EECS 1520 Lecture 26: EECS 1520 Lecture 26 Notes
21 Jun 2018
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EECS 1520 Lecture 26 Notes
Introduction
Credit Conditions
Credit conditions tend to tighten when economic conditions weaken because
corporations are then less able to repay debt.
In that case, banks are less willing to provide financing to MNCs, which can reduce
corporate spending and further weaken the economy.
As MNCs reduce their spending, they also reduce their demand for imported supplies.
The result is a decline in international trade flows.
An unfavorable credit environment may reduce international trade also by making it
difficult for some MNCs to obtain the funds needed for purchasing imports.
Many MNCs that purchase imports rely on letters of credit, which are issued by
commercial banks on behalf of the importers and consist of a promise to make payment
upon delivery of the imports.
If banks fear that an MNC will be unable to repay its debt because of weak economic
conditions then they might refuse to provide credit, and such an MNC will be unable to
purchase imports without that credit.
Government Policies
Theories about the advantages of free trade are commonly given much attention in
classrooms, but these theories are less popular when the country’s unemployment rate
increases in response to a large balance-of-trade deficit.
A job created in one country may be lost in another, which causes countries to battle for
a greater share of the world’s exports.
Government policies can have a major influence on which firms within an industry attain
the most market share worldwide.
These policies affect the legislating country’s unemployment level, income level, and
economic growth.
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Document Summary
Credit conditions tend to tighten when economic conditions weaken because corporations are then less able to repay debt. In that case, banks are less willing to provide financing to mncs, which can reduce corporate spending and further weaken the economy. Theories about the advantages of free trade are commonly given much attention in classrooms, but these theories are less popular when the country"s unemployment rate increases in response to a large balance-of-trade deficit. These policies affect the legislating country"s unemployment level, income level, and economic growth. Banks are less willing to provide financing to mncs, which can reduce corporate spending and further weaken the economy. As mncs reduce their spending, they also reduce their demand for imported supplies. The result is a decline in international trade flows. An unfavorable credit environment may reduce international trade also by making it difficult for some mncs to obtain the funds needed for purchasing imports.
