S-3 Ricardo Final lecture slides

S-3 Ricardo Final lecture slides - Chapter 3 Why Everybody...

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W. J. Streeter MEC 292 – FALL 2008 Chapter 3 Why Everybody Trades: Comparative Advantage
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W. J. Streeter mec 292 – Fall 2008 Dollar Viewed as Safer Than Euro and Pound The euro zone is believed to be at the cusp of a recession, and the European Central Bank indicated Thursday that it won't ease interest rates to boost the economy because inflation remains a primary concern. At the same time, the U.K.'s chancellor of the exchequer, Alistair Darling, said the country's economy could be facing "arguably the worst" slowdown in 60 years. In contrast, the U.S. economy is believed to be in a relatively better position, after already suffering through a year's impact of the credit crunch. Multinationals in U.S. May See Profits Fall September 6, 2008
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W. J. Streeter mec 292 – Fall 2008 Mixed Economic Data Show A Changing Business Cycle The Wall Street Journal , September 8, 2008 If you look at output -- the amount of goods and services Americans produce -- the economy has been rising at a decent clip. But people aren't feeling it in their wallets because the factors driving their own incomes -- such as jobs and wages -- are under strain. Employment has fallen for eight straight months by a cumulative 605,000 jobs. More than half of the losses have been in manufacturing. You might expect manufacturing employment to hold up better during an export boom. But it isn't.
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W. J. Streeter mec 292 – Fall 2008 Cordell Hull President Franklin Roosevelt’s Secretary of State, 1933-1944 Nobel Peace Prize – 1945 the Father of the United Nations "Though realizing that many other factors were involved , I reasoned that, if we could get a freer flow of trade -- freer in the sense of fewer discriminations and obstructions -- so that one country would not be deadly jealous of another, and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance for lasting peace."
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W. J. Streeter mec 292 – Fall 2008 “Comparative Advantage is the best example of an economic principle that is undeniably true yet not obvious to intelligent people.” Paul Samuelson ¤ head of economics department at M.I.T. ¤ Nobel Prize in Economics - 1970
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W. J. Streeter mec 292 – Fall 2008 Wages depend on the marginal products of labor in each country, and are thus determined by absolute advantage . A country with better technology will have higher wages. The pattern of trade is determined by comparative advantage .
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W. J. Streeter mec 292 – Fall 2008 Chapter 3 Quiz: Comparative Advantage 1. Based on mercantilist thinking, governments should A. subsidize and encourage imports B. subsidize and encourage exports C. allow for unencumbered free trade D. both A. and B.
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W. J. Streeter mec 292 – Fall 2008 2. Labor productivity is: A. the number of units of output that a worker can produce in one hour.
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S-3 Ricardo Final lecture slides - Chapter 3 Why Everybody...

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