Exam 1: Introduction: An Overview of the World Economy

Correct Answer:

Verified

International economics is the study of the production, distribution, and consumption of goods, services, and capital on a worldwide basis. As such, international economics is a blend of microeconomics and macroeconomics. First, we extend our study of microeconomics by examining international trade. For example, each country has different codes or rules that make one national economy different from another. These national laws tend to partially isolate each country and cause significant differences in the way trade is conducted domestically versus internationally. Second, we extend our study of macroeconomics by considering the impacts of changes in the domestic economy on foreign economies, and the impacts of changes in government policies on the domestic economy.

Correct Answer:

Verified

During the 1980s, world economic output grew at 3.3% per year, and the low-income economies were growing faster than the other country groups. During the 1990s, world economic growth slowed to 2.7% per year, and only the middle-income economies increased their rate of growth over the two decades. The trends with respect to the growth rate of exports for the same time periods for the various economies indicate that during the 1980s, world exports grew at 5.2% per year, while the growth rate of world exports increased to 6.9% during the 1990s. These differences in the growth rates of production and exports imply several things. First, the faster production growth rates in the middle-income economies imply that over time, these economies will account for an increasingly important part of world output. Because income growth is tied to production growth, this means that income in these economies is also rising. Over time, the higher production growth is leading to a higher growth rate of exports of goods and services for these economies. Further, the rapid growth of GDP for these economies leads to a faster growth rate for imports.