I: Globalization: A: Technological advances: phone, computers, communications, World Wide Web

1. International Trade is trade among the nations of the world.The world is getting smaller due to technology and trade between nations is the catalyst to lifting humanity out of poverty. I: Globalization: A: Technological advances: phone, computers, communications, World Wide Web B: Comparative Advantage: ability for one country to produce a good at a relatively lower cost than another country can.

2. Look carefully at Figure 18.1 why do you think the World Wide Web spread more quickly than the three earlier inventions? Answer below • II: Governments and Trade • A: Policy: plan of action on an issue- economically it is a plan on international trade • Exports: something that is produced in the US and then shipped elsewhere. • Imports: Something produced elsewhere and shipped in the US • III: Barriers to Trade • A: Protectionist: the govt policy seeks to limit imports • B: Tariffs:a tax on a good that is imported • C: Quotas: Limit on the quantity of a particular good during a certain period of time.

3. III: Free trade: Lifting of trade barriers • A: In 1944, United States and other nations agree to rebuild global economy on free trade. • B: IMF (International Monetary Fund) and the World Bank were created DEFINE EACH • C: IMF: they foster monetary policy and operations • D: World Bank: provides assistance to the third world developing countries to help reduce poverty and help standard of living. • E: GATT ( General Agreement on Tariffs and Trade) 117 countries: • F: In 1995, countries under GATT updated and became members of the WTO (World Trade Organization) What does the WTO do?

4. IV: Regional Agreements • A: European Union: • 1. 2005 25 countries in Europe freely trade with one another • 2. build a single market in Europe • 3. own currency the Euro • 4. most important agreement in Europe • B: NAFTA (North American Free Trade Agreement) • 1. free trade between US, Canada, and Mexico • 2. reduced barriers for trade • 3. Processed foods and beverages are exported • 4. 30% of exports go to Canada and Mexico

5. C: CAFTA-DR ( Central American –Dominican Republic Free Trade Agreement) • 1. comprehensive trade agreement • 2. First step to Free Trade Area of the Americas United States Trade with NAFTA Countries, 2005-2007, in Billions of Dollars

6. V: Financing Trade • A: A nation’s balance of trade can either be a surplus or deficit. • 1. Trade Surplus: When the value of goods leaving a nation is greater than those entering. • 2. Trade Deficit: When the value of goods coming in is greater than those leaving. • B: The US uses the dollar as a medium of exchange • C: Foreign Exchange rate: what the price of one nation’s currency is in term’s of another country’s currency. • D: Most nations’ use a flexible exchange rate or one that allows for the supply and demand of goods to set the price of various currencies. This means a currency’s price may change every day.

7. Explain the effects a trade deficit and trade surplus has on an economy.How does the exchange rate effect a country’s balance of trade? • Answer below: When a country’s currency increase in value (increase in the exchange rate) the currency is considered strong. That means that people in other countries find the exports from that country are expensive and trade tends to decline. If the currency depreciates in value then the opposite occurs. Exports are less expensive and trade increases.

8. How does supply and demand affect global markets? • The laws of supply and demand dictate how the currency exchange rates effect global business with something called a floating exchange rate. A floating exchange rate means that currency values "float" or fluctuate depending on how much supply is being demanded from that country in comparison to the other country with which it is doing business. It is the global market that dictates which country's dollar is worth the most. • It is the value of one nation's currency in comparison to another or to put it another way, if you took one U.S. dollar to Canada, would you be able to buy more than one item at a Dollar Store or not even one item?

9. Governments can play a part in how the currency exchange rates affect global business as well. Many governments will put into place certain actions that will purposely devalue their own dollar. Why would they do this? It seems counterproductive, but actually it isn't. By deflating the value of their own dollar, that country will cause an increase in the demand for their supplies, kind of like when a store puts on a sale and attracts a crowd to their store. • A few years ago, a struggling Brazil did just that, they devalued their currency. As a result they attracted a plethora of foreign investors to their country. Many foreign businesses invested in Brazil's retail market, manufacturing companies, construction, tourism, banking, communication companies and many other industries boosting Brazil's economic system. Today, Brazil is benefiting by this sudden burst in its economy and the quality of life is greatly improving there.

10. Putting it all together: Class Activity

11. The first diagram shows how supply and demand affect a nation’s currency exchange rate. Thesecond diagram that show s how the nation’s currency exchange rate affects balance of trade. Currency Exchange Rate (Price of Money) Currency Exchange Rate (Foreign Currency per US Dollars) S CURRENCY EXCHANGE RATE (Price of Money BALANCE OF TRADE D CURRENCY EXCHANGE RATE (foreign currency per US dollars) QUANITITY