set 3b - The effects of increased trade: Some are hurt very...

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1 The effects of increased trade: The big gains from trade are for consumers in both countries Many are helped, each a little. (They think that Walmart has great prices—don’t realize they are buying lots of imports and don’t recognize the benefits of trade.) The effects of increased trade: Some are hurt very much: Producers of products their country imports (They scream and often this is all anyone hears about trade) Some are helped very much: Producers of products their country exports (They think they are good—don’t recognize the role of trade.) US vs. Imported autos US auto producers must pay for health care Imported autos—their government pays for health care. Hard for us to compete. Trade can hurt with lack of information: Imports from China: Melamine in milk Lead paint on toys US corn exports: WSJ 9/20/2002 20 40 60 80 100 120 1993 1995 1997 1999 2001 2003 2005 2007 2009 bil. $ Crop years U.S. Agricultural Exports and Imports Exports Imports
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2 Trade increased 8.6 times in 30 years Wall Street Journal, Tuesday, September 15, 2009, p. A 20 Trade Policy: Balance of Payments The best policy for our country to follow is: a. Maximize imports, minimize exports b. Maximize exports, minimize imports c. Minimize exports and imports d. Maximize exports and imports The best policy for Taylor to follow: a. Eat more, lose weight b. Eat less, gain weight c. Eat more, gain weight d . Eat less, lose weight Alternatives a and b not feasible, only c and d are possible International Trade Favorable Positive Balance of Payments Surplus--Exports > Imports Advantage--Foreign currencies flowing in Disadvantage--Domestic resources/ products leaving Cannot last--foreign currency will lose value here and the cost of our products to foreigners will skyrocket International Trade Balance of Payments Unfavorable Negative Balance of Payments Deficit--Imports > Exports Advantage--More goods and services entering the country than leaving Disadvantages--Soon exhaust foreign currency Country's own currency will lose value abroad Cannot last--Domestic currency becomes worthless abroad and the cost of foreign goods to us will skyrocket International Trade Balance of Payments Balanced Trade Exports = Imports Currency flows are equal and this can continue Cost of imports equals the cost of exports International Trade Foreign Exchange Systems Gold Standard--All international trade payments made in gold US 1776-1933 Using different currencies from different countries: System for reconciling trade among countries, each with its own currency (Dollar, Euro, Yen) Buy foreign currency with your own Buy foreign good with foreign currency
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3 Fixed Exchange Rate --Governments set the rate at which one currency trades for another US 1933-1971 (Gold price $35/oz.) Floating Exchange Rate --traders in currency exchanges let supply and demand determine exchange rates US 1971-present Trade continues, both benefit International Trade Trade with the Gold Exchange System
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This note was uploaded on 02/19/2011 for the course AGEC 217 taught by Professor Deboer during the Fall '08 term at Purdue University-West Lafayette.

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set 3b - The effects of increased trade: Some are hurt very...

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