International Economics Twelfth Edition CHAPTER S I X T E E N 16 International Economics Twelfth Edition The Price Adjustment Mechanism with Flexible and Fixed Exchange Rates PORTARE LIBRO A LEZIONE Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Learning Goals: Esame relazione fra bilancia commerciale e cambi fissi/flessibili. L’aggiustamento esterno via tassi di cambio variazione è definito di prezzo, in quanto la variazione dei cambi incide sulla competitività di prezzo Gli aggiustamenti della bilancia commerciale dovuti a variazioni del reddito nel prox. capitolo Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.1 Introduction How is the nation’s current account affected by price changes and income changes? Assumptions International private capital flows take place only as passive responses to cover temporary trade imbalances. Quindi non si condiderano i movimenti di capitale non accomodanti i movimenti di capitale accomodanti  relativi al finanziamento del saldo delle partite correnti

16.2 Adjustment with Flexible Exchange Rates The nation wants to correct a deficit in its current account by exchange rate changes. Trade or elasticity approach Price adjustment mechanism relies on depreciation and devaluation of currency to adjust current account and balance of payments. Income adjustment mechanism relies on income changes in the nation and abroad to make the adjustments. Cap. 17 Elasticity of the demand and supply curves will determine effectiveness of adjustment mechanisms. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Facciamo un passo indietro: 14.3 Foreign Exchange Rates Under a flexible exchange system, R is determined by the intersection of market demand and supply curves for euros. Nella figura in ascisse c’è quantità di €. Depreciation is an increase in the domestic price of the foreign currency. If the dollar price of the euro increases from $1 to $1.50, the dollar has depreciated e le merci USA + convenienti. Questo stimola la domanda di $ dunque cresce l’offerta di € (e diminuisce la domanda di €) Appreciation refers to a decline in the domestic price of the foreign currency. If the dollar price of the euro decreases from $1 to $0.50, the dollar has appreciated, le merci europee più convenienti. Con € più debole aumenta la domanda di € per compare beni europei; bassa offerta di € per comprare $ (merci USA non convenienti)

FIGURE 14-1 The Exchange Rate Under a Flexible Exchange Rate System. A un tasso di cambio superiore ad R=1, $ debole, domanda beni US, eccesso offerta €. Sotto R=1, $ forte, eccesso domanda €. Si tende a E. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

In pratica, come funziona svalutazione Se $ svaluta rispetto all’€ Gli esportatori USA posso vendere a prezzi in euro più bassi. Es. se 1$=1€, il prezzo del bene esportato è p€=10 (= ricavo in $ = a p$=10). Se il $ svaluta, es. 1,2$=1€, l’esportatore può vendere in UE a p€=0,8, che cambiate in $ danno circa p$=10 (cioè in $ l’esportatore non perde nulla a praticare prezzi più bassi in UE). Potrebbe certo approfittarsene e vendere a p€=0.9… Gli esportatori europei in USA se al cambio 1$=1€, anche per loro il prezzo del bene esportato è p$=10 (= ricavo in € = a p€=10); al cambio 1,2$=1€, il ricavo in € diventa circa 0,8€. Quindi o aumentano i prezzi sul mercato americano (“pass through”) e perdono mercato, o li mantengono a prezzo di perdite (o minori profitti)

16.2 Adjustment with Flexible Exchange Rates (ovviamente l’aggiustamento via cambio avviene con cambi flex o con abbandono cambi fissi) Studenti con libro davanti Price adjustment mechanism relies on depreciation and devaluation of currency to adjust the current account and balance of payments. Elasticity of the demand and supply curves will determine effectiveness of adjustment mechanisms. If the supply and demand for foreign exchange are elastic, a relatively small depreciation or devaluation will correct BOP deficit If supply and demand is very inelastic, a much larger depreciation would be required, which may not be feasible. Quindi essenziale conoscere l’elasticità delle funzioni (es. questo è un elemento importante del dibattito su Italexit) Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

FIGURE 16-1 Balance-of-Payments Adjustments with Exchange Rate Changes. Abbiamo curve di D e S di € con differente Elasticità. Tanto più sono elastiche, tanto minore è l’aggiustamento per Correggere un deficit di BdP (al tasso R=1 es. deficit US). L’elasticità Delle curve ha a che fare con l’elasticità di E e M a variazioni di R Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.2 Adjustment with Flexible Exchange Rates The U.S. demand for euros is derived from the demand and supply of U.S. imports in terms of euros. A depreciation of the dollar decreases the U.S. demand for imports (in euros) The U.S. supply of euros is derived from the demand and supply of U.S. exports in terms of euros. A depreciation of the dollar increases the U.S. supply of exports (in euros) Points in Figure 16.2 can be used to find corresponding points in Figure 16.1 Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

FIGURE 16-2 Derivation of the U. S FIGURE 16-2 Derivation of the U.S. Demand and Supply Curves for Foreign Exchange (derivazione di 6.1  slide successiva) Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Sinistra del grafico D€ deriva da DM DM domanda americana di importazioni dall’Europa SM offerta europea di esportazioni Posizione DM dipende dal tasso di cambio: se R passa da 1$=1€ a 1,2$=1€ la DM si sposta verso il basso perché € più costosi per gli americani. B’ corrisp. a B ; E’ corrisp. a E Quindi spost. della DM al variare di R determinano andamento D€.

16.2 Adjustment with Flexible Exchange Rates The U.S. demand for euros will almost always be negatively sloped, whether supply and demand for imports are relatively elastic or not. Exception would be perfectly inelastic demand for imports DM verticale), which is unlikely. Importante: tanto più la DM è rigida, tanto più la D€ è meno elastica (si riveda fig. 16.1). Es. la domanda di petrolio da parte dell’Italia è piuttosto inelastica, per cui la domanda italiana di $ (con cui si paga il petrolio) è piuttosto inelastica al tasso di cambio. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Destra del grafico DX domanda europea di importazioni dagli US SX offerta americana di esportazioni verso l’UE Posizione SX dipende dal tasso di cambio: se R passa da 1$=1€ a 1,2$=1€ (il $ svaluta) SX si sposta verso il basso: al nuovo cambio gli USA sono infaatti disposti a esortare 4 miliardi di unità al prezzo px=1,6, ovvero 7 miliardi al vecchio prezzo px=2. A’ corrisp. ad A; E’ as E.

16.2 Adjustment with Flexible Exchange Rates The U.S. supply of euros may not be upward sloping. If demand for exports is unit elastic, quantity supplied of euros does not change with depreciation, and thus the supply of euros is vertical. If demand for exports is inelastic, a depreciation reduces the quantity of euros supplied, and supply is then downward sloping.

Figure 6.1 e 6.2 Abbiamo derivato 6.1 da 6.2 e analizzato l’aggiustamento a un disavanzo in cambi flessibili. Lasciate da parte le complicazioni, almeno al primo studio.

16.3 Effect of Exchange Rate Changes on Domestic Prices and the Terms of Trade The greater the devaluation or depreciation of the dollar, the greater its inflationary impact, and the less feasible is the increase of the exchange rate for correcting balance of payments deficits. Depreciation of the currency increases prices of both exports and imports in terms of domestic currency. Nelle pagg. 111 dice cose piuttosto confuse. Vediamo l’appendice A16.1

Effect of Exchange Rate Change on Domestic Prices A16.1 DS sovrappone due effetti del deprezzamento sui prezzi: l’effetto del cambio e quello dei costi marginali crescenti. Effect of Exchange Rate Change on Domestic Prices Un deprezzamento/svalutazione porta a un aumento delle exp, a una dimunuzione delle imp e a produzioni sostitutive dele imp. Quindi la produzione aumenta, con costi crescenti e po questo determina un aumento dei prezzi sia domestici che delle medesime exp. [Currency depreciation or devaluation decreases the supply for home-country imports (in terms of the domestic currency) and increases the demand for home-country exports (in terms of the domestic currency.] Thus import and export prices rise, in domestic-currency terms. This price change is necessary to induce changes in production or consumption, but reduces the export price advantage from the depreciation. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

FIGURE 16-7 Effect of a Depreciation or Devaluation on Domestic Prices. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

La S’M si sposta verso l’alto perché ogni $ percepito dagli esportatori europei vale il 20% di meno. In questo caso, siccome le exp europee diminuiscono, con costi decrescenti al dimunuire della produzione i prezzi delle imp aumentano meno che se i costi fossero stati costanti (tracciare linea parallela in H’). Viceversa la D’X si sposta verso l’alto perché le merci USA sono più convenienti per gli europei. I costi crescenti fanno però aumentare i prezzi delle exp americane. Con costi costanti ...(linea parallela per A’ e prolungare D’’X vedi mio libro). L’inflazione US aumenta anche per l’aumento delle produzioni sostitutive (ciò accade per costi crescenti e ipotesi di po)

Summa summarum effetti svalutazione su inflazione C’è un pass through certo del prezzo delle importazioni sui prezzi interni come effetto del deprezzamento. In pratica molto dibattito sulla sua entità (es. gli esportatori europei potrebbero non voler aumentare i prezzi per non perdere mercato; i consumatori si possono rivolgere a meno costose produzioni interne ecc). Gli altri effetti via andamento curve di costo (si ricordi che la curva d’offerta riflette quella dei costi marginali) sono opinabili: se ci sono economie di scala i costi possono essere decrescenti, se non v’è po ci sono risorse inutilizzate ecc.)

Dalla sezione 4.7: The Terms of Trade/ragioni di scambio Terms of trade = the ratio of the price of a nation’s export commodity to the price of its import commodity. In a two-nation world, the terms of trade of Nation 1 are equal to the reciprocal of the terms of trade of Nation 2. In a world of many traded goods, the terms of trade is the ratio of the export price index to the import price index, also called commodity or net barter terms of trade. If Nation 1 exports X and imports Y, its terms of trade are given by PX/PY, where P = price index. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Terms of trade can rise, fall or remain unchanged, depending on the relative magnitude of the price changes. In generale si può dire che con una svalutazione le ragioni di scambio (rapporto fra prezzi beni esportati su quello dei beni importati tutti espressi in valuta nazionale) peggiorino, vale a dire che si debba dare di più dei beni nazionali in cambio dei beni stranieri. Del resto se l’obiettivo della svalutazione è vendere di più/comprare di meno, questo non può che accadere rendendo più conveniente agli stranieri acquistare nostri beni (che devon costare di meno), e rendendo meno conveniente ai nazionali acquistare beni stranieri (che devono costare di più). Nell’esposizione di DS che mette in mezzo opinabili costi variabili il risultato è più incerto

16.3 Effect of Exchange Rate Changes on Domestic Prices and the Terms of Trade Dutch disease Exploitation of a natural resource that was once imported can cause exchange rate appreciation Appreciation can reduce the competitiveness of the export sector Comes from the Netherland’s loss of export competitiveness as a result of appreciation of the florin after the development of the Dutch natural gas industry. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.4 Stability of Foreign Exchange Markets NO Stable foreign exchange market - when a disturbance from equilibrium gives rise to automatic forces that push exchange rate back to equilibrium. Supply curve is positively sloped, or if negatively sloped, is less elastic than the demand curve of foreign exchange. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.4 Stability of Foreign Exchange MarketsNO Unstable foreign exchange market - when a disturbance from equilibrium pushes the exchange rate further away from equilibrium. Supply curve is negatively sloped and more elastic than the demand curve of foreign exchange. Flexible exchange rate system increases (rather than reduces) a balance of payments disequilibrium. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

FIGURE 16-3 Stable and Unstable Foreign Exchange Markets. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.4b Marshall-Lerner condition Marshall-Lerner condition - Sum of the price elasticities of demand for imports and demand for exports is (in absolute terms) indicates degree of foreign exchange market stability: hx + hM > 1 dove hx = -d(QX/QX)/(dPX/PX) hx = -d(QM/QM)/(dPM/PM) (quando scriviamo hx + hM > 1 le prendiamo in valore assoluto) Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

hx + hM > 1 Vediamo meglio Greater than 1 = stable foreign exchange market Devaluation required to correct BOP deficit. Less than 1 = unstable foreign exchange market Revaluation required to correct BOP deficit. Equal to 1 = change in exchange rate leaves balance of payments unchanged. (si osservi che nelle condizioni di ML si considerano solo la relazione fra quantità e variazioni dei prezzi dovute al mutamento del cambio, non quelle dovute ai costi variabili (infatti si assumono costi costanti) Vediamo meglio

Condizioni di ML hx + hM > 1 (tralasciare primi 2 paragrafi di p Ci interessa il saldo della BdP in valuta straniera. Per un paese normale quello che conta è il saldo delle uscite ed entrate di valuta internazionale (di riserva). L’esempio rigarda la BdP americana (fate finta che sia un “paese normale”). Guardiamo alle Exp. L’aumento delle quantità vendute fa aumentare gli incassi di € (effetto volume) ma la diminuzione del prezzo di vendita li fa diminuire (effetto valore). Allora… Se la domanda di beni americani è elastica rispetto al loro prezzo in €, ovvero se hx > 1, l’aumento della quantità venduta è proporzionalmente maggiore della diminuzione del prezzo e l’incasso di € aumenta. Naturalmente non è detto che hx > 1.

Condizioni di ML hx + hM > 1 Guardiamo alle IMP. La diminuzione delle quantità importate fa diminuire la domanda di € (il prezzo in euro è in questo caso costante). Certamente da questo punto di vista diminuisce la domanda di € da parte degli americani e la loro BdP migliora. (il caso peggiore è di una domanda rigida, per cui la svalutazione non ha effetti sulle importazioni) Questo implica che anche se hx < 1, purché la riduzione della domanda di € da parte degli USA sia sufficientemente forte, la svalutazione/deprezzamento migliora la BdP americana. Ovvero se: hx + hM > 1

16.5 Elasticities in the Real World Early empirical evidence suggested that the sum of elasticities might barely exceed 1, leading to elasticity pessimism. But these studies may have greatly underestimated elasticities due to the identification problem. leggere Also, due to lags, elasticities are likely to be much larger in the longer run, and early studies used short-term elasticities. leggere Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

FIGURE 16-4 The Identification Problem Leggere. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.5 Elasticities in the Real World LEGGERE Junz and Rhomberg (1973) identified five possible lags in quantity responses to price changes in international trade: Recognition lag before price change becomes evident. Decision lag to take advantage of price changes. Delivery lag of new orders placed Replacement lag to use up available inventories before placing new orders. Production lag to change output mix resulting from price changes. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.5 Elasticities in the Real World J-Curve Effect (vedi mio sommario dopo) A nation’s trade balance may actually worsen soon after devaluation or depreciation before improving later on. This occurs because import prices tend to rise faster than export prices, with quantities initially not changing much. Over time, export prices catch up with import prices so initial deterioration in trade balance is reversed, generating a J-shaped pattern to exchange rate movements. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Curva a J In sintesi nel breve periodo le quantità sono rigide, quindi le esportazioni non aumentano (lentezza a cambiare i listini e le importazioni non diminuiscono (lentezza nelle produzioni domestiche sostitutive) Se i prezzi cambiano invece più rapidamente, il valore delle importazioni aumenta e la BdP peggiora. Nel lp le esportazioni aumentano e le importazioni diminuiscono, sicché la BdP migliora.

FIGURE 16-5 The J-Curve. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.5 Elasticities in the Real World A number of empirical studies have confirmed the J-curve effect and found higher long-term elasticities. Impact and short-run elasticities are likely to be small enough to cause current account deterioration immediately following a depreciation or devaluation Long run elasticities should be high enough to ensure the stability of the foreign exchange market. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.5 Elasticities in the Real World Currency Pass-through Changes in exchange rates may not be fully reflected in the price of imported goods. For example, a 10% depreciation of the currency may lead to a less than 10% increase in import prices. For the United States, it is estimated that the pass- through from dollar depreciation is about 42%. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.5 Elasticities in the Real World Exporters may not be willing to pass on the full price increase due to fears of losing market share It is costly to build new production and distribution facilities and to enter or leave markets. This beachhead effect implies that pass-through is likely to be incomplete, particularly in the short run. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard The gold standard operated from about 1880 to outbreak of World War I in 1914. Attempt to reestablish gold standard after the war failed in 1931 during Great Depression. Advantages and disadvantages of gold standard also apply to the fixed rate exchange system (Bretton Woods, or gold-exchange standard) that operated from World War II until its collapse in 1971. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard Under the gold standard, each nation specified the gold content of its currency: £1 gold coin contained 113.0016 grains of gold $1 gold coin contained 23.22 grains of gold This implies a fixed exchange rate, or mint parity, of: R = $/£ = 113.0016 / 23.22 = $4.87/£ Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard The cost of shipping gold from New York to London was approximately 3 cents. So, the actual exchange rate would always lie between $4.84/£ (gold import point) and $4.90/£ (gold export point). Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard The tendency of the dollar to depreciate (rise above gold export point) was countered by gold shipments from the United States. Gold outflows = size of U.S. balance of payments deficit. The tendency of the dollar to appreciate (fall below gold import point) was countered by gold shipments to the United States. Gold inflows = size of U.S. balance of payments surplus. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard The price-specie-flow mechanism is the automatic adjustment mechanism under the gold standard. If a trade imbalance exists, gold will flow from the country with a trade deficit to the country with a trade surplus. The fall in gold supplies in the trade deficit country reduces its money supply and pushes its price level lower. (svalutazione interna) The increase in gold supplies in the trade surplus country increases its money supply and raises its price level. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard The price level movement is based on the quantity theory of money: MV = PQ where M = money supply V = velocity of circulation of money P = general price index Q = physical output Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard As the price level falls in the country with a trade deficit, exports of its goods and services will be encouraged. As the price level increases in the country with a trade surplus, exports of its goods and services will be discouraged. These changes in trade will decrease both trade deficits and surpluses, leaving all nations with a zero balance of payments. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

16.6 Adjustment Under the Gold Standard Result of using the nation’s money supply to correct BOP problems mean that monetary policy could not be used as a tool to assist in achieving full employment. Nations were not supposed to sterilize the effect of gold flows on domestic money supplies. Rules of the game of the gold standard required a deficit nation to reinforce the adjustment process by further restricting credit. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

In sintesi (e questo torna e ritorna nel libro, non a caso): svalutazione esterna o interna? L’aggiustamento della BdP può avvenire Con cambi flessibili con la svalutazione esterna. Pros: meno dolorosa; cons: gli effetti dipendono dalle condizioni di ML; può generare svalutazioni competitive Con cambi fissi con la svalutazione interna (come nel gold standard, dove è automatica, attraverso politiche di “austerità” più in generale). Cons: più dolorosa; pros: non genera svalutazioni competitive (anche se è una svalutazione vera e propria  es. accuse alla Germania di mercantilismo via bassi salari  ma la politica non attacca chi si accanisce contro i salari dei lavoratori, anzi ciò viene elogiato. Peraltro la svalutazione interna genera deflazione competitiva che è la stessa cosa della svalutazione competitiva.

Case Study 16-1 Currency Depreciation and Inflation in Developing Countries during the 1997-1998 East Asian Crisis Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Case Study 16-2 Estimated Price Elasticities in International Trade Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Case Study 16-3 Other Estimated Price Elasticities in International Trade Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Case Study 16-4 Effective Exchange Rate of the Dollar and the U. S Case Study 16-4 Effective Exchange Rate of the Dollar and the U.S. Current Account Balance FIGURE 16-6 Effective Exchange Rate of the Dollar and U.S. Current Account Balance, 1980-2014. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Case Study 16-5 Dollar Depreciation and the U. S Case Study 16-5 Dollar Depreciation and the U.S. Current Account Balance Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Case Study 16-6 Exchange Rates and Current Account Balances during the European Financial Crisis of the Early 1990s Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Case Study 16-7 Exchange Rate Pass-Through to Import Prices in Industrial Countries Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Appendix to Chapter 16 Effect of Exchange Rate Change on Domestic Prices Currency depreciation or devaluation decreases the supply for home-country imports (in terms of the domestic currency ) and increases the demand for home-country exports (in terms of the domestic currency. Thus import and export prices rise, in domestic-currency terms. This price change is necessary to induce changes in production or consumption, but reduces the export price advantage from the depreciation. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

FIGURE 16-7 Effect of a Depreciation or Devaluation on Domestic Prices. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Appendix to Chapter 16 NO   Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Appendix to Chapter 16   Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Appendix to Chapter 16 NO Derivation of the Gold Points and Gold Flows Under the Gold Standard Figure 16.8 shows graphically how gold points are determined. The equilibrium exchange rate is R = $4.88/£1 (point E ) without any international gold flow, and the U.S. BOP is in equilibrium. The exchange rate would be prevented under the gold standard from rising above R = $4.90 or falling below R = $4.84/£1 (the U.S. gold import point) Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

Appendix: Derivation of Gold Points FIGURE 16-8 Gold Points and Gold Flows. Salvatore: International Economics, 12th Edition © 2016 John Wiley & Sons, Inc.

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