İKTİSADA GİRİŞ II

Why do we make a separate study of international economics within the science of economics? The answer is that the environment of economic transactions is affected by many different national and international variables. For a proper analysis of an international transaction, these variables which are not subject to the national economic transactions should be taken into the examination.

International economic transactions affect the general equilibrium of an economy. The main aim of the economic policies is to attain the internal equilibrium and external equilibrium at the same time. General Equilibrium refers to the situation of concurrent equilibrium of the internal and external balance of an economy.

Autarky is the absence of international trade.

At the autarky, production possibilities frontier (PPF) and the consumption possibilities frontier (CPF) of a country are identical. In other words, production and consumption points are the same and they are both on the same frontier. It is impossible to consume at an outer point of the PPF. Nevertheless, international trade enables consumers to consume at a point which is outer than the PPF. It means that the CPF of a country is at an outer level than its PPF with international trade. Production possibilities frontier (PPF) is the boundary between those combinations of commodities and services that can be produced and those that cannot.

In a realistic world of many traded commodities, the terms of trade of a country are given by the ratio of the price index of its exports to the price index of its imports. The ratio is usually multiplied by a hundred in order to express the terms of trade in percentages. Terms of trade is the ratio of the export price index of a county to its import price index.

Factor intensity refers to the intensity of the factors of production used in the production of a certain commodity.

Non-tariff restriction is any action other than a tariff that restricts international trade. It is a barrier resulting from a prohibition, condition or a specific market requirement that makes importation or exportation of a commodity costly or difficult.

The GATT organized a series of negotiations, known as trade rounds that resulted in tariff reductions in a steady way. Uruguay Round is the most well-known trade round because it led to the establishment of the World Trade Organization (WTO) in 1995. Today, WTO is responsible for global trade rules. Although it has many agreements to regulate global trade, the main agreement is still the GATT which consists of rules on commodity trade. The WTO agreements not only cover commodity trade but also services trade and intellectual property rights. They set the principles of making a freer trade and the permitted exceptions. They include the commitments of countries to lower the import tariffs and other trade restrictions.

Equilibrium exchange rate is the exchange rate determined by the intersection of the demand and supply curves for the foreign currency. Nominal exchange rate gives the quantity of the foreign currency that can be bought by the national currency. In other words, nominal exchange rate is the price of one country’s currency expressed in terms of another country’s currency. Real exchange rate is the nominal exchange rate weighted by the consumer price index of the two countries.

Capital Account constitutes the properties that are not financial, like patent rights, intellectual property rights and licenses, etc. Financial Account is the main sub-account of the Capital Account and Financial Account under which the foreign direct investments and portfolio investments are recorded. Foreign direct investments (FDI) are the real investments made directly to the firms, capital commodities and land. In foreign direct investments, the control on the investment is in the hands of the investor. Portfolio investments are financial properties and assets such as bonds, Treasury bills and stocks. Current account deficit refers to a situation where the net result of the Current Account is negative.

Internal equilibrium refers to the full employment of economy with price stability. Accordingly, the correct answer is C.

Expenditure-switching policies are those which switch the total expenditure
from imported commodities to domestic commodities or vice versa. Accordingly, the correct answer is D.

Autarky is defined as the ansence of international trade. Accordingly, the correct answer is A.

Consumption possibilities frontier is also referred to as budget line. Accordingly, the correct answer is E.

Terms of trade means the ratio of the export price index of a county to its import price index. Accordingly, the correct answer is A.

Factor abundance refers to the factor of production which exists in a greater
proportion and with a relatively lower price in one country than the other country. Accordinly, the correct answer is E.

A tax or a duty levied on the traded commodity as it crosses a national boundary is known as tariff. Accordingly, the correct answer is C.

Foreign exchange rate is the price of one country’s currency expressed in terms of another country’s currency. Accordingly, the correct answer is E.

Real exchange rate refers to the nominal exchange rate weighted by the consumer price index of the two countries. Accordingly, the correct answer is D.

Financial properties and assets such as bonds, Treasury bills and stocks are known as portfolio investments. Accordingly, the correct answer is B.