Transcript Chapter 1, Eastwood`s notes

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INTERNATIONAL ECONOMICS
Print the following information on the 3” x 5” card
1. Your name, home country
2. Other countries in which you have lived
3. Other countries you have visited
4. Economics courses you have completed
5. Other Economics courses this semester
6. Other international courses or experience
(This information is for my use only)
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Learning Objectives
• Review the Syllabus & Calendar
• Explain aggregate characteristics of national
economies
• Describe the trends and patterns in
international trade
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Learning Objectives
• Review the Syllabus & Calendar
• Explain aggregate characteristics of national
economies
• Describe the trends and patterns in
international trade
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Prerequisites
•
•
•
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Principles of Microeconomics, ECO 284,
Principles of Macroeconomics, ECO 285,
and Junior Standing
Or an approved waiver
– If you lack the prerequisite, contact me as soon
as possible!
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Branches of International
Economics
• Trade (international microeconomics)
– Why do nations engage in international trade?
– What goods and services do nations trade?
– How does international trade affect national income,
welfare, and jobs?
– How do trade barriers affect national welfare?
– How are countries affected by international movements
of labor and capital?
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Branches of
International Economics (cont.)
• Finance (international macroeconomics)
– What is the balance of payments?
– What is an exchange rate and what factors determine the
exchange rate?
– What is the relationship between exchange rates, prices,
and interest rates?
– How are countries affected by foreign direct investment
and lending?
– How effective are domestic policies given the global
economy?
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Learning Objectives
• Review the Syllabus & Calendar
• Explain aggregate characteristics of national
economies
• Describe the trends and patterns in
international trade
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Characteristics of National Economies
• Gross National Product (GNP) & Gross
Domestic Product (GDP)
• GNP -- the value of final goods and services
produced by domestically-owned resources.
• GDP -- the value of final goods and services
produced within a country’s borders.
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Characteristics of National Economies
• Imports
• are the goods and services we buy from
other countries.
• Exports
• are the goods and services we sell to people
in other countries.
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Trade is growing faster than income
Exports and Imports as a Percentage of U.S. National Income
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Characteristics of National Economies
Index of Openness
• measures importance of trade
• When trade is balanced, most use
• = 100( Exports/GDP)
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Characteristics of National Economies
Purchasing Power Parity (PPP)
• GNP estimates adjusted to provide a better
comparison across countries
• Shows how many US$ needed to buy here
what the average citizen could buy in a
foreign country
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Discussion
• Where are the poorest countries located?
• …the richest countries?
• Which countries are the most open?...least?
• Which country exported most in 2004?
…imported?
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Learning Objectives
• Review the Syllabus & Calendar
• Explain aggregate characteristics of national
economies
• Describe the trends and patterns in
international trade
Patterns and Trends in
International Trade
• Trade has grown rapidly -- compare Index of
openness for 1980 and 2004
– See Figure 1-1, page 11
– World GDP has grown
• 1950 base year (index value = 100)
• 2004 index value ~ 750
– World exports have grown much faster
• 1950 base year (index value = 100)
• 2004 index value ~ 2750
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Patterns and Trends in
International Trade
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• The Direction of Trade for Six Regions
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See Figure 1.2
Which regions account for the bulk of world exports?
Which regions have declining shares?
What changes or consistencies can you find between
the two periods?
• For example, countries trade most often with ___________
– Due to lower transaction costs (including transportation & information)
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Patterns and Trends in
International Trade
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– US was the world’s largest importer & 2nd
largest exporter in 2004
– Which countries were our largest trading
partners in 2004? See Table 1.2
– Which category represented the largest share of
world trade in 2003? See Table 1.3
– Which category represented the largest share of
US exports in 2003? …Egypt? See Table 1.4
Patterns and Trends in
International Trade
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• Trends in the Volume of Trade
– In 1960, the U.S. exported less than 5% of total
output and imported 4.5% of the goods and
services consumed domestically.
– Since, 1960 the composition of imports have
changed dramatically
• food and raw material imports have fallen
• machinery comprise close to 50% of total imports
Patterns and Trends in
International Trade
• Balance of Trade and International
Borrowing
– The merchandise balance of trade is the value
of merchandise exports minus the value of
merchandise imports
– In the latest 12 months, the U.S. had a $806.4
billion deficit
• The Economist, January 12, 2008, page 90.
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Patterns and Trends in
International Trade
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• Top Ten Trading Partners
– See Table 1.2, page 16
– In 2004, ______% of all of US merchandise exports
went to Canada.
– Similar to 1995, when 21.63% of all of US merchandise
exports went to Canada.
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Patterns and Trends in
International Trade
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• What goods do countries trade?
– See Table 1.3, pages 19 & 20
– It ranks goods by their share of the value of ‘03 trade
– Industries are identified by Standard International Trade
Classification (SITC) Code
– Divides industries into ten broad categories (0-9)
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Example: 7 is machines and transport equipment
78 is road vehicles
781 is passenger motorcars
rank #1 for ‘91, @5.0%; rank #2 for ‘96, at 4.8%; 2003 rank?
Surpassed by office machines, computers & parts
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Patterns and Trends in
International Trade
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• What goods do countries trade?
– Countries typically import agricultural
commodities, raw materials, capital goods, or
semi-manufactured goods
– A large share of imports do not compete
directly for purchase by the final consumer
• notable exceptions (cars, clothing, computers, toys)
Patterns and Trends in
International Trade
• What goods do countries trade?
– Commodity composition of trade
• Table 1.4, p 22 -- exports of selected countries
• Table 1.5, p23 -- imports of selected countries
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World Trade in Services
• Value of $2.1 trillion in 2004 (about 20% of
international trade)
• U.S. is largest exporter and importer
of services
• Most traded services: transportation, travel,
other services (banking, medicine,
consulting, insurance & education)
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Patterns and Trends in
International Trade
• Conclusions
– Real-world trade is complex
– Abstract economic models aid understanding
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Homework
• Read Preface, Chapter 1, and Chapter 2
• Answer Chapter 1 exercises 1, 2, 5, 6 & 9
(typed or neatly written). See link to
questions on my web calendar of
assignments.