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International Trade Evaluation (Evaluate Trading Blocs (Disadvantage (Loss…
International Trade Evaluation
Reduce Current account deficits
Expenditure-reducing policy
Contractionary Fiscal Policy
Contradictionary monetary policy
Expenditure-switching policies
Depreciation
Trade protection
Supply-side policy
Market-based supply side polices
Competition encouraging policy
Labor market reforms
Interventionist
Aim to shift LRAS to right and lower inflation, thus more net export
Floating vs Fixed
Free Floating
No need for central bank or government intervention
No need for central bank to hold foreign currency reserves
Automatic correction for current account imbalances
Free to use monetary policy
Smoother exchange rate changes
Fixed
High degree of certainty
Inflation is kept low thorugh fiscal policy
Less room for currency speculation
Evaluate Trading Blocs
Increased competition among producers
Lower prices for consumers, increased consumer choice and quality
Provide opportunities for firms to expand into larger markets
Increased investment due to larger market size
Increased export to the members of the trading bloc
Disadvantage
Loss of national autonomy
SR, inefficent firms go out, greater unemployment, greater income inequlity
Break-up of the global economy into grading blocs may increase inefficiency in global resource allocation
ELDC have disadvantages they can't compete with advanced and lower cost producers
Trade diversion
Greater economic growth
Advantage
More friendly with members of the trading block
Economies of scale
Trade creation
Arguments of Trade Protection
Infant Industry
Diversification of developing countries
National security
Tariffs as source of government revenue
Means of overcoming a trade
Anti-dumping tariffs
Protection of domestic jobs
Disadvantage
Difficult to slect which particular industries to protect
Retaliation
the price of import of raw material.