ECO ESSAY
YANGYANG
1.Introduction_2.pptx1 Introduction
University of Miami
1
Preview
University of Miami
2
1.What is international economics about?
2. International trade topics
Gains from trade
Patterns of trade
Effects of government policies on trade
3.International finance topics
Balance of payments, exchange rate determination, international policy coordination and capital markets
4. International trade versus finance
University of Miami
3
1-3
1. What Is International Economics About?
International economics is about how nations interact through:
Trade of goods and services,
Flows of money, and
Investment.
International economics is an old subject, but continues to grow in importance as countries become tied more to the international economy.
Nations are now more closely linked than ever before!!
University of Miami
4
1. What Is International Economics About?
International trade as a fraction of the national economy has tripled for the U.S. in the past 40 years.
Both imports and exports fell in 2009.
Compared to the U.S., other countries are even more tied to international trade.
University of Miami
5
Exports and Imports as a Percentage of U.S. GDP
Source: U.S. Bureau of Economic Analysis
Percent of US GDP
University of Miami
6
Average of Exports and Imports as Percentage of National Income in 2015
Source: Organization for Economic Cooperation and Development
University of Miami
7
Gains from Trade
Several ideas underlie the gains from trade.
When a buyer and a seller engage in a voluntary transaction, both can be made better off.
Norwegian consumers import oranges that they would have a hard time producing.
The producer of the oranges receives income that it can use to buy other things that it desires.
University of Miami
8
Gains from Trade
How could a country that is the most (least) efficient producer of everything gain from trade?
Countries use finite resources to produce what they are most productive at (compared to their other production choices), then trade those products for goods and services that they want to consume.
Countries can specialize in production, while consuming many goods and services through trade.
University of Miami
9
Gains from Trade
Trade benefits countries by allowing them to export goods made with relatively abundant resources and import goods made with relatively scarce resources.
When countries specialize, they may be more efficient due to larger-scale production.
Countries may also gain by trading current resources for future resources (international borrowing and lending) and due to international migration.
University of Miami
10
Gains from Trade
Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country.
International trade can harm the owners of resources that are used relatively intensively in industries that compete with imports.
Trade may therefore affect the distribution of income within a country.
University of Miami
11
Patterns of Trade
Differences in climate and resources can explain why Brazil exports coffee and Australia exports iron ore.
But why does Japan export automobiles, while the U.S. exports aircraft?
Why some countries export certain products can stem from differences in:
Labor productivity
Relative supplies of capital, labor and land and their use in the production of different goods and services
University of Miami
12
Effects of Government Policies on Trade
Policy makers affect the amount of trade through
Tariffs: a tax on imports or exports,
Quotas: a quantity restriction on imports or exports,
Export subsidies: a payment to producers that export,
or through other regulations (ex., product specifications) that exclude foreign products from the market, but still allow domestic products.
What are the costs and benefits of these policies?
University of Miami
13
The Effects of Government Policies on Trade
If a government must restrict trade, which policy should it use and how much should it restrict trade?
If a government restricts trade, what are the costs if foreign governments respond likewise?
University of Miami
14
2. International Finance Topics
Exchanging risky assets such as stocks and bonds can benefit all countries by diversification that reduces the variability of income – another source of gains from trade.
Most international trade involves monetary transactions.
Many monetary events have important consequences for international trade.
University of Miami
15
4. International Trade Versus Finance
International trade: Focuses on transactions involving movement of goods and services across nations.
International finance: Focuses on financial or monetary transactions across nations.
