INTLCLASS - International Economics and Macro Key Questions...

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1 1 International Economics and Macro Key Questions Why do economists generally favor free trade? Why restrict trade? How? How are exchange rates determined in the short-run? The long-run? How do exchange rates matter? What’s bad about a current account deficit? A Capital/Financial account surplus? What’s wrong with globalization? 2 In the News? 3 Course Issues Q&A 7/1 2pm MU & 6pm Thursday 7/2 Investment Game Results Final Exam Extra Credit Check Gradebook
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2 4 Investment Game Results A few words on derivatives: futures and options, black scholes, arbitrage, hedging and speculation, leverage 5 Trade Facts Net Exports X-M <0 – trade deficit >0 trade surplus Current Account Deficit X-M $738.6 bil in 2007 Exports $2.4 trillion Imports $3.04 tril1ion Trade Deficits since 1976 Harm? D=C+I+G+X-M Largest Trading Partners Canada: China: Mexico: Japan: Germany:United Kingdom: South Korea:France:Taiwan:Singapore: 6 Selected HW Here
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3 7 Why do Economists Generally Favor Free Trade? Comparative Advantage Specialization in lowest opportunity cost Versus absolute advantage From different endowments of resources, abilities diversity of tastes; economies of scale More output/production possible for all transmission of ideas international competition Trends: GATT, EU, NAFTA, CAFTA 8 How to Restrict Trade? How Tariffs Quotas Japanese cars 1981 Dumping Mechanisms Steel Subsidies Agriculture Airbus/ Boeing 9 Why Restrict Trade? Arguments used Save Jobs Unfair Competition due to: weaker environmental/ safety standards exploitation How to compete with low wages Dumping / Predatory Competition Protect Infant Industries Defense/ Strategic interests Retaliation Answers Job cost too high to consumers -subsidize displaced workers Helps environmental/ safety standards improve abroad Exploitation is really benefit Compete with low wages with high productivity Dumping illusory Why Protect Infant Industries? Defense/ Strategic interests Retaliation
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4 10 Is Globalization Bad for the U.S.? A. yes B. no C. maybe Globalization is the increasing interconnection of people and places as a result of advances in transport, communication, and information technologies that causes political, economic, and cultural convergence. 11
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This note was uploaded on 03/24/2011 for the course ECON 103 taught by Professor Lin during the Summer '08 term at Rutgers.

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INTLCLASS - International Economics and Macro Key Questions...

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