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Chapter 8 - International trade and capital flows. This chapter compare gross domestic product and gross national product, describe the benefits and costs of international trade, distinguish between comparative advantage and absolute advantage, explain the Ricardian and Heckscher–Olin models of trade and the source(s) of comparative advantage in each model,. | Chapter 8 International Trade and Capital FLows Presenter’s name Presenter’s title dd Month yyyy 1 1. Introduction International trade enhances economic growth by increasing the efficiency of the allocation of resources, providing larger capital and product markets, assisting specialization based on comparative advantages, and increasing the efficiency of the flow of capital among countries. Copyright © 2014 CFA Institute 2 Notes to the presenter: As an introduction, you could mention what happens when countries pull back from international trade, as was the case during the 1930s and early 1940s. The unintended effect was to reduce the standard of living. Comparative advantage is discussed later in the text, but a quick definition is that it is the production of a good or service that can be produced at a lower cost than in any other country. 2 2. International trade Gross national product (GNP) Add Production of goods and services by foreigners within the country Subtract Production | Chapter 8 International Trade and Capital FLows Presenter’s name Presenter’s title dd Month yyyy 1 1. Introduction International trade enhances economic growth by increasing the efficiency of the allocation of resources, providing larger capital and product markets, assisting specialization based on comparative advantages, and increasing the efficiency of the flow of capital among countries. Copyright © 2014 CFA Institute 2 Notes to the presenter: As an introduction, you could mention what happens when countries pull back from international trade, as was the case during the 1930s and early 1940s. The unintended effect was to reduce the standard of living. Comparative advantage is discussed later in the text, but a quick definition is that it is the production of a good or service that can be produced at a lower cost than in any other country. 2 2. International trade Gross national product (GNP) Add Production of goods and services by foreigners within the country Subtract Production of goods and services by the country’s citizens outside the country Equals Gross domestic product (GDP) Copyright © 2014 CFA Institute 3 We can measure aggregate output of a country by using the gross national product (GNP) or the gross domestic product (GDP), which differ with respect to goods and services produced by foreigners and by its citizens abroad: LOS: Compare gross domestic product and gross national product. Pages 404–405 Notes to the presenter: Definitions of GNP and GDP: Gross national product is the total value of all goods and services provided by a country during a specific period of time. Gross domestic product is the total value of all goods and services consumed, government outlays, investments, and exports less imports. From Chapter 5 (Equation 5-1 on p. 208): GDP = C + G + I + (X – M) The difference between the two measures of performance relates to international trade. 3 TErminology Imports are goods and services that a domestic economy purchases from other .