International Trade and Foreign Exchange Markets
20b – International Trade and
Foreign Exchange Markets
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I recommend that you view it as one page by
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20b – Macro – International Trade
•
Facts about Trade
•
Trade Restrictions
•
Exchange Rates
•
Trade Deficits
20b – Macro – International Trade
OUTCOMES
•
summarize the importance of international trade to the U.S. in terms of overall
volume and major trading partners.
•
list the major imports and exports of the United States and identify the major its
major trading partners
•
identify types of trade barriers
•
describe the economic impact of tariffs, including both direct and indirect effects.
•
contrast the economic impact of a quota with that of a tariff.
•
list six arguments in favor of protectionist barriers, and critically evaluate each
•
who gains from trade restrictions? who loses?
•
the two most popular arguments against free trade are (1) we need to restrict trade
to crease more jobs here, and (2) how can our workers compete against workers
who are paid only a few dollars a day? Why do these two argments make NO
ECONOMIC SENSE?
•
why are import quotas more restrictive than tarrifs?
•
identify the costs of protectionist policies and their effects on income distribution.
•
understand the benefits and problems of a "strong dollar" and a "weak dollar"
•
what causes exchange rates to appreciate and depreciate?
•
understand the causes and effects of trade deficits
20b – Macro – International Trade
Key Terms
imports, exports, trade barriers, tariff,
revenue tariff, protective tariff, import
quota, nontariff barrier, export subsidies,
special interest effect, infant industry,
dumping, WTO, NAFTA, TPP, offshoring,
exchange rate, strong dollar, weak dollar,
appreciation, depreciation, trade deficit,
trade surplus
Facts of Trade
- From whom does the US Import the most?
- To whom does the US export the most?
- What are the major exports of the US?
- What are the major imports into the US?
- Which countries export the most?
- Why is the amount of trade increasing?
http://www.harpercollege.edu/mhealy/eco212/lectures/chtrade/chtrade.htm#20b
1. Who is the largest trading partner
of the US (imports + exports) ?
1.
China
2.
Mexico
3.
Canada
4.
Japan
5.
Saudi Arabia
1. Who is the largest trading partner
of the US (imports + exports) ?
1.
China
2.
Mexico
3.
Canada
4.
Japan
5.
Saudi Arabia
Types of Trade Barriers
•
Tariffs
–
Revenue Tariff
–
Protective Tariff
•
Quotas
•
Voluntary Export Restrictions
•
Non-Tariff Barriers
•
Export Subsidies
2. An excise tax on an imported item that is mainly
designed to reduce the amount of imports is a/an:
1.
Quota
2.
Revenue tariff
3.
Protective tariff
4.
Export subsidy
2. An excise tax on an imported item that is mainly
designed to reduce the amount of imports is a/an:
1.
Quota
2.
Revenue tariff
3.
Protective tariff
4.
Export subsidy
3. Who is NOT hurt by a Tariff?
1.
Domestic producers
2.
Foreign producers
3.
Companies that use the imported item
4.
Consumers
3. Who is NOT hurt by a Tariff?
1.
Domestic producers
2.
Foreign producers
3.
Companies that use the imported item
4.
Consumers
4. Which is NOT true about trade
restrictions?
1.
They put a bigger burden on the poor
2.
The costs far outweigh the benefits
3.
The benefits are easier to see than the costs
4.
They result in a higher standard of living
4. Which is NOT true about trade
restrictions?
1.
They put a bigger burden on the poor
2.
The costs far outweigh the benefits
3.
The benefits are easier to see than the costs
4.
They result in a higher standard of living
5.
S
d
and
D
d
are the domestic supply and demand
curves for a product.
The world price of the product
is $8.
If the market is open to international trade but
there is a
tariff of $2 per unit
imposed, what is the
total government revenue generated?
1.
$2
2.
$20
3.
$40
4.
$60
5.
S
d
and
D
d
are the domestic supply and demand
curves for a product.
The world price of the product
is $8.
If the market is open to international trade but
there is a
tariff of $2 per unit
imposed, what is the
total government revenue generated?
1.
$2
2.
$20
3.
$40
4.
$60
Arguments for Trade Barriers
Why do trade restrictions exist?
(1) explain the argument,
(2) list the problems (counter-arguments)
(3) state whether it makes economic sense
–
Military Self-Sufficiency
–
Increase Domestic Employment
–
Diversification-for-Stability
–
Infant Industry
–
Protection Against Dumping
–
Cheap Foreign Labor
6. Which is a valid
counterargument
to the call for
higher tariffs
to save U.S. jobs
?
1.
The need to protect U.S. workers from the
dumping of foreign products
2.
Strategic trade policy calls for equal treatment of
all trading nations so that they will have the same
competitive conditions
3.
U.S. firms and workers must be protected from
the ruinous competition of nations where wages
for workers are low
4.
Imports may eliminate some U.S. jobs, but they
create others, so they may have little or no effect
on employment
6. Which is a valid
counterargument
to the call for
higher tariffs
to save U.S. jobs
?
1.
The need to protect U.S. workers from the
dumping of foreign products
2.
Strategic trade policy calls for equal treatment of
all trading nations so that they will have the same
competitive conditions
3.
U.S. firms and workers must be protected from
the ruinous competition of nations where wages
for workers are low
4.
Imports may eliminate some U.S. jobs, but they
create others, so they may have little or no effect
on employment
7. Which is a valid counterargument
to the infant industry argument for
protective tariffs?
1.
It results in too many benefits for domestic firms
that export goods and services
2.
It is difficult to determine which infant industries
will become mature industries with a
comparative advantage
3.
The objective would be better achieved through
strategic trade policy
4.
The objective would be better achieved by
import quotas and nontariff barriers
7. Which is a valid counterargument
to the infant industry argument for
protective tariffs?
1.
It results in too many benefits for domestic firms
that export goods and services
2.
It is difficult to determine which infant industries
will become mature industries with a
comparative advantage
3.
The objective would be better achieved through
strategic trade policy
4.
The objective would be better achieved by
import quotas and nontariff barriers
Exchange Rates
•
Appreciation and Depreciation
•
Who supplies and who demands foreign
exchange and why?
•
Determinants of Flexible
Exchange Rates
–
Change in tastes
–
Change in relative incomes
–
Change in relative inflation rates (prices)
–
Change in relative interest rates
–
Change in expected rates of returns on other
financial investments
•
Fixed Exchange Rates
8. What is a problem with a “strong dollar”?
1.
More economic growth
2.
More inflation
3.
More unemployment
4.
More exports
8. What is a problem with a “strong dollar”?
1.
More economic growth
2.
More inflation
3.
More unemployment
4.
More exports
9. Consider the currency market for
Japanese yens and U.S. dollars. An
increase in the demand for
Japanese yen results in:
1.
An appreciation of the yen and a depreciation of
the dollar
2.
A depreciation of the yen and a depreciation of
the dollar
3.
An appreciation of the yen and an appreciation
of the dollar
4.
A depreciation of the yen and an appreciation of
the dollar
9. Consider the currency market for
Japanese yens and U.S. dollars. An
increase in the demand for
Japanese yen results in:
1.
An appreciation of the yen and a depreciation of
the dollar
2.
A depreciation of the yen and a depreciation of
the dollar
3.
An appreciation of the yen and an appreciation
of the dollar
4.
A depreciation of the yen and an appreciation of
the dollar
Increase in Demand for the Yen
10. Consider the currency market
for Japanese yens and U.S.
dollars. An increase in the supply
for Japanese yen results in:
1.
An appreciation of the yen and a depreciation of
the dollar
2.
A depreciation of the yen and a depreciation of
the dollar
3.
An appreciation of the yen and an appreciation
of the dollar
4.
A depreciation of the yen and an appreciation of
the dollar
10. Consider the currency market
for Japanese yens and U.S.
dollars. An increase in the supply
for Japanese yen results in:
1.
An appreciation of the yen and a depreciation of
the dollar
2.
A depreciation of the yen and a depreciation of
the dollar
3.
An appreciation of the yen and an appreciation
of the dollar
4.
A depreciation of the yen and an appreciation of
the dollar
Increase in the Supply of the Yen
Determinants of Foreign Exchange
We demand a foreign currency to ( D
Yen
):
•
Buy foreign goods (Pe, Pog, I, Npot, T)
•
Make financial investments in foreign country
(high interest rate)
We supply our currency when we ( S
$
):
•
Buy foreign goods (Pe, Pog, I, Npot, T)
•
Make financial investments in foreign country
(high interest rate)
Determinants of Foreign Exchange
They demand our currency to ( D
$
):
•
Buy our goods (Pe, Pog, I, Npot, T)
•
Make financial investments in our country
(high interest rate)
They supply foreign currency when they ( S
yen
):
•
Buy our goods (Pe, Pog, I, Npot, T)
•
Make financial investments in our country
(high interest rate)
11. If interest rates in the US
increase compared to those in
Japan, then we would expect:
1.
Yen appreciates; $ depreciates
2.
Yen depreciates; $ appreciates
3.
Yen appreciates; $ appreciates
4.
Yen depreciates; $ depreciates
11. If interest rates in the US
increase compared to those in
Japan, then we would expect:
1.
Yen appreciates; $ depreciates
2.
Yen depreciates; $ appreciates
3.
Yen appreciates; $ appreciates
4.
Yen depreciates; $ depreciates
If interest rates in the US increase compared to
those in Japan, then we would expect:
12. If the US has rapid economic
growth compared to Japan:
1.
Yen appreciates; $ depreciates
2.
Yen depreciates; $ appreciates
3.
Yen appreciates; $ appreciates
4.
Yen depreciates; $ depreciates
12. If the US has rapid economic
growth compared to Japan:
1.
Yen appreciates; $ depreciates
2.
Yen depreciates; $ appreciates
3.
Yen appreciates; $ appreciates
4.
Yen depreciates; $ depreciates
If the US has rapid economic growth
compared to Japan:
Trade Deficits
•
Causes
•
Effects
13. Relatively rapid U.S. growth between
2001 and 2007, contributed to large U.S.
trade deficits by:
1.
increasing U.S. national income, which decreased
U.S. exports.
2.
reducing real interest rates in the United States.
3.
increasing U.S. tax revenues and reducing the
Federal budget deficit.
4.
increasing U.S. national income, which increased
U.S. imports.
13. Relatively rapid U.S. growth between
2001 and 2007, contributed to large U.S.
trade deficits by:
1.
increasing U.S. national income, which decreased
U.S. exports.
2.
reducing real interest rates in the United States.
3.
increasing U.S. tax revenues and reducing the
Federal budget deficit.
4.
increasing U.S. national income, which increased
U.S. imports.
14. Present consumption supported
by large trade deficits may come at
the expense of:
1.
debt to foreign interests.
2.
foreign ownership of formerly U.S. owned
assets.
3.
large sacrifices of future consumption.
4.
all of these.
14. Present consumption supported
by large trade deficits may come at
the expense of:
1.
debt to foreign interests.
2.
foreign ownership of formerly U.S. owned
assets.
3.
large sacrifices of future consumption.
4.
all of these.
U.S. Trade Deficits
CAUSES
•
Rapid economic growth
•
Large deficits with
China
•
China fixes the value if
its currency
(undervalues it)
•
Oil imports
•
Declining savings rate
•
Favorable view of US
assets
EFFECTS
•
Increased current
consumption
•
But decreased future
consumption
•
Increased
U.S.
indebtedness
•
Foreign
ownership
of factories
•
Foreign ownership
of financial assets
Explore the world of international trade, foreign exchange markets, trade deficits, and trade restrictions in this comprehensive web quiz. Uncover key facts, trade barriers, economic impacts of tariffs, benefits and problems of exchange rates, and more. Delve into major imports and exports of the United States, identify top trading partners, and analyze the impacts of protectionist policies on income distribution and trade deficits.
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Presentation Transcript
20b International Trade and Foreign Exchange Markets This web quiz may appear as two pages on tablets and laptops. I recommend that you view it as one page by clicking on the open book icon at the bottom of the page.
20b Macro International Trade Facts about Trade Trade Restrictions Exchange Rates Trade Deficits
20b Macro International Trade OUTCOMES summarize the importance of international trade to the U.S. in terms of overall volume and major trading partners. list the major imports and exports of the United States and identify the major its major trading partners identify types of trade barriers describe the economic impact of tariffs, including both direct and indirect effects. contrast the economic impact of a quota with that of a tariff. list six arguments in favor of protectionist barriers, and critically evaluate each who gains from trade restrictions? who loses? the two most popular arguments against free trade are (1) we need to restrict trade to crease more jobs here, and (2) how can our workers compete against workers who are paid only a few dollars a day? Why do these two argments make NO ECONOMIC SENSE? why are import quotas more restrictive than tarrifs? identify the costs of protectionist policies and their effects on income distribution. understand the benefits and problems of a "strong dollar" and a "weak dollar" what causes exchange rates to appreciate and depreciate? understand the causes and effects of trade deficits
20b Macro International Trade Key Terms imports, exports, trade barriers, tariff, revenue tariff, protective tariff, import quota, nontariff barrier, export subsidies, special interest effect, infant industry, dumping, WTO, NAFTA, TPP, offshoring, exchange rate, strong dollar, weak dollar, appreciation, depreciation, trade deficit, trade surplus
Facts of Trade - From whom does the US Import the most? - To whom does the US export the most? - What are the major exports of the US? - What are the major imports into the US? - Which countries export the most? - Why is the amount of trade increasing? http://www.harpercollege.edu/mhealy/eco212/lectures/chtrade/chtrade.htm#20b
1. Who is the largest trading partner of the US (imports + exports) ? 1. China 2. Mexico 3. Canada 4. Japan 5. Saudi Arabia
1. Who is the largest trading partner of the US (imports + exports) ? 1. China 2. Mexico 3. Canada 4. Japan 5. Saudi Arabia
Types of Trade Barriers Tariffs Revenue Tariff Protective Tariff Quotas Voluntary Export Restrictions Non-Tariff Barriers Export Subsidies
2. An excise tax on an imported item that is mainly designed to reduce the amount of imports is a/an: 1. Quota 2. Revenue tariff 3. Protective tariff 4. Export subsidy
2. An excise tax on an imported item that is mainly designed to reduce the amount of imports is a/an: 1. Quota 2. Revenue tariff 3. Protective tariff 4. Export subsidy
3. Who is NOT hurt by a Tariff? 1. Domestic producers 2. Foreign producers 3. Companies that use the imported item 4. Consumers
3. Who is NOT hurt by a Tariff? 1. Domestic producers 2. Foreign producers 3. Companies that use the imported item 4. Consumers
4. Which is NOT true about trade restrictions? 1. They put a bigger burden on the poor 2. The costs far outweigh the benefits 3. The benefits are easier to see than the costs 4. They result in a higher standard of living
4. Which is NOT true about trade restrictions? 1. They put a bigger burden on the poor 2. The costs far outweigh the benefits 3. The benefits are easier to see than the costs 4. They result in a higher standard of living
5. Sdand Ddare the domestic supply and demand curves for a product. The world price of the product is $8. If the market is open to international trade but there is a tariff of $2 per unit imposed, what is the total government revenue generated? 1. $2 2. $20 3. $40 4. $60
5. Sdand Ddare the domestic supply and demand curves for a product. The world price of the product is $8. If the market is open to international trade but there is a tariff of $2 per unit imposed, what is the total government revenue generated? 1. $2 2. $20 3. $40 4. $60
Why do trade restrictions exist? (1) explain the argument, (2) list the problems (counter-arguments) (3) state whether it makes economic sense Military Self-Sufficiency Increase Domestic Employment Diversification-for-Stability Infant Industry Protection Against Dumping Cheap Foreign Labor Arguments for Trade Barriers
6. Which is a valid counterargument to the call for higher tariffs to save U.S. jobs? 1. The need to protect U.S. workers from the dumping of foreign products 2. Strategic trade policy calls for equal treatment of all trading nations so that they will have the same competitive conditions 3. U.S. firms and workers must be protected from the ruinous competition of nations where wages for workers are low 4. Imports may eliminate some U.S. jobs, but they create others, so they may have little or no effect on employment
6. Which is a valid counterargument to the call for higher tariffs to save U.S. jobs? 1. The need to protect U.S. workers from the dumping of foreign products 2. Strategic trade policy calls for equal treatment of all trading nations so that they will have the same competitive conditions 3. U.S. firms and workers must be protected from the ruinous competition of nations where wages for workers are low 4. Imports may eliminate some U.S. jobs, but they create others, so they may have little or no effect on employment
7. Which is a valid counterargument to the infant industry argument for protective tariffs? 1. It results in too many benefits for domestic firms that export goods and services 2. It is difficult to determine which infant industries will become mature industries with a comparative advantage 3. The objective would be better achieved through strategic trade policy 4. The objective would be better achieved by import quotas and nontariff barriers
7. Which is a valid counterargument to the infant industry argument for protective tariffs? 1. It results in too many benefits for domestic firms that export goods and services 2. It is difficult to determine which infant industries will become mature industries with a comparative advantage 3. The objective would be better achieved through strategic trade policy 4. The objective would be better achieved by import quotas and nontariff barriers
Appreciation and Depreciation Who supplies and who demands foreign exchange and why? Determinants of FlexibleExchange Rates Change in tastes Change in relative incomes Change in relative inflation rates (prices) Change in relative interest rates Change in expected rates of returns on other financial investments Fixed Exchange Rates Exchange Rates
8. What is a problem with a strong dollar? 1. More economic growth 2. More inflation 3. More unemployment 4. More exports
8. What is a problem with a strong dollar? 1. More economic growth 2. More inflation 3. More unemployment 4. More exports
9. Consider the currency market for Japanese yens and U.S. dollars. An increase in the demand for Japanese yen results in: 1. An appreciation of the yen and a depreciation of the dollar 2. A depreciation of the yen and a depreciation of the dollar 3. An appreciation of the yen and an appreciation of the dollar 4. A depreciation of the yen and an appreciation of the dollar
9. Consider the currency market for Japanese yens and U.S. dollars. An increase in the demand for Japanese yen results in: 1. An appreciation of the yen and a depreciation of the dollar 2. A depreciation of the yen and a depreciation of the dollar 3. An appreciation of the yen and an appreciation of the dollar 4. A depreciation of the yen and an appreciation of the dollar
10. Consider the currency market for Japanese yens and U.S. dollars. An increase in the supply for Japanese yen results in: 1. An appreciation of the yen and a depreciation of the dollar 2. A depreciation of the yen and a depreciation of the dollar 3. An appreciation of the yen and an appreciation of the dollar 4. A depreciation of the yen and an appreciation of the dollar
10. Consider the currency market for Japanese yens and U.S. dollars. An increase in the supply for Japanese yen results in: 1. An appreciation of the yen and a depreciation of the dollar 2. A depreciation of the yen and a depreciation of the dollar 3. An appreciation of the yen and an appreciation of the dollar 4. A depreciation of the yen and an appreciation of the dollar
Determinants of Foreign Exchange We demand a foreign currency to ( DYen): Buy foreign goods (Pe, Pog, I, Npot, T) Make financial investments in foreign country (high interest rate) We supply our currency when we ( S$): Buy foreign goods (Pe, Pog, I, Npot, T) Make financial investments in foreign country (high interest rate)
Determinants of Foreign Exchange They demand our currency to ( D$): Buy our goods (Pe, Pog, I, Npot, T) Make financial investments in our country (high interest rate) They supply foreign currency when they ( Syen): Buy our goods (Pe, Pog, I, Npot, T) Make financial investments in our country (high interest rate)
11. If interest rates in the US increase compared to those in Japan, then we would expect: 1. Yen appreciates; $ depreciates 2. Yen depreciates; $ appreciates 3. Yen appreciates; $ appreciates 4. Yen depreciates; $ depreciates
11. If interest rates in the US increase compared to those in Japan, then we would expect: 1. Yen appreciates; $ depreciates 2. Yen depreciates; $ appreciates 3. Yen appreciates; $ appreciates 4. Yen depreciates; $ depreciates
If interest rates in the US increase compared to those in Japan, then we would expect:
12. If the US has rapid economic growth compared to Japan: 1. Yen appreciates; $ depreciates 2. Yen depreciates; $ appreciates 3. Yen appreciates; $ appreciates 4. Yen depreciates; $ depreciates
12. If the US has rapid economic growth compared to Japan: 1. Yen appreciates; $ depreciates 2. Yen depreciates; $ appreciates 3. Yen appreciates; $ appreciates 4. Yen depreciates; $ depreciates
If the US has rapid economic growth compared to Japan:
Trade Deficits Causes Effects
13. Relatively rapid U.S. growth between 2001 and 2007, contributed to large U.S. trade deficits by: 1. increasing U.S. national income, which decreased U.S. exports. 2. reducing real interest rates in the United States. 3. increasing U.S. tax revenues and reducing the Federal budget deficit. 4. increasing U.S. national income, which increased U.S. imports.
13. Relatively rapid U.S. growth between 2001 and 2007, contributed to large U.S. trade deficits by: 1. increasing U.S. national income, which decreased U.S. exports. 2. reducing real interest rates in the United States. 3. increasing U.S. tax revenues and reducing the Federal budget deficit. 4. increasing U.S. national income, which increased U.S. imports.
14. Present consumption supported by large trade deficits may come at the expense of: 1. debt to foreign interests. 2. foreign ownership of formerly U.S. owned assets. 3. large sacrifices of future consumption. 4. all of these.
14. Present consumption supported by large trade deficits may come at the expense of: 1. debt to foreign interests. 2. foreign ownership of formerly U.S. owned assets. 3. large sacrifices of future consumption. 4. all of these.
U.S. Trade Deficits CAUSES Rapid economic growth Large deficits with China China fixes the value if its currency (undervalues it) Oil imports Declining savings rate Favorable view of US assets EFFECTS Increased current consumption But decreased future consumption Increased U.S. indebtedness Foreign ownership of factories Foreign ownership of financial assets
