International Economics: Mercantilism, Trade, and Comparative Advantage
International Economics
Chapter 1: The World of International Economics
World trade in services
The main agreements and legislation on trade in services are seen in the GATT (General Agreement on Tariffs and Trade) and then became the WTO (World Trade Organization) in 1995.
Gradual change in economic interdependence
The relative size of trade is measured in relation to exports compared to its gross domestic product. The increases in the ratio of exports/GDP indicate a very high percentage of the output
International Trade: Impact on Global Economy
**International Trade: Impact on Global Economy**
When trade crosses national borders, it becomes international trade. The goods and services a country sells abroad are exports, and those it buys from other countries are imports.
**Why Nations Trade**
- Unequal Distribution of Natural Resources: Some natural resources occur only in certain countries, making them unique exporters of these resources.
- Differences in Consumer Tastes: Even if two countries have very similar production methods, trade can be
Understanding Money, Inflation, and Financial Markets
Functions of Money
Money serves three primary functions:
- Medium of Exchange: It acts as an intermediary, facilitating trade and specialization in production.
- Store of Value: It provides a means to maintain and save wealth.
- Unit of Account or Measure: It’s used to measure the value of goods and services.
Monetary Aggregates
Monetary aggregates are categorized as follows:
- Cash in the Hands of the Public: Notes and coins in circulation.
- Money Deposited in Banks: Banks hold money for safekeeping and convenience.
Business Economics: Production, Costs, Supply, and Demand
Company: Definition and Elements
A company is a set of elements organized and coordinated by management to produce goods for the purpose of obtaining a profit while operating under conditions of risk. Key elements include:
- Human Factors
- Material Factors
- Organization
- Environment
- Objectives
Company Activity Cycle
The company activity cycle involves both long-term and short-term assets and liabilities:
- Assets
- Long-term (Investment): Machinery, equipment, patents, etc.
- Short-term (Current): Cash, inventory, etc.
Banking Capital, Loans, and Monetary Policy Explained
Functions of Banking Capital
Banking capital serves several crucial functions:
- Increases the credibility of a bank
- Ensures the bank has funds before it starts collecting deposits
- Acts as an absorber against risks and losses in a business
- Is a source of growth for a bank
- Allows regulators to control the growth of a bank
What Constitutes Bank Capital
Capital (Net Worth = Assets – Liabilities)
Total Equity Capital is the sum of:
- Surplus
- Undivided profits and capital reserves
- Preferred stock
- Common stock
- Net unrealized
Negative Working Capital: Causes and Solutions
**Negative Working Capital: Causes and Solutions**
The working capital provides information about the degree of adequacy of the financial structure and investment made by the company. It must be positive and sufficient to secure the short-term performance of the company and to ensure the stability of the financial structure. If negative, it means that part of the long-term investments are financed with short-term callable funds, which may cause the company to have problems paying debts and be near
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