EECS 1019 Lecture 31: EECS 1019 Lecture 31 Notes
15 Jun 2018
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EECS 1019 Lecture 31 Notes
Introduction
Coutry’s ecooy
• Cosider that he a outry’s eooy stregthes ad hee its osuers uy
more products from firms in other countries, the firms in those other countries
experience stronger sales and cash flows.
• Therefore, the owners and employees of these firms have more income.
• When they spend a portion of that higher income locally, they stimulate their local
economy.
• Coersely, if the foreig outry’s eooy eakes ad hee its osuers uy
fewer products from firms in other countries, then the firms in those countries
experience weaker sales and cash flows.
• The owners and employees of these firms therefore have less income, and if they
reduce spending locally their local economy weaken.
• There is much international trade between the United States and Europe.
• European countries under weak economic conditions tend to reduce their demand for
U.S.-made products.
• The result may be weaker economic conditions in the United States, which may lead to
lower national income and higher unemployment there.
• Then U.S. consumers would have less money to spend and so would reduce their
demand for the products offered by U.S.-based MNCs.
• In recent years, the financial press has featured extensive coverage on how bad
economic conditions in European countries adversely affect the U.S economy.
• Similarly, research has documented that U.S. stock market performance is highly
sensitive to economic conditions in Europe.
• The effects on international economic conditions are illustrated in Exhibit 1.5, which
shows how weak European conditions can affect the valuations of U.S.-based MNCs.
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