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Warm-up. What is the opportunity cost for Egypt to produce 1 bushel of corn? Cotton? Same for Venezuela? Who should specialize in corn? Why? Who should specialize in cotton? Why?. International Economics. EQ: Why should we trade with other nations?.

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Warm up
Warm-up

  • What is the opportunity cost for Egypt to produce 1 bushel of corn? Cotton?

  • Same for Venezuela?

  • Who should specialize in corn? Why?

  • Who should specialize in cotton? Why?


International economics

International Economics

EQ: Why should we trade with other nations?


Warm up

What is meant by a FAVORABLE balance of trade?

Balance of Trade is--

=

Value of the Exports

Value of the imports

What do we call it when --

>

Value of the exports

Value of the imports

Trade Surplus

<

What do we call it when --

Value of the exports

Value of the imports

THE U.S.A!!

Trade Deficit


Squanderville versus thriftville
Squanderville versus Thriftville

  • What is the fundamental problem for Squanderville?

  • Why does Thriftville have an advantage?

  • How does squnderville fund its trade deficit?

  • Why might Thriftville eventually not accept this form of payment?

  • What is the end result for Squanderville?


What is the u s trade deficit
What is the U.S. trade deficit?

Why do you think it decreased during the recession?


Analyze
Analyze….

  • What can we say about the green nations?

  • How about the red?



Warm up1
Warm-up economy?

  • What do exchange rates represent?

  • Where are currencies exchanged?

  • If the Euro appreciates relative to the dollar, how will it effect the cost of German goods for someone in the U.S.?

  • What will be the effect of a depreciation of the dollar against the Euro?

  • Why is the U.S. not happy about China holding the value of its currency down against the dollar?


Where is your shirt from
Where is your shirt from? economy?

  • Are we a global economy?

  • What is economic interdependence?





Warm up

It is fairly obvious, which country is our economy?

#1

trading partner?

CANADA


Warm up

Top 15 International Trading Partners economy?

1. Canada 2. China 3. Mexico 4. Japan 5. Germany 6. United Kingdom 7. South Korea 8. France 9. Taiwan10. Netherlands


Warm up

Top 5 Countries Supplying U.S. Imports

1. Canada 2. China 3. Mexico 4. Japan 5. Germany



What does the u s export
What does the U.S. export? economy?

  • fuel

  • aircrafts

  • automobiles

  • Telecom equipment


Warm up
EQ economy?

  • What are the effects of trade on the Balance of payments (i.e. will China own us)?


Bop video
BOP Video economy?

  • From VE4


Review
Review economy?

  • What happens when a Japanese firm sells a car to a U.S. citizen?

    • What does this do to the balance of trade?

    • What currency does Japan receive?

    • What can Japan do with those dollars?

    • How are the current and capital account affected?



Review1
Review economy?

  • If interest rates in the United States are increasing faster than interest rates in other countries, what happens to the following?

    • Demand for dollars

    • Supply of dollars

    • The value of the dollar


Exchange rates
Exchange Rates economy?

Why do they fluctuate?


Warm up

Assume that the United States and France are the economy?

only two countries in the world and that exchange

rates between the two countries are flexible.

Assume that there is an increase in the U.S.

demand for French goods. Explain how this

increase in demand will affect each of the

following.

(i) The supply of dollars

(ii) The international value of the dollar


Warm up

Currency doesn’t economy?

flow this way

Euro

French goods

S

u

p

p

l

y

P

a

y

dollar

P

P

S

S

P1

S1

P

P

D1

P1

D

buy

D

Q

Q1

Q

Q

Q

Q1

Euro

Dollar

Exchange Market


Warm up

Assume that there is an increase in real interest economy?

rates in the U.S., but not in France. Explain how

this increase in interest rates will affect each of

the following:

(i) The international value of the dollar

in the foreign exchange market

(ii) The quantity of dollars supplied in the

foreign exchange market


Warm up

In the U.S. economy?

Receive higher interest

rate

How do you

do it?

Go through

the--

If you lived in France,

where would you like

to invest your

hard-earned money?

S

u

p

p

l

y

I

N

V

E

S

T

Increase in interest

rates in U.S.

relative to France.

Exchange Market

S

S

P1

S1

Buy Dollars

P

P

P1

D1

D

D

Q

Q1

Euro

Q

Q1

Dollar


Summary
Summary economy?

  • What happens to the balance of trade when the U.S. dollar appreciates? Depreciates?

  • What effect does contractionary monetary policy have on the value of the U.S. dollar on the international currency market? Why?


Warm up

? economy?

?

?

?

?

?


How might exchange rates affect your everyday lives
How might exchange rates affect your everyday lives? economy?

  • http://www.npr.org/blogs/money/2011/11/21/142500594/why-a-new-york-cheese-buyer-hangs-on-the-euros-fate

  • Where does Murray’s get most of its cheese?

  • How is Aaron Foster’s financial well-being tied into Europe?

  • In what currency does Aaron purchase his cheese?

  • How does the cheese get to the port for shipment in Europe?

  • Does he pay more or less from his cheese when the Euro drops in value?

  • Why does he not want the situation in Europe to worsen?


Real exchange rates
Real Exchange Rates economy?

  • The real exchange rate compares the prices of domestic goods and foreign goods in the domestic economy.

    • If a case of German beer is twice as expensive as American beer, the real exchange rate is 1/2 case of German beer per case of American beer.


Real exchange rates1

× economy?

Nominal ex

change rat

e

Domestic p

rice

Real excha

nge rate

=

Foreign pr

ice

Real Exchange Rates

  • The real exchange rate is a key determinant of how much a country exports and imports.



Warm up


Boeing 787
Boeing 787 economy?


Warm up

Boeing 787, a Global Project economy?

List three possible benefits Boeing receives as a result of partnering with

companies in other countries.

1.

2.

3.

List three common characteristics all of the countries making parts

for the 787 share.

1.

2.

3.

List three possible costs of Boeing’s decision to purchase 787 parts from

companies in other countries.

1.

2.

3.

How is the production of the Boeing 787 a good example of explaining

specialization and comparative advantage?


With a partner why do nations trade why should they not trade
With a partner, why do nations trade? economy?Why should they not trade?


Movie questions
Movie Questions economy?

  • What are two arguments for free-trade (think about NAFTA)?

  • What is an argument against?

  • What are four barriers to trade?

  • Of these barriers, which one is predominantly used for political reasons?


Protectionism
Protectionism economy?

  • What are the ways that governments protect domestic industry from free trade?

  • What are the arguments for?

  • What are the arguments against?


White boards
White boards economy?

  • What is the equation for a balance of trade deficit?

  • Draw a graph showing what happens to the U.S. $ when interest rates increase relative to the rest of the world.

  • What happens to the U.S. balance of trade when the dollar appreciates?

  • If a nation’s currency appreciates what happens to NX?

  • Aggregate Demand?

  • If U.S. demand for Japanese goods increases, will the U.S. pay more or less for Japanese goods?

  • What happens to exports when the U.S. $ appreciates?

  • Name 3 factors that will cause an increase in U.S. imports.

  • Create a scenario that would affect the U.S. current account.

  • Capital account.

  • A nation can fund a deficit on its current account with a surplus on its ____________ acct

  • What is the effect on contractionary monetary policy on interest rates and exchange rates?


Warm up

  • Draw a loanable funds graph economy?

  • Where do savings come from?

  • Where does demand come from?

  • What does price level have to do with interest rates?

  • Monetary policy affects RGDP in the _______ run only.

  • What does Keynes blame for recessions?


Warm up

Globalization economy?

Search


Warm up
Develop 4 scenarios that would either appreciate or depreciate the dollar relative to a foreign currency


Balance of payments
Balance of Payments depreciate the dollar relative to a foreign currency

  • Accounts are an accounting record of all monetary transactions between a country and the rest of the world

    • Capital account - records the net change in ownership of foreign assets

      • Commercial loans, official flows, foreign direct investment, and foreign portfolio investment

    • Current account - sum of the balance of trade


Warm up2
Warm-up depreciate the dollar relative to a foreign currency

Coffee Cocoa

Brazil 10 hours 6 hours

Colombia 6 hours 3 hours

What country has the absolute advantage in each good?

What country has the comparative advantage in each good?