MINTLCLASS - International Money and Banking W hy do...

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1 1 International Money and Banking b Why do economists generally favor free trade? What’s wrong with globalization? b How do exchange rates matter to the macro economy? b How are exchange rates determined in the short-run? The long-run? b What’s ‘bad’ about a current account deficit? A Financial account surplus? b Globalization is good / antiwto/forex/take 5 2 In the News? 3
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2 4 Course Issues b Last Class Tues 12/13 b Final Exam Friday 12/23 8-11am MI100 b Final Exam Conflicts – see me now – with doc b Investment game – ends close of trading Friday b Graduating Seniors? b Review Guide, Essential b Grade book problems-check NOW! b Extra Credit – last class – online, ASSIGNMENTS – plagiarism? 5 Investment Game s Derivatives 6 Trade Facts s Net Exports X-M b <0 – trade deficit >0 trade surplus s Current Account Deficit b X-M $250 bil in 2009 b Exports $2.16 trillion b Imports $2.41 tril1ion b Trade Deficits since 1976 s Deficit on Goods, surplus on services b Harm? D=C+I+G+X-M s Largest Trading Partners b Canada: China: Mexico: Japan: Germany:United Kingdom: South Korea:France:Taiwan:Singapore:
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3 7 Why do Economists Generally Favor Free Trade? s Comparative Advantage b Specialization in lowest opportunity cost s Versus absolute advantage s From different endowments of resources, abilities s diversity of tastes; s economies of scale b More output/production possible for all b transmission of ideas b international competition b Trends: GATT, EU, NAFTA, CAFTA, WTO 8 Is Globalization Bad for the U.S.? (and is the world flat?) s Free trade b Comparative Advantage – Gains from Trade b Economies of Scale b International transmission of ideas b International Competition s Flat World – Globalization b gains b larger labor pool b how to compete? W/MP 9 International (Open-Economy) Macro s Exports, Imports and Aggregate Demand D=C+I+G+X-M s Open Economy Macro b Monetary Policy – strengthened s Ms ↑→ i ↓ → I ↑→ D s And Ms ↑→ i ↓ → $ ↓ → X ↓ → D more b Fiscal Policy – weakened s G ↑→ i ↑→ $ ↑→ D b Additional objectives s exchange rates and balance of payments
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4 Twin deficits Problem s Government Budget Deficit MAY lead to Current Account (‘trade’) deficit S Since Y=C+I+G+X-M = C+S+T then S M-X=(G-T)+(I-S) that is a trade deficit (M-X) can be caused by a government budget deficit (G-T) (holding I-S) constant S Greece? 10 World Trade Organization (WTO) s supervise and liberalize international trade s 1995 - replaced the General Agreement on Tariffs and Trade (GATT) started in 1948 s regulation of trade between participating countries s framework for negotiating and formalizing trade agreements s dispute resolution process aimed at enforcing participants' adherence to WTO agreements s Doha round (wikipedia) 11 European Union (wikipedia) s economic and political union of 27 countries b 500 million pop, $16 trillion gdp s origins from the European Coal and Steel Community
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This note was uploaded on 02/29/2012 for the course ECONOMICS 220:301 taught by Professor Sheflin during the Fall '09 term at Rutgers.

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MINTLCLASS - International Money and Banking W hy do...

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