UNIT 6 Resource Manager · Nightly Business Report Economics & You Video Program Economic Survival:...

Nightly Business Report Economics & YouVideo Program

Economic Survival: A Financial Simulation

Interactive Economics! Software

Additional Glencoe Resources for This Unit

Economic Concepts Transparencies

Economic Forms and Financial Pages Transparencies

Economic Concepts 3

P RODUCTIVITYThis photograph shows people who are actively involved in producing a product to be sold in the market.

33

The Image Bank © Peter Gruman

Transparency 3

Economic Concepts 4

E CONOMIC SYSTEMSThe U.S. Constitution provides the political, social, and legal framework for the economic system in our country.

44

Transparency 4

Economic Concepts 11

Hawaii

Honolulu

Miami

Tampa

JacksonvilleSavannah

Charleston

New Orleans

Alaska(No-Interstate

Highways)

HoustonSan Antonio

Fort Worth Dallas

Little Rock

El Paso

OklahomaCity

Tucson

Salt LakeCity

San DiegoLos Angeles

SanFrancisco

Portland

Seattle

ButteBillings

Cheyenne

DenverKansas City

Omaha

Sioux Falls

Fargo

Minneapolis

Detroit

Lousiville

Nashville

BirminghamAtlanta

MontgomeryMobile

Columbus

CincinnatiIndianapolis

Chicago

St. Louis

Charlotte

Pittsburgh

Washington, D.C.

New York

Boston

Major InterstateHighway

0

0 250 500 kilometers

250 500 miles

The Interstate Highway System consists of more than 45,000 miles of freeways.The cost of freeway construction can approach $5 million per mile.The total cost of the system is about $100 billion.The federal government pays about 90 percent of the cost and the states pay about 10 percent of the cost.

M ARKET FAILURESThe map depicts a public good provided by the federal government to compensate for a market failure.

The Federal Interstate Highway System

1111

Transparency 11


A BSOLUTE AND COMPARATIVE ADVANTAGE AND BARRIERS TO TRADE

This cartoon illustrates how implementing tariffs—taxes on imported goods and services—can have both positiveand negative effects.

2020

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Economic Forms 14

1414

Government Issues(Treasury Bonds, Notes, and Bills as of July 28, 1999)

Source: Bloomberg.com http://www.bloomberg.com/markets/

Bills

Notes/Bonds

3month

6month

1year

2year

5year

10year

30year

5.750

5.250

5.500

5.250

10/28/99

1/27/00

7/20/00

Mat Data

Current

Price/Yield

Previous

Price/Yield Yld Chg Prc Chg

Mat DataCoupon

Current

Price/Yield

Previous

Price/Yield Yld Chg Prc Chg

6/30/01

5/15/04

5/15/09

2/15/29

4.56(4.69)

4.60(4.79)

4.76(5.02)

100-11(5.56)

98-06(5.68)

97-25(5.80)

89-16(6.01)

4.57(4.70)

4.57(4.76)

4.57(5.01)

100-12(5.54)

98-07(5.68)

97-23(5.80)

89-17(6.01)

– 0.01

0.03

0.01

0.02

0.00

0.00

0.00

– 1

+ 3

+ 1

– 0.01

– 0.01

+ 0.01

– 0.01

G OVERNMENT AGENCY ISSUES

Transparency 14Transparency 13

Economic Forms 13

1313

C URRENCY EXCHANGE RATES

Country Name of Currency Equivalent toOne U.S. Dollar

Algeria dinar 66.32

Canada dollar 1.42

Chile peso 496.80

Egypt pound 3.29

European Union euro 0.94

France franc 6.17

Germany mark 1.84

Ireland punt 0.74

Italy lira 1,821.12

Japan yen 116.16

Mexico peso 8.98

Netherlands guilder 2.07

Russia ruble 23.54

United Kingdom pound 0.61

Currency Exchange Rates as of July 19, 1999

Economic Forms 7

77

B AR GRAPH

0%

Transparency 7

470A

The following transparencies may be used at any time during Unit 6.

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Resource ManagerU N I T 6

Have your students learn about investing andmanaging their financial futures by participating inthe exciting simulation The Stock Market Game™.See Teacher pages in front of book for more informa-tion.

Strengthen students' research, cooperation, presentation, and critical thinking skills by havingthem compete in the Fed Challenge. See Teacherpages in front of book for more information.

Real-World Economics


America's Top-Ten Trading Partners (in millions of dollars)*

Country

Canada

Japan

Mexico

China

Germany

United Kingdom

Taiwan

France

South Korea

Singapore

156,603

57,831

78,773

14,241

26,657

39,058

18,165

17,729

16,486

15,694

173,256

121,845

94,629

71,169

49,842

34,838

33,125

24,016

23,942

18,356

–16,653

–64,014

–15,857

–56,927

–23,185

4,220

–14,960

–6,287

–7,456

–2,662

Balance of Trade With Imports FromExports To

*1998

E XCHANGE RATES AND BALANCE OF PAYMENTSThe United States is the world’s leading trading nation. The chart summarizes U.S. trade with its ten leading trading partners.

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Transparency 21


Human Development Index

No Data0.887–0.960.767-0.887

0.633–0.7670.378–0.6330.185–0.378

Source: Ozer Babakol, Human Development Report Office, UNDP, New York 1999

NORTH AMERICA

SOUTHAMERICA

AFRICA

EUROPE ASIA

SOUTHASIA

AUSTRALIA

0° 45°E 90°E 135°E90°W135°W

0°

30°S

30°N

45°N

60°N

180°E

PACIFICOCEAN

ATLANTICOCEAN

PACIFICOCEAN

INDIANOCEAN

45°W

I NTERNATIONAL ASPECTS OF GROWTH AND STABILITY

Human Development Worldwide

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13. Direct foreign investment involves

a. investment in foreign currencies.b. investment in foreign stock issues.c. purchase of businesses by investors who do not live in the country in which they

are investing.d. purchase of bonds issued directly by foreign governments.

14. Doing business over the Internet is known as

a. Web sales. b. Web commerce.c. Internet sales. d. E-commerce.

15. Developing countries tend to lack

a. high rates of illiteracy. b. subsistence agriculture.c. rapidly growing populations. d. high standards of living.

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.Answer in short paragraphs.

16. Determining Relevance How do you or could you use the World Wide Web? How do you think the Webmight be used in the future?

17. Making Predictions How is each of the following likely to affect the volume of trade: embargo, tariff,quota, NAFTA, WTO?

APPLYING SKILLS

Using Graphs: Study the graph and answer the questions below.

18. What was the value of Singapore’s exports to theUnited States?

19. How much did the United States sell to South Korea?

20. Did the United States have a trade surplus or a trade deficit with Canada? How do you know?

Total U.S. General Imports $871 billion

Total U.S. Exports $689 billion

0 25 50 75 100 125 150 175

Canada

Mexico

Japan

United Kingdom

South Korea

Germany

Taiwan

Netherlands

Singapore

France

Brazil

Top Purchasers of U.S. Exports andSuppliers of U.S. General Imports,

1997


Source: U.S. Bureau of the Census, The Official Statistics;Statistical Abstract of the United States, 1998

0 25 50 75(billions of dollars)

100 125 150 175

Canada

Japan

Mexico

China

Germany

United Kingdom

Taiwan

South Korea

France

Singapore

Italy

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SCORE

6, B

T HE INTERNATIONAL SCENE

RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. Which of the following is not a belief of Karl Marx?

a. proletariat will eventually overthrow the owners of the means of productionb. communism is doomed to be overthrown by the workersc. state will eventually wither awayd. class struggle is an essential force in history

12. A country that exports more than it imports will have a

a. balance of payments. b. balance of trade.c. trade deficit. d. trade surplus.

A1. technical assistance

2. multinational

3. welfare state

4. nationalization

5. intellectual property

6. developing nations

7. balance of trade

8. embargo

9. global integration

10. World Trade Organization (WTO)

USING KEY TERMS

Matching: Match each item in column A with the items in column B. Write the correctletters in the blanks.

Ba. placement of railroads, businesses, and so on under govern-

ment ownership

b. country that blends capitalism and socialism by combining pri-vate ownership of the means of production and competitiveallocation of resources with the goal of social equality for itscitizens

c. world’s largest trade agreement

d. complete restriction on the import or export of a particular good

e. aid in the form of professionals, such as engineers, teachers,and technicians supplied by nations to teach skills to people inother nations

f. firm that does business and has offices or factories in manycountries

g. creation of person’s intellect that is protected by copyright

h. nations with little industrial development and low standardsof living

i. interdependence among the countries of the world, especiallywithin financial markets and telecommunications

j. difference between the value of a nation’s exports and itsimports

Unit 6 TestForm B

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6, A

14. In order for a country to grow, it usually must

a. industrialize. b. increase its level of imports.c. reduce its level of savings. d. begin to trade.

15. Since the fall of the Soviet Union, U.S. foreign aid has

a. increased. b. stayed about the same.c. decreased. d. included a narrower group of countries.



16. Synthesizing Information What are some of the factors that help explain why poor countries are poor?

17. Recognizing Bias What are arguments for and against free trade? Which groups are likely to oppose free trade?

APPLYING SKILLS

Using Graphs: Study the graph and answer the questions below.

18. Which country shipped more goods to the United States, Japan or Mexico?

19. Which country is the United States’ largest trade partner?

20. What was the approximate value of German exports to the United States in 1997?

Total U.S. Exports $689 billion

0 25 50 75 100 125 150 175

Canada

Mexico

Japan

United Kingdom

South Korea

Germany

Taiwan

Netherlands

Singapore

France

Brazil

Top Purchasers of U.S. Exports andSuppliers of U.S. General Imports,

1997


0 25 50 75(billions of dollars)

100 125 150 175

Canada

Japan

Mexico

China

Germany

United Kingdom

Taiwan

South Korea

France

Singapore

Italy

Source: U.S. Bureau of the Census, The Offical Statistics; Statistical Abstract of the United States, 1998

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SCORE

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T HE INTERNATIONAL SCENE



11. Which of the following statements about using the Internet to make purchases is true?

a. prices are almost always lower than in retail storesb. it helps consumers collect product and price informationc. only very large companies tend to have Web sitesd. merchandise purchased over the Internet is not returnable

12. The North American Free Trade Agreement (NAFTA)

a. determines the quantities of imports and exports among the countries of North America.b. reduces tariffs within North America.c. raises the cost of imported goods within North America.d. increases trade between North America and the rest of the world.

13. Which of the following is not generally true about developing countries?

a. standard of living is low b. rate of illiteracy is lowc. rate of infant mortality is high d. population growth is high

A1. protectionist

2. privatization

3. subsistence farming

4. comparative advantage

5. multinational

6. developed nation

7. direct foreign investment

8. proletariat

9. E-commerce

10. exports

USING KEY TERMS


Ba. change from state ownership of business, land, and building

to private ownership

b. term used by Karl Marx to mean workers

c. raising of just enough food by a family to take care of its own needs

d. person who argues for trade restrictions

e. transacting business over the Internet

f. purchase by foreigners of real estate and business in othercountries

g. ability of a country to produce a product at a lower opportu-nity cost than another country

h. company that does business and has offices or factories inmany countries

i. nation with relatively high standard of living and economybased more on industry than on agriculture

j. goods sold to other countries

Unit 6 TestForm A

Use the following tools to easilyassess student learning:• Performance Assessment Strategies and

Activities • Section Quizzes• Chapter and Unit Tests • ExamView® Pro Testmaker • Interactive Tutor Self-Assessment Software• SAT I/II Test Practice• MindJogger Videoquiz•

Assessment and Evaluation

Application and Enrichment

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STEP 4. CONDUCT RESEARCH

You will test the hypothesis you made in Step 3 by searching on the Web itself.Begin by identifying ten subjects in economics that you might research on the Web, such as the Federal ReserveBoard or the New York Stock Exchange. List them in the left-hand column of the table below.

4. Use search engines to locate ten Web sites related to each subject. As you work, complete the table below.Tally each one as commercial or noncommercial.

Web Research Tally Table

Subject Types of Sites Found

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

Commercial

Noncommercial

TotalsCommercial Sites:

Noncommercial Sites:

Total Sites Researched:

470B

Business Week Focus onthe New EconomyEconomics Laboratory 6

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Resource ManagerU N I T 6

Visit the Economics Today andTomorrow Web site for ChapterOverviews, Textbook Updates,Student Web Activities, WebActivity Lesson Plans, and Self-Check Quizzes.

socialstudies.glencoe.com

Visit the Glencoe SocialStudies Web site for additionalsocial studies activities, updates,and links to other sites.

Glencoe's Guide to Using theInternet provides an introductionto many of the current Internettechnologies, social studies andprofessional resources, and teaching strategies.

ECONOMICS

Glencoe's Web sites provide additional resources. All essential content is covered in the Student Edition.

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Name Date Class Name Date Class

Meanings of Web Address Suffixes

Suffix Type of Organization That Owns the Site

.com commercial businesses

.edu educational institutions

.gov government agencies

.net miscellaneous

.org nonprofit organizations

Characteristics of Web Site Categories

Category Indicative Suffixes Defining Characteristics

Commercial

Noncommercial

Hypothesized Composition of the World Wide Web

Type of Site Percent of Total

Commercial sites %

Noncommercial sites %

All sites 100%

* proper use of suffixes is not strictly policed

Think about the two basic categories of Web sites: commercial and noncommercial. How would you determine which category any given Web sites falls into? For example, would an individual’s Web site that carries advertising be considered a commercial or noncommercial site? It is important to refine the definitions of the categories asmuch as possible.

2. Identify the characteristics that you think delineate the two basic categories of Web sites.

STEP 3. MAKE AN EDUCATED GUESS ABOUT THE COMPOSITION OF THE WORLD WIDE WEB

3. Consider all you know about the Web. Based on your knowledge, what percentage of Web sites would you estimate are commercial? What percentage would you estimate are noncommercial? Complete the table below.

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U NTANGLING THE WORLD WIDE WEB

66

The growth of the Internet has affected the lives of people all around the world. At the close of thetwentieth century, some 150 million people were “on the Net.” That number was expected to double in five years. The growth of the Internet beyond that is anyone’s guess––but it is sure to be dramatic.

The Internet is clearly a commercial force to be reckoned with. E-commerce––business conducted overthe Internet––was an $18-billion consumer market and a $109-billion business-to-business market in1999. As the Internet grows, its commercial use will undoubtedly grow, too.

But the Internet is not just an economic entity. Millions turn to it for countless noncommercial reasons:to communicate by E-mail, to conduct research, or to pursue a hobby. As the Internet grows, such non-commercial uses will undoubtedly grow, too.

Which will dominate the Internet in the future––commercial or noncommercial use? One way to inves-tigate the answer to this question is to determine the way in which the Internet is being used today.

Instructions: Learn about the nature of the World Wide Web by completing the following steps. You must haveaccess to the Internet. You will also need a pencil or pen and your textbook. A calculator is optional. Be prepared toconduct outside research.

STEP 1. CONSIDER THE NUMBER OF WORLD WIDE WEB SITES

The part of the Internet called the World Wide Web is central to the growth of both the commercial and noncommercial parts ofthe Internet. The size of the Web is defined by the number of Web sites that exist.

1. The Web is growing at tremendous speed. Some analysts maintain that thousands of Web sites are added every day. Conductresearch to find the latest estimate of the number of Web sites. Write the estimate and the source of your information below.

STEP 2. CONSIDER THE CATEGORIES OF WEB SITES

The millions of Web sites can be categorized in many different ways, but a useful method is to divide them into two cate-gories: commercial Web sites and noncommercial Web sites. You will refine and use these two categories in this activity.

Every Web site has a particular address. The last part of the address is called its suffix. Web address suffixes are supposed to indicate the nature of the organization that owns the Web site, as shown in the table below. Web site address suffixes are a useful indicator of whether a Web site is a commercial site or a noncommercial site.

tx.ett.glencoe.com

tx.ett.glencoe.com

http://tx.ett.glencoe.com


http://socialstudies.glencoe.com

Unit ObjectivesAfter studying this unit, students

will be able to:• Explain imports and exports.• Describe how other nations’

economies are becoming morelike the American economy.

• Describe economic growth indeveloping nations.

• Explain the trend toward aglobal economy.

• Discuss the impact of computertechnology on the economy.

Unit OverviewUnit 6 introduces the global

economy. Chapter 18 explains thebenefits of international trade,describes how international trade isfinanced, and explores the limitsplaced on it.

Chapter 19 compares capitalismand socialism and explores eco-nomic changes in China, Russia,Sweden, and Latin America.

Chapter 20 describes the charac-teristics of developing nations, out-lines the obstacles to economicgrowth, and discusses industrializa-tion and the future.

Chapter 21 discusses direct for-eign investment in the United Statesand investigates multinational businesses.

Chapter 22 reviews the impactthat the Internet is having on theeconomy and explores some of theproblems related to cybernomics.

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In this unit, read to FIND OUT . . . • how the United States trades with the rest of

the world.

• why many of the world’s nations are movingtoward a free enterprise economic system.

• how the world is becoming smaller throughthe Internet.

Most new jobs in the worldwill change from agriculturalto service and professionalspecialties.

Most new jobs in the worldwill change from agriculturalto service and professionalspecialties.

Experts predict thatthe amount of Internetuse worldwide willmore than double inthe next 5 years.

Experts predict thatthe amount of Internetuse worldwide willmore than double inthe next 5 years.

Chapter 18Trading With OtherNations

Chapter 19Converging EconomicSystems

Chapter 20Economic Growth in Developing Nations

Chapter 21 The Global Economy

Chapter 22Cybernomics

IntroducingUNIT 6IntroducingUNIT 6

ECONOMIC SIMULATIONInternational Trade Have the class role-play a congressional subcommittee meetingon a plan to raise tariffs on imported products—athletic shoes, for example. Select sev-eral students to act as subcommittee members and four or five others to act as wit-nesses—consumer advocates, workers in the shoe-making industry, executives fromAmerican shoe manufacturers, and executives from foreign shoe manufacturers.Encourage expert witnesses to make presentations to the subcommittee for or againstthe raise in tariffs, and have subcommittee members ask them questions. Have the restof the class act as reporters and write summaries of the procedures.

If time does not permit teachingeach chapter in this unit, you mayuse the Audio Program thatincludes a 1-page activity and a 1-page test for each chapter.

Out of Time?

ECON: 13C, 14A, 15A, 23A

471

Many of the world’s economiesare converging toward the samekind of system we have in theUnited States.

Many of the world’s economiesare converging toward the samekind of system we have in theUnited States.

The amount of global travelis expected to double inthe next 25 years.

The amount of global travelis expected to double inthe next 25 years.

Two hundred years ago,the United States was adeveloping nation.

Two hundred years ago,the United States was adeveloping nation.

471

IntroducingUNIT 6IntroducingUNIT 6

Making It RelevantProvide students with copies of

newspapers and current affairsmagazines. Direct students to skimthrough these periodicals to locateadvertisements for foreign goods.Encourage students to ask them-selves the following questionsabout the advertisements: Whatgood is advertised? Where is itmade? How was it transported tothe United States? Do Americancompanies make this good? If so,why do you think we buy it fromother countries? Have students dis-cuss their answers. Conclude bypointing out that the chapters inthis unit deal with such topics asinternational trade and the growinginterconnectedness of the world’seconomies.

Have students research organizations such as the Ford Foundation, the InternationalFinance Corporation (IFC), and agencies of the United Nations (UN) that offer loans orgrants to economically developing nations. Have students write short reports with graphsshowing trends in assistance offered. Suggest that students combine their reports into apamphlet titled International Organizations and Economic Development.

To find up-to-date news andanalysis on the economy, busi-ness, technology, markets,entrepreneurs, investments,and finance, have studentssearch feature articles and spe-cial reports on the BusinessWeek Web site.www.businessweek.com

ECON: 22A, 23A, 23C, 23F, 24C-D

ECON: 13C, 23A

http://www.businessweek.com

T RADING WITH OTHER NATIONS

BALANCE OF TRADE

Directions: Complete the table below by calculating each year’s trade balance for manufactured goods andagricultural products. Use a minus sign to indicate a negative balance, in which imports exceed exports.Then use the data in the table to answer the questions that follow.

Source: U.S. International Trade Administration, through 1996,U.S. Foreign Trade Highlights, annual, thereafter

1. On a separate sheet of paper, construct a bar graph to show the balance of trade for manufactured and agricul-tural products. Use one shade for the bar that represents manufactured goods and another for the bar thatrepresents agricultural products.

2. How does the balance of trade for agricultural products compare to that for manufactured goods?

3. The United States was in a period of recession in 1991. How is that fact reflected on the chart and on yourgraph?

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U.S. Exports and Imports (in Billions of Dollars)

Year Manufactured Goods Agricultural Products

Exports Imports Balance Exports Imports Balance

1985 168.0 257.5 29.3 19.5

1986 179.8 296.7 26.3 20.9

1987 199.9 324.4 28.7 20.3

1988 255.6 361.4 37.1 20.7

1989 287.0 379.4 41.6 21.1

1990 315.4 388.8 39.6 22.3

1991 345.1 392.4 39.4 22.1

1992 368.5 434.3 43.1 23.4

1993 388.7 479.9 42.8 23.6

1994 431.1 557.3 45.9 26.0

1995 486.7 629.7 56.0 29.3

1996 524.7 658.8 60.6 32.6

1997 592.5 728.9 57.1 35.2

Enrichment Activity 18

Teaching Transparencies


Review and Reinforcement

C HAPTER 18 TRADING WITH OTHER NATIONSDirections: Read each vocabulary clue on the left, and then write the letter of the matching term in theblank space.

1. Feared by some to have diverted of jobs fromthe United States to Mexico

2. Trade agreement that accounts for morethan 85 percent of world trade

3. Argues that jobs, infant industries, andeconomic security are threatened by relaxedtrade restrictions

4. Any tax on imports

5. Complete restriction on imports

6. Raises the cost of imports to protect domestic producers

7. Limits the amount of a particular good thatcan be imported

8. Buys and sells foreign currency for businessesthat want to buy imports

9. Impractical for trade between countries withchanging economic climates

10. Ability of a country to produce a good at a lower opportunity cost than that ofother countries

a. comparative advantage

b. embargo

c. fixed rate of exchange

d. foreign exchange market

e. GATT

f. import quota

g. NAFTA

h. protectionist

i. protective tariff

j. tariff

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Economic VocabularyActivity 18

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A PPLYING THE WRITING PROCESSThe writing process involves using skills you have already learned, such as taking notes, out-lining, and synthesizing information. To begin the process, select an interesting topic. Dosome preliminary research to confirm that your topic is neither too broad nor too narrow.Once you have chosen your topic, write a thesis statement that defines what you want toprove, discover, or illustrate. Research your topic by formulating a list of main ideas. Then create an outline for your paper. Begin researching your topic by finding facts that supportpoints on your outline. Record your research and the names of your sources on 3" � 5" notecards. When you are done researching your paper, use your outline to create a rough draft ofyour paper. Edit your draft by checking that you have used correct spelling, proper grammar,and good writing skills.

Directions: Choose a company from one of the following categories: investing, computers, retailers, entertainment. Then complete the checklist shown below.

❑ Using the Internet or resources at your public library, research the company you choose for ideas on a thesis state-ment.

❑ Narrow this topic so that it is not too broad of a topic to cover in two pages.

❑ Write a thesis sentence identifying what your paper seeks to show.

❑ Create an outline using at least three main ideas as headings for a two-page report on the company you choose.

❑ Continue to research your topic taking notes and recording the resources used on 3" � 5" cards.

❑ Prepare a rough draft for a two-page report on your company.

❑ Identify the sources of all information using footnotes or endnotes.

❑ Edit your draft by checking for correct spelling, proper grammar, and good writing skills.

❑ Submit your thesis statement, outline, rough draft, and final report.

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M AKING GENERALIZATIONS ABOUT INTERNATIONAL TRADE

Generalizations are judgments based on the facts at hand. For a generalization to be valid, itmust be based on facts.

Directions: Read each of the following passages and pairs of generalizations. In the space before the validgeneralization, write V. Then explain your choice on the line below.

1. Many Europeans are reluctant to consume genetically altered products such as corn and wheat that have superior yield, taste, and disease resistance. A more sensitive case is that of American beef raised on artificialhormones, a product that Europeans refuse to import. While most Americans feel that their food is safe,Europeans are not so sure. After all, they point out, a recent American experiment demonstrated that Monarchbutterflies died when they ate the pollen from genetically altered corn plants.

The United States is not the only country to use health issues to restrict trade.

Many Europeans believe that food imported from the United States is unsafe.

2. Tariffs and quotas protect domestic jobs from cheap foreign labor. Workers in the shoe industry have protestedthe import of lower-cost Italian, Spanish, and Brazilian shoes, because low-cost imports can endanger Americanjobs. Garment workers have opposed the import of lower-cost Korean, Chinese, and Indian clothing.Steelworkers have blocked foreign-made cars from company parking lots to show their displeasure with the foreign-made steel used in producing cars.

American workers have demonstrated opposition to imported goods.

Trade barriers help save American jobs by giving American industries time to develop.

3. When inefficient industries are protected, the economy produces less and the standard of living goes down.Because of the unnecessarily high prices, people buy less of everything, including those goods produced by protected industries. If prices get too high, substitute products will be found so protected jobs will still be lost.

Protectionist measures provide only temporary protection for domestic jobs.

Profits reward the efficient and hard working.

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T RADING WITH OTHER NATIONSA country’s exports and imports are determined by the relative cost of production of differentitems. A country has an absolute advantage for an item if, using the same amount ofresources, it can produce the item at less cost than another country. A comparative advantageis the ability of a country to produce a product at lower opportunity cost than another country.

Directions: Read each description of a trade situation below. Then answer the questions.

Country A is underpopulated compared to Country B. However, its vast expanse of land to the north is covered with forests, allowing Country A to export great quantities of lumber. Country B has a large population of unskilledworkers. However, with its drier, warmer climate, Country B has only enough lumber to supply its own people.

1. Explain why Country A has an absolute advantage over Country B in trading lumber.

2. In what situations can a large population of unskilled workers be a trade advantage?

Both Country C and Country D have the ideal climate, soil, and workforce for producing cotton. However, Country Cis a developing country with a large population. The majority of its workers are unskilled. Country D is a developedcountry with many industries and opportunities for upward mobility. Unskilled workers are in short supply. The produc-tion of cotton involves mostly unskilled labor. Country C exports 50 percent more cotton than Country D.

3. In your own words, explain why Country C does not have an absolute advantage, but rather a comparative advan-tage over Country D in producing cotton.

Countries E and F both manufacture shoes and cars. Country E produces about 3 million pairs of shoes in a year, whileCountry F produces about 2.5 million pairs. Country E manufactures 1,000,000 new cars in a year, and in the sameyear, Country F manufactures 500,000 cars

4. In the manufacture of cars, does Country E have an absolute or a comparative advantage? Explain.

5. Even though Country E produces more shoes each year than Country F, it would not make sense for Country E toabandon its production of cars and produce only shoes instead. Explain why.

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Reinforcing Economic Skills 29

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B UYING FOREIGN GOODSTwo significant factors describe United States foreign trade. First, the United States is the world’s number one trading nation. Second, since the mid-1970s the United States has imported more than it has exported. As a result, the nation’s businesses lost sales, profits,and the ability to employ more people.

Protectionists support restrictions on foreign imports. The United States government, however,has generally followed the principle of free trade and has tried to influence other nations toopen their markets to American goods. For example, the North American Free TradeAgreement (NAFTA) has increased trade with Canada and Mexico. However, before NAFTAwe had trade surpluses with both countries. Today we have trade deficits. Striking a balancebetween protecting American businesses and allowing free trade is difficult.

Directions: Complete the following exercises using the information above to help you analyze the twosides of this issue.

1. Describe the arguments protectionists give to explain how the following policies would help American businesses compete with foreign companies.

a. Higher tariffs

b. Import quotas

c. Depreciating the dollar’s value

2. Explain what free trade advocates mean when they oppose the protectionist viewpoint with the following arguments.

a. Protectionism means higher prices.

b. Protectionism weakens us by helping inefficient companies to stay in business.

c. Protectionism causes other countries to retaliate.

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F REE TRADE AND JOBSWhen the North American Free Trade Agreement (NAFTA) was signed in 1993, the federalgovernment established the Trade Adjustment Assistance (TAA) Program. Its purpose is toretrain people who lose their jobs as a result of NAFTA. The program also provides a tool fortracking the number of American jobs eliminated because of the agreement. The followingtable is based on TAA data from January 1994 to January 1999.

TAA Applicants by Region

Directions: Use the table to complete the following exercises.

1. Which region of the country suffered the most job losses due to NAFTA?

2. How many jobless people nationwide applied to TAA for help?

3. Seventy percent of the jobs lost were high-paying manufacturing jobs. The displaced workers probably will haveto find work in what the U.S. Department of Labor predicts are the fastest growing jobs: cashiers, waitpersons,janitors, and retail clerks. How might this affect the lives of workers and their families?

4. For a while the U.S. Department of Commerce documented NAFTA job creation (1,500 documented), but thenumbers were so low that the department discontinued its surveys. How would you grade NAFTA, based on itsratio of jobs created to workers displaced? Explain.

West South North Central Northeast

Alaska 780 Alabama 6,528 Illinois 5,145 Connecticut 1,131

Arizona 1,960 Arkansas 8,156 Indiana 9,752 Massachusetts 2,635

California 15,017 Florida 4,653 Iowa 454 Maine 1,433

Colorado 2,426 Georgia 12,874 Kansas 1,359 New Hampshire 224

Idaho 3,001 Kentucky 2,855 Michigan 7,293 New Jersey 7,261

Montana 788 Louisiana 4,495 Minnesota 2,102 New York 16,634

Nevada 257 Maryland 390 Missouri 5,408 Pennsylvania 18,163

New Mexico 669 Mississippi 1,100 N. Dakota 300 Vermont 399

Oregon 4,788 N. Carolina 24,530 Nebraska 263

Utah 1,043 Oklahoma 330 Ohio 6,184

Washington 8,330 S. Carolina 5,458 S. Dakota 566

Wyoming 682 Tennessee 12,699 Wisconsin 7,724

Texas 21,294

Virginia 5,561

W. Virginia 1,343

TOTALS 39,741 112,266 46,550 47,880

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America's Top-Ten Trading Partners (in millions of dollars)*

Country

Canada

Japan

Mexico

China

Germany

United Kingdom

Taiwan

France

South Korea

Singapore

156,603

57,831

78,773

14,241

26,657

39,058

18,165

17,729

16,486

15,694

173,256

121,845

94,629

71,169

49,842

34,838

33,125

24,016

23,942

18,356

–16,653

–64,014

–15,857

–56,927

–23,185

4,220

–14,960

–6,287

–7,456

–2,662

Balance of Trade With Imports FromExports To

*1998

E XCHANGE RATES AND BALANCE OF PAYMENTSThe United States is the world’s leading trading nation. The chart summarizes U.S. trade with its ten leading trading partners.

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A BSOLUTE AND COMPARATIVE ADVANTAGE AND BARRIERS TO TRADE

This cartoon illustrates how implementing tariffs—taxes on imported goods and services—can have both positiveand negative effects.

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Economic Concepts Transparency 20

Consumer ApplicationsActivity 22

Free Enterprise Activity 22

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W ORKING WITH FOREIGN EXCHANGE RATES

Does the table make sense to you? Look at the Euro. It is worth $1.07 in U.S. currency, and one U.S. dollar will buy 0.93 Euros. Perhaps you have heard about the Euro, the single currency for all of Europe. It will replace many currencies, such as the Belgian franc and the German mark, early in the twenty-first century.

How much is each of the following worth in U.S. dollars?

(1) 1 Canadian dollar 1 Indian rupee 1 Philippine peso

How much is one U.S. dollar worth in each of these countries?

(2) Saudi Arabia Germany China

Suppose you travel to Portugal and exchange $100 for escudos. How many will you get? (3)When you leave, you exchange 100 escudos for dollars. How many will you get? (4)

Suppose you purchased each item below. Find the price in U.S. dollars.

(5) A sari in India for 700 rupees (6) A painting in London for 1,250 pounds

(7) A belt in Chile for 1,250 pesos (8) A shirt in Canada for 40 dollars

In which countries would a souvenir marked 1,000 in the local currency cost under $10?

(9)

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To facilitate world trade, foreign exchange markets buy and sell foreign currency. This allows individuals and businessesto easily convert from one currency unit to another.

Below is a table of foreign exchange rates for a recent day. These rates change daily and are posted in large banks andmajor newspapers. The exchange rate is often given to four or five decimal places.

Country Foreign Currency Dollar in Country Foreign Currency Dollar in(currency unit) in Dollars Foreign Currency (currency unit) in Dollars Foreign Currency

Argentina (peso) 1.00 1.00 Egypt (pound) .29 3.44

Australia (dollar) .65 1.53 Euro 1.07 .93

Britain (pound) 1.60 .62 Germany (mark) .55 1.83

Belgium (franc) .03 37.74 India (rupee) 0.02 43.39

Canada (dollar) .66 1.50 Japan (yen) 0.008 115.20

Czech Rep. (koruna) .03 33.88 Philippines (peso) 0.03 39.08

Chile (peso) .002 512.15 Portugal (escudo) 0.005 187.34

China (renminbi) .12 8.28 Saudi Arabia (riyal) 0.27 3.75

EXAMINING THE CARTOON

Multiple Choice

1. Who is the boy bringing China home to the United States?

a. American businessmen b. President Clinton c. Taiwan d. Congress

2. Why is China portrayed as a giant?

a. because it is a Communist country b. because it has a history of human rights abusesc. because it is very populous d. because it has a powerful military

Critical Thinking

3. Analyzing the Cartoon What is the significance of the fact that China is “stained”? What does this sayabout the cartoonist’s view of China?

4. Expressing Your Opinion Do you think the United States should maintain trade relations with a countrythat has a bad human rights record? Explain.

�

UESS WHO’S COMING TO DINNERAbout 1.4 billion live in China. American business people read such numbers like a market-ing report and get dollar signs in their eyes. But the future of Sino-American trade is fraughtwith problems. China, although instituting more capitalistic practices, maintains an authori-tarian Communist government.

Directions: Study the cartoon below. Then answer the questions that follow.

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Lurie / Cartoonews International Syndicate

Britain went even further in 1815, passing a lawseverely restricting grain imports from European neighbors.The result, little surprise, was retaliation: Austria promptlyhit back where it hurt, introducing prohibitive tariffs onwool and cotton, damaging British sheep farmers. Sicilyraised tariffs on textiles; Sweden raised tariffs on silk, wool,cotton, iron, steel and copper. Feeling the pain, Englishmanufacturers formed the Anti-Corn Law League to lobbyagainst the measure, but it wasn’t repealed until 1846.

Meanwhile, across the Atlantic, America was gettingin on the act. The colonists, after staging a revolution inpart because England was forcing them to buy its goodsat artificially high prices, won independence and prompt-ly turned around and raised tariffs themselves. The firstU.S. tariff, in 1789, levied a 15% duty on imported nailsamong other things.

In 1828 came a tariff so reviled in the American Souththat Southerners named it the Tariff of Abominations. Toprotect U.S. manufacturers, located largely in the North,Congress raised duties on manufactured goods fromabroad—goods on which the agrarian South was verydependent. South Carolina promptly declared the tariff nulland void within its borders, throwing the country into crisis.President Andrew Jackson had to threaten to send troopsbefore South Carolina backed down. South Carolina even-tually got the government to lower tariffs in 1833.

As a world power a century later, the U.S. played a crit-ical role in setting off one of the biggest global trade

disputes. The frenzy of tariff raising that followed WorldWar I reached a culmination in 1930, when Congresspassed the [Hawley-Smoot] Act, raising tariffs on farmproducts and manufactured goods to the highest levels inthe nation’s history. The act brought retaliation from foreigncountries, and world-wide trade suffered a sharp decline.Many economists blame [Hawley-Smoot] for deepening theGreat Depression.

Though tariffs and other trade barriers have fallenever since, protectionism is still extolled on occasion bypopulist politicians. Among workers who feel threatenedby foreign rivals, blocking imports remains a proven vote-getter in countries around the globe, whether adeveloping nation like Malaysia or a developed one likethe U.S. Protectionism, says John Kenneth Galbraith in hisbook A History of Economics, often includes a “patent,sometimes emotional, even tearful, appeal to or for self-interest.”

As a result, no one expects trade squabbles to disap-pear anytime soon. But for free-traders, there’s still goodnews: Try as they might, protectionists constantly are los-ing ground, as more goods are shipped across moreborders all the time. Indeed, global trade rising at 3%annually now exceeds $5.5 trillion a year, a figure greaterthan the total economic output of every country in theworld except the U.S.

Cooper, Helene. “Trading Blocks.”Wall Street Journal, January 11, 1999.

44 Primary and Secondary Source Readings

ACTIVE READING QUESTIONS

1. Why do countries impose trade barriers, such as tariffs?

2. How did the Byzantine Empire use trading blocks to its advantage?

3. What was the purpose of Britain’s Corn Laws?

4. What are some historic examples of American trade barriers? Do you think they were beneficial? Why or whynot?

5. At the beginning of the article what does Johann Becher mean when he says that importing goods brings“inevitable damage”?

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Cooperative Learning Simulations and Problems 22

Primary and Secondary Source Reading 22

Math Practice for Economics Activity 22

Economic Cartoons Activity 22

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I NTERNATIONAL TRADE

GROUP PROJECT

In recent years international trade has become increasingly important to all nations. Toreview the material on international trade in your textbook, organize into study groups offour or more students. Each member of the group will be responsible for helping the groupreview a section of the chapter that covers international trade.

Study Group Review Questions

1. Group Work Stage 1: Students work in groups of three or more. As a group, briefly review the chapter on international trade in your textbook.Group members should choose a section of thechapter to review and study.

2. Individual Work Stage 2: Students work as individuals. Section experts study their assignedsection and make a list of the most importantpoints. From this list, experts should develop atleast eight questions about the information. Onequestion should link information in the sectionassigned with another part of the chapter. At least one question should focus on a visual in the section. Rank section questions in order of difficultyand write them on notecards with the answers onthe back. Questions should be submitted to yourteacher for approval.

3. Group Work Stage 3: Students work in groupsaccording to section topic. All students writingquestions on the same section assemble to

compare questions and answers. Review eachother’s questions and give constructive feedback.Revise questions based on group members’ feedback. Record final questions in a table like the one above.

4. Group Work/Analysis Stage 4: Students return tooriginal groups. On a rotating basis, share questionswith group members. Section experts should asktheir easiest question first. Groups should compilequestions in a table like the one above for use as afuture study aid.

Group Process QuestionsDid the group agree on the assignment of tasks?

Did each member share information?

Did you find this a helpful way to study? Why or why not?

What would you do to improve the group work?

COOPERATIVE GROUP PROCESS:

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Section 1 Section 2 Section 3

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Resource ManagerCHAPTER 18

“It is always better to sell goods to others than to buygoods from others, for the former brings a certain advan-tage and the latter inevitable damage.”

—Johann Joachim Becher,German alchemist, 1635–1682

ame a product. Just about any product, and somewhereat some time over the millenium, there has been a trade spatover it or an attempt to protect it. Silk? Byzantium, circa1000. Grain? England, 1361 and again in 1815. Iron nails?The U.S. in 1789. Bananas? Britain and France beginning in1900 (and continuing today). Semiconductors? The U.S. andJapan, 1987. Luxury cars? The U.S. and Japan, 1995.Camembert cheese? The U.S. and France, 1997. . . .

Who set the first trade barrier is lost in the mists ofhistory. But it no doubt predates this millennium. Indeed,one joke at the WTO [World Trade Organization] inGeneva is that “on the seventh day, God created a GATTwaiver”—the special exemption that allows a country toget around free-trade rules.

Countries block imports in the belief they can protectjobs, of course—conveniently ignoring [the fact] that jobscan also be lost if another country retaliates and blocksimports, too. “It took a long time for governments to real-ize the danger” of protectionism, says John Jackson, aprofessor at Georgetown University in Washington andone of the world’s foremost experts on foreign trade. “Itwasn’t until Adam Smith”—the 18th-century proponentof laissez faire—“that economists actually showed thedamaging effect of this sort of thing on the economy.”

One of the world’s leading economic powers at thebeginning of the millennium, Byzantium, also was one ofits leading protectionists.

The Byzantine Empire was adept at bestowing specialprivileges on allies and favored industries. Just as the U.S.signed the North American Free Trade Agreement grant-ing special trade status to Mexico and Canada, so did theByzantine empire reach a trade pact with Venice.

Back in 992, Constantinople—the capital of theByzantine Empire—granted Venetian goods lower tariffsthan other foreign merchandise. For centuries after, theVenetians—who became world-class merchants—received special commercial privileges includingexemption from a 10% duty paid by other foreign mer-chants, according to Richard Robinson’s “Business Historyof the World.”

Try as they might, protectionists

constantly are losing ground, as

more goods are shipped across

more borders all the time

Deals between other trading partners followed,including one as early as 1091 between Mahdiyah, nearTunis, North Africa, and Genoa.

The Byzantines also jealously guarded their lucrativemonopoly in purple silk robes, favored by royalty all overEurope. Constantinople, which came to be known as thePurple City, protected its silk industry by organizing crafts-men into guilds and refusing to buy goods made bynon-guild members.

There’s nothing new about disputes over agriculture,either. In what is now one of the most widely cited formsof protectionism, England in 1361 enacted its first CornLaws. To keep its own grain cheap, the laws barred exportsof it. In subsequent years, the government tried variations,prohibiting the export of grain unless the domestic pricewas low and blocking import unless the domestic pricewas high. The point: to make sure there was a stable andsufficient supply of grain from English farmers, eliminatingundue dependence on foreign supplies.

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Primary and Secondary Source Readings 43

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T RADING BLOCKSTrade barriers have been used throughout history as means of preserving jobs and protecting a nation’s economy. Today, protectionism is as prevalent in the fight for free trade as it has always been. As you read this article by Wall Street Journal reporter Helene Cooper, consider the history of trade barriers, how they have endured over time, andwhat that they could mean for the future of free trade. Then answer the questions that follow.

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You and your students can visit ett.glencoe.com—the Web site companion to Economics Today andTomorrow. This innovative integration of electronic andprint media offers your students a wealth of opportuni-ties. The student text directs students to the Web site forthe following options:

• Chapter Overviews • Student Web Activities

• Self-Check Quizzes • Textbook Updates

Answers are provided for you in the Web ActivityLesson Plan. Additional Web resources and InteractivePuzzles are also available.

Use the Glencoe Web site for additional resources. All essential content is covered in the Student Edition.

ECONOMICS

Reading for the StudentMiller, R. Willard, and Ruby M. Miller. America’s

International Trade: A Reference Handbook. Santa Barbara,CA: ABC-CLIO, 1995. Principles of international trade.

Multimedia MaterialEconomics U$A: International Trade/Exchange Rates. The

Annenberg/CPB Collection, South Burlington, VT. Video,60 min. Explores two features of the global economy.

Additional Resources

Spanish Economic Concepts Transparencies 20, 21

Spanish Vocabulary Activity 18

Spanish Reteaching Activity 18

Spanish Section Quizzes for Chapter 18

Spanish Chapter 18 Audio Program, Activity, and Test

Spanish Resources

Vocabulary PuzzleMaker CD-ROM

Interactive Tutor Self-Assessment Software

ExamView® Pro Testmaker

NBR Economics & You Video Program (English/Spanish)

Presentation Plus!

Glencoe Skillbuilder Interactive Workbook CD-ROM,Level 2

TeacherWorks CD-ROM

MindJogger Videoquiz

Interactive Economics! CD-ROM

Audio Program (English or Spanish)

Technology and Multimedia

Assessment and Evaluation

ExamView® Pro Testmaker

PROCEDURE

1. Have the students examine the products on display. Have them call out the names of the places where theseitems were made. Write the word interdependence on the chalkboard.

2. Write the following list on the chalkboard:

1. A 4-inch � 4-inch red square2. 4 yellow strips, 3 inches � 1 inch3. A green four-leaf clover4. A blue diamond, 4" long5. A 3" blue star with a white circle attached to each point6. A white square, 6 inches � 6 inches, with a red triangle attached as a roof7. A bound book made of three colors, with writing on each page8. A white flag, 6 inches � 4 inches, with 5 blue stars and 7 red stripes9. A 5-inch Christmas tree with a yellow star attached to the top and 10 blue triangles attached to the tree

10. Five $1 bills

3. Organize the class into five groups. Give the groups the materials listed below in an envelope. Tell them theobject of the game is to produce as many of the items on the chalkboard as possible. Explain that if they do nothave what they need, they will have to come to the bargaining table and trade.

MATERIALS

GROUP 1: Two sheets of red, green, and blue paper; a pair of scissors; a ruler; a glue-stick; and a pencilGROUP 2: Two sheets of white, yellow, and green paper; two $1 bills; and scissorsGROUP 3: Two sheets of yellow and white paper; nine $1 bills; and a pencilGROUP 4: Two sheets of white, red, and blue paper; two $1 bills; a glue-stick; and a pair of scissorsGROUP 5: One sheet of red, green, yellow, and blue paper and seven $1 bills

4. Let the students attempt to finish the tasks for about 25 minutes.

5. Discuss with the class how economic concepts apply to world trade.

Assessment

1. Have each student select a European country. Have them find out how many American businesses have offices inthat country, research what products we import from the country, and make a chart.

2. Have students use their research on a European country to write a paper on the true meaning of interdependence.

▼BACKGROUND

International trade has become increasinglyimportant as our world resources diminish.

▼MATERIALS

Products with labels showing where they weremanufactured (displayed on a table),construction paper (red, green, yellow, white,and blue––six full pieces of each color), threepairs of scissors, two glue-sticks, a ruler, a pencil

▼OBJECTIVES

After completing this activity, students will beable to• Define interdependence.• Understand how scarcity promotes the need

to trade.

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T RADE AND INTERDEPENDENCE

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RUBRICSresearch paper,graph, poster

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Performance Assessment Activity 22

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Name Date Class

18, A

14. A tariff is a

a. tax on exports. b. quota on exports. c. quota on imports. d. tax on imports.

15. Since 1971 foreign exchange rates in the United States have been

a. favorable. b. unfavorable.c. fixed. d. flexible.



16. Recognizing Bias Why would organized labor oppose free trade?

17. Making Predictions What is likely to happen to U.S. imports from and exports to Mexico if the peso depre-ciates with respect to the dollar?

APPLYING SKILLS

Using Charts and Tables: Study the table and answer the questions below.

Foreign Exchange Rates(November 29, 1999)

18. How much does one British pound cost in dollars?

19. How many Swiss francs would $1,000 buy?

20. If the Japanese yen fell to 95 yen per dollar, how much would a 100,000 yen item cost in dollars?

Currency Foreign Currency U.S. Dollars inin U.S. Dollars Foreign Currency

British Pound 1.6054 .6229

French franc .1539 6.4978

Swiss franc .6296 1.5883

Japanese yen .009770 102.35

Chapter 18 Test Form A

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18, A




11. The ability of one country, using the same quantity of resources as another country, to produce a specificproduct at a lower cost is known as

a. import advantage. b. export advantage.c. absolute advantage. d. comparative advantage.

12. Flexible exchange rates are determined by

a. national governments. b. International Monetary Fund.c. supply and demand. d. Federal Reserve.

13. Depreciation of the Japanese yen would make Japanese products sold in the United States

a. less expensive. b. more expensive.c. scarce. d. abundant.

A1. imports


3. exchange rate

4. devaluation

5. International Monetary Fund (IMF)

6. embargo

7. balance of trade

8. protectionist

9. import quota

10. exports

USING KEY TERMS


Ba. goods bought from other countries for domestic use

b. ability of a country to produce a product at a lower opportu-nity cost than another country

c. restriction imposed on a particular good that can be broughtinto a country

d. international agency that offers monetary advice and providesloans to developing nations

e. goods sold to other countries

f. lowering a currency’s value in relation to other currencies bygovernment order

g. complete restriction on the import or export of a particulargood

h. person who argues for trade restrictions

i. difference between the value of a nation’s exports and itsimports

j. the price of one nation’s currency in terms of another nation’scurrency

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Name Date Class

18, B

13. In 1980, President Jimmy Carter halted U.S. grain sales to the Soviet Union by imposing

a. a tariff. b. a quota.c. a embargo. d. a tax on exports.

14. The General Agreement on Tariffs and Trade (GATT) was replaced in 1993 by

a. the International Monetary Fund (IMF). b. the World Trade Organization (WTO).c. floating exchange rates. d. fixed exchange rates.

15. Under a system of flexible exchange rates,

a. national governments set the value of their currencies.b. IMF sets the value of all currencies.c. value of currencies is determined by supply and demand.d. World Trade Organization sets the value of currencies of member nations only.



16. Analyzing Information Can a country that is more efficient than another country at producing a particulargood still benefit from importing that good? Explain your answer.

17. Summarizing Information What are the arguments for and against free trade?

APPLYING SKILLS

Using Charts and Tables: Study the table and answer the questions below.

Foreign Exchange Rates(November 29, 1999)

18. How much is one Swiss franc worth?

19. How many dollars would 100 French francs buy?

20. Which of the currencies listed is worth the most in terms of the dollar?

Currency Foreign Currency U.S. Dollars inin U.S. Dollars Foreign Currency

British Pound 1.6054 .6229

French franc .1539 6.4978

Swiss franc .6296 1.5883

Japanese yen .009770 102.35

Chapter 18 Test Form B

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18, B




11. NAFTA has

a. increased Mexico’s exports to the United States.b. decreased Mexico’s exports to the United States.c. had very little effect on Mexico’s exports to the United States.d. increased the price of Mexican exports to the United States.

12. The International Monetary Fund

a. regulates foreign trade. b. sets tariffs on imports.c. provides loans to developing countries. d. fixes foreign exchange rates.

A1. revenue tariff

2. absolute advantage

3. exchange rate

4. International Monetary Fund (IMF)

5. balance of trade

6. depreciation

7. exports

8. foreign exchange markets

9. embargo

10. protectionist

USING KEY TERMS


Ba. price of one country’s currency in terms of another country’s

currency

b. international agency that offers monetary advice and providesloans to developing countries

c. difference between the value of a country’s exports and itsimports

d. fall in the price of a currency through the action of supply anddemand

e. complete restriction on the import or export of a particulargood

f. tax on imports primarily used to raise income without restrict-ing imports

g. ability of a country, using the same amount of resources asanother country, to produce a product at a lower cost

h. person who argues for trade restrictions

i. markets that buy and sell foreign currency for businesses thatwant to import goods from other countries

j. goods sold to other countries

472B

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472C

Blackline Master

Transparency

Software

CD-ROMVideodisc

Audiocassette

Videocassette

Reading Objectives Reproducible Resources Technology/Multimedia Resources

Section 1The Benefits of World Trade• What are the benefits of international

trade?• What is the difference between

absolute advantage and comparativeadvantage?

Section 2Financing World Trade• Why do nations need a system of

currency exchange rates?• How do the forces of supply and

demand determine flexible exchangerates?

• How do exchange rates affect thebalance of trade?

Section 3Restrictions on World Trade• How can a nation restrict imports?• What are three arguments for and

against free trade?• What are some current international

and regional trade agreements?

Reproducible Lesson Plan 18-1Daily Lecture Notes 18-1Guided Reading Activity 18-1Reading Essentials and Study Guide 18-1Daily Focus Activity 79Section Quiz 18-1*Reinforcing Economic Skills 29

Reproducible Lesson Plan 18-2Daily Lecture Notes 18-2Guided Reading Activity 18-2Reading Essentials and Study Guide 18-2Daily Focus Activity 80Section Quiz 18-2*

Reproducible Lesson Plan 18-3Daily Lecture Notes 18-3Guided Reading Activity 18-3Reading Essentials and Study Guide 18-3Daily Focus Activity 81Section Quiz 18-3*

Daily Focus Transparency 79

Economic Concepts Transparency 20Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz

NBR's Economics & You*Interactive Economics! Presentation Plus!ExamView® Pro Testmaker


Economic Concepts Transparency 21Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz

NBR's Economics & You*Interactive Economics! Presentation Plus!ExamView® Pro Testmaker

Daily Focus Transparency 81Vocabulary PuzzleMaker CD-ROMInteractive Tutor Self-Assessment SoftwareMindJogger VideoquizPresentation Plus!ExamView® Pro Testmaker

*Also available in Spanish

Section Resources

Block Schedule

472D

Marlene ScottCentral Decatur High SchoolLeon, Iowa

Where in the World?Have students research the manufacturing origins of

bicycle parts. They can use the Internet to locate compa-nies that make various parts to bicycles. In addition, askstudents to search their own homes to find and list the var-ious appliances, accessories, and furniture that were madein other countries. Have students compare their lists inclass, then discuss the meaning of a “global economy.”

ACTIVITYFrom the Classroom ofACTIVITYFrom the Classroom of

Activities that are particularly suited to use within the blockscheduling framework are identified throughout this chapterby the following designation: BLOCK SCHEDULING

Block Schedule

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


Teaching strategies have been coded for varying learning styles and abilities.L1 BASIC activities for all studentsL2 AVERAGE activities for average to above-average

studentsL3 CHALLENGING activities for above-average students

ENGLISH LANGUAGE LEARNER activitiesELL

Key to Ability Levels

Voluntary Standards Emphasized in Chapter 18Content Standard 5 Students will understand that vol-untary exchange occurs only when all participating partiesexpect to gain. This is true for trade among individuals ororganizations within a nation, and among individuals ororganizations in different nations.

Content Standard 6 Students will understand that whenindividuals, regions, and nations specialize in what they canproduce at the lowest cost and then trade with others, bothproduction and consumption increase.

Resources Available from NCEE• Capstone: The Nation’s High School Economics Course• MCG—International Trade• Geography: Focus on Economics• Civics and Government: Focus on Economics

To order these materials, or to contact your StateCouncil on Economic Education about workshops andprograms, call 1-800-338-1192 or visit the NCEE Web siteat http://www.nationalcouncil.org

472D

ECON: 13C, 23A

Timesaving Tools

• Interactive Teacher Edition Access your TeacherWraparound Edition and your classroom resourceswith a few easy clicks.

• Interactive Lesson Planner Planning has never been easier!Organize your week, month, semester, or year with all the lessonhelps you need to make teaching creative, timely, and relevant.

Use Glencoe’s Presentation Plus! multimediateacher tool to easily present dynamic lessonsthat visually excite your students. Using MicrosoftPowerPoint® you can customize the presenta-tions to create your own personalized lessons.

http://www.nationalcouncil.org

To learn about foreign exchangeand trade surplusesand deficits, view

the Economics & You Chapter 24video lesson: International Trade

Chapter Overview Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.com and click on Chapter 18—Chapter Overviewsto preview chapter information.

Why It’s ImportantWhat percent of goods in American stores are foreign-made?What happens to the dollarsAmericans spend outside the UnitedStates? This chapter will explain theimportance of international trade, and how you benefit from it.

IntroducingCHAPTER18

472

Chapter OverviewChapter 18 explains the benefits

of international trade, absolute andcomparative advantage, exchangerates, barriers to free trade, andmajor trade agreements.

CHAPTER LAUNCH ACTIVITY

IntroducingCHAPTER18

Use MindJogger Videoquiz to preview Chapter 18content.

Introduce students to chaptercontent and key terms by havingthem access Chapter 18—ChapterOverviews at ett.glencoe.com

Have students imagine that they are owners of a small manufacturing company. Tellthem that they have an opportunity to increase sales of the product by exporting it. Askthem to identify the laws, customs, consumer preferences, and other types of informa-tion they would need to know about the countries they intend to export to. Discuss theirresponses, and then inform students that this chapter deals with trade among nations.

ECONOMICS & YOU

International Trade

!9MV4" Chapter 24 Disc 1, Side 2

ASK: What causes a surplus ina nation’s balance of trade? Atrade surplus occurs when thevalue of goods a nation exports ishigher than the value of goodsimported.

Also available in VHS.

tx.ett.glencoe.com

ECON: 2B, 13C, 23A, 23C-D

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter18/overview.shtml


473

473Trading Wi th Other Nat ions

Terms to Know• imports• exports• absolute advantage• specialization• comparative advantage

Reading Objectives1. What are the benefits of

international trade?

2. What is the differencebetween absolute advan-tage and comparativeadvantage?

READER’S GUIDE

A s you read this section, ask yourself what would happen if the United States could no longer sell goods to othercountries or buy goods in return. Before you answer, you

should be aware that the value of imports—goods bought fromother countries for domestic use—is about 13 percent of GDP inthe United States. That figure may not seem large, but manyinconveniences would result without imports.

1

imports: goods bought fromother countries for domestic use

THE WASHINGTON POST, FEBRUARY 15, 1999

Mickey makes it to Beijing. Getting [the Disneymovie] ‘Mulan’ into Chinese theaters was seenas an essential part of Disney’s businessplan for this nation of 1.3 billion, with

a growing middle class and eageryoung customers. The film, abouta courageous heroine who dis-guises herself as a man andsecretly takes her ailing father’splace in battle against theinvading Huns, is based on a1,500-year-old Chinese legend,and the story is as familiar here

as Cinderella or Snow White inthe United States. ‘Mulan’ has

earned $299 million worldwide.

CHAPTER 18SECTION 1, Pages 473–477


Reproducible MastersReproducible Lesson Plan 18–1Reading Essentials and Study Guide 18–1Guided Reading Activity 18–1Section Quiz 18–1Daily Focus Activity 79Daily Lecture Notes 18–1

MultimediaDaily Focus Transparency 79Economic Concepts Transparency 20Vocabulary PuzzleMaker CD-ROM Interactive Tutor Self-Assessment SoftwareExamView® Pro TestmakerInteractive Economics!

NBR’s Economics & YouPresentation Plus!

SECTION 1 RESOURCE MANAGER

OverviewSection 1 discusses the benefits

of international trade and explainsthe difference between absoluteadvantage and comparative advantage.

Answers to the Reading Objectivesquestions are on page 477.

Preteaching VocabularyHave students explain the con-

cept of absolute advantage andcomparative advantage.

Vocabulary PuzzleMaker

READER’S GUIDE

Project Daily FocusTransparency 79 and have students answer the questions.

Available as blackline master.

Daily Focus Transparencies

A BSOLUTE AND COMPARATIVE ADVANTAGE

These data are hypothetical and for illustrative purposes only.

1. For each good, identify the country that has an absolute advantage in production. Explain your answer.

2. If it takes 10 hours to assemble a car in the United States and 50hours in Mexico, what is the cost of assembling a car in eachcountry? Given this information, would U.S. auto makers savemoney by taking advantage of cheaper labor costs in Mexico?Explain.

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BELLRINGERMotivational Activity


Page 473: 13A, 13C, 23A, 24A

Student Edition TEKS

ECON: 13A, 23A, 23D, 24A



exports: goods sold to othercountries

We would have no coffee, chocolate, or pepper. Consider alsothat more than 60 percent of the radios, television sets, andmotorcycles sold in the United States are imported. Many rawmaterials also come from foreign sources. More than 90 percent ofthe nation’s bauxite, from which aluminum is made, is imported.

Benefits of TradeImports tell only half the story. Many American workers are

employed in industries that export their products overseas.Exports are goods sold to other countries. For example, more than40 percent of the nation’s engineering and scientific instrumentsare sold to consumers overseas. In addition, almost two-thirds ofthe wheat produced in the United States is shipped abroad.

Made in the U.S.A.? Sometimes it is hard to distinguishbetween goods made in America and those purchased abroad, asshown in Figure 18.1. In short, international trade affects youwhether you know it or not. We have truly entered the age of aglobal economy, so learning about international trade is simplylearning about everyday life.

Differences Among Nations Nations benefit through worldtrade because each differs in the type and amount of the factorsof production it has available for use. The availability of naturalresources is one of the most important of these differences.

The type and amount of labor and capital available to a nationare equally important. For example, much of the economy of theUnited States is based on high-technology production. A highlyskilled labor force and large amounts of capital—in the form ofadvanced equipment and machinery—make this possible. Anothernation—with the same natural resources but without the samelabor and capital resources—could have a very different economy.

Who Made the Parts?Consider the Boeing 777. This plane is hardly “made in America.”International suppliers provide rud-ders, elevators, outboard flaps, wing-tip assemblies, engines, nose-landinggears, nose-landing gear doors, andmain-landing gears. Japanese suppli-ers, in particular, provide cargo doors,fuselage panels, and passenger doors.The complicated Boeing 777 jet air-craft is a jigsaw puzzle in which thepieces come from all over the world.

18.118.1

474

Offer other examples ofAmerican goods that are not com-pletely made in America. Pointout that the memory chips usedin an American-made IBM com-puter are made in Taiwan. Also,orange juices are made from con-centrate that comes not only fromthe United States, but also fromMexico and Brazil.

L ECTURE LAUNCHERLJapan and the United States are exchanging views on how to open markets and enhancetrade. If the two nations can come to agreement, U.S. consumers would enjoy increasedaccess to auto, building materials, and telecommunications markets. Japanese consumerswould benefit from increased access to medical devices, pharmaceuticals, financial services,and energy. How is that both Japan and the United States can both identify goods which theymight want to import? Why is it that both nations can benefit from trading with each other?

I. Benefits of Trade

A. Exports are goods sold to other countries.

B. Many products are manufactured in more than one country; some parts might beimported and the rest made in the country.

C. Economies among nations, differ due to differing types of natural resources, types andamount of labor, and the amount of capital available.

• Discussion Question

What are some types of products that the United States might have shortages of ifwe did not import? (Possible response: Products that require an unskilled labor force andnatural resources we don’t have or have a small supply of.)

18-1

PAGES 475–477

PAGE 474

Daily Lecture Notes 18–1

Organizational Difficulties Students who have organizational problems may have diffi-culty translating information from graphic form to written form. Have students work in smallgroups to study Figure 18.2 on page 476. Ask them to identify what information thegraphic conveys. Encourage students to write their answers in sentence form.

Refer to Inclusion for the Social Studies Classroom Strategies and Activities forstudents with different learning styles.

Meeting Special Needs

Guided PracticeL2 Analyzing Ideas Review withstudents the benefits of trade dis-cussed in this section. Focus on theraw materials and goods the UnitedStates would not have without inter-national trade. Have students dis-cuss what would happen if theUnited States could no longer importsuch things. Then ask students touse points raised in the discussion towrite a paragraph about the impor-tance of international trade to dailylife in the United States.ECON: 12A-B, 13C, 23A, 24D

ECON: 13C

ECON: 23A, 23F, 24C

475



Project Economic ConceptsTransparency 20 and have studentsdiscuss the accompanying questions.

For use with the textbook pages 473–477

T HE BENEFITS OF WORLD TRADE

RECALLING THE FACTS

Directions: Use the information in your textbook to answer the questions.

1. How important are imports and exports to the United States economy?

Imports:

Exports:

2. Why do nations benefit from world trade?

3. What factors support the high-tech economy of the United States?

4. What is absolute advantage?

Name Date Class

18-1

Guided Reading Activity 18–1

ECONOMICS & YOU

International Trade


ASK: What factors can lead toa trade war? A trade imbalancemay lead a country to impose tar-iffs on imported goods. Othernations may respond with tradebarriers of their own.


Direct students’ attention to the Global Economy feature on pages 494–495. Thenorganize students into groups, and have groups research and construct a similar mapshowing the United States’s major trading partners. Ensure that all students are involvedin the activity by encouraging groups to use critical methods of inquiry, such as research,collating statistics, drawing the map, creating map labels, and so on. Call on groups to dis-play and discuss their maps. BLOCK SCHEDULING

Cooperative Learning


absolute advantage: ability ofone country, using the samequantity of resources as another,to produce a particular product ata lower absolute cost

British economist David Ricardo firstadvanced the theory of comparative

advantage in 1817. He used a mathematicalexample involving the production of wineand cloth in Portugal and England.

In England, it might take 100 workers tomake a set amount of cloth and 120 workersto make a set amount of wine. In Portugal, itmight take 90 workers to make the same

amount of cloth, while the same amount ofwine might take 80 workers. Ricardoobserved that it would be in the interest ofEngland to focus on making cloth, using thefinished product to buy wine. By employingits capital in wine production, Portugal couldobtain more cloth from England than it couldproduce by diverting some capital to clothmanufacturing. ■

Economic Connection to... MathEconomic Connection to...

Absolute vs. ComparativeIf the United States could produce everything more cheaply

than every other nation, it might not want to import anything.We know this situation does not exist for any nation, however,because of opportunity cost. All nations must make choices inhow they use their scarce resources.

Absolute Advantage The particular distribution of resources ina nation often gives it an advantage over another nation in the pro-duction of one or more products. Brazil’s tropical climate and inex-pensive labor make it ideally suited for growing bananas. A countrywith a moderate climate, such as France, would produce far fewerbananas. Brazil, therefore, has an absolute advantage in banana pro-duction over France. Absolute advantage is the ability of one coun-try, using the same amount of resources as another country, toproduce a particular product at a lower absolute cost.

A nation often finds it profitable to produce and export a limitedassortment of goods for which it is particularly suited. This conceptis known as specialization. See Figure 18.2 on page 476. Forexample, Japan’s specialization in consumer electronics has ledmany nations to import these types of products from Japan.

Comparative Advantage A nation doesn’t need to have anabsolute advantage in the production of a certain good to find itprofitable to specialize and then to trade with other countries.For example, consider two imaginary nations, Alpha and Beta.Assume that each country produces only soybeans and corn.

specialization: concept that anation should produce and exporta limited assortment of goods forwhich it is particularly suited inorder to remain profitable

Comparative AdvantageComparative Advantage

Page 474: 12A-B, 13C, 24BPage 475: 5B, 12A-B, 13A-C, 24A

Student Edition TEKSECON: 13C, 23A, 23C, 23F-G, 24C-D

L1 Have students write a shortanswer to the following question:Apply the concept of comparativeadvantage to explain how countriestrade. ECON: 13B



476

IndependentPracticeL2 Creating a Collage Have stu-dents work in small groups to createa collage of American imports andexports. Suggest that they annotateillustrations in their collages withsuch information as dollar value ofparticular imports and exports, chiefsources of particular imports, chiefdestinations of particular exports,and so on. Call on groups to displayand discuss their collages. ELL

LESSON 9: INTERNATIONALTRADE

Have students go to theIntroduction menu and click on“Finding Comparative Advantage.”Ask students to read through the“Tutorial” and find the comparativeadvantage for both Alpha and Beta.

Supplied in both CD-ROM anddisk formats.

The Relationship Between Imports and Exports International trade is an economicactivity like any other, and it is subject to the same economic principles. In economicterms, international trade might be viewed as a production process that transforms exportsinto imports. Nations trade to get imports, and they export other things in order to pay forthose imports. A fundamental proposition in international trade is: In the long run, exportspay for imports.

Extending the Content

Meeting LessonObjectives

Assign Section 1 Assessment ashomework or an in-class activity.

Use Interactive Tutor Self-Assessment Software to review Section 1.

comparative advantage: abilityof a country to produce a productat a lower opportunity cost thananother country

When producing only soybeans, Alpha produces 10 millionbushels, while Beta produces only 8 million. The next year, sup-pose the two countries decide to grow only corn. Alpha produces50 million bushels, while Beta produces 25 million. According tothis example, Alpha has an absolute advantage in the productionof both soybeans and corn.

Does this mean that Alpha will produce both crops and, there-fore, have no reason to trade with Beta? No. Alpha can produceslightly more soybeans than Beta. In contrast, it can produce a greatdeal more corn. It would make little sense for Alpha to take land,labor, and capital resources away from the efficient production ofcorn and use them for the less efficient production of soybeans.Alpha’s opportunity cost—what it gives up to get something else—would be less if it invested all its resources in the production ofcorn. It could export its surplus corn and use the revenues itreceives to import soybeans from Beta.

Alpha has a comparative advantage in corn production.Comparative advantage is the ability of a country to produce a

476 CHAPTER 18

Exports andImports of theUnited StatesLook at the graph tosee what products theUnited States importsand exports. Name the products that theUnited States exportsmore than it imports.

0 70 80 9010 50 6020 30 40

Toys/Games/Sporting Goods

TVs/VCRs, etc.

Fuels

Airplanes

AgriculturalProducts

Clothing

Photo Equipment

Automatic DataProcessing Equipment

Value in Billions of Dollars

Source: Standard & Poor’s

Current U.S. Exports and Imports

Imports

Exports

FIGURE 18.2FIGURE 18.2

For an online update of this graph, visit tx.ett.glencoe.com and click on Textbook Updates—Chapter 18.

ECON: 13C, 23A, 23G, 24D

ECON: 13C

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter18/txtupdate.shtml

477477



477



477

product at a lower opportunity cost than anothercountry. Beta has a comparative advantage in soybean production. It can produce about thesame amount of soybeans as Alpha, but only halfas much corn. By using its resources to grow only soybeans, Beta is just giving up the relatively ineffi-cient production of corn. Beta, then, has a loweropportunity cost for soybean production than doesAlpha. Beta should produce the maximum amount ofsoybeans, export soybeans to Alpha, and import corn. Both countries benefit when each country concentrates on that production for which it is relatively most efficient.

Understanding Key Terms1. Define imports, exports, absolute advantage,

specialization, comparative advantage.

Reviewing Objectives2. How important is international trade to the

United States economy?

3. Graphic Organizer Create a diagram like theone below to explain the difference betweenabsolute advantage and comparative advantage.

Applying Economic Concepts4. Comparative Advantage List at least three

activities in your daily life in which you have acomparative advantage (such as cooking orlawn maintenance). Describe how you andthose who live at your house could use com-parative advantage in order to “trade” to getmore accomplished.

AbsoluteAdvantage

ComparativeAdvantage

TradeCritical Thinking Activity

Practice and assesskey skills with

Skillbuilder InteractiveWorkbook, Level 2.

1

5. Synthesizing Information Use Figure18.2 to answer the following question: Inwhat two products do trading partners seemto have the greatest absolute advantage orcomparative advantage over the UnitedStates? Explain.

Name Date Class

18, 1


Multiple Choice: In the blank at the left, write the letter of the choice that best completes the statement or answers the question. (10 points each)

6. In a global economy, international trade affects

a. only industries that sell products overseas. b. only industries that buy raw materials from foreign sources.

c. everyone. d. only farm workers.

7. Nations benefit from world trade because each has

a. the same economy. b. different factors of production available.

SCORE

A1. imports

2. exports

3. absolute advantage

4. specialization


Ba. goods sold to other countries

b. ability of a country to produce a product at a loweropportunity cost than another country

c. goods bought from other countries for domestic use

d. concept that it is profitable for a nation to produceand export a limited assortment of goods for whichit is particularly suited

e. ability of one country, using the same quantity ofresources as another country, to produce a particularproduct at less cost

Matching: Place a letter from Column B in the blank in Column A. (10 points each)

Section Quiz 18–1

ReteachHave each student write three

questions for each of the two majorheadings in Section 1. Collect thequestions and use them to test stu-dents’ understanding of sectioncontent.

Engage students in a discussionof the ways in which the UnitedStates would be poorer without thebenefit of international trade.

Name Date Class

18, 1

imports Goods bought from other countries for domestic use (page 473)

exports Goods sold to other countries (page 474)

absolute advantage Ability of one country, using the same quantity of resources as another country, toproduce a particular product at a lower cost (page 475)

specialization Concept that a nation should produce and export a limited assortment of goods for whichit is particularly suited in order to remain profitable (page 475)

comparative advantage Ability of a country to produce a product at a lower opportunity cost thananother country (page 476)

For use with textbook pages 473–477


DRAWING FROM EXPERIENCE

What is the name brand on the computer you use at school? Do you think that all the parts inthat computer were made in the United States? Is it possible that a computer made by anAmerican company like IBM contains parts made in other nations?

This section explains international trade and the value of exports and imports. It also explains thefactors that determine what goods a nation produces.

ORGANIZING YOUR THOUGHTS

KEY TERMS

Reading Essentials and Study Guide 18–1

Page 476: 5B, 13A-C, 23A, 23F-G,24A

Page 477: 5B, 13A-C, 23D, 23F,24A


ECON: 23A

ECON: 13C, 23D

1. All definitions can be found in the Glossary.2. Imports account for about 13 percent of GDP.

Also, more than 40 percent of the nation’sengineering and scientific instruments areexported. In addition, about two-thirds of thewheat produced in the United States is soldabroad.

3. Absolute advantage—when one country, usingthe same amount of resources as another

country, is able to produce a particular productat a lower absolute cost. Comparative advan-tage—when a country can produce a particularproduct at a lower opportunity cost thananother country.

4. Answers will vary, but should demonstrate anunderstanding of the concept of comparativeadvantage.

5. fuels and clothing

478

Study & Writing Skills



Researching and writing allow you to organize your ideas in a logical manner. The writing process in-volves using skills you have already learned, such as taking notes, outlining, and synthesizing information.

Application ActivityResearch and write a short report on the man-

ufacturing of your favorite automobile. What parts, if any, were imported?

• Select an interesting topic.Do preliminary researchto determine whetheryour topic is too broad ortoo narrow.

• Write a thesis statementthat defines what youwant to prove, discover, orillustrate in your writing.This will be the focus ofyour entire paper.

• Research your topic byformulating a list of mainideas and preparing notecards listing facts andsource information foreach main idea.

• Your report should havean introduction, a body,and a conclusion summa-rizing and restating yourfindings.

• Each paragraph shouldexpress one main idea in a topic sentence.Additional sentences sup-port or explain the mainidea by using details andfacts.

Learning the SkillUse the guidelines listed on the left to help you

apply the writing process.

Practicing the SkillSuppose you are writing a report on international

trade. Answer the following questions about the writ-ing process.1. How could you narrow this topic?2. What are three main ideas that should be included

in this report?3. Name three possible sources of information about

international trade.4. What maps, charts, and graphs might you include

with your report?

Applying theWriting Process

478

Applying the WritingProcess

Review the guidelines with stu-dents, pointing out the value ofdeveloping an outline prior to writ-ing a report. Remind students thatan outline may be adjusted at thewriting stage if a different orderseems more appropriate.

Work through the Practicing theSkill activity with students. Youmight begin this process by askingstudents why it is useful to narrowthe topic. Narrowing the topic helpsto focus research efforts. Conclude byassigning the Application Activity.

Glencoe SkillbuilderInteractive Workbook,Level 2

This interactive CD-ROM rein-forces student mastery of essen-tial social studies skills.

Answers to Practicing the Skill1. Answers will vary. Students might sug-

gest focusing on regional trade, theUnited States’s major trading partners,or international trade agreements.

2. Answers will vary according to the focuschosen in question 1.

3. Students may suggest the Web sites oftrade organizations, almanacs, the

Statistical Abstract, and so on.4. Students’ reports could include world

maps, international trade cartograms,bar graphs comparing imports andexports, and so on.

Application Activity Answers will vary.Ensure that students follow the guidelines inpreparing and writing their reports.

Study &Writing Skills

A PPLYING THE WRITING PROCESSThe writing process involves using skills you have already learned, such as taking notes, out-lining, and synthesizing information. To begin the process, select an interesting topic. Dosome preliminary research to confirm that your topic is neither too broad nor too narrow.Once you have chosen your topic, write a thesis statement that defines what you want toprove, discover, or illustrate. Research your topic by formulating a list of main ideas. Then create an outline for your paper. Begin researching your topic by finding facts that supportpoints on your outline. Record your research and the names of your sources on 3" � 5" notecards. When you are done researching your paper, use your outline to create a rough draft ofyour paper. Edit your draft by checking that you have used correct spelling, proper grammar,and good writing skills.

Directions: Choose a company from one of the following categories: investing, computers, retailers, entertainment. Then complete the checklist shown below.

❑ Using the Internet or resources at your public library, research the company you choose for ideas on a thesis state-ment.

❑ Narrow this topic so that it is not too broad of a topic to cover in two pages.

❑ Write a thesis sentence identifying what your paper seeks to show.

❑ Create an outline using at least three main ideas as headings for a two-page report on the company you choose.

❑ Continue to research your topic taking notes and recording the resources used on 3" � 5" cards.

❑ Prepare a rough draft for a two-page report on your company.

❑ Identify the sources of all information using footnotes or endnotes.

❑ Edit your draft by checking for correct spelling, proper grammar, and good writing skills.

❑ Submit your thesis statement, outline, rough draft, and final report.

Name Date Class

29

Reinforcing Economic Skills 29

ECON: 23A

479


Terms to Know• exchange rate• foreign exchange markets• fixed rate of exchange• International Monetary Fund

(IMF)• devaluation• flexible exchange rates• depreciation• balance of trade

Reading Objectives1. Why do nations need a sys-

tem of currency exchangerates?

2. How do the forces of supplyand demand determineflexible exchange rates?

3. How do exchange ratesaffect the balance of trade?

READER’S GUIDE

The United States uses the dollar as its medium of exchange;Mexico, the peso; India, the rupee; and Japan, the yen. Asyou read this section, you’ll learn that to engage in world

trade, people must have a way of knowing the exchange rate—what the price of their currency is in terms of another nation’s cur-rency. They must also be able to exchange one type of currency foranother. Why is this so?

A Japanese digital video disk (DVD) manufacturer whoexports DVD systems to the United States probably does notwant American dollars in payment. The firm needs Japanese cur-rency to pay its workers and suppliers. Fortunately, international

2

exchange rate: the price of onenation’s currency in terms ofanother nation’s currency

THE COLUMBUS DISPATCH, SEPTEMBER 7, 1999

If the price of buying a car starts rising in the UnitedStates, consumers may need to look no further than thedollar’s recent slide against major foreign currencies.

On the other hand, economically depressed Midwesternfarmers may find iteasier to sell surplusgrain overseas if aweak dollar makes itcheaper for foreignersto buy U.S. goods.

The dollar spentmuch of last week onthe skids, flirting with

its lowest level of the year against the Japanese yen.. . . It also has lost ground to the euro.




MultimediaDaily Focus Transparency 80Economic Concepts Transparency 21Vocabulary PuzzleMaker CD-ROM Interactive Tutor Self-Assessment SoftwareExamView® Pro Testmaker

MindJogger VideoquizNBR’s Economics & You

Interactive Economics!


OverviewSection 2 outlines the transition

from a fixed rate of exchange to the current flexible rate of exchangeamong international currencies. It also discusses changes in theUnited States’s balance of tradeover the years.


Preteaching VocabularyVocabulary PuzzleMaker

READER’S GUIDE


This activity is also availableas a blackline master.


HO BENEFITS FROM A CHEAP DOLLAR?

1. If the exchange rate causes the U.S. dollar to drop in value, willthe American tourists in the first photograph be able to buy moregoods and services or fewer goods and services in the countrythey are visiting?

2. How will American workers, such as factory workers producinggoods for export, benefit from a weak dollar?

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Page 478: 23A, 23C, 23F, 27APage 479: 13D, 23A, 24A




foreign exchange markets:markets dealing in buying andselling foreign currency for busi-nesses that want to import goodsfrom other countries

fixed rate of exchange: systemunder which a national govern-ment sets the value of its cur-rency in relation to a singlestandard

trade is organized so that individuals and businesses can easilyand quickly convert one currency to another. Foreign exchangemarkets allow for these conversions. People in these marketsdeal in buying and selling foreign currency for businesses thatwant to import goods from other countries. Some of the currencytrading also takes place through banks. Figure 18.3 shows youwhat information a typical exchange rate lists on a given day.

Fixed Exchange RatesFrom 1944 to the early 1970s, the foreign exchange market

operated with a fixed rate of exchange. Under this system,national governments set the value of their currency in relation to a single standard—usually the amount of gold held in reserve.With a fixed rate of exchange, a government could compare its

Foreign ExchangeRate Listing


In the second column of this listing, on a particular day one British poundcosts 1.62 American dollars. The third column shows that one UnitedStates dollar is worth .62 British pounds.

Country (currency)

Australia (Dollar)

Brazil (Real)

Britain (Pound)

Canada (Dollar)

Euro

India (Rupee)

Japan (Yen)

Mexico (Peso)

South Africa (Rand)

Venezuela (Bolivar)

U.S. $ Equivalent

.6478

.5299

1.6185

.6720

1.0599

.02299

.009005

.1069

.1645

.001607

Currency per U.S. $

1.5438

1.8870

.6179

1.4882

.9435

43.495

111.06

9.3510

6.0790

622.25

480

480

After students have studiedFigure 18.3, have them use thebusiness section of a newspaperto find current exchange rates forthe listed currencies.

L ECTURE LAUNCHERLIn 1994, following a crash in the Mexican stock market, the value of the peso fell 42% in justeleven days. Why does world trade depend on the conversion of one currency into another?What is the name for the market in which these conversions take place?

I. Fixed Exchange Rates

A. Under a system of fixed exchange rates, national governments valued their currency inrelation to a single standard.

B. Fixed exchange rates made it easy to compare different currencies.

C. Devaluation is to lower a currency’s value in relation to other currencies by governmentorder.

D. It is difficult to hold exchange rates constant in an international economy.


Why do you think it is so difficult to keep the exchange rates constant in an international economy? (Different countries have different national economic situations.Some might be flourishing while others are experiencing recession, decline, or slowing ofgrowth. In addition, situations in these countries are changing daily. The more countries youconsider, the more difficult it is to keep the comparison between them constant.)

18-2

PAGES 480–481

PAGE 482


Physical Disability Students who have difficulty with fine motor skills often are slow andinefficient writers. Because most assignments require some measure of writing, these stu-dents are at a tremendous disadvantage. Teach these students to read short pieces of textand to use an abbreviated note-taking system of writing only single words and associatedfacts.



Guided PracticeL2 Applying Ideas Tell studentsthey are going to take a week’s vaca-tion in the country of their choice.Lead students in a discussion ofwhat they might spend on their vaca-tion—hotel costs, meals, sightseeing,travel, gifts for family and friends,and so on. Have each studentdevelop a simple budget for theweek. Then have them use a newspa-per business section to find the costin the currency of their chosen vaca-tion spot. Encourage students toshare their findings. Discuss withstudents why exchange rates mightbe a factor in making vacation plans.ECON: 13D, 23A, 23G

ECON: 13D, 23F-G

ECON: 23A

481

International Monetary Fund(IMF): agency whose membergovernments once were obligatedto keep their foreign exchangerates more or less fixed; today itoffers monetary advice and pro-vides loans to developing nations

devaluation: lowering a cur-rency’s value in relation to othercurrencies by government order

currency to that of other countries. The International MonetaryFund (IMF) supported a fixed exchange rate system. Membergovernments of the IMF (including the United States) were obli-gated to keep their foreign exchange rates more or less fixed.

A fixed rate of exchange had some advantages for worldtrade. Importers and exporters knew exactly how much of aforeign currency they could purchase with their own nation’smoney. Also, the system allowed central banks to affect thelevel of exports and imports in their country by devaluing thecurrency. Devaluation means lowering a currency’s value inrelation to other currencies by government order. Figure 18.4shows how the cost of a Japanese DVD system would decreaseif Japan devalues its yen by one-half.

This system of fixed exchange rates eventually provedimpractical. The basic problem was the difficulty of holdingexchange rates fixed in an international economic climate thatwas constantly changing. Suppose one nationsuch as the United States suffered from highinflation, and a trading partner such as Japandid not. Then American goods would becomevery costly for the Japanese to buy. Becausethe price of Japanese goods would not be rising,Americans could use their inflated, or “cheaper,”dollars to buy more Japanese products. TheUnited States would be importing huge quanti-ties of Japanese goods but exporting little toJapan.

Effects ofDevaluation Thesecharts show how deval-uation of the Japaneseyen affects consumers inthe United States. Doyou think an Americanconsumer would pre-fer to buy a DVD sys-tem before or afterdevaluation? Why?

Japanese DVDcosts 20,000 yen

An American would have to pay$200 for the Japanese DVD

Exchange Rate: 100 yen = $1 U.S. Exchange Rate: 200 yen = $1 U.S.

Before Devaluation

DVD = = $200.0020,000 yen

100 yen per $

After DevaluationJapanese DVD

costs 20,000 yen

An American would have to pay$100 for the Japanese DVD

DVD = = $100.0020,000 yen

200 yen per $

Effects of Official Devaluation of Japanese YenFIGURE 18.4FIGURE 18.4

Student Web Activity Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.comand click on Chapter 18—Student WebActivities to learn about increased efficiency ininternational trade.




Answer: after devaluation, becausethe DVD would cost less inAmerican dollars

See the Web Activity LessonPlan at ett.glencoe.com for anintroduction, lesson description,and answers to the Student WebActivity for this chapter.

Have students work in small groups to interview local bank officers who deal with for-eign exchange matters. Encourage students to ask the officers questions on the history ofexchange rates, the change from fixed to flexible rates, and problems involving exchangerates—the impact of fluctuating rates on trade, for example. Suggest that students alsoask how varying exchange rates might affect the balance of trade and local businesses.Direct groups to present the results of their interviews in a brief written report.

Cooperative Learning

Name Date Class

For use with the textbook pages

F INANCING WORLD TRADE

OUTLINING

Directions: Locate the heading in your textbook. Then use the information under the heading to help youwrite each answer.

I. Introduction

A. What is the exchange rate?

B. What is the purpose of foreign exchange markets?

II. Fixed Exchange Rates

A. What is a fixed rate of exchange?

B. What were the advantages of a fixed rate of exchange?

C. What is devaluation?

D. Why did fixed exchange rates prove to be impractical?

18-2


Project Economic ConceptsTransparency 21 and have studentsdiscuss the accompanying questions.

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Page 481: 13D, 23A, 23F-G, 24A


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ECON: 8A, 13D, 23A, 23C, 24C-D

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter18/webact.shtml

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter18/walp.shtml



482 CHAPTER 18

flexible exchange rate:arrangement in which the forces of supply and demand areallowed to set the price of variouscurrencies

depreciation: fall in the price ofa currency through the action ofsupply and demand

Flexible Exchange RatesOn August 15, 1971, President Richard Nixon officially

announced what would become the end of fixed Americanexchange rates. Most of the world’s nations turned to a flexibleexchange rate system. Under this arrangement, the forces of supplyand demand are allowed to set the price of various currencies. Withflexible exchange rates, a currency’s price may change, or float, upor down a little each day. For example, Japanese currency might betrading at 115.6 yen to the dollar on one day and 118.2 yen to thedollar on the next.

The forces actually determining exchange rates are the supplyand demand of goods and services that can be bought with a partic-

ular currency. For example, suppose theamount of dollars wanted by Japaneseexporters is greater than the quantity ofdollars supplied by Americans who wantto buy Japanese goods. Because thequantity demanded exceeds that sup-plied, the American dollar will becomemore expensive in relation to the yen.It will take more yen to equal one dol-lar. In contrast, if the quantity of dollarsAmerican importers supplied is morethan the quantity demanded by Japaneseexporters, the price of a dollar willbecome cheaper in relation to the yen.Fewer yen will equal one dollar.

When the price of a currency fallsthrough the action of supply anddemand, it is termed depreciation.As with devaluation, depreciation of a country’s currency improves its com-petitive edge in foreign trade.

Besides import-export transactions,political or economic instability withina country may encourage people toexchange their currency for a more sta-ble currency, often the United Statesdollar. In that case, the value of the dol-lar would rise in relation to the othernation’s currency. A country that isexperiencing rapid inflation will findits currency falling in value in relationto other currencies.

The Big Mac IndexOne way to see whether a currency is devalued or

overvalued against the U.S. dollar is to use the “BigMac Index” developed by The Economist. Economistscompare the price of a Big Mac hamburger in theUnited States to what it costs in another country’s localcurrency. Converting the foreign price to U.S. dollarsshows whether the price of a Big Mac is undervaluedor overvalued against the U.S. dollar. For example, aBig Mac may cost $2.56 in the United States and 280yen in Japan (which converts to $2.08 in U.S. currency).The Japanese yen, therefore, is undervalued against theU.S. dollar. ■

Big Mac Prices

Country

U.S. (Dollar)Brazil (Real)China (Yuan)Israel (Shekel)Mexico (Peso)Russia (Ruble)

in localcurrency

2.563.109.90

12.5017.9

12,000

in U.S.dollars

$2.562.721.203.382.102.00

Percent under(–) or over (+)valued against

dollar

---+6

–53+32–18–22

482

LESSON 9: INTERNATIONALTRADE

Have students click on“Economics Lab.” To complete thelab, students should click and dragthe terms of trade into the appropri-ate spaces on the chart.

Supplied in both CD-ROM anddisk formats.

The Big Mac IndexInform students that The

Economist publishes its Big MacIndex in one of its April editions.Encourage students to learn moreabout the Big Mac Index by visit-ing The Economist Web site atwww.economist.com/editorial/freeforall/focus/bigmac.html

ECONOMICS & YOU

International Trade


ASK: What is a floatingexchange rate? The value ofeach nation’s currency changesconstantly. Under this mecha-nism, the market determines thevalue of goods and services inother nations’ currencies.


Applying Ideas Have students solve the following exchange rate problems:1. A meal at the Carvery restaurant in London costs £25. How much would the meal cost

in American dollars if the exchange rate were £1 = $1.65? (25 × 1.65 = $41.25)2. A professional baseball player’s salary works out to approximately $33,000. What would

the player receive in Canadian dollars if the exchange rate were U.S. $1 = Canadian$0.69? (33,000 × .69 = Canadian $22,770)

3. A television set sells for ¥54,300 in Tokyo. How much would it cost in U.S. dollars if theexchange rate were ¥105.40 = $1? (54,300 ÷ 105.40 = $515.18)

Critical Thinking Activity

ECON: 13D, 23A, 23F-G, 27A

ECON: 13D, 23G

http://www.economist.com/editorial/freeforall/focus/bigmac.html

483


balance of trade: differencebetween the value of a nation’sexports and its imports

Balance of TradeA currency’s exchange rate can have an important effect on a

nation’s balance of trade. See Figure 18.5. The balance of tradeis the difference between the value of a nation’s exports and itsimports. If a nation’s currency depreciates, or becomes “weak,” thenation will likely export more goods because its products willbecome cheaper for other nations to buy. If a nation’s currencyincreases in value, or becomes “strong,” the amount of its exportswill decline.

When the value of goods leaving a nation exceeds the value ofthose coming in, a positive balance of trade is said to exist. In thiscase, the nation is bringing in more money as payments for goods

Balance of Trade This graph shows how the United States has had a negativebalance of trade for the most part since the 1970s.

United States Balance of Trade

1975 ’77 ’79 ’91 ’93 ’95 ’97’81 ’83 ’85 ’87 ’89 ’99

Bala

nce

of

Trad

e (

in b

illi

on

s o

f d

oll

ars

)+30+15

0–153045607590

105120135150165180195210225240

345

YearsSource: Department of Commerce


For an online update of this graph, visit tx.ett.glencoe.com and click on Textbook Updates—Chapter 18.



IndependentPracticeL1 Illustrating Ideas Ask studentsto research and graph exchange ratesover the last five years for a nation oftheir choice. Have students displaytheir graphs and discuss how varyingexchange rates may have affectedtheir selected nation’s trade with theUnited States. BLOCK SCHEDULING

L2 Summarizing Ideas Encouragestudents to review newspapers andmagazines for articles on the balanceof trade. Have students select two orthree articles to summarize. Call onvolunteers to present their sum-maries to the class.




F INANCING WORLD TRADE

Multiple Choice: In the blank at the left, write the letter of the choice that best com-pletes the statement or answers the question. (10 points each)

6. Money can be converted from one currency to another

a. through the International Monetary Fund. b. through foreign exchange markets.c. only through a fixed rate of exchange. d. at any local store.

7. Under a fixed rate of exchange, a national government sets the value of its currency

a. in relation to a single standard. b. higher than the currencies of other countries.

SCORE

A1. exchange rate

2. devaluation

3. flexible exchange rate

4. depreciation

5. balance of trade

Ba. fall in the price of a currency through the action of

supply and demand

b. price of one nation’s currency in terms of anothernation’s currency

c. arrangement in which the forces of supply anddemand are allowed to set the price of various currencies

d. difference between the value of a nation’s exportsand its imports

e. lowering a currency’s value in relation to other currencies by government order


Name Date Class

18, 2

Section Quiz 18–2

Organize students into groups, and tell groups to imagine they run “international” storesthat take many different currencies. Assign each group a different retailing area—clothingand shoes, groceries, electrical appliances, and so on. Have groups investigate the pricescharged at local stores for five items in their assigned retailing area. Then have groupsuse the exchange rate table in a newspaper business section to find equivalent prices inthe currencies of Canada, Mexico, two South American countries, two African countries,two European countries, and two Asian countries. Direct groups to use their findings tocreate price billboards, showing items, countries, and prices. BLOCK SCHEDULING

Free Enterprise Activity

Page 482: 7A, 13D, 23A, 23F-G,24A

Page 483: 13C-D, 16B, 23A,23F-G, 24A


ECON: 13D, 23A-B, 23F-G, 24C

ECON: 13D, 23A, 24D

ECON: 13D, 23A, 23C, 23F-G, 24C-D

http://www.glencoe.com/sec/socialstudies/economics/econtt2003/tx/chapter18/txtupdate.shtml



484 CHAPTER 18

than it is paying out. A negative balance of trade exists when thevalue of goods coming into a country is greater than the value ofthose going out. This situation is called a trade deficit. The UnitedStates has had a negative balance of trade, or trade deficit, for manyyears beginning in the 1970s.

Trade Deficit—Good or Bad? It is important to realize that acontinued trade deficit is not necessarily a bad thing. A trade deficitcontinues because there are opportunities for foreigners to invest inthe United States economy. For example, many Japanese automobilecompanies have built factories in the United States to satisfy the U.S.demand for Japanese cars. This creates jobs and supporting indus-tries that benefit U.S. citizens.

In addition, because the United States has a stable currencywith a low inflation rate, compared with other industrializedcountries, U.S. dollars are in worldwide demand. Foreignerslike to hold their savings in the form of dollars to protectagainst inflation in their own countries. As a result of both foreign investment and foreign demand for holding dollars,United States citizens can benefitfrom importing more goods thanwe have to export.

Understanding Key Terms1. Define exchange rate, foreign exchange mar-

kets, fixed rate of exchange, InternationalMonetary Fund (IMF), devaluation, flexibleexchange rates, depreciation, balance of trade.

Reviewing Objectives2. Why do nations need a system of currency

exchange rates?

3. How do the forces of supply and demand deter-mine flexible exchange rates?

4. Graphic Organizer Create a diagram like the one in the next column to explain howexchange rates affect the balance of trade.

Applying Economic Concepts5. Flexible Exchange Rates In what ways does

depreciation of a country’s currency improvethat country’s competitiveness in foreign trade?




2

6. Synthesizing Information How does aweak American dollar affect you as a con-sumer? How does a strong American dollaraffect you?

484

ReteachHave students write a summary

of the section using the Terms toKnow listed on page 479.

1. All definitions can be found in the Glossary.2. to engage in international trade3. If the amount of dollars wanted by Japanese

exporters is greater than the quantity suppliedby Americans who buy Japanese goods, thedollar becomes more expensive in relation tothe yen; it will take more yen to equal one dollar.Conversely, if the amount of dollars demandedby Japanese exporters is less than the quantitysupplied by American buyers, the dollar will be

less expensive in relation to the yen.4. Weak currency→more exports→favorable bal-

ance of trade; strong currency→fewerexports→negative balance of trade

5. Depreciation of a country’s currency makes thatcountry’s exports cheaper, therefore making thecountry more competitive in foreign trade.

6. Most students will note that a weak dollar willmean they pay more for foreign goods, while astrong dollar will mean that they pay less.

Ask students to explain why a“strong” dollar would cause a tradedeficit.

Name Date Class

18, 2

exchange rate The price of one nation’s currency in terms of another nation’s currency (page 479)

foreign exchange markets Markets dealing in buying and selling foreign currency for businesses thatwant to import goods from other countries (page 480)

fixed rate of exchange System under which a national government sets the value of its currency in rela-tion to a single standard (page 480)

International Monetary Fund (IMF) Agency whose member governments once were obligated to keeptheir foreign exchange rates more or less fixed; today it offers monetary advice and provides loans to devel-oping nations (page 481)

devaluation Lowering a currency’s value in relation to other currencies by government order (page 481)

flexible exchange rates Arrangement in which the forces of supply and demand are allowed to set theprice of various currencies (page 482)

depreciation Fall in the price of a currency through the action of supply and demand (page 482)

balance of trade Difference between the value of a nation’s exports and its imports (page 483)


F INANCIAL WORLD TRADE


Have you ever thought about how businesses purchase goods from foreign countries? How doesa business in the United States use U.S. dollars to purchase goods from Japan where the mediumof exchange is the yen?

This section focuses on exchange rates, or how the price of one nation’s currency is expressed in

KEY TERMS


ECON: 24B

ECON: 13D, 24D

485

485485

■ Member of John F.Kennedy’s Councilof EconomicAdvisers, 1961–1962

■ Awarded the NobelPrize in Economicsin 1981

■ Author/editor of 16 books and morethan 400 articles oneconomics

■ Holds the positionof SterlingProfessor ofEconomicsEmeritus at YaleUniversity

Nearly 30 years ago, econo-mist James Tobin suggested

that a tax should be imposed onforeign exchange transactions todiscourage speculation in the for-eign exchange markets. With therise of the global economy andthe Internet, economists arereviewing the issue of foreignexchange speculation—and the“Tobin tax”—once again. In thefollowing paragraphs, Tobinexplains what the Tobin tax isand how it would work.

“There are 1.3 trillion dollars a day in foreign exchange transac-tions. Those transactions would betaxed, at a very low rate, somethinglike one tenth of one percent perdollar per transaction. The taxeswould be levied by each country ontransactions that originate in thecountry, and collected by the usualtax authority of that country.

If people are involved in makinga lot of transactions every day,every week, they would have to paythe tax a lot of times. So they are

discouraged from doing that just bythe existence of the tax.”

Even though there is discus-sion among economists aboutthe Tobin tax, Tobin himself isdoubtful that it will ever beimplemented:

“I am not optimistic about that.I don’t think the financial commu-nity, including ministers of financein major countries and the centralbanks of those countries, have anyuse for those taxes. They don’t wantit. . . . The International MonetaryFund is not going to go for it.

People do not like to be taxed.They think it is an interferencewith the free market.”Checking for Understanding

1. What is the Tobin tax? What is itspurpose?

2. Why, according to Tobin, will theTobin tax not be implemented?

James TobinECONOMIST (1918–)

BackgroundSome of Tobin’s students went

on to hold influential governmentpositions. Janet Yellen studied withTobin at Yale University in the late1960s and early 1970s. She laterserved on the Federal ReserveBoard of Governors from 1994 to1996. She also was the chair ofPresident Clinton’s Council ofEconomic Advisers from 1997 to1999. (Inform students that theymay read more about Janet Yellenon page 368.)

Answers to Checking for Understanding1. a tax of about one-tenth of 1 percent per dollar on foreign exchange transactions; to

discourage speculation in foreign exchange markets2. because finance ministers of major countries, the central banks of these countries,

and the IMF are not supportive of such a tax

Ask for volunteers to read aloudfrom the excerpts. Then point outthat some economists haveexpressed opposition to the Tobintax because they believe it wouldharm growth in developing nationsby deterring foreign investment.Have students discuss how foreigninvestment might be discouraged byTobin’s tax.

Tobin served as an officer inthe U.S. Navy during World WarII. The author Herman Wouk wasa friend and fellow officer ofTobin’s in the war years. Woukmodeled one of the characters inhis novel The Caine Mutiny (1951)on Tobin.

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ECON: 23A

ECON: 19A




MultimediaDaily Focus Transparency 81Vocabulary PuzzleMaker CD-ROM Interactive Tutor Self-Assessment SoftwareExamView® Pro Testmaker

MindJogger VideoquizPresentation Plus!


486 CHAPTER 18

Terms to Know• tariff• revenue tariff• protective tariff• import quota• embargo• protectionists• General Agreement on Tariffs

and Trade (GATT)• World Trade Organization

(WTO)• North American Free Trade

Agreement (NAFTA)• European Union (EU)

Reading Objectives1. How can a nation restrict

imports?

2. What are three argumentsfor and against free trade?

3. What are some currentinternational and regionaltrade agreements?

READER’S GUIDE

To trade or not to trade? The difficulties that different cur-rencies cause are only one problem of world trade. Thereare also natural barriers, which include the differences in

languages and cultures between various trading partners. As youread this section, you’ll learn that some nations may set restric-tions to discourage or limit trade.

Three Ways to Restrict ImportsThree major barriers to world trade are tariffs, quotas, and

embargoes. The most commonly used barrier to free trade is thetariff, a tax on imports.

BUSINESS WEEK, JANUARY 18, 1999

The mood was giddy just about everywhere on theContinent as Europe’s new currency, the euro, made its grand debut. . . . After years of skepticism from critics on the Continent and abroad, Europe has its common currency.

The long-term effects of melding an 11-nation, $6.5 trillion, 290 million-person region into one economic and financial bloc are giving Continental Europe new [power]. Companies around the worldare eager to exploit what they hope will become a true single market.

3

tariff: tax placed on an importedproduct

486

OverviewSection 3 explains how tariffs,

quotas, and embargoes can restrictimports; outlines the main argu-ments for and against free trade;and discusses the major world andregional trade agreements.


Preteaching VocabularyCall on students to explain how

each of the Terms to Know isrelated to international trade.

Vocabulary PuzzleMaker

READER’S GUIDE


Available as blackline master.


V ARYING DEGREES OF FREE TRADE

1. Name an example of a restricted free-trade agreement.

2. When might a country use a quota instead of a tariff?

8181

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ECON: 14A-B, 15A-B, 24A

487


revenue tariff: tax on importsused primarily to raise govern-ment revenue without restrictingimports

protective tariff: tax on importsused to raise the cost of importedgoods and thereby protectdomestic producers

import quota: restrictionimposed on the number of unitsof a particular good that can bebrought into the country

embargo: complete restrictionon the import or export of a par-ticular good

protectionists: people whoargue for trade restrictions to protect domestic industries

Tariffs Two types of tariffs can be applied to an import. A revenuetariff is used primarily to raise government revenue withoutrestricting imports. Although tariffs today account for less than 2 percent of the federal government’s income, they were themajor sources of federal funding until the early 1900s.

A protective tariff is one designed to raise the cost of importedgoods and thereby protect domestic producers. Some protective tar-iff rates have been as high as 62 percent of the value of the importedgoods.

Quotas An alternative method for restricting imports is thequota system. An import quota usually restricts the number ofunits of a particular good that can be brought into the country.The United States has placed quotas on imports of sugar, shoes,shirts, and cloth.

Embargoes An embargo is a complete restriction on the importor export of a particular good. Often embargoes are enacted forpolitical reasons. For example, in 1998 an embargo was orderedagainst Serbia for its actions in neighboring Kosovo.

The United States has also ordered embargoes on goods fromcertain countries. An embargo on trade with Cuba has been inplace for more than three decades because that country’s leader isCommunist.

Arguments AgainstFree Trade

The pros and cons of trade restrictions arestill often the subject of intense public debate.Protectionists are those who argue for traderestrictions. There are three main argumentsfor trade protection.

Job Security Protectionists argue that manydomestic workers will be unemployed if foreigncompetitors sell goods at lower prices thanAmerican firms. In the 1980s, for example,American steel mills laid off many workersbecause of foreign competition.

National Economic Security Protectionistsargue that certain industries are crucial to theeconomy of the United States. They believe that

Job Description■ Inspect cargo

and collectappropriateduties or fees

■ Ensure that allgoods enteringthe UnitedStates complywith U.S. laws

Qualifications■ U.S. citizen at

least 20 yearsof age

■ Bachelor’sdegree, civilservice exam

Average Salary: $38,400

Job Outlook: Average

CAREERSCustoms Agent

—Occupational Outlook Handbook, 1998–99



L ECTURE LAUNCHERLIn December of 1999, 25,000 peaceful marchers met in Seattle to protest the World TradeOrganization (WTO). Environmentalists and labor unions, joined with a variety of other groupsto argue that if the WTO policies prevail, America and other nations will lose their prerogativeto restrict imports. Protesters warned that under WTO policies it is not permissible to blockimports for the purpose of protecting domestic industry, or even on the basis of the way agood is produced. That could mean the end of turtle safe shrimp nets and child-labor protec-tion. When some of the protesters began smashing in store windows police used tear gas andpepper spray, and arrested about 500 demonstrators. What are some of the natural barriersto trade? How have nations been able to discourage or limit trade?

I. Three Ways to Restrict Imports

A. Tariffs or taxes on imports.

B. Revenue tariffs raise income without restricting imports.

C. Protective tariffs raise the cost of imported goods to discourage people from buyingimports.

D. Import quotas limit the number of units of a particular good that can be imported.

E. Embargoes are complete restrictions on importing or exporting certain goods.

F. Embargoes can also be applied to a specific country.


18-3

PAGES 486–487


EmbargoesIn 1986 Congress passed an

embargo on trade with SouthAfrica in response to that country’ssystem of apartheid. In the 1990s,embargoes on a specific product—yellowfin tuna—were orderedagainst several countries, includ-ing Mexico, Panama, Italy, andJapan, because these countriesdid not meet the “safe dolphin”requirement.

Hearing Disability Students with hearing problems may have trouble following the argu-ments for and against free trade. During discussions of free trade, ensure that the point ofview—for or against—is well established each time that an opinion is described. This couldbe achieved by simple hand signals—holding out the right arm when a “for” argument ispresented and holding out the left arm for “against.”



Guided PracticeL1 Understanding Ideas Write“Free Trade” on the board. Beneaththese words, draw a two-columnchart with “For” and “Against” as column headings. Call on volunteersto identify and explain the argumentsfor and against free trade. Enterresponses in the appropriate column.Then have students use the informa-tion as the basis for a debate on thefollowing: Resolved—Free tradeshould be adopted immediately.

Page 486: 13D, 14A, 17A, 23A,24A

Page 487: 14A, 15A-B, 17B, 21A,24A


ECON: 14A, 23A, 23D, 23F

ECON: 14B, 23A

ECON: 14A, 15A, 21A-B



488 CHAPTER 18

General Agreement on Tariffsand Trade: trade agreementunder which countries met peri-odically to negotiate tariff reduc-tions that were mutuallyadvantageous to all members

World Trade Organization:world’s largest trade agreementcurrently among 141 nations

entire industries, such as oil, should be protected against foreigncompetition. See Figure 18.6.

Infant Industries Protectionists believe that tariffs and quotasare needed as temporary protection for new, infant industries. Ifforeign competition is restricted for a time, a young industry maybecome strong enough to compete in the world market.

Arguments For Free TradePeople who argue for free trade believe that exports and imports

should not be restricted. There are three main arguments in sup-port of free trade.

Improved Products Foreign competition encourages UnitedStates firms to improve their technology and production meth-ods. As you learned in Chapter 7, better technology increases theproduction and supply of goods and services available, whichraises our standard of living.

Export Industries American workers involved in export indus-tries are hurt or may become unemployed when trade restrictionsare implemented. One reason is that when the United Statesimports fewer goods, there is less American money available out-side the United States to buy American exports. Another reasonis that when the United States restricts imports, other nationsmay retaliate and restrict their own imports.

Specialization and Comparative Advantage Those infavor of free trade admit that too much economic specializationallows the country to be at the mercy of world demand. However,some specialization benefits consumers because comparativeadvantage in production results in more goods at lower prices.

Trade AgreementsAfter World War II, numerous bilateral trade agreements were

brought together in the General Agreement on Tariffs andTrade (GATT). Under GATT, countries met periodically to nego-tiate tariff reductions that were mutually advantageous to allmembers. At the end of 1993, all 117 nations then belonging toGATT signed a major treaty establishing the World TradeOrganization (WTO). The creation of the WTO constitutes themost far-reaching global trade agreement in history.

National SecurityProtectionists believe thatcertain industries, such asthose that are energy-based,should be protected so thatthe United States is not vul-nerable to other nationsduring times of crises.

18.618.6

488

IndependentPracticeL2 Research Paper Have studentsresearch trade embargoes imposedby the United States. Direct studentsto select one embargo on which towrite a research paper. Call on vol-unteers to share their papers withthe class. BLOCK SCHEDULING

For use with the textbook pages 486–489

R ESTRICTIONS ON WORLD TRADE

FILLING IN THE BLANKS

Directions: Use your textbook to fill in the blanks using the words in the box. Some words may be usedmore than once.

embargo revenue tariff protectionistsprotective tariff General Agreement on Tariffs and Trade (GATT) tariffbarriers import quota World Trade Organization (WTO)quota system national economic security imports and exportscomparative advantage North American Free Trade Agreement (NAFTA) European Union (EU)

Introduction/Three Ways to Restrict ImportsThere are three major barriers to world trade: the 1 __________________________ , the quota, and the embargo.

A 2 __________________________ is used primarily to raise income without restricting imports. While a

3 __________________________ is designed to raise the cost of imported goods and thereby protect domestic

products. An alternative method for restricting imports is the 4 __________________________. An

5 __________________________ restricts the number of units of a particular good that can be brought into the

country. An 6 __________________________ is a complete restriction on the import or export of a particular good.

Arguments Against Free TradeSince World War II, the trend has been to relax 7 __________________________ to world trade. However,

Name Date Class

18-3


Trade War Over Beef During the 1990s, the European Union (EU) placed a ban on theimport of American beef treated with growth hormones. Hormone-treated beef, EU officialsstated, might pose a health risk. Even though the World Trade Organization (WTO)declared that there was no scientific evidence to support this claim, the EU refused to liftthe ban. Rather, the EU offered to lower tariffs on other American goods equal to the dollaramount lost because of the ban on beef. In response, the U.S. government imposed hightariffs on an array of European imports, such as cheese, paté, and cashmere sweaters.





ECON: 14A, 21A-B, 23A, 23C, 24B, 24D

ECON: 14A, 21A, 23A

489489


North American Free TradeAgreement: trade agreementdesigned to reduce tariff barriersbetween Mexico, Canada, andthe United States

European Union: organizationof European nations whose goalis to encourage economic integra-tion as a single market

Regional Trade Agreements In many parts of the world,regional trade agreements have been reached in order to increasefree trade. Certain nations in Southeast Asia as well as in Centraland South America have such regional trade agreements. TheUnited States formed one with Canada and Mexico called theNorth American Free Trade Agreement (NAFTA). The U.S.Congress approved NAFTA in 1993. Since then, trade hasincreased among the 3 nations to the general benefit of all.

Perhaps the most important regional trade agreement in theworld today is the European Union (EU). Currently, the EU con-sists of France, Germany, Great Britain, Denmark, Italy, Spain,Greece, Portugal, Luxembourg, Belgium, the Netherlands, Finland,Sweden, Austria, and Ireland. Other countries have applied tobecome members of the EU. On January 1, 1993, the EU beganeliminating most of its restrictions on trade among its membercountries. On January 1, 1999, 11 of the 15 member nationsstarted putting into place the euro as a common currency. Those11 nations and Greece abandoned their own national currenciesas of January 1, 2002. Eventually, the EU will have a commoncurrency for over 350 million European consumers. It will rivalthe United States in market size. See pages 494–495.

Understanding Key Terms1. Define tariff, revenue tariff, protective tariff,

import quota, embargo, protectionists, GeneralAgreement on Tariffs and Trade, World TradeOrganization, North American Free TradeAgreement, European Union.

Reviewing Objectives2. How can a nation restrict imports?

3. What are three arguments for and against freetrade?

4. Graphic Organizer Create a chart like theone below to list and describe at least threetrade agreements.

Applying Economic Concepts5. Free Trade Assume you are (a) a startup com-

puter software producer, (b) the owner of aretail dress shop, (c) a steelworker whose com-pany just closed, (d) a student working in fast-food service. Write a short argument for oragainst free trade from the standpoint of eachindividual.

6. Summarizing Information Research thebenefits and costs of the North AmericanFree Trade Agreement (NAFTA) on theInternet. Scan several articles to identifywhich groups support NAFTA and whichgroups oppose the trade agreement.Evaluate the reasons each group gives forsupporting or opposing NAFTA.




3

Agreement Purpose



ReteachCall on students to write two

summary paragraphs, one on meth-ods of restricting imports and oneon the arguments for and againstfree trade.

1. All definitions can be found in the Glossary.2. through tariffs, quotas, and embargoes3. arguments for: improved quality through com-

petition, health of export industry, comparativeadvantage through specialization; argumentsagainst: loss of job security, need to protectinfant industries, need to protect national eco-nomic security

4. Students should include three of the following:

GATT—to establish tariff reductions that aremutually advantageous to all members; WTO—replaced GATT, to reduce tariffs; NAFTA—toincrease free trade among United States,Canada, and Mexico; EU—to eliminate traderestrictions among member nations

5. Answers should demonstrate an understandingof the arguments for and against free trade.

6. Encourage students to share their findings.

Ask students if they think thedevelopment of large regional tradeagreements such as NAFTA and theEuropean Union will encourageprotectionism or free trade. Havethem explain their answers.

Name Date Class

18, 3

tariff Tax placed on an imported product (page 486)

revenue tariff Tax on imports used primarily to raise income without restricting imports (page 487)

protective tariff Tax on imports used to raise the cost of imported goods and thereby protect domesticproducers (page 487)

import quota Restriction imposed on the value of or on the number of units of a particular good that canbe brought into the country (page 487)

embargo Complete restriction on the import or export of a particular good (page 487)

protectionists People who argue for trade restrictions to protect domestic industries (page 487)

General Agreement on Tariffs and Trade Trade agreement under which countries met periodically tonegotiate tariff reductions that were mutually advantageous to all members (page 488)

World Trade Organization World’s largest trade agreement among 134 nations (page 488)

North American Free Trade Agreement Trade agreement designed to reduce tariff barriers betweenMexico, Canada, and the United States (page 489)

European Union Organization of European nations whose goals is to encourage economic integration asa single market (page 489)




Do you remember learning about the Boston Tea Party in American history class? Do you remember why the colonists thought the tax on tea imposed by England was unfair?

KEY TERMS


Name Date Class

18, 3


Multiple Choice: In the blank at the left, write the letter of the choice that best com-pletes the statement or answers the question. (10 points each)

6. The most commonly used barrier to free trade is

a. an embargo. b. a tariff.c. an import quota. d. a trade agreement.

7. An embargo is often used

a. to raise the cost of imported goods. b. to restrict the number of units of a particular imported good.

SCORE

A1. revenue tariff

2. protective tariff

3. import quota

4. embargo

5. protectionists

Ba. complete restriction on the import or export of a

particular good

b. tax on imports used primarily to raise income without restricting imports

c. people who argue for trade restrictions

d. tax on imports used to raise the cost of importedgoods and protect domestic producers

e. restriction imposed on the value of or on the number of units of a particular good that can beimported


Section Quiz 18–3

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ECON: 14A-B, 23A, 24B, 24D

ECON: 14B, 23D

SPOTLIGHT

490 CHAPTER 18

SPOTLIGHT ON THE ECONOMY

Mexico’s economy is undergoing a stun-ning transformation. Five years after the

launch of the North American Free TradeAgreement (NAFTA), it is fast becoming anindustrial power. Free trade with the U.S. andCanada is turning the country from a mereassembler of cheap, low-quality goods into areliable exporter of sophisticated products,

from auto brake sys-tems to laptop com-puters. Since 1993,exports have morethan doubled, to$115 billion.Manufactured goodsnow make up closeto 90% of Mexico’ssales abroad, upfrom 77% five yearsago. . . .

Mexico’s indus-trial surge also meansthat North America iswinning back thou-

sands of jobs that had been lost to Asia as U.S.and Canadian companies shifted production to

lower-cost pro-duction sitesin the lastdecade. Now,for example,IBM is makingcomputercomponentsin Guadalajarathat were for-merly made in Singapore. And clothing retailerssuch as Gap Inc. and Liz Claiborne are increas-ingly buying garments from Mexican contractors,who can offer faster delivery than Asians. . . .

But the makeover of Mexican industry goesfar beyond export and investment numbers.From small entrepreneurs to executives of thecountry’s new multinationals, Mexican man-agers are becoming more confident as theyrespond to heightened competition at homeand to the tough demands of foreign customers.—Reprinted from December 21, 1998 issue of Business Week by special

permission, copyright © 1998 by The McGraw-Hill Companies, Inc.

Think About It1. How has NAFTA

affected Mexico’sexports?

2. How has NAFTAaffected Mexico’sentrepreneurs?

Check It Out! In this chapter you learned aboutregional trade agreements. In this article, read to learnhow NAFTA has helped to create the world’s newestindustrial power.

Mexican MakeoverMexican Makeover

490

Point out that NAFTA met withconsiderable opposition in theUnited States. Encourage studentsto research the arguments pre-sented by people against NAFTA.Call on volunteers to present theirfindings to the class. Then ask stu-dents to discuss whether they thinkopposition to NAFTA is justified.

Answers to Think About It

One problem resulting fromNAFTA is traffic congestion atborder crossings betweenMexico and the United States.The crossing point at Laredo, forexample, sees about 5,000 cargotrucks each day. The line of traf-fic waiting to enter the UnitedStates often stretches five miles(8 km), and Mexican drivers facea wait of three hours or more justto get to the border checkpoint.

1. Since 1993, Mexican exports have more than doubled to $115 billion.2. They are becoming more confident in their ability to compete.

To find up-to-date news andanalysis on the economy, busi-ness, technology, markets,entrepreneurs, investments,and finance, have studentssearch feature articles and spe-cial reports on the BusinessWeek Web site.www.businessweek.com

ECON: 14A-B, 23A, 24D

ECON: 14A-B

http://www.businessweek.com

491


The Benefits of WorldTrade

• Trade is important because imports supply us withmany goods and natural resources, and manyAmerican workers are employed in industries thatexport products abroad.

• Absolute advantage is the ability of one country,using the same amount of resources as anothercountry, to produce a particular product at a lowerabsolute cost.

• Comparative advantage is the ability of a countryto produce a product at a lower opportunity costthan another country.

Financing World Trade

• Foreign exchange markets allow businessesaround the world to exchange their currency foranother currency.

• Under a fixed exchange rate, a nation’s currencywas tied to a certain standard—usually the amountof gold the nation held in reserve.

• Under a flexible exchange rate system, the forcesof supply and demand are allowed to set the priceof various currencies.

• The rate at which a currency is being exchangedcan have an important effect on a nation’s balanceof trade.

• If a nation’s currency depreciates, the nation willlikely export more goods and services. If a nation’scurrency increases in value, the amount of itsexports will decline.

Restrictions on WorldTrade

• Three major barriers to world trade are tariffs,quotas, and embargoes.

• Protectionists are in favor of trade restrictions toprotect American jobs, to protect national security,and to protect infant industries.

• Those who argue for free trade believe that compe-tition results in better products at lower prices andthat restricting imports hurts export industries.

• Recent trade agreements such as the World TradeOrganization, the North American Free TradeAgreement, and the European Union have workedto lower trade restrictions.

C H A P T E R

SECTION 2

SECTION 3

Chapter Overview Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.comand click on Chapter 18—Chapter Overviewsto review chapter information.

18

SECTION 1

Use the Chapter 18 Summary to preview, review, condense, orreteach the chapter.

Preview/ReviewVocabulary PuzzleMaker

CD-ROM reinforces the key termsused in Chapter 18.

Interactive Tutor Self-Assess-ment Software allows students toreview Chapter 18 content.

CondenseHave students listen to the

Chapter 18 Audio Program (alsoavailable in Spanish) in the TCR.Assign the Chapter 18 Audio Pro-gram Activity and give students theChapter 18 Audio Program Test.

ReteachHave students com-

plete Reteaching Activity 18 in theTCR (Spanish Reteaching Activitiesare also available).

C H A P T E R 18

ECONOMICS & YOU

International Trade



International Trade Have students track what they wear for one week. Ask them toexamine the clothes labels to see where each item of clothing was produced. Have themnote this information in their journal. At the end of the recording period, have students tallytheir individual results to build a class record. Then ask them to present this information invisual form—a graph or map, for example. Call on students to display their visuals andnote the most often mentioned countries.

Economics Journal

Page 490: 14A-B, 23A, 23DPage 491: 7A, 13A, 13C-D, 14A-B,

23A, 24A

Student Edition TEKSECON: 13C, 23A, 23C, 23F, 24C-D


CHAPTER 18Assessment and ActivitiesCHAPTER 18

Assessment and Activities

Identifying Key Terms

Write the letter of the definition in Column Bthat correctly defines each term in Column A.

Column A1. absolute advantage2. comparative advantage3. embargo4. protectionists5. balance of trade6. devaluation7. depreciation8. revenue tariff9. exchange rate

Column Ba. price of one country’s currency in relation

to another country’s currencyb. lowering of a currency’s value in relation

to other currenciesc. complete restriction on the import or

export of a particular goodd. difference between the value of a nation’s

exports and its imports

e. ability of a nation to produce a product ata lower opportunity cost

f. drop in the price of a currency in responseto supply and demand

g. ability of a country to use the sameamount of resources as another to pro-duce a product at less cost

h. those who oppose the relaxation of traderestrictions

i. tax on imports to raise money

Recalling Facts and IdeasSection 11. How does a country determine whether it

has a comparative advantage in the pro-duction of certain goods?

2. What does the United States gain frominternational trade?

3. “America can produce more DVDs per laborhour than can any other country in theworld.” Is this an example of an absoluteadvantage or a comparative advantage?

Section 24. Why are foreign exchange markets

necessary?5. Why was it difficult to maintain a system

of fixed rates of exchange?

Section 36. What is the difference between a revenue

tariff and a protective tariff?7. What are three arguments against free

trade?8. What is also affected when restrictions are

put on imports?

18

Self-Check Quiz Visit the Economics Today and Tomorrow Web site at tx.ett.glencoe.comand click on Chapter 18—Self-Check Quizzesto prepare for the Chapter Test.

492 CHAPTER 18

492

Identifying KeyTerms1. e 6. b2. g 7. f3. c 8. i4. h 9. a5. d

Recalling Facts and Ideas1. by determining its own opportu-

nity costs and those of othercountries producing the samegoods

2. products it cannot produce andraw materials it does not have;many industries then exportmuch of what they produce

3. absolute advantage4. so that individuals and busi-

nesses can easily and quicklyconvert one currency to another

5. because the international eco-nomic climate was constantlychanging

6. A revenue tariff raises income. Aprotective tariff limits imports toprotect domestic industries.

7. loss of job security, need to pro-tect infant industries, need to pro-tect national economic security

8. exports

Thinking Critically1. Most students will note that American

exports should increase, becauseAmerican products would be cheaper inforeign markets.

2. Tariff placed on imports raises theirprices→prices of domestic productsremain low→protected industries recoupcosts before they must compete with thoseof other nations.

Have students visit theEconomics Today and TomorrowWeb site at ett.glencoe.com toreview Chapter 18 and take the Self-Check Quiz.

MindJogger Videoquiz

Use MindJogger to reviewChapter 18 content.

tx.ett.glencoe.com

http://www.glencoe.com/qe/qe59.php?qi=1559&ch=18

http://www.glencoe.com/qe/qe59.php?qi=1559&ch=18

CHAPTER 18Assessment and ActivitiesCHAPTER 18

Assessment and Activities

493


Thinking Critically1. Making Predictions If the value of the dol-

lar fell in relation to other currencies,what would you expect to happen toAmerican exports?

2. Understanding Cause and Effect Create adiagram like the one below to show howprotecting infant industries will allowthem to grow.

Applying Economic ConceptsInternational Trade Although internationaltrade accounts for only about 13 percent of the American economy, it affects allAmericans. To understand how interna-tional trade affects you, try to describewhat your world would be like if interna-tional trade were outlawed. You can do this by writing a list of all the products you would not be able to purchase orwhose price would go up dramaticallywithout international trade.

Cooperative Learning Project

Working in groups of four, concentrateon one or more countries from the followinglist:■ Mexico ■ Kenya■ Canada ■ Morocco■ JapanEach member of the group will research oneof the following items:■ The size of the international sector within

each country (i.e., the percentage of GDPaccounted for by imports or exports)

■ The natural resource base of the nation

■ The top three items that are exported■ The top three items that are imported

Each group will decide what the relation-ship is between the natural resource base andwhat is exported and imported. Finally, eachgroup will write a summary of how life in eachcountry would be different if internationaltrade were prohibited.

Reviewing SkillsApplying the Writing Process There are virtuallyno restrictions on trade within the 50 states,mainly because the Constitution of the UnitedStates forbids it. Write a one-page descriptionof problems that might have arisen if theConstitution had been silent on trade amongthe states. Include in your paper the section orsections in the Constitution that prohibit atleast one restriction on international trade.

TechnologyActivityDeveloping Multimedia Presentations Studythe list of topics below. Choose one of thetopics and explain how you would use atleast three types of media in a presentationto best teach the topic to your class.1. U.S. Exports and Imports2. Foreign Exchange Markets3. U.S. Balance of Trade4. North American Free Trade Agreement

Use the Internet to find out more aboutinternational trade. Type international tradeinto your search engine. From the list of Websites that appears on the monitor, select at leastthree. Read and summarize your findings.

Reviewing SkillsCall on students to read and dis-

cuss their descriptions.

Technology ActivityEnsure that students choose a

variety of media for their selectedtopic.

Analyzing theGlobal Economy

Have students share the resultsof their Internet search with therest of the class.

ASK: The value of the cur-rency of the nation you plan tovacation in falls against thedollar. How might this affectyour vacation? A dollar will buymore of the foreign currency,essentially making the vacationcheaper.

Chapter BonusTest Question

Page 492: 5B, 12A, 13A-D, 14A-B,17B, 23A, 24A

Page 493: 12B, 13B-D, 14A-B,20A-B, 23A, 23C, 23F,24B, 27A


Applying EconomicConcepts

Have students share and compare theirlists.

Cooperative LearningProject

Suggest that students combine their sum-maries in a booklet titled “InternationalTrade.”

ECON: 13D

494

The European Union The European Union (EU) is an organization of 15 independent European nations whose goal is to create a unified and strong market. The mapbelow shows the value of trade between the EU and other world regions.

North AmericaImports from EU � $172.1 million

Exports to EU � $177.4 million

Latin AmericaImports from EU � $53.4 million


Beginning January 1, 2002, the currency usedin all EU member countries except Denmark,Great Britain, and Sweden is the euro. After2002, coins in the national currencies of the12 countries adopting the euro will have novalue. People will be able to exchange theirbills for euros for many years, however.

494

Have students locate the originalmembers of the EuropeanEconomic Community (EEC)—France, West Germany, Italy,Belgium, the Netherlands, andLuxembourg—on a world map.

Have students read the informa-tion in the boxes. Then point outthat one area of the world is notaddressed in the map—the non-EUcountries of Western Europe.Inform students that EU exports tothis area total $131.6 million, whileimports from this area run about$113.3 million. Have students usethese figures to calculate the valueof the EU’s total international trade.(about $1.6 trillion)

The European Union In 1957 six European countries formed the European EconomicCommunity (EEC), known informally as the Common Market. In 1960, many of thesecountries plus others that did not belong to the common market created the EuropeanFree Trade Association (EFTA). In 1993, most of these countries joined the EuropeanUnion (EU), created by the Maastricht Treaty. Three more countries—Austria, Finland, andSweden—joined the EU in 1995.


ECON: 14B

ECON: 13B-C, 14B, 23F-G

ECON: 13B

Answers to Thinking Globally

1. Surplus: Latin America, Russia and Eastern Europe; Deficit: North America, Africa,Asia

2. Asia

495

Thinking Globally1. With which regions of the world does the EU have a trade surplus? A trade deficit?

2. Which region is the EU’s biggest trade partner?

AsiaImports from EU � $253.6 million


Russia and EasternEurope

Imports from EU � $117.7 millionExports to EU � $94.6 million

CurrentEU Members

FranceGermanyItalyBelgiumNetherlandsLuxembourgAustriaDenmarkFinlandGreeceIrelandPortugalSpainSwedenGreat Britain

Nations SeekingAdmission to EU

EstoniaLatviaLithuaniaPolandCzech RepublicSlovakiaSloveniaHungaryBulgariaRomaniaTurkeyCyprusSwitzerland

AfricaImports from EU � $56.1 millionExports to EU � $63.2 million

495

Have students answer the ThinkingGlobally questions.

Inform students that some peo-ple fear the growth of the EU,believing it will harm the UnitedStates economy. Others suggest thatthere is nothing to fear from thegrowth of the EU, because it will bea free market like the United States.Have students agree or disagreewith these views.

One of the attractions of for-eign travel for some people is thechance to buy goods, such asliquor, perfume, and jewelry, freeof various import duties. EU citi-zens do not have this opportunitywhen traveling to other EU coun-tries. The EU banned all duty-freesales on intra-EU trips in July1999.

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ECON: 14A-B, 23A, 23D

ECON: 14A

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