Download Economic Interdependence Notes

IB MYP HONORS ECONOMICS NOTES
International Economic Relationships
*Why do countries trade with each other?
Create allies, improve economy, gain products they don’t have (reduces scarcity)
I.
Global Interdependence: Countries rely on each other for their needs & wants (also called “globalization”)
a. Favorable Balance of Trade (exports > imports)
b. Unfavorable Balance of Trade
(exports < imports)
c. A country has a “comparative advantage” if they can produce goods/services at a lower cost than other countries
(lower cost = higher demand)
d. Specialization in production allows countries to pursue their comparative advantage, which causes goods and
services to be produced at a lower cost. Trade allows overall global production and consumption to increase – it
reduces scarcity.
e. Countries can protect their domestically produced goods/services from foreign competition by taxing imports.
These are called “protective tariffs”
f. Because of globalization, countries may use political tactics, such as “sanctions” and “embargoes” to forces countries
to behave a certain way. “Sanctions” tend to be punishments on some/all products. “Embargoes” tend to be
methods of protest against some/all products.
g. The exchange rate (or value of currency) influences foreign trade:
i. “US dollar is weak” means that the value of other countries’ currencies are higher. This means it takes
more US dollars to buy stuff in/from other countries
ii. “US dollar is strong” means that the value of the US dollar is higher than others’ currencies. We can buy
more from other countries.
II.
Economic Organizations
a. European Union: 25 European countries cooperate politically and economically (1 currency – the Euro). People
can travel easier and businesses can trade easier
b. NAFTA (North American Free Trade Agreement) is a treaty (contract between 2 or more countries). The US,
Canada, and Mexico agree to not put protective tariffs on goods that are traded between each other. It’s purpose is
to increase competition, productivity, and strengthen the economies
c. WTO (World Trade Organization): Sets rules that govern trading practices between nations to ensure equality
d. IMF (International Monetary Fund): Oversees balances of trade. Also offers financial assistance to countries in
need
e. World Bank: Helps fight world poverty through programs like education and loans
III.
Global interdependency & International trade
a. Competing countries can create economic inequality
b. Developed country: strong economy, high GDP, low unemployment, & high standard of living (US, Great Britain,
Japan, France, Canada)
c. Developing country: weak economy, low GDP, high unemployment, & low standard of living (Sudan, Romania,
Libya). Many are under a command economy.
d. Countries that are underdeveloped or face disaster may receive foreign aid (money, equipment, assistance) from
other countries
e. International Organizations help oversee human rights regulations and try to prevent inhumane treatment, like child
labor
f. The United Nations try to keep peace in the world