version)" with a word count of over 600 words.The field of international economics has long been dominated by the influential works of renowned economist Paul Krugman. His English-language publications have had a profound impact on the understanding and analysis of global economic dynamics. Krugman's seminal contributions have challenged traditional theories and offered new perspectives that have reshaped the way we conceptualize the complexities of the international economic landscape.At the core of Krugman's work lies a deep understanding of the intricate interplay between trade, investment, and economic growth. His groundbreaking research has shed light on the role of comparative advantage, economies of scale, and imperfect competition in shaping the patterns of global trade and commerce. Krugman's insights have been instrumental in redefining the conventional wisdom regarding the benefits and drawbacks of free trade, highlighting the nuanced and multifaceted nature of international economic integration.One of Krugman's most significant contributions is his analysis of the geography of trade and the emergence of economic agglomerations. By examining the spatial distribution of economic activity, he has challenged the traditional notion of homogeneous and evenly distributed production. Krugman's work has shown how the clustering of industries and the concentration of economic resources can lead to the development of regional hubs and centers of innovation, with profound implications for policymakers and business leaders alike.Moreover, Krugman's work has addressed the complex dynamics of exchange rate fluctuations and their impact on international competitiveness. His models and theories have provided a deeper understanding of the factors that drive exchange rate movements, the consequences of currency misalignments, and the implications for trade balances and global financial stability. This knowledge has been instrumental in informing policy decisions and guiding the efforts of central banks and governments in managing exchange rate regimes.Krugman's contributions extend beyond the realm of trade and finance. His work on the relationship between economic growth and development has shed light on the challenges faced by developing countries in their pursuit of prosperity. By exploring the role oftechnology, human capital, and institutional frameworks, Krugman has offered insights into the drivers of economic development and the policy interventions that can foster inclusive and sustainable growth.Furthermore, Krugman's influence has reached beyond the academic sphere, as his writings have sought to bridge the gap between economic theory and public policy. His accessible and engaging style has made complex economic concepts more comprehensible to a wider audience, empowering policymakers, business leaders, and the general public to engage in informed discussions and debates on the pressing issues of the global economy.In conclusion, the work of Paul Krugman, as articulated in his English-language publications, has been pivotal in shaping the field of international economics. His groundbreaking research, innovative theories, and thought-provoking analyses have challenged conventional wisdom and pushed the boundaries of our understanding of the intricate web of global economic interactions. Krugman's contributions have not only advanced academic discourse but have also informed policy decisions and public discourse, ultimately contributing to a more informed and nuanced understanding of the dynamics of the international economy.。

Chapter 14 (3)Exchange Rates and the Foreign Exchange Market: An Asset ApproachChapter OrganizationExchange Rates and International TransactionsDomestic and Foreign PricesExchange Rates and Relative PricesThe Foreign Exchange MarketThe ActorsBox: Exchange Rates, Auto Prices, and Currency WarsCharacteristics of the MarketSpot Rates and Forward RatesForeign Exchange SwapsFutures and OptionsThe Demand for Foreign Currency AssetsAssets and Asset ReturnsBox: Nondeliverable Forward Exchange Trading in AsiaRisk and LiquidityInterest RatesExchange Rates and Asset ReturnsA Simple RuleReturn, Risk, and Liquidity in the Foreign Exchange MarketEquilibrium in the Foreign Exchange MarketInterest Parity: The Basic Equilibrium ConditionHow Changes in the Current Exchange Rate Affect Expected ReturnsThe Equilibrium Exchange RateInterest Rates, Expectations, and EquilibriumThe Effect of Changing Interest Rates on the Current Exchange RateThe Effect of Changing Expectations on the Current Exchange RateCase Study: What Explains the Carry Trade?SummaryAPPENDIX TO CHAPTER 14 (3): Forward Exchange Rates and Covered Interest Parity© 2015 Pearson Education LimitedChapter OverviewThe purpose of this chapter is to show the importance of the exchange rate in translating foreign prices into domestic values as well as to begin the presentation of exchange rate determination. Central to the treatment of exchange rate determination is the insight that exchange rates are determined in the same way a s other asset prices. The chapter begins by describing how the relative prices of different countries’ goods are affected by exchange rate changes. This discussion illustrates the central importance of exchange rates for cross-border economic linkages. The determination of the level of the exchange rate is modeled in the context of the exchange rate’s role as the relative price of foreign and domestic currencies, using the uncovered interest parity relationship.The euro is used often in examples. Some students may not be familiar with the currency or aware of which countries use it; a brief discussion may be warranted. A full treatment of EMU and the theories surrounding currency unification appears in Chapter 20(9).The description of the foreign exchange market stresses the involvement of large organizations (commercial banks, corporations, nonbank financial institutions, and central banks) and the highly integrated natureof the market. The nature of the foreign exchange market ensures that arbitrage occurs quickly so that common rates are offered worldwide. A comparison of the trading volume in foreign exchange markets to that in other markets is useful to underscore how quickly price arbitrage occurs and equilibrium is restored. Forward foreign exchange trading, foreign exchange futures contracts, and foreign exchange options play an important part in currency market activity. The use of these financial instruments to eliminate short-run exchange rate risk is described.The explanation of exchange rate determination in this chapter emphasizes the modern view that exchange rates move to equilibrate asset markets. The foreign exchange demand and supply curves that introduce exchange rate determination in most undergraduate texts are not found here. Instead, there is a discussion of asset pricing and the determination of expected rates of return on assets denominated in different currencies.Students may already be familiar with the distinction between real and nominal returns. The text demonstrates that nominal returns are sufficient for comparing the attractiveness of different assets. There is a brief description of the role played by risk and liquidity in asset demand, but these considerations are not pursued in this chapter. (The role of risk is taken up again in Chapter 18[7].)Substantial space is devoted to the topic of comparing expected returns on assets denominated in domestic and foreign currency. The text identifies two parts of the expected return on a foreign currency asset (measured in domestic currency terms): the interest payment and the change in the value of the foreign currency relative to the domestic currency over the period in which the asset is held. The expected return on a foreign asset is calculated as a function of the current exchange rate for given expected values of the future exchange rate and the foreign interest rate.The absence of risk and liquidity considerations implies that the expected returns on all assets traded in the foreign exchange market must be equal. It is thus a short step from calculations of expected returns on foreign assets to the interest parity condition. The foreign exchange market is shown to be in equilibrium only when the interest parity condition holds. Thus, for given interest rates and given expectations about future exchange rates, interest parity determines the current equilibrium exchange rate. The interest parity diagram introduced here is instrumental in later chapters in which a more general model is presented. Because a command of this interest parity diagram is an important building block for future work, we recommend drills that employ this diagram.The result that a dollar appreciation makes foreign currency assets more attractive may appear counterintuitive to students—why does a stronger dollar reduce the expected return on dollar assets? The key to explaining this point is that, under the static expectations and constant interest rates assumptions, a dollar appreciation today implies a greater future dollar depreciation; so, an American investor can expect to gain not only theChapter 14Exchange Rates and the Foreign Exchange Market: An Asset Approach 77© 2015 Pearson Education Limitedforeign interest payment but also the extra return due to the dollar’s additional future depreciation. The following diagram illustrates this point. In this diagram, the exchange rate at time t + 1 is expected to be equal to E . If the exchange rate at time t is also E , then expected depreciation is 0. If, however, the exchange rate depreciates at time t to E ', then it must appreciate to reach E at time t + 1. If the exchange rate appreciates today to E ", then it must depreciate to reach E at time t + 1. Thus, under static expectations, a depreciation today implies an expected appreciation and vice versa.Figure 14(3)-1This pedagogical tool can be employed to provide some further intuition behind the interest parityrelationship. Suppose that the domestic and foreign interest rates are equal. Interest parity then requires that the expected depreciation is equal to zero and that the exchange rate today and next period is equal to E . If the domestic interest rate rises, people will want to hold more domestic currency deposits. The resulting increased demand for domestic currency drives up the price of domestic currency, causing the exchange rate to appreciate. How long will this continue? The answer is that the appreciation of the domestic currency continues until the expected depreciation that is a consequence of the domestic currency’s appreciation today just offsets the interest differential.The text presents exercises on the effects of changes in interest rates and of changes in expectations of the future exchange rate. These exercises can help develop students’ intuition. For example, the initial result of a rise in U.S. interest rates is a higher demand for dollar-denominated assets and thus an increase in the price of the dollar. This dollar appreciation is large enough that the subsequent expected dollar depreciation just equalizes the expected return on foreign currency assets (measured in dollar terms) and the higher dollar interest rate.The chapter concludes with a case study looking at a situation in which interest rate parity may not hold: the carry trade. In a carry trade, investors borrow money in low-interest currencies and buy high-interest-rate currencies, often earning profits over long periods of time. However, this transaction carries an element of risk as the high-interest-rate currency may experience an abrupt crash in value. The case study discusses a popular carry trade in which investors borrowed low-interest-rate Japanese yen to purchase high-interest-rate Australian dollars. Investors earned high returns until 2008, when the Australian dollar abruptly crashed, losing 40 percent of its value. This was an especially large loss as the crash occurred amidst a financial crisis in which liquidity was highly valued. Thus, when we factor in this additional risk of the carry trade, interest rate parity may still hold.The Appendix describes the covered interest parity relationship and applies it to explain the determination of forward rates under risk neutrality as well as the high correlation between movements in spot and forward rates.Answers to Textbook Problems1. At an exchange rate of 1.05 $ per euro, a 5 euro bratwurst costs 1.05$/euro ⨯ 5 euros = $5.25. Thus,the bratwurst in Munich is $1.25 more expensive than the hot dog in Boston. The relative price is $5.25/$4 = 1.31. A bratwurst costs 1.31 hot dogs. If the dollar depreciates to 1.25$/euro, the bratwurst now costs 1.25$/euro ⨯ 5 euros = $6.25, for a relative price of $6.25/$4 = 1.56. You have to give up1.56 hot dogs to buy a bratwurst. Hot dogs have become relatively cheaper than bratwurst after thedepreciation of the dollar.2. If it were cheaper to buy Israeli shekels with Swiss francs that were purchased with dollars than todirectly buy shekels with dollars, then people would act upon this arbitrage opportunity. The demand for Swiss francs from people who hold dollars would rise, causing the Swiss franc to rise in value against the dollar. The Swiss franc would appreciate against the dollar until the price of a shekel would be exactly the same whether it was purchased directly with dollars or indirectly through Swiss francs.3. Take for example the exchange rate between the Argentine peso, the US dollar, the euro, and theBritish pound. One dollar is worth 5.3015 pesos, while a euro is worth 7.0089 pesos. To rule out triangular arbitrage, we need to see how many pesos you would get if you first bought euros with your dollars (at an exchange rate of 0.7564 euros per dollar), then used these euros to buy pesos. In other words, we need to compute E D = E EUR/USD × E ARG/EUR = 0.7564× 7.0089 = 5.3015 pesos per dollar. This is almost exactly (with rounding) equal to the direct rate of pesos per dollar.Following the same procedure for the British pound yields a similar result.We need to say that triangular arbitrage is “approximately” ruled out for several reasons. First,rounding error means that there may be some small discrepancies between the direct and indirect exchange rates we calculate. Second, transactions costs on trading currencies will prevent complete arbitrage from occurring. That said, the massive volume of currencies traded make these transactions costs relatively small, leading to “near” perfect arbitrage.4. A depreciation of Chinese yuan makes the import more expensive. Since the demand for oil isinelastic, China needs to import oil from the oil exporting countries. This leads to spending more on oil when the exchange rate falls in value. This can cause the balance of payment to worsen in the short run. Hence, a depreciation of domestic currency may or may not have a favourable impact on the balance of payment in the short run.5. The dollar rates of return are as follows:a. ($250,000 - $200,000)/$200,000 = 0.25.b. ($275 - $255)/$255 = 0.08.c. There are two parts to this return. One is the loss involved due to the appreciation of the dollar;the dollar appreciation is ($1.38 - $1.50)/$1.50 =-0.08. The other part of the return is the interest paid by the London bank on the deposit, 10 percent. (The size of the deposit is immaterial to thecalculation of the rate of return.) In terms of dollars, the realized return on the London depositis thus 2 percent per year.。

Overview of Section IInternational Trade TheorySection I of the text is comprised of six chapters: Chapter 2 Labor Productivity and Comparative Advantage: The Ricardian Model Chapter 3 Specific Factors and Income Distribution Chapter 4 Resources and Trade: The Heckscher-Ohlin Model Chapter 5 The Standard Trade Model Chapter 6 Economies of Scale, Imperfect Competition, and International Trade Chapter 7 International Factor Movements T Section I Overview Section I of the text presents the theory of international trade. The intent of this section is to explore the motives for and implications of patterns of trade between countries. The presentation proceeds by introducing successively more general models of trade, where the generality is provided by increasing the number of factors used in production, by increasing the mobility of factors of production across sectors of the economy, by introducing more general technologies applied to production, and by examining different types of market structure. Throughout Section I, policy concerns and current issues are used to emphasize the relevance of the theory of international trade for interpreting and understanding our economy. Chapter 2 gives a brief overview of world trade. In particular, it discusses what we know about the quantities and pattern of world trade today. The chapter uses the empirical relationship known as the gravity model as a framework to describe trade. This framework describes trade as a function of the size of the economies involved and their distance. It can then be used to see where countries are trading more or less than expected. The chapter also notes the growth in world trade over the previous decades and uses the previous era of globalization (pre-WWI) as context for today’s experience. Chapter 3 introduces you to international trade theory through a framework known as the Ricardian model of trade. This model addresses the issue of why two countries would want to trade with each other. This model shows how mutually-beneficial trade arises when there are two countries, each with one factor of production which can be applied toward producing each of two goods. Key concepts are introduced, such as the production possibilities frontier, comparative advantage versus absolute advantage, gains from trade, relative prices, and relative wages across countries. 4 Krugman/Obstfeld • International Economics: Theory and Policy, Seventh Edition Chapter 4 introduces what is known as the classic Heckscher-Ohlin model of international trade. Using this framework, you can work through the effects of trade on wages, prices and output. Many important and intuitive results are derived in this chapter including: the Rybczynski Theorem, the Stolper-Samuelson Theorem, and the Factor Price Equalization Theorem. Implications of the Heckscher-Ohlin model for the pattern of trade among countries are discussed, as are the failures of empirical evidence to confirm the predictions of the theory. The chapter also introduces questions of political economy in trade. One important reason for this addition to the model is to consider the effects of trade on income distribution. This approach shows that while nations generally gain from international trade, it is quite possible that specific groups within these nations could be harmed by this trade. This discussion, and related questions about protectionism versus globalization, becomes broader and even more interesting as you work through the models and different assumptions of subsequent chapters. Chapter 5 presents a general model of international trade which admits the models of the previous chapters as special cases. This “standard trade model” is depicted graphically by a general equilibrium trade model as applied to a small open economy. Relative demand and relative supply curves are used to analyze a variety of policy issues, such as the effects of economic growth, the transfer problem, and the effects of trade tariffs and production subsidies. The appendix to the chapter develops offer curve analysis. While an extremely useful tool, the standard model of trade fails to account for some important aspects of international trade. Specifically, while the factor proportions Heckscher-Ohlin theories explain some trade flows between countries, recent research in international economics has placed an increasing emphasis on economies of scale in production and imperfect competition among firms. Chapter 6 presents models of international trade that reflect these developments. The chapter begins by reviewing the concept of monopolistic competition among firms, and then showing the gains from trade which arise in such imperfectly competitive markets. Next, internal and external economies of scale in production and comparative advantage are discussed. The chapter continues with a discussion of the importance of intra-industry trade, dumping, and external economies of production. The subject matter of this chapter is important since it shows how gains from trade arise in ways that are not suggested by the standard, more traditional models of international trade. The subject matter also is enlightening given the increased emphasis on intra-industry trade in industrialized countries. Chapter 7 focuses on international factor mobility. This departs from previous chapters which assumed that the factors of production available for production within a country could not leave a country’s borders. Reasons for and the effects of international factor mobility are discussed in the context of a one-factor (labor) production and trade model. The analysis of the international mobility of labor motivates a further discussion of international mobility of capital. The international mobility of capital takes the form of international borrowing and lending. This facilitates the discussion of inter-temporal production choices and foreign direct investment behavior. 。

Chapter 9The Instruments of Trade PolicyChapter OrganizationBasic Tariff AnalysisSupply, Demand, and Trade in a Single IndustryEffects of a TariffMeasuring the Amount of ProtectionCosts and Benefits of a TariffConsumer and Producer SurplusMeasuring the Costs and BenefitsBox: Tariffs for the Long HaulOther Instruments of Trade PolicyExport Subsidies: TheoryCase Study: Europe’s Common Agricultural PolicyImport Quotas: TheoryCase Study: An Import Quota in Practice: U.S. SugarVoluntary Export RestraintsCase Study: A Voluntary Export Restraint in PracticeLocal Content RequirementsBox: Bridging the GapOther Trade Policy InstrumentsThe Effects of Trade Policy: A SummarySummaryAPPENDIX TO CHAPTER 9: Tariffs and Import Quotas in the Presence of Monopoly The Model with Free TradeThe Model with a TariffThe Model with an Import QuotaComparing a Tariff and a Quota© 2015 Pearson Education Limited46 Krugman/Obstfeld/Melitz •International Economics: Theory & Policy, Tenth EditionChapter OverviewThis chapter and the next three focus on international trade policy. Students will have heard in the media various arguments for and against restrictive trade practices. Some of these arguments are sound, and some are clearly not grounded in fact. This chapter provides a framework for analyzing the economic effects of trade policies by describing the tools of trade policy and analyzing their effects on consumers and producers in domestic and foreign countries. Case studies discuss actual episodes of restrictive trade practices. An instructor might try to underscore the relevance of these issues by having students scan newspapers and magazines for other timely examples of protectionism at work.The analysis presented here takes a partial equilibrium view, focusing on demand and supply in one market, rather than the general equilibrium approach followed in previous chapters. Import demand and export supply curves are derived from domestic and foreign demand and supply curves. There are a number of trade policy instruments analyzed in this chapter using these tools. Some of the important instrumentsof trade policy include specific tariffs, defined as taxes levied as a fixed charge for each unit of a good imported; ad valorem tariffs, levied as a fraction of the value of the imported good; export subsidies, which are payments given to a firm or industry that ships a good abroad; import quotas, which are direct restrictions on the quantity of some good that may be imported; voluntary export restraints, which are quotas on trading that are imposed by the exporting country instead of the importing country; and local content requirements, which are regulations that require that some specified fraction of a good is produced domestically.The import supply and export demand analysis assumes a large country tariff, in which the imposition of a tariff drives a wedge between prices in domestic and foreign markets, and increases prices in the country imposing the tariff and lowers the price in the other country by less than the amount of the tariff. This contrasts with most textbook presentations, which make the small country assumption that the domestic internal price equals the world price plus the tariff. The chapter also discusses how the actual protection provided by a tariff may not equal the tariff rate if imported intermediate goods are used in the production of the protected good. The proper measurement, the effective rate of protection, is described in the text and calculated for a sample problem.The analysis of the costs and benefits of trade restrictions require tools of welfare analysis. The text explains the essential tools of consumer and producer surplus. Consumer surplus on each unit sold is defined as the difference between the actual price and the amount that consumers would have been willing to pay for the product. Geometrically, consumer surplus is equal to the area under the demand curve and above the price of the good. Producer surplus is the difference between the minimum amount for which a producer is willing to sell his product and the price that he actually receives. Geometrically, producer surplus is equal to the area above the supply curve and below the price line. These tools are fundamental to the student’s understanding of the implications of trade policies and should be developed carefully.The costs of a tariff include distortionary efficiency losses in both consumption and production. A tariff provides gains from terms of trade improvement when and if it lowers the foreign export price. Summing the areas in a diagram of internal demand and supply provides a method for analyzing the net loss or gain from a tariff. The gain from a tariff is larger the greater is the decrease in foreign export price from the tariff (as the tariff-imposing country is able to pass some of the costs of the tariff on to foreign exporters). Because large countries will have a larger influence on export prices than small countries, a large country is more likely to gain and, therefore, impose an import tariff.Other instruments of trade policy can be analyzed with this method. An export subsidy operates in exactly the reverse fashion of an import tariff. For example, Europe’s common agricultural policy has raised the price European farmers receive so much that Europe ends up exporting agricultural goods despite very high labor and land costs. The net cost of this shift to consumers is about $30 billion a year.An import quota has similar effects as an import tariff upon prices and quantities, but revenues, in the form of quota rents, accrue to the quota license holders, who are often foreign producers. For example, a quota on sugar imported into the United States has greatly increased the fortunes of foreign sugar producers (many of which are owned by American sugar refiners), at a significant cost to American consumers. Estimates place the cost of each job in the American sugar industry “saved” by protection at $1.75 million. Voluntary export restraints are a form of quotas in which import licenses are held by foreign governments. For example, Japan voluntarily limited exports of cars to the United States to forestall any import tariffs on cars from Japan in the wake of the oil price spike of 1979. The net result of these VER’s was to raise the price of Japanese cars, with the gains accruing directly to Japanese manufacturers. A similar story is happening now with voluntary export restraints on solar panels exported from China to the European Union.Another trade instrument is to mandate local content requirements. These raise the price of imports as well as domestic goods competing with imports but do not yield either tariff revenue or quota rents. The recent construction of the new Bay Bridge linking San Francisco and Oakland is used as a case study. Federal funding was available for this project but would have required the state of California to use a much more costly American contractor as opposed to the significantly cheaper Chinese bid. In the end, the bridge was built through local bonds rather than federal funding because of the local content requirement of federal funding.The Appendix discusses tariffs and import quotas in the presence of a domestic monopoly. Free trade eliminates the monopoly power of a domestic producer, and the monopolist mimics the actions of a firm in a perfectly competitive market, setting output such that marginal cost equals world price. A tariff raises domestic price. The monopolist, still facing a perfectly elastic demand curve, sets output such that marginal cost equals internal price. A monopolist faces a downward-sloping demand curve under a quota. A quota is not equivalent to a tariff in this case. Domestic production is lower and internal price higher when a particular level of imports is obtained through the imposition of a quota rather than a tariff.Answers to Textbook Problems1. The import demand equation, MD, is found by subtracting the Home supply equation from the Homedemand equation. This results in MD= 80 - 40 ⨯P. Without trade, domestic prices and quantities adjust such that import demand is 0. Thus, the price in the absence of trade is 2.2. a. Foreign’s export supply curve, XS, is XS=-40 + 40⨯P. In the absence of trade, the price is 1.b. When trade occurs, export supply is equal to import demand, XS=MD. Thus, using the equationsfrom Problems 1 and 2a, P= 1.50, and the volume of trade is 20.© 2015 Pearson Education Limited48 Krugman/Obstfeld/Melitz •International Economics: Theory & Policy, Tenth Edition3. a. The new MD curve is 80 - 40 ⨯ (P+ t) where t is the specific tariff rate, equal to 0.5. (Note: Insolving these problems, you should be careful about whether a specific tariff or ad valorem tariff is imposed. With an ad valorem tariff, the MD equation would be expressed as MD= 80 - 40 ⨯ (1 + t)P. The equation for the export supply curve by the foreign country is unchanged.MD=XS80 - 40 ⨯ (P+ 0.5) = 40P- 4080 - 20 - 40P= 40P- 4080P= 100P World= 1.25P Home=P World+t= 1.25 + 0.5 = 1.75Trade =MD=XS= (40 ⨯ 1.25) - 40 = 10D Home= 100 - (20 ⨯ 1.75) = 65S Home= 20 + (20 ⨯ 1.75) = 55D Foreign= 80 - (20 ⨯ 1.25) = 55S Foreign= 40 + (20 ⨯ 1.25) = 65b. andc. The welfare of the Home country is best studied using the combined numerical andgraphical solutions presented below in Figure 9-1.Figure 9-1where the areas in the figure are:a.55(1.75 - 1.50) - 0.5(55 - 50)(1.75 - 1.50) = 13.125b. 0.5(55 - 50)(1.75 - 1.50) = 0.625c. (65 - 55)(1.75 - 1.50) = 2.50d. 0.5(70 - 65)(1.75 - 1.50) = 0.625e. (65 - 55)(1.50 - 1.25) = 2.50Consumer surplus change: -(a+ b+ c+ d) =-16.875. Producer surplus change: a= 13.125.Government revenue change: c+ e= 5. Efficiency losses b+ d are exceeded by terms of tradegain e. (Note: In the calculations for the a, b, and d areas, a figure of 0.5 shows up. This is because we are measuring the area of a triangle, which is one-half of the area of the rectangle defined by the product of the horizontal and vertical sides.)4. Using the same solution methodology as in Problem 3, when the Home country is very small relativeto the Foreign country, its effects on the terms of trade are expected to be much smaller. The small country is much more likely to be hurt by its imposition of a tariff. Indeed, this intuition is shown in this problem. The free trade equilibrium is now at the price $1.09 and the trade volume is now 36.40.With the imposition of a tariff of 0.5 by Home, the new world price is $1.045, the internal Home price is $1.545, Home demand is 69.10 units, Home supply is 50.90, and the volume of trade is 18.20. When Home is relatively small, the effect of a tariff on world price is smaller than when Home is relatively large. When Foreign and Home were closer in size, a tariff of 0.5 by Home lowered world price by25 percent, whereas in this case the same tariff lowers world price by about 5 percent. The internalHome price is now closer to the free trade price plus t than when Home was relatively large. In this case, the government revenues from the tariff equal 9.10, the consumer surplus loss is 33.51, and the producer surplus gain is 21.089. The distortionary losses associated with the tariff (areas b+ d) sum to 4.14 and the terms of trade gain (e) is 0.819. Clearly, in this small country example, the distortionary losses from the tariff swamp the terms of trade gains. The general lesson is that the smaller the economy, the larger the losses from a tariff because the terms of trade gains are smaller.5. Dumping is a situation of selling the product at a lower price in the international market compared tothe domestic market. An anti-dumping shows that the companies sell the product lower than the cost of production. When companies follow the dumping and anti-dumping activities, the consumerpurchases the product at a lower price in the dumped country. This leads to the increase in thepurchasing power and welfare of the consumer. The increased competition forces the domesticproducer to cut prices and the overall market price falls.6.An imposition of tariff increases the price of the product at home. This leads to a decrease in quantitydemanded, hence a decrease in import. As demand decreases the income of the exporting country also falls. A decline in income of the export country leads to a reduction in demand for foreign goods.This means, the export of the home country also declines. An imposition of protective tariff increases domestic employment, competing with the foreign industries. This is because, a low import of commodity results in higher demand for the domestic product hence increasing employment.Yes, there might be indirect employment losses in other sectors. The countries which imposes tariff are also unable to export more. This is because an imposition of protective tariff reduces the income of the foreign country, hence reducing demand. Similarly, the domestic industries that use the imported goods as input, also find it expensive to use those imported goods due to the imposition of tariff. This might reduce the employment in other sectors.7. We first use Foreign’s export supply and Home’s import demand curves to determine the newworld price. The Foreign supply of exports curve, with a Foreign subsidy of 0.5 per unit, becomes XS=-40 + 40(1 + 0.5) ⨯P. The equilibrium world price is 1.2, and the internal Foreign price is 1.8.The volume of trade is 32. The Foreign demand and supply curves are used to determine the costs and benefits of the subsidy. Construct a diagram similar to that in the text and calculate the area of the various polygons. The government must provide (1.8 - 1.2)⨯ 32 = 19.2 units of output to support the subsidy. Foreign producer surplus rises due to the subsidy by the amount of 15.3 units of output.Foreign consumer surplus falls due to the higher price by 7.5 units of the good. Thus, the net loss to Foreign due to the subsidy is 7.5 + 19.2 - 15.3 = 11.4 units of output. Home consumers and producers face an internal price of 1.2 as a result of the subsidy. Home consumers surplus rises by 70 ⨯ 0.3 +0.5 (6⨯ 0.3) = 21.9, while Home producer surplus falls by 44 ⨯ 0.3 + 0.5(6 ⨯ 0.3) = 14.1, for a netgain of 7.8 units of output.© 2015 Pearson Education Limited50 Krugman/Obstfeld/Melitz •International Economics: Theory & Policy, Tenth Edition8. a. False, unemployment has more to do with labor market issues and the business cycle than withtariff policy. Empirical estimates suggest that the cost to society of jobs saved through tariffs isexorbitantly high, and tariffs may actually increase unemployment in nonprotected industries.b. False, the opposite is true because tariffs by large countries can actually reduce world prices,which helps offset their effects on consumers.c. This kind of policy might reduce automobile production and Mexico but also would increase theprice of automobiles in the United States and would result in the same welfare loss associatedwith any quota.9. At a price of $10 per bag of peanuts, Acirema imports 200 bags of peanuts. A quota limiting theimport of peanuts to 50 bags has the following effects:a. Set MD= 50 to find the post-quota price: 350 - 15P= 50. The price of peanuts rises to $20 per bag.b. The quota rents are ($20 - $10) ⨯ 50 = $500.c. The consumption distortion loss is 0.5 ⨯ 100 bags ⨯ $10 per bag = $500.d. The production distortion loss is 0.5 ⨯ 50 bags ⨯ $10 per bag = $250.10.An export subsidy would reduce the supply of sugar in Brazil and hence raise the domestic price. Therise in domestic price is less than 20%. The terms of trade will worsen for Brazil. This is because it lowers the price of sugar in the foreign market due to the increased supply. This leads to an additional loss in the terms of trade, equal to the price difference, due to the increased supply in the importing country.The government can impose countervailing import duties to protect the domestic producers and the price in the importing country.11. It would improve the income distribution within the economy because wages in manufacturingwould increase, and real incomes for others in the economy would decrease due to higher prices for manufactured goods. This is true only under the assumption that manufacturing wages arelower than all others in the economy. If they were higher than others in the economy, the tariffpolicies would worsen the income distribution.。

克鲁格曼《国际经济学》（国际金融部分）课后习题答案（英文版）第一章CHAPTER 1INTRODUCTIONChapter OrganizationWhat is International Economics About?The Gains from TradeThe Pattern of TradeProtectionismThe Balance of PaymentsExchange-Rate DeterminationInternational Policy CoordinationThe International Capital MarketInternational Economics: Trade and MoneyCHAPTER OVERVIEWThe intent of this chapter is to provide both an overview of the subject matter of international economics and to provide a guide to the organization of the text. It is relatively easy for an instructor to motivate the study of international trade and finance. The front pages of newspapers, the covers of magazines, and the lead reports of television news broadcasts herald the interdependence of the U.S. economy with the rest of the world. This interdependence may also be recognized by students through their purchases of imports of all sorts of goods, their personal observations of the effects of dislocations due to international competition, and their experience through travel abroad.The study of the theory of international economics generates an understanding of many key events that shape our domesticand international environment. In recent history, these events include the causes and consequences of the large current account deficits of the United States; the dramatic appreciation of the dollar during the first half of the 1980s followed by its rapid depreciation in the second half of the 1980s; the Latin American debt crisis of the 1980s and the Mexico crisis in late 1994; and the increased pressures for industry protection against foreign competition broadly voiced in the late 1980s and more vocally espoused in the first half of the 1990s. Most recently, the financial crisis that began in East Asia in 1997 andspread to many countries around the globe and the Economic and Monetary Union in Europe have highlighted the way in which various national economies are linked and how important it is for us to understand these connections. At the same time, protests at global economic meetings have highlighted opposition to globalization. The text material will enable students to understand the economic context in which such events occur.Chapter 1 of the text presents data demonstrating the growth in trade and increasing importance of international economics. This chapter also highlights and briefly discusses seven themes which arise throughout the book. These themes include: 1) the gains from trade;2) the pattern of trade; 3) protectionism; 4), the balance of payments; 5) exchange rate determination; 6) international policy coordination; and 7) the international capital market. Students will recognize that many of the central policy debates occurring today come under the rubric of one of these themes. Indeed, it is often a fruitful heuristic to use current events to illustrate the force of the key themes and arguments which are presentedthroughout the text.。