FNCE 101 Lecture Notes - Lecture 1: Market Clearing, Absolute Advantage, Consumption Smoothing

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Audio 1

Audio recording started: 10:33 AM Monday, April 2, 2018

Slide 4

Trading is just like a new tech

○

•

Slide 5

Bookmark added at 02:29 in Audio 1

○

While us exports is relativley up to the60s they’ve increased since

○

Increase in Us trade

Came w better communication devices, ways to share info

across countiries

Idea of a better global supply chain

□

Emerged in the 80s and continued since

□

While us import of G&S were 4% of GDP in the 40s-60s

theyre 15-20% nowadays

○

•

Slide 6

Decline in trans and comm costs also tariffs and quotas cause

traede to rise so much

○

•

Slide 7

Bookmark added at 04:01 in Audio 1

○

Us showed trade deficit

You can see emergence in the 80s

Easy to blade this deficit w the decline in trade barriers

and icnrease in comm cost

But it mainly comes from us government deficit

Comes from fact that the US govt has a

problem

Theyre running a govt deficit and

someone has to chip in to pay deficit

}

◊

□

○

•

Slide 8

Trade deals arent always bad for US

○

Bookmark added at 05:05 in Audio 1

○

If u look at current balance w canada and _____ they arent bad at

all

Canada is 2% and is also the main trading partner

Not a problem

Most of the trade deficit in the US comes w trade

w Germany and China

□

○

China has biggest deficit

○

•

Slide 11

Countries trade because everyone likes variety

○

Bookmark added at 06:52 in Audio 1

○

We like wine and want to try it from a bunch of places

○

Trading w other nations helps us achieve this goal

○

Country B

a lot of banana a little fish

○

Country F

A lot of fish a little baananas

○

They can trade

Healthy balanced diet by trading fish for bananas and eating

an equal amt of both

○

•

Slide 13

Ppl trade because no one likes risk

Trade is always balanced

You exchange the over amount of banas producing for fish

○

As weve seen w the US many countries exhbit big trade surplus or

deficit

○

Bookmark added at 09:12 in Audio 1

Optimal thing to do is to trade

People would die in the years they don’t produce

wheat

□

Trade across time

Odd topia deficits in even years (slide 15)

We know ppl like consumption smoothing across

time to achieve this we can trade w other

ocuntries to insure ourselves against bad

harvests

□

○

•

Bookmark added at 18:03 in Audio 1

If no one trusts the US, the value of the US dollar goes down

This gives an advantage to us producers to sell goods to the

rest of the world,

Its cheap to sell goods to rest of world

Increase us exports, decrease imports leads to US trade

surplus

□

Rebalancign trade across the world to make sure these

things don’t consistently happen (slide 7)

□

○

Slide 7

Y=C+I+G+NX

If we are running trade deficit we basically have

negative net exports

Rewind to hear her question

Y+C+I+G+ - NX

Were consuming more than were

producing

◊

Were now able to enjoy more

ocnsumption, investment, and government

spending than we woudld if we were not

to trade w the rest of the world

◊

□

○

Slide 16

Bookmark added at 20:35 in Audio 1

When a country is running a trade deficit NX <0

C+I+G>Y

Were now consuming more than were producing□

Enjoying higher living standard than what our income

called for

□

Same thing asif ur a household and decide to consume

more on credit card

Credit card allows u to increase living standard

and youre able to have a bigger lifestyle than

income calls for

□

Trade deficit is just like credit card

Just buying more from the world than were able

to produce

□

As long as the rest of the world is willing to lend us

Some households never get out of debt

As long as rest of world is willing to lend us were

willing to go

□

○

Slide 19

Are trade deficits worrysome?

Not that bad

Persistence of it is starting to be

□

○

Slide 17

Bookmark added at 26:39 in Audio 1

Presence of trade deciit or surplus just represents int'l

______

Is urnning a deficit always a bad thing?

Smoothing consumption over time

If u have a desire to smooth consumption over

time this is not a bad thing

It allows you to smooth consumption over time

□

Its also beneficial to brrow if u can invest into future

production

Easier for us to pay back our debt

Countries benefit by being able to run trade

deficits

Country can run deficits if it expects rapid growth

in the future or when it has productive

investment to make, knowing that the deficits

must be repaid in the future

□

○

Slide 18

Bookmark added at 28:46 in Audio 1

National saving = Investment + current account

This means that trade balance

Current act = NFP+NX

Bookmark added at 29:24 in Audio 1

We can modify equation to find out that trade

balance = net capital outflow

When saving is less than investment,

foreigners have to step in to give us

additional amt of money needed to make

saving and investment equal

Emergence of trade deficit arises

when saving is less than investment

}

◊

□

○

Slide 19

Bookmark added at 30:19 in Audio 1

US investment, saving, and trade deficit

Decit is difference btwn US investment and US saving □

We want to invest at the black line but we only saved

at red line

Foreigners must come in to help us out

Difference btwn saving and investment is = to

current account shutting off NFp current account

= NX

Leads to twin deficits

◊

□

○

Slide 20

Twin deficits say- large budget deficit

Private inv has remained constant over time

Reason saving has drifted aay from investment comes from

emergence of SU emerging budget deficit

Foreigners via trade deficit end up stepping in to proivide

saving needed to cover US budget deficit

US trade deficit emerged in 1980s it dint emerge bc other

countries messed w us it emerged bc us govt started to run

huge govt deficis

Someone had to pay for deficits□

Since domestic residents were not willing to save more

foreigners had to come and step in to lend to us govt

indirectly through trade deficit

□

In an open econ

Bookmark added at 34:03 in Audio 1

Investment = saving - net exports□

You can split saving into private saving and govt saving□

Now equation becomes investment = private savin +

govt saving + NX

□

In the US it has been true for a long time that US

investment are roughly equal to private saving

□

If you have to throw private saving to other side

0=0 govt saving - NX

Now we know us govt is not saving but

borrowing

Foreigners have to chip in and help us

close the gap by lending us $ or goods and

services

◊

All starts w Y=C+I+G+NX

◊

NX=S-I

I= Saving -NX

}

US govt is not saving rn its borrwing

Negative saving

–

This equation has to = 0

–

}

◊

□

○

Slide 19

Bookmark added at 36:54 in Audio 1

Clear depiction of whats happening

US investment has been much higher than US saving and it

emerged at the en do fthe 70s and early 80s

As such to close the gap we have been runnign a trade

deficit

□

○

Slide 21

Bookmark added at 37:25 in Audio 1

If u split national saving into private and public saving

You can clearly see what happened

Emergence of US budget deficit comes w emergence of trade

deficit this is what we call a TWIN DEFICIT

Trump wants to impose tariffs on countries like china

to reduce trade deficit

□

Hes running enormous budget deficits

So far deficit is twice as large as it was during

obama's

Are these 2 things are going agisnt eachother

Emergence of bigger budget deficits lead

to bigger trade deificts which is whathes

trying to cover in the first place w tariff

His policies ar einconcsistent

}

Trump is cutting taexes and

increasing govt spending

}

Tax cuts lead ppl to have more

money and can consumer more

goods and services from abroad

}

Ppl have more money to spend

They’ll spend more on foreign

G&S leading to bigger trade

deficit

–

His policices rn are

inconsistent w one another

–

This is coming from

expenditure and entity of

national income accounting

–

}

◊

□

If your focus on trade deficit the first way to tackle it is to run

budget surplus so that u don’t have to brrow from rest of

world to cover deficit

Should take care of trade deficit□

Domestic spending will also go down bc govt spending

will go down

Using eq ______ hsould go down

□

Investment today should help correct budget deficit in the

future

Problem: US govt is running a trade deficit

Private saving = private investment□

When govt runs a deficit someone has to pay for it and

its not domestic residents

Who is it? Foreigners

US sends goods and services in exchange for cash

and w the cash they come back to the us govt

As long as private saving = private investment

and Us is running a deficit foreigners have to

come in and help us out

To the extent that theyre doing so were

running a defict

◊

□

○

Slid 22

If u take accumulation of all debt across time we owe the

world about 40% of one yr of GDP

Bookmark added at 48:50 in Audio 1

In 60s and 70s we were a net creditor tto the rest of the

world

As we started to accumulate budget deficit we started

to accumulate trade defict

□

Now the rest of the world lends us cash □

One person in 1980 etc etc we now owe 40%□

If u want to break down debt us govt owes about one

year of GDP

About 20% of the debt is held within the gov

80% of govt debt is held by private agents of

which half of it is owned by US residents and

other half is owned by foreign residents

China and japan each own about 1/8 of US debt

□

(slide 20) Foreigners saving is positive in other countries

For the us net exports is negative so for other cuontries

its positive

□

M-X is positive□

Bookmark added at 53:35 in Audio 1□

This means they are producing more than their coutnry

consumes by sending good to US for cash they are

saving

□

○

Slide 24

Countries trade bc its efficient

Bookmark added at 56:23 in Audio 1

US and china both produce toys and computers

In china one worker can either produce 100 toys or 2

computers

Should US trade w china? How an dwhy

Even if US is better at producing toys and ocmputers□

There is still an advantage of trading□

They will trade where theyre most efficient at

producing something

□

There is a gain coming from trade

Having americans only producing comptuers and

chinese only producing toys

Trade is not about what we call absolute

advantage but comaprative advantage

In this example US is better at producing

both toys and computers but is relatively

better at producign computers

◊

One US worker gies up 10 toys ot produce

one computer while one chines has to give

up 50 toys to produce comptuers so

americans are relatively better at

producing computer s than they are toys

relative to the chiens

◊

□

○

Slide 25

Bookmark added at 58:47 in Audio 1

Workers in both countries spend half their income on each

good

Wage is "w" and each worker supplies one unit of labor so w

is also their income

Price of toys is 1 and computers cost p toys

sUS wage w=160 china w=100

You can either produce one computer or 50 toys

Market clearing price is 50 toys for one computer in china

and 10 toys for one computer in the US

○

Slide 26

Bookmark added at 01:00:14 in Audio 1

Numerial example

American produce computers can earn for each 25 toys

○

Slide 29

Both are better of f under free trade bc they end up

consuming more of some goods

Wage is 400 toys under free trade bc each worker produces

16 ocomputers and udner free trade each one goes for 25

toys

Spend half income on toys other half on computers

since each comp sells for 25 toys he gets 8 computers

□

This shows that although us is better at producing boh toys

and ocmputers both countries end up being better off at

trading bc the US is relatively better at producing computers

than toys compared to china and hcina is better at producing

toys than computers relativ eto the US

Trade is not about absolute adv its about ocmparative adv

Trade is like a new tech it helped consumers of both

countries increase consumption

○

Slide 30

Bookmark added at 01:07:54 in Audio 1

In what sense is trade good for an economy

Variety□

Risk□

Efficient□

In what sense is trade bad for an economy

Half of workers are in toy industry other half is in

computer industry

□

Now u open country to free trade, toy worker either

has to work in comptuers or they lose their job

□

Free trade is bad for an econ because losses are

concentrated in the sectors that are losing to free trade

□

Thsea re the sectors for which US is not computetive

anymore in liberal econ

□

W free trade every consumer gains bc price of G and S

is now lower in U S

□

Gains ar spread across everybdy by lowering price of

G& S

Losses are concentrated in ndustry for which US

does not have compartive advantage

The toy industry

◊

Same thing happening rn w current admin

◊

Cost of producing steel in the US is les than

rest of world

◊

□

○

Int'l Trade

Monday, April 2, 2018

10:33 AM

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 10 pages and 3 million more documents.

Already have an account? Log in

Audio 1

Audio recording started: 10:33 AM Monday, April 2, 2018

Slide 4

Trading is just like a new tech

○

•

Slide 5

Bookmark added at 02:29 in Audio 1

○

While us exports is relativley up to the60s they’ve increased since

○

Increase in Us trade

Came w better communication devices, ways to share info

across countiries

Idea of a better global supply chain □

Emerged in the 80s and continued since □

While us import of G&S were 4% of GDP in the 40s-60s

theyre 15-20% nowadays

○

•

Slide 6

Decline in trans and comm costs also tariffs and quotas cause

traede to rise so much

○

•

Slide 7

Bookmark added at 04:01 in Audio 1

○

Us showed trade deficit

You can see emergence in the 80s

Easy to blade this deficit w the decline in trade barriers

and icnrease in comm cost

But it mainly comes from us government deficit

Comes from fact that the US govt has a

problem

Theyre running a govt deficit and

someone has to chip in to pay deficit

}

◊

□

○

•

Slide 8

Trade deals arent always bad for US

○

Bookmark added at 05:05 in Audio 1

○

If u look at current balance w canada and _____ they arent bad at

all

Canada is 2% and is also the main trading partner

Not a problem

Most of the trade deficit in the US comes w trade

w Germany and China

□

○

China has biggest deficit

○

•

Slide 11

Countries trade because everyone likes variety

○

Bookmark added at 06:52 in Audio 1

○

We like wine and want to try it from a bunch of places

○

Trading w other nations helps us achieve this goal

○

Country B

a lot of banana a little fish

○

Country F

A lot of fish a little baananas

○

They can trade

Healthy balanced diet by trading fish for bananas and eating

an equal amt of both

○

•

Slide 13

Ppl trade because no one likes risk

Trade is always balanced

You exchange the over amount of banas producing for fish

○

As weve seen w the US many countries exhbit big trade surplus or

deficit

○

Bookmark added at 09:12 in Audio 1

Optimal thing to do is to trade

People would die in the years they don’t produce

wheat

□

Trade across time

Odd topia deficits in even years (slide 15)

We know ppl like consumption smoothing across

time to achieve this we can trade w other

ocuntries to insure ourselves against bad

harvests

□

○

•

Bookmark added at 18:03 in Audio 1

If no one trusts the US, the value of the US dollar goes down

This gives an advantage to us producers to sell goods to the

rest of the world,

Its cheap to sell goods to rest of world

Increase us exports, decrease imports leads to US trade

surplus

□

Rebalancign trade across the world to make sure these

things don’t consistently happen (slide 7)

□

○

Slide 7

Y=C+I+G+NX

If we are running trade deficit we basically have

negative net exports

Rewind to hear her question

Y+C+I+G+ - NX

Were consuming more than were

producing

◊

Were now able to enjoy more

ocnsumption, investment, and government

spending than we woudld if we were not

to trade w the rest of the world

◊

□

○

Slide 16

Bookmark added at 20:35 in Audio 1

When a country is running a trade deficit NX <0

C+I+G>Y

Were now consuming more than were producing□

Enjoying higher living standard than what our income

called for

□

Same thing asif ur a household and decide to consume

more on credit card

Credit card allows u to increase living standard

and youre able to have a bigger lifestyle than

income calls for

□

Trade deficit is just like credit card

Just buying more from the world than were able

to produce

□

As long as the rest of the world is willing to lend us

Some households never get out of debt

As long as rest of world is willing to lend us were

willing to go

□

○

Slide 19

Are trade deficits worrysome?

Not that bad

Persistence of it is starting to be

□

○

Slide 17

Bookmark added at 26:39 in Audio 1

Presence of trade deciit or surplus just represents int'l

______

Is urnning a deficit always a bad thing?

Smoothing consumption over time

If u have a desire to smooth consumption over

time this is not a bad thing

It allows you to smooth consumption over time

□

Its also beneficial to brrow if u can invest into future

production

Easier for us to pay back our debt

Countries benefit by being able to run trade

deficits

Country can run deficits if it expects rapid growth

in the future or when it has productive

investment to make, knowing that the deficits

must be repaid in the future

□

○

Slide 18

Bookmark added at 28:46 in Audio 1

National saving = Investment + current account

This means that trade balance

Current act = NFP+NX

Bookmark added at 29:24 in Audio 1

We can modify equation to find out that trade

balance = net capital outflow

When saving is less than investment,

foreigners have to step in to give us

additional amt of money needed to make

saving and investment equal

Emergence of trade deficit arises

when saving is less than investment

}

◊

□

○

Slide 19

Bookmark added at 30:19 in Audio 1

US investment, saving, and trade deficit

Decit is difference btwn US investment and US saving □

We want to invest at the black line but we only saved

at red line

Foreigners must come in to help us out

Difference btwn saving and investment is = to

current account shutting off NFp current account

= NX

Leads to twin deficits

◊

□

○

Slide 20

Twin deficits say- large budget deficit

Private inv has remained constant over time

Reason saving has drifted aay from investment comes from

emergence of SU emerging budget deficit

Foreigners via trade deficit end up stepping in to proivide

saving needed to cover US budget deficit

US trade deficit emerged in 1980s it dint emerge bc other

countries messed w us it emerged bc us govt started to run

huge govt deficis

Someone had to pay for deficits□

Since domestic residents were not willing to save more

foreigners had to come and step in to lend to us govt

indirectly through trade deficit

□

In an open econ

Bookmark added at 34:03 in Audio 1

Investment = saving - net exports□

You can split saving into private saving and govt saving□

Now equation becomes investment = private savin +

govt saving + NX

□

In the US it has been true for a long time that US

investment are roughly equal to private saving

□

If you have to throw private saving to other side

0=0 govt saving - NX

Now we know us govt is not saving but

borrowing

Foreigners have to chip in and help us

close the gap by lending us $ or goods and

services

◊

All starts w Y=C+I+G+NX

◊

NX=S-I

I= Saving -NX

}

US govt is not saving rn its borrwing

Negative saving

–

This equation has to = 0

–

}

◊

□

○

Slide 19

Bookmark added at 36:54 in Audio 1

Clear depiction of whats happening

US investment has been much higher than US saving and it

emerged at the en do fthe 70s and early 80s

As such to close the gap we have been runnign a trade

deficit

□

○

Slide 21

Bookmark added at 37:25 in Audio 1

If u split national saving into private and public saving

You can clearly see what happened

Emergence of US budget deficit comes w emergence of trade

deficit this is what we call a TWIN DEFICIT

Trump wants to impose tariffs on countries like china

to reduce trade deficit

□

Hes running enormous budget deficits

So far deficit is twice as large as it was during

obama's

Are these 2 things are going agisnt eachother

Emergence of bigger budget deficits lead

to bigger trade deificts which is whathes

trying to cover in the first place w tariff

His policies ar einconcsistent

}

Trump is cutting taexes and

increasing govt spending

}

Tax cuts lead ppl to have more

money and can consumer more

goods and services from abroad

}

Ppl have more money to spend

They’ll spend more on foreign

G&S leading to bigger trade

deficit

–

His policices rn are

inconsistent w one another

–

This is coming from

expenditure and entity of

national income accounting

–

}

◊

□

If your focus on trade deficit the first way to tackle it is to run

budget surplus so that u don’t have to brrow from rest of

world to cover deficit

Should take care of trade deficit□

Domestic spending will also go down bc govt spending

will go down

Using eq ______ hsould go down

□

Investment today should help correct budget deficit in the

future

Problem: US govt is running a trade deficit

Private saving = private investment□

When govt runs a deficit someone has to pay for it and

its not domestic residents

Who is it? Foreigners

US sends goods and services in exchange for cash

and w the cash they come back to the us govt

As long as private saving = private investment

and Us is running a deficit foreigners have to

come in and help us out

To the extent that theyre doing so were

running a defict

◊

□

○

Slid 22

If u take accumulation of all debt across time we owe the

world about 40% of one yr of GDP

Bookmark added at 48:50 in Audio 1

In 60s and 70s we were a net creditor tto the rest of the

world

As we started to accumulate budget deficit we started

to accumulate trade defict

□

Now the rest of the world lends us cash □

One person in 1980 etc etc we now owe 40%□

If u want to break down debt us govt owes about one

year of GDP

About 20% of the debt is held within the gov

80% of govt debt is held by private agents of

which half of it is owned by US residents and

other half is owned by foreign residents

China and japan each own about 1/8 of US debt

□

(slide 20) Foreigners saving is positive in other countries

For the us net exports is negative so for other cuontries

its positive

□

M-X is positive□

Bookmark added at 53:35 in Audio 1□

This means they are producing more than their coutnry

consumes by sending good to US for cash they are

saving

□

○

Slide 24

Countries trade bc its efficient

Bookmark added at 56:23 in Audio 1

US and china both produce toys and computers

In china one worker can either produce 100 toys or 2

computers

Should US trade w china? How an dwhy

Even if US is better at producing toys and ocmputers□

There is still an advantage of trading□

They will trade where theyre most efficient at

producing something

□

There is a gain coming from trade

Having americans only producing comptuers and

chinese only producing toys

Trade is not about what we call absolute

advantage but comaprative advantage

In this example US is better at producing

both toys and computers but is relatively

better at producign computers

◊

One US worker gies up 10 toys ot produce

one computer while one chines has to give

up 50 toys to produce comptuers so

americans are relatively better at

producing computer s than they are toys

relative to the chiens

◊

□

○

Slide 25

Bookmark added at 58:47 in Audio 1

Workers in both countries spend half their income on each

good

Wage is "w" and each worker supplies one unit of labor so w

is also their income

Price of toys is 1 and computers cost p toys

sUS wage w=160 china w=100

You can either produce one computer or 50 toys

Market clearing price is 50 toys for one computer in china

and 10 toys for one computer in the US

○

Slide 26

Bookmark added at 01:00:14 in Audio 1

Numerial example

American produce computers can earn for each 25 toys

○

Slide 29

Both are better of f under free trade bc they end up

consuming more of some goods

Wage is 400 toys under free trade bc each worker produces

16 ocomputers and udner free trade each one goes for 25

toys

Spend half income on toys other half on computers

since each comp sells for 25 toys he gets 8 computers

□

This shows that although us is better at producing boh toys

and ocmputers both countries end up being better off at

trading bc the US is relatively better at producing computers

than toys compared to china and hcina is better at producing

toys than computers relativ eto the US

Trade is not about absolute adv its about ocmparative adv

Trade is like a new tech it helped consumers of both

countries increase consumption

○

Slide 30

Bookmark added at 01:07:54 in Audio 1

In what sense is trade good for an economy

Variety□

Risk□

Efficient□

In what sense is trade bad for an economy

Half of workers are in toy industry other half is in

computer industry

□

Now u open country to free trade, toy worker either

has to work in comptuers or they lose their job

□

Free trade is bad for an econ because losses are

concentrated in the sectors that are losing to free trade

□

Thsea re the sectors for which US is not computetive

anymore in liberal econ

□

W free trade every consumer gains bc price of G and S

is now lower in U S

□

Gains ar spread across everybdy by lowering price of

G& S

Losses are concentrated in ndustry for which US

does not have compartive advantage

The toy industry

◊

Same thing happening rn w current admin

◊

Cost of producing steel in the US is les than

rest of world

◊

□

○

Int'l Trade

Monday, April 2, 2018 10:33 AM

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 10 pages and 3 million more documents.

Already have an account? Log in

Audio 1

Audio recording started: 10:33 AM Monday, April 2, 2018

Slide 4

Trading is just like a new tech

○

•

Slide 5

Bookmark added at 02:29 in Audio 1

○

While us exports is relativley up to the60s they’ve increased since

○

Increase in Us trade

Came w better communication devices, ways to share info

across countiries

Idea of a better global supply chain □

Emerged in the 80s and continued since □

While us import of G&S were 4% of GDP in the 40s-60s

theyre 15-20% nowadays

○

•

Slide 6

Decline in trans and comm costs also tariffs and quotas cause

traede to rise so much

○

•

Slide 7

Bookmark added at 04:01 in Audio 1

○

Us showed trade deficit

You can see emergence in the 80s

Easy to blade this deficit w the decline in trade barriers

and icnrease in comm cost

But it mainly comes from us government deficit

Comes from fact that the US govt has a

problem

Theyre running a govt deficit and

someone has to chip in to pay deficit

}

◊

□

○

•

Slide 8

Trade deals arent always bad for US

○

Bookmark added at 05:05 in Audio 1

○

If u look at current balance w canada and _____ they arent bad at

all

Canada is 2% and is also the main trading partner

Not a problem

Most of the trade deficit in the US comes w trade

w Germany and China

□

○

China has biggest deficit

○

•

Slide 11

Countries trade because everyone likes variety

○

Bookmark added at 06:52 in Audio 1

○

We like wine and want to try it from a bunch of places

○

Trading w other nations helps us achieve this goal

○

Country B

a lot of banana a little fish

○

Country F

A lot of fish a little baananas

○

They can trade

Healthy balanced diet by trading fish for bananas and eating

an equal amt of both

○

•

Slide 13

Ppl trade because no one likes risk

Trade is always balanced

You exchange the over amount of banas producing for fish

○

As weve seen w the US many countries exhbit big trade surplus or

deficit

○

Bookmark added at 09:12 in Audio 1

Optimal thing to do is to trade

People would die in the years they don’t produce

wheat

□

Trade across time

Odd topia deficits in even years (slide 15)

We know ppl like consumption smoothing across

time to achieve this we can trade w other

ocuntries to insure ourselves against bad

harvests

□

○

•

Bookmark added at 18:03 in Audio 1

If no one trusts the US, the value of the US dollar goes down

This gives an advantage to us producers to sell goods to the

rest of the world,

Its cheap to sell goods to rest of world

Increase us exports, decrease imports leads to US trade

surplus

□

Rebalancign trade across the world to make sure these

things don’t consistently happen (slide 7)

□

○

Slide 7

Y=C+I+G+NX

If we are running trade deficit we basically have

negative net exports

Rewind to hear her question

Y+C+I+G+ - NX

Were consuming more than were

producing

◊

Were now able to enjoy more

ocnsumption, investment, and government

spending than we woudld if we were not

to trade w the rest of the world

◊

□

○

Slide 16

Bookmark added at 20:35 in Audio 1

When a country is running a trade deficit NX <0

C+I+G>Y

Were now consuming more than were producing

□

Enjoying higher living standard than what our income

called for

□

Same thing asif ur a household and decide to consume

Document Summary

Audio recording started: 10:33 am monday, april 2, 2018. While us exports is relativley up to the60s they"ve increased since. Came w better communication devices, ways to share info across countiries. While us import of g&s were 4% of gdp in the 40s-60s theyre 15-20% nowadays. Decline in trans and comm costs also tariffs and quotas cause traede to rise so much. Easy to blade this deficit w the decline in trade barriers and icnrease in comm cost. But it mainly comes from us government deficit. Comes from fact that the us govt has a problem. Theyre running a govt deficit and someone has to chip in to pay deficit. If u look at current balance w canada and _____ they arent bad at all. Canada is 2% and is also the main trading partner. Most of the trade deficit in the us comes w trade w germany and china.

FNCE 101 Lecture Notes - Lecture 1: Market Clearing, Absolute Advantage, Consumption Smoothing

Document Summary

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