wk 7 discussion

Q.1

Please review the following video to increase your understanding of the effect of

specialization on gains from trade.

·

Specialization and Trade

(Links

to

an

external

site.)

·

Take a closer look at our local economy or a country of your interest and pick a goo

d or

a service that you believe America (or your country of choice) has a comparative

advantage in producing. Discuss the factors that you believe give America (or your

country of choice) such an advantage.

·

In addition, is it better for a country to export

more or to import more?

·

Moreover, what is the impact of trade surplus (exporting more than importing) and trade

deficit (importing more than exporting) on GDP, employment, and the exchange rate of

the country's currency?

So far we have discussed the macroeconomic issues (

GDP growth, inflation,

unemployment, money supply, money demand, fiscal policies, and monetary

policies

) without much consideration to the rest of the world. However, the reality is

that

we don’t live in an isolated economy

. The

globalization process

(

the

integration of economic activities and the ease of movements of funds, people, and

commodities between nations

) has limited government control over local economies

and has complicated the outcome of macroeconomic policies.

When the local economy is doing w

ell

(high GDP growth, stable inflation, higher

employment, and stronger currency),

then it might attract foreign investors who

wish to invest in physical capital (

factories for example)

or financial assets

(stocks,

bonds, money market, etc.). The flow of f

unds from foreign investors will have a positive

(increase) effect on the money supply, but a negative effect on interest rates. In

addition, foreign investors will need to purchase (exchange) the currency of the country

they wish to invest in using their

local currency.

This means an increase in demand

for that country’s currency. This increase in demand causes the value of that

currency to rise. This rise in the value of the currency in the global exchange

market will cause an increase in the prices of ex

portable goods/services

relative to

other countries. In other words, when the country’s economy is attractive to foreign

investors, this could lead to a higher price level in that economy for foreigners who wish

to buy goods/services from that country.

Do

you prefer a strong dollar or a weak dollar given the state of the economy

today?

Q.1 Please review the following video to increase your understanding of the effect of

specialization on gains from trade.

 Specialization and Trade (Links to an external site.)

 Take a closer look at our local economy or a country of your interest and pick a good or

a service that you believe America (or your country of choice) has a comparative

advantage in producing. Discuss the factors that you believe give America (or your

country of choice) such an advantage.

 In addition, is it better for a country to export more or to import more?

 Moreover, what is the impact of trade surplus (exporting more than importing) and trade

deficit (importing more than exporting) on GDP, employment, and the exchange rate of

the country's currency?

So far we have discussed the macroeconomic issues (GDP growth, inflation,

unemployment, money supply, money demand, fiscal policies, and monetary

policies) without much consideration to the rest of the world. However, the reality is

that we don’t live in an isolated economy. The globalization process (the

integration of economic activities and the ease of movements of funds, people, and

commodities between nations) has limited government control over local economies

and has complicated the outcome of macroeconomic policies.

When the local economy is doing well (high GDP growth, stable inflation, higher

employment, and stronger currency), then it might attract foreign investors who

wish to invest in physical capital (factories for example) or financial assets (stocks,

bonds, money market, etc.). The flow of funds from foreign investors will have a positive

(increase) effect on the money supply, but a negative effect on interest rates. In

addition, foreign investors will need to purchase (exchange) the currency of the country

they wish to invest in using their local currency. This means an increase in demand

for that country’s currency. This increase in demand causes the value of that

currency to rise. This rise in the value of the currency in the global exchange

market will cause an increase in the prices of exportable goods/services relative to

other countries. In other words, when the country’s economy is attractive to foreign

investors, this could lead to a higher price level in that economy for foreigners who wish

to buy goods/services from that country.

Do you prefer a strong dollar or a weak dollar given the state of the economy

today?