warm-up 1.what is the opportunity cost for egypt to produce 1 bushel of corn? cotton? 2.same for...
TRANSCRIPT
Warm-up
1. What is the opportunity cost for Egypt to produce 1 bushel of corn? Cotton?
2. Same for Venezuela?3. Who should specialize in corn? Why?4. Who should specialize in cotton? Why?
International Economics
EQ: Why should we trade with other nations?
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
Value of the exports<Value of the imports
THE U.S.A!!Trade Deficit
What do we call it when --
What is the U.S. trade deficit?
Analyze….
• What can we say about the green nations?
• How about the red?
What is the relationship to the trade and GDP?
Y = C + I + G + NX
Where is your shirt from?
So, where do most U.S. imports come from?
Japanese Shipping Company
Korean Shipping Company
It is fairly obvious, which country is our
trading partner?
#1
CANADA
Top 15 International Trading Partners
1. Canada 2. China 3. Mexico 4. Japan 5. Germany 6. United Kingdom 7. South Korea 8. France 9. Taiwan10. Netherlands
Top 5 Countries Receiving U.S. Exports1. Canada2. Mexico3. Japan4. China5. United Kingdom
Top 5 Countries Supplying U.S. Imports 1. Canada 2. China 3. Mexico 4. Japan 5. Germany
What is the U.S. # 1 import?
What does the U.S. export?
• High tech items:– industrial lathes – computer chips– fighter jets – health care products
With a partner, why do nations trade?
Why should they not trade?
What do you think?
1. If the U.S. sells computers to Japan, in what currency does Japan purchase the computers? What could the U.S. do with the currency it receives?
2. If Japan buys American bonds, what currency will they use the purchase them?
3. If the U.S. is running a trade deficit, how do they fund it?
Exchange Rates
Why do they fluctuate?
Assume that the United States and France are theonly 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 thefollowing.
(i) The supply of dollars(ii) The international value of the dollar
S
D
Currency doesn’t flow this way
S
D
Dollar Euro
dollar
Euro
S1
P
Q
P
Q
P1P
Q Q1
D1P
Q
P1
Q1
Supply
buy
Pay
French goods
Assume that there is an increase in real interestrates in the U.S., but not in France. Explain howthis increase in interest rates will affect each ofthe following:
(i) The international value of the dollar in the foreign exchange market
(ii) The quantity of dollars supplied in the foreign exchange market
Increase in interest rates in U.S.relative to France.
If you lived in France, where would you like to invest yourhard-earned money?
S
D
P
Q Euro
S1
Supply
In the U.S.
How do youdo it?
Go throughthe--
P1
Q1
S
D
P
Q Dollar
D1
Q1
P1Buy Dollars
INVEST
Receive higher interest rate
Summary
• 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?
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