CLASS NOTES FOR ECONOMICS 251

DR. WILLIAM SHINGLETON

FALL 2005

THESE NOTES ARE FOR DECEMBER 6, 2005

 

THIS WEEK         CH 35

 

REVIEW GET CURRENT DATA

WWW.BEA.DOC.GOV

          IMPORTS 1473 B JAN-SEP

          EXPORTS  943 B JAN-SEP

          NET EXPORTS (TRADE BALANCE)

                   TRADE SURPLUS

                   TRADE DEFICIT 500 B JAN-SEP

          MULTIPLIER EFFECT

 

DEFINE

          CLOSED ECONOMY

          OPEN ECONOMY

                   NORTH KOREA (2001)

                             17  B GDP

 

                             560 M MISSILE/COMPONENT EXPORTS 3.3 PCT

 

 


TRADE CONTRACTS

          USUALLY WRITTTEN IN U.S. DOLLARS

          USUALLY WRITTTEN IN BRITISH ENGLISH

          WATCH FOR C.I.F. VS F.O.B. PRICES

 

 

          GROWTH AND TRADE ARE TIED

                   BRITAIN/19TH

                   UNITED STATES/19TH

                   JAPAN/20TH

                   CHINA/20TH

                   IRELAND/20TH

                   INDIA/21ST

 

          CLOSED ECONOMIES STAGNATE

                   EUROPE/20TH

                   CHINA/20TH

                   INDIA/20TH

 

 

 

EXPORT RATIO

          GROSS EXPORTS/GDP

                   11 PCT FOR UNITED STATES

                   POOR MEASURE OF HEALTH

                   OTHER FACTORS

                             SIZE OF DOMESTIC MARKET

                             TRADE BARRIERS

 

 


GAINS FROM TRADE

 

          SPECIALIZATION THRU TRADE

                    INCREASED WORLD OUTPUT

                    INTERDEPENDENCE

 

 

                    BROADER CONSUMPTION POSSIBILITIES FOR ALL

                    COMPARATIVE ADVANTAGE

                    PRODUCTIVITY

                    PROBLEMS IN JOB TRANSITION

                             WHICH WAY DO THE JOBS GO?

                             WHICH JOBS?

 

PRODUCTION POSSIBILITIES

CONSUMPTION POSSIBILITIES

 

          INCREASES CHOICES

          CHOICES NO LONGER LIMITED TO PRODUCTION

          COMPARATIVE ADVANTAGE

                   NATURAL ENDOWMENTS

                   IMPORTS

                   EXPORTS

                   MULTILATERAL TRADE

                   SPECIALIZATION

          EFFECTS

                   JOBS NO EFFECT

                   INCOME IS HIGHER

                   SOME WINNERS, SOME LOSERS

 


GAINS FROM TRADE

          MERCANTILISM

          ABSOLUTE ADVANTAGE

          COMPARATIVE ADVANTAGE/OPPORTUNITY COST

                   EXAMPLE

          TERMS OF TRADE

 

 

 

MARGINAL PROPENSITY TO IMPORT (MPM)

          REDUCES SIZE OF MULTIPLIER

                   LOGIC

                   ALGEBRA

 

          REDUCE THE EFFECT OF FISCAL STIMULUS

 

          GLOBAL AUTOMATIC STABILIZER

 

 


TRADE GOALS VS DOMESTIC GOALS

          FISCAL STIMULUS ADDS TO THE ECONOMY AND

                    1. REDUCES UNEMPLOYMENT

                   2. INCREASES IMPORTS

                   3. WIDENS THE TRADE DEFICIT

 

 

 

BARRIERS TO TRADE

          SMOOT-HAWLEY

 

          REASONS

                   JOBS AND PROFITS/IMPORT COMPETING INDUSTRIES

                   DUMPING/STEEL

                   NATIONAL SECURITY/COMPUTERS

                   INFANT INDUSTRIES/CHINA

                   BEGGAR-THY-NEIGHBOR/JAPAN

                   VISIBILITY OF EXPORTS

 

          FREE TRADE WITH SUPPLY AND DEMAND /PG 745

 

          TARIFFS

                   COUNTERVAILING DUTIES

                   SHOW WITH SUPPLY AND DEMAND/PG 745

 

                   PROHIBITIVE TARIFF

                   NON-PROHIBITIVE TARIFF

 

          QUOTAS

                   SHOW WITH SUPPLY AND DEMAND/PG 745

                   SOME AS SWEET AS SUGAR

 

 

 


          HEALTH AND SAFETY REGULATIONS (US HORMONES)

                   Bovard, James. The Free Trade Fraud includes a

                   list of the idiotic things the American

                   consumer is protected from

                             WE ARE PROTECTED AGAINST FOREIGN TOMATOES, ICE CREAM, WOMEN'S UNDERWEAR, STEEL, SUGAR, POTATO CHIPS, PHOTO ALBUMS, PEARS, MIRRORS, CEMENT, ROOFING SHINGLES, CODFISH, TELEVISIONS, PAINTBRUSHES, MOTORCYCLE BATTERIES, STAPLES, STAPLERS, MARTIAL ARTS UNIFORMS, RADIOS, FORKLIFTS, WOOL, HAM, CASTOR OIL, CARNATIONS, PISTACHIOS, TOWELS, ROSES, GLASS, SCISSORS, BALL BEARINGS,...

 

 

 

WORLD TRADE

          WORLD EXPORTS = WORLD IMPORTS

          U.S. DEFICIT  => WORLD TRADE SURPLUS BY OTHERS

 

 

          EUROPEAN UNION

                   ABOUT 25 MEMBERS (APR2004) CHECK THIS/OK AS OF NOV2005

                   ATTEMPTING COMMON MACRO POLICIES

                   RESTRICTIONS ON MACRO CHOICES

                   REJECTED NEW CONSTITUTION

 

          NAFTA

                   UNITED STATES, CANADA, MEXICO

                   ONLY TRADE, NOT CURRENCY

 

          CAFTA/2005

                   U.S., EL SALAVADOR, COSTA RICA, DOMINICAN REPUBLIC,

                   HONDURAS, NICARAGUA, GUATEMALA

                   ONLY TRADE, NOT CURRENCY