CH 3 - Outsourcing and Economic Growth 1) Outsourcing is simply the international trade of services. Can the U.S. have higher growth rates if it restricts outsourcing? No, because openness is key to economic growth. Any restriction to outsourcing is a trade barrier and will reduce benefits from international trade. Of course, there are some losers from international trade (those who have lost their jobs) but the gains far outweigh the losses which results in higher economic growth and standards of living overall. 2) There is a discussion in this chapter about whether the U.S. could become a third world country because of outsourcing. The answer in "no" for the reasons listed below as well as in the discussion in #1 above. a) There is a long-term equilibrium whereby outsources workers will become consumers as their wages rise. Therefore, exports in the U.S. would increase. b) Prices adjust to keep markets in balance. Wages rise in other countries and currencies rise, making U.S. goods and services cheaper. c) Insourcing (Mercedes, BMW, Hundai, Nissan auto plants in the U.S). 3) The economy is dynamic in the long run (with job losses and gains).