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Chapter 1 World Economic Outlook

Economic Terms & Notes

1. GDP: or Gross Domestic Income (GDI)

It is a measure of a country's overall official economic output. It is the market value

of all final goods and services officially made within the borders of a country in a year.

It is often positively correlated with the standard of living. Components of U.S. GDP

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and

Net Exports (X - M). Y = C + I + G + (X M)

Here is a description of each GDP component:

2. Real GDP

It is gross domestic product in constant dollars. In other words, real

GDP is a nation's total output of goods and services, adjusted for price

changes. Real GDP can be compared to nominal GDP, which is GDP in current

dollars, i.e., the nation's output in actual dollars in a given year.

3. Interest Rate

An interest rate is the rate at which interest is paid by a borrower for

the use of money that they borrow from a lender. Interest rates targets

are also a vital tool of monetary policy and are taken into account when

dealing with variables like investment, inflation, and unemployment.

4. Inflation & Deflation

4.1 Inflation is a rise in the general level of prices of goods and services

in an economy over a period of time. A chief measure of price inflation

is the inflation rate, the annualized percentage change in a general price

index (normally the Consumer Price Index) over time. Negative effects of

inflation include a decrease in the real value of money and other monetary

items over time; uncertainty about future inflation may discourage

investment and saving, or may lead to reductions in investment of

productive capital and increase savings in non-producing assets. e.g.

selling stocks and buying gold. Positive effects include a mitigation of

economic recessions, and debt relief by reducing the real level of debt.

4.2 Deflation is a decrease in the general price level of goods and services.

Deflation occurs when the annual inflation rate falls below zero percent

(a negative inflation rate), resulting in an increase in the real value

of money – allowing one to buy more goods with the same amount of money.

This should not be confused with disinflation, a slow-down in the inflation rate. As inflation reduces the real value of money over time, conversely, deflation increases the real value of money – the functional currency (and monetary unit of account) in a national or regional economy. Deflation is a problem in a modern economy because of the danger of a

5. IMF

is the intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. It also offers highly leveraged loans, mainly to poorer countries. Its headquarters is in Washington, D.C., United States.

Chapter 2 American Economy

1. Government Involvement

1.1 Regulations

The government regulates private enterprise in numerous ways. Regulation falls into two general categories

1.1.1 Some efforts seek, either directly or indirectly, to control prices. Traditionally, the government has sought to prevent monopolies such as electric utilities from raising prices beyond the level that would ensure them extremely large profits.

1.1.2 Another form of economic regulation, antitrust law, seeks to strengthen market forces so that direct regulation is unnecessary. The government & sometimes, private parties—have used antitrust law to prohibit practices or mergers that would unduly limit competition.

1.2 Taxation

It is a complex system which may involve payment to at least four different levels of government and many methods of taxation. Taxes are levied by the federal government, by the state governments, by local governments and other special-purpose districts,

2. Economic Terms & Notes

1. Economic Cycle

Economic s cycle (or Business cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (expansion or boom), and periods of relative stagnation or decline (contraction or recession).

2. Money Supply

money supply or money stock, is the total amount of money available in an economy at a particular point in time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily-accessed assets on the books of financial institutions).

3. Tariffs

Tariff is a tax levied on imports or exports and is usually associated with protectionism. When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according

to the tariff formula. Since the goods cannot continue on their way until the duty is paid, it is the easiest duty to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers.

4. Recession

A recession is a business cycle contraction, a general slowdown in economic activity over a period of time. During recessions, many

macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending,

capacity utilization, household incomes, business profits and inflation all fall during recessions; while bankruptcies and the unemployment rate rise.

Chapter 3 China’s Economy

1. Challenges Facing China

Challenge in the early 21st century will be to balance its highly

centralized political system with an increasingly decentralized economic system. Also, China's economy continues to suffer from inadequate

transportation, communication, and energy resources. China's poor human development index highlights the economic disparity between urban China and the rural hinterlands.

Other critical problems include corruption, which affects every level of society, and the growing rate of HIV infection. Another long-term threat to continued rapid economic growth is the deterioration in the environment, notably air pollution, soil erosion and steady fall of water table in the north.

2. Economic Terms & Notes

1. The World Bank

World Bank is a term used to describe an international financial

institution that provides leveraged loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty.The World Bank is one of five institutions created at the Bretton Woods Conference in 1944. Delegates from many countries attended the Bretton Woods Conference. The most powerful countries in attendance were the United States and United Kingdom which dominated negotiations. Based in Washington, D.C., the World Bank is by custom headed by an American.

2．Key Factors of World Bank

The World Bank sees the five key factors necessary for economic growth:

1.Build capacity: Strengthening governments and educating government officials.

2.Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts.

3.Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures.

http://www.77cn.com.cnbating corruption: Supporting eradicating corruption.

5.Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs .

Chapter 4 Benefits of International Trade

1. International Trade

It is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).

Industrialization,advanced-transportation,globalization,multi-national corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization.

2. Benefits of International Trade

Enhances the domestic competitiveness

Takes advantage of international trade technology

Increase sales and profits

Extend sales potential of the existing products

Maintain cost competitiveness in your domestic market

Enhance potential for expansion of your business

Gains a global market share

Reduce dependence信赖 on existing markets

Stabilize稳定 seasonal季节的，周期的 market fluctuations市场波动

3. Disadvantage of International Trade

Local production may suffer

Local industries 工业may be overshadowed by their international competitors

Rich countries may influence political matters in other countries and gain control over weaker nations.

Ideological意识形态的 differences may emerge浮现，暴露 between nations with regard to the

procedures程序 in trade practices.

4. Economic Terms & Notes

1 GNP国内生产总值

GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens

(including income of those located abroad), minus income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country's citizens produced regardless of their

location. GNP is one measure of the economic condition of a country, under the assumption that a higher GNP leads to a higher quality of living. 2 Foreign Exchange

Instruments工具, such as paper currency, notes, and checks, used to make payments between countries.the transfer of credits to a foreign country to settle debts or accounts between residents of the home country and those of the foreign country.foreign bills, currencies, etc. used to settle such accounts

Chapter 5 Modern Trade Theories (1)

1. Mercantilism重商主义

Mercantilism is a political and economic system that arose in the 17th and 18th centuries. It is an economic theory that holds that the prosperity 繁荣of a nation is dependent upon its supply of capital, and that the global volume of international trade is "unchangeable". Economic assets资产 (or capital) are represented by bullion金银 (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus减去 imports). Mercantilism was in opposition to Smith's concepts of free trade, free enterprise, and the free movement of people and goods.

2. The tenets of mercantilism comprehensively:

That every inch of a country's soil be utilized for agriculture, mining or manufacturing. That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials. That a large, working population be encouraged. That all export of gold and silver be prohibited and all domestic money be kept in circulation. That all imports of foreign goods be discouraged as much as possible. That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver. That as much as possible, imports be confined to raw materials that can be finished [in the home country]. That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver. That no importation be allowed if such goods are sufficiently and

suitably supplied at home.

3. Absolute Advantage

The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.

In economics, principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources.

4. Comparative Advantage

It refers to the ability of a party (an individual, a firm, or a country) to produce a particular good or service at a lower opportunity cost than another party. It is the ability to produce a product with the highest relative efficiency given all the other products that could be produced. It can be contrasted with absolute advantage which refers to the ability of a party to produce a particular good at a lower absolute cost than another.

5. Criticism of the Ricardian theory of Trade

Ricardian theory of international trade contains a logical fallacy. Ricardo assumed that in both countries two goods are producible and actually are produced, but developed and underdeveloped countries often trade those goods which are not producible in their own country. Ricardo's theory of comparative advantage is also flawed in that it assumes production is continuous and absolute. In the real world, events outside the realm of human control (i.e. natural disasters) can disrupt production. In this case, specialization could cripple a country who depends on imports from foreign, naturally disrupted countries.

Chapter 6 Modern Trade Theories (2)

1.The H-O Theory/Model(of Factor Endowment)

The H–O model is a general equilibrium mathematical model

of international trade, developed by Eli Heckscher and Bertil Ohlin . It builds on theory of comparative advantage by predicting patterns of

commerce and production based on the factor endowments of a trading region. The model essentially says that countries will export products that utilize their abundant and cheap factor(s) of production and import products that utilize the countries' scarce factor(s).

2. Criticism against the Heckscher–Ohlin Model

2.1 Identical Production Function

The model assumes that the production functions are identical for all countries concerned. This means that all countries are in the same level of production and have the same technology.

2.2 Capital as Endowment

The concept of capital as natural endowment distorts the real role of capital. By the help of machines and apparatuses, the human being got a tremendous production capability.

2.3 No Unemployment

H–O theory excludes unemployment by the very formulation of the model, in which all factors (including labor) are employed in the production.

2.4 No Room for Firms

The theory assumes the same production function for all countries. This implies that all firms are identical. The theoretical consequence is that there is no room for firms in the H-O model.

3. The Product life Cycle Theory

The Product Life-Cycle (PLC) Theory is based upon the biological life cycle. It is an economic theory that suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.

4. Other New Trade Theories

4.1 First-Mover Advantage (FMA)

⑴ Technology Leadership

⑵ Control of Resources

(3) Buyer Switching Costs

4.2 First-Mover Disadvantages

⑴ Free-Rider Affects

⑵ Resolution of Technological or Market Uncertainty

(3) Shifts in Technology or Customer Needs

5. Economic Terms & Notes

1. Economics of Scale

In microeconomics, it refers to the cost advantages that a business obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased.

"Economies of scale" also refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.

2. Distribution of Income

Income Distribution is how a nation’s total economy is distributed amongst its population. Income Distribution has always been a central concern of economic theory and economic policy.

Modern economists have also addressed this issue, but have been more concerned with the distribution of income across individuals and households. Important theoretical and policy concerns include the relationship between income inequality and economic growth.

Chapter 7 Government Intervention in Trade

1. Why Governments Intervene in Trade?

1.Tariffs and other barriers can generate government revenue.

2.Safety, security, welfare of citizens(FDA barriers on drug imports);

3.barriers intended to protect national security)

4.Broad-based economic, political, or social objectives (job creation)

5.Reduce foreign competition

6.Protect infant industries

7.Preserve national culture and identity

2. How Firms Respond to Government Intervention?

1. Research to gather knowledge and intelligence.

2. Choose the most appropriate entry strategies..

3. Take advantage of foreign trade zones.

4. Seek favorable customs classifications for exported products.

5. Take advantage of investment incentives and other government support programs.

6. Lobby for freer trade and investment.

3. Economic Terms & Notes

1. Non-Tariff Trade Barriers

1.Specific Limitations on Trade:

1. Quotas

2. Import Licensing requirements

3. Proportion restrictions of foreign to domestic goods (local content

requirements)

4. Minimum import price limits

5. Embargoes

2. Customs and Administrative Entry Procedures:

1. Valuation systems

2. Antidumping practices

3. Tariff classifications

4. Documentation requirements

5. Fees

3. Standards:

1. Standard disparities

2. Intergovernmental acceptances of testing methods and standards

3. Packaging, labeling, and marking

4. Government Participation in Trade:

1. Government procurement policies

2. Export subsidies

3. Countervailing duties

4. Domestic assistance programs

5. Charges on imports:

1. Prior import deposit subsidies

2. Administrative fees

3. Special supplementary duties

4. Import credit discriminations

5. Variable levies

6. Border taxes

6. Others:

1. Voluntary export restraints

2. Orderly marketing agreements

2. Subsidies

A subsidy (also subvention) is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to

encourage it to hire more labor . Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports.

3. Infant Industry

In economics, an infant industry is a new industry, which in its early stages is unable to compete with established competitors abroad.

Governments are sometimes urged to support the development of infant industries, usually through subsidies or tariffs. One of the first acts of the US Congress was to impose tariffs on a variety of imports including cotton, leather, and various forms of clothing, in an effort to protect the American textile industry. Economists argue that state support for infant industries is only justified if there are external benefits.

4. National Income

The income earned by a country's people, including labor and capital investment.It is a money measure of the incomes received or accruing to residents of a country as owners of the agents of production, during a specified period of time. It includes wages, rents, interest and profits, not only in the form of cash payments, but as income from contributions made by employers to pension funds, income of the self-employed.

Chapter 8 International Trade Policies

1. Trade policy

It refers all Standards, goals, rules and regulations that pertain to trade relations between countries. These policies are specific to each country and are formulated by its public officials. Their aim is to boost the nation’s international trade. A country’s trade policy includes taxes imposed on import and export, inspection regulations, and tariffs and quotas.

2. Free Trade Policy

Free trade is a system of trade policy that allows traders to act and or transact without interference from government. Free trade differs from other forms of trade policy where the allocation of goods and services amongst trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are result of protectionist trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.

3. Features of Free Trade

1.Trade of goods without taxes (including tariffs) or other trade barriers (e.g.,quotas on imports or subsidies for producers)

2.Trade in services without taxes or other trade barriers

3.The absence of "trade-distorting" policies (such as taxes, subsidies, regulations, or laws) that give some firms, households, or factors of production an advantage over others

4.Free access to markets

5.Free access to market information

6.Inability of firms to distort markets through government-imposed monopoly or oligopoly power

7.The free movement of labor between and within countries

8.The free movement of capital between and within countries

4. Protective Trade Policy

Protective Trade Policy is the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations

designed to discourage imports, and prevent foreign take-over of domestic

markets and companies. This policy is closely aligned with

anti-globalization, and contrasts with free trade, where government barriers to trade and movement of capital are kept to a minimum.

5. Economic Terms & Notes

1. Specific Tariff VS Ad Valorem Tariff

Specific Tariff A tariff rate charged as fixed amount per quantity and its duty assessed on a per unit basis rather than on market value. For example, a specific tariff on a particular type of grain might be established at $10 per pound.

Ad Valorem Tariff A tariff rate charged as percentage of the price and its size is based on the value of the goods being brought into the country. For example, a tariff is calculated as 10% of the value of merchandise being imported.

2. Foreign Sourcing

Generally, this sourcing involves allowing a foreign company to handle elements of a company's production and/or service process. Most companies simply view foreign sourcing as a way to save money because these countries charge considerably less in labor costs.The bottom line when it comes to foreign sourcing is that it can lower production costs, improve

competitiveness in the global market and increase profits.

3. Import Substitution

Import Substitution Industrialization or "Import-Substituting

Industrialization" (called ISI) is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products.

The Import Substitution Strategy emphasizes replacement of some

agricultural or industrial imports and encourage local production for local consumption, rather than producing for export markets. It is meant to generate employment, reduce foreign exchange demand, stimulate

innovation, and makes the country self-reliant in critical areas such as food, defense, and advanced technology.

The major advantages claimed for ISI include: increases in domestic employment (reducing dependence on labor non-intensive industries such

as raw resource extraction and export); resilience in the face of a global economic shocks (such as recessions and depressions); less long-distance transportation of goods (and concomitant fuel consumption and greenhouse gas and other emissions).

The disadvantages claimed for ISI is that the industries that it creates are inefficient and obsolete as they aren't exposed to internationally competitive industries which constitute their rivals and that the focus on industrial development impoverishes local commodity producers who are primarily rural. Other disadvantages include unemployment increasing internationally as World GDP decreases through the promotion of

inefficiency.

Chapter 9 Regional Economic Integration

1. Regional Economic Integration

Regional economic integration is an agreement among countries in a

geographic region to reduce and ultimately remove tariff and non tariff barriers to the free flow of goods or services and factors of production among each others. It can be also refers as any type of arrangement in which countries agree to coordinate their trade, fiscal, and/or monetary policies are referred to as economic integration. Obviously, there are many different levels of integration

2. A Free Trade Area (or Zone)

Free Trade Area/ Zone is an area where goods may be traded without any barriers imposed by customs authorities like quotas and tariffs. It is a special designated area within a country where normal trade barriers like quotas, tariffs are removed and the bureaucratic necessities are narrowed in order to attract new business and foreign investments. The Free trade zones are located in the developing countries.

Free trade zones are developed in places that are geographically

advantageous for trade. Places near international airports, seaports, and the like are preferred for developing free trade zones. The FTZ can be defined as a labor-intensive manufacturing hub, which involves the import of components and raw materials, and the produced goods are exported to different countries.

3. Purpose of International Free Trade Zones

The main Purpose is to facilitate cross-border trade by removing obstacles imposed by customs regulations. FTZs ensure faster turnaround of planes and ships by lowering custom related formalities.

FTZs is beneficial both for importers and exporters, as they are designed to reduce labor cost and tax related expenditures. FTZs help the traders to utilize the available business opportunities in the best possible way.

FTZs promote export-oriented industries. These zones also help to

increase foreign exchange earnings. Employment opportunities created by free trade zones help to reduce unemployment problem in the less developed economies.

Other purpose is to develop the economy of that location by providing more job opportunities, business options, manufacturing options and develop export-oriented units, increase the foreign exchange earnings, and generate employment opportunities.

3. Customs Union

A Customs Union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Common competition policy is also helpful to avoid competition deficiency.

Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. It is the third stage of economic

integration.Customs union is established through trade pact.

4. A Common Market

An economic unit, typically formed of nations, intended to eliminate or markedly reduce trade barriers among its members. When the integration of a group of national economies is taken beyond the stage of a customs union by the adoption of common economic policies and the facilitation of free movement of capital and labor, a common market results. The most accomplished example is the European Union.

6. Economic Union

A common market across more than one sovereign state with a united currency and the free exchange of capital and labor. This involves the transfer of a portion of sovereignty, especially control over monetary policy, to a central organization. Neo-Liberal economists consider an economic and monetary union the fifth stage of economic integration. The largest and most famous example of an economic union is the Eurozone.

7. Political Union

A Political Union is a type of state which is composed of or created out of smaller states. Unlike a personal union, the individual states share

a common government and the union is recognized internationally as a single political entity. A political union may also be called a

legislative Union or State Union.

8. EFTA

The European Free Trade Association (EFTA) is a free trade organisation between four European countries that operates parallel to, and is linked to, the European Union (EU).

EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or chose not to, join the then-European Economic Community (EEC) which has now become the European Union (EU). The Stockholm Convention, establishing EFTA, was signed on 4 January 1960 in Stockholm by seven countries.

9. The EU

The European Union (EU) is an economic and political union of 27 member states which are located primarily in Europe. Committed to regional integration, the EU was established in 1993 upon the foundations of the European Communities. With over 500 million citizens, The EU has developed a single market through a standardized system of laws which apply in all member states, and ensures the free movement of people, goods, services, and capital, including the abolition of passport controls by the Schengen Agreement between 22 EU states. It enacts legislation in justice and home affairs, and maintains common policies on trade, agriculture, fisheries and regional development.

10. NAFTA

The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. The Goal of NAFTA was to eliminate barriers of trade and investment between the USA, Canada and Mexico.

11. ASEAN

The Association of Southeast Asian Nations is a geo-political and economic organization of 10 countries located in Southeast Asia, which was formed on 8 August 1967 Its aims include the acceleration of economic growth, social progress, cultural development among its members, the protection of the peace and stability of the region, and to provide opportunities for member countries to discuss differences peacefully。

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