Instructor: Basil Al Hashimi
Please be sure to visit each of the following links:
Instructions for Module # 5
- Required Reading as follows: Chapters 20-21 in Macroeconomics
- Written Report Assignment:
Prepare a 2-3 page report addressing one of the topics below. The papershould be based
upon reading, research, or experience, such as a personal jobexperience or case study. Concepts from the text should be integrated whenapplicable. Identify the macroeconomics concept(s) or principle(s) involved,relate the report to specific
issues in macroeconomics, and provideconclusions, recommendations, or lessons learned as a result of yourresearch.
Explain the impact of international trade on the economy of the U.S.A.and American companies in terms of promoting
their businesses andinvolvement in world trade.
or
The importance of the economic growth and its impact on the GDP.
Important Points of Chapters 20 -21 (handout for these chapters):
Written by: Basil Al-Hashimi Course: Macroeconomics 111
The following notes have been created in order to assist
you in your understanding of the text as well as to help you prepare for
your examination. Chapters 20-21
- Economic growth is best described as an expansion of the production-possibility frontier.
- The Bretton Woods agreement established a system of fixed exchangerates, where the U.S. $ was pegged to gold and other
currencies were peggedto the dollar. It also created the IMF, which was to help countries overcomeshort term monetary problems, and the World Bank, to help finance long termreconstruction and development.
- A country is in a balance
of trade equilibrium when the income of itsresidents earn from exports is equal to the money paid to foreigners topurchase imports.
- International trade occurs because of specialization in production.
- Comparative advantage is
based on relative opportunity costs of producing goods in different countries.
- With international trade and specialization in production, each nation can consume outside its PPF.
- International trade between countries A and B
can be mutually profitable even though A can produce every commodity more cheaply than B.
- The terms of trade are the amount of an export good that must be given up to obtain one unit of an imported good.
- International
equilibrium trade occurs at the point where the quantity of imports demanded by one country is equal to the quantity of exports supplied by the other country.
- The "infant industry" argument justifies tariff protection for a new
industry with large potential economies of scale.
- Quota is a form of import protectionism in which the total quantity of imports of a particular commodity during a given period is limited.
- Protectionist tariffs and quotas
often reduce the real incomes of the protected workers and consumers.
- A partially flexible exchange rate means that at times the governmentbuys and sells currencies to influence the price directly; at other times thegovernment
simply accepts the market-determined rate.
- The exchange rate is defined as the ratio at which one country's currencycan be traded for another country's currency.
- A high exchange rate for the dollar makes foreign currencies
cheaper,lowering the price of imports.
- A high exchange rate for the dollar tends to reduce aggregate demandand a low rate tends to increase it.
- A deficit in the trade balance means that imports exceed exports, so thata
country is consuming more than it is producing.
- When other countries threatened to limit Japanese imports, Japan tooksteps to increase the value of the yen and decrease its trade surplus.
- The part of the balance of payments
account that lists all short-termflows of payments is the current account.
- The part of the balance of payments accounts that lists all long-termflows of payments account is the capital account.
- The part of the balance of
payments account that records the amount ofcurrency the government buys is the official transactions account.
- The capital account of the balance of payments includes internationaltransactions in stocks and bonds.
- A special
drawing right (SDR) is a substitute for gold issued by theInternational Monetary Fund that is used as a form of international reserve.
- Special drawing rights are a kind of international money.
- If there are flexible exchange
rates and the U.S. demand for Germangoods increases, then the German mark will appreciate in value against theU.S. dollar.
- The purchase of dollars with yen by the U.S. Treasury on foreignexchange markets in order to support the
value of the dollar would berecorded in the U.S. balance of payments as a positive entry in the officialtransactions account.
Basil Al Hashimi
Please be sure to visit each of the following links:
Please contact Basil
al Hashimi for comments or corrections email
Red Mountain Campus phone:
480-654-7715 see a map
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