20b – International Trade and Foreign Exchange Markets This web quiz may appear as two pages on tablets and laptops. I recommend that you view it as one page by clicking on the open book icon at the bottom of the page.

20b – Macro – International Trade Facts about Trade Trade Restrictions Exchange Rates Trade Deficits

Facts of Trade - From whom does the US Import the most? - To whom does the US export the most? - What are the major exports of the US? - What are the major imports into the US? - Which countries export the most? - Why is the amount of trade increasing? http://www.harpercollege.edu/mhealy/eco212/lectures/chtrade/chtrade.htm#20b

1. Who is the largest trading partner of the US (imports + exports) ? China Mexico Canada Japan Saudi Arabia

1. Who is the largest trading partner of the US (imports + exports) ? China Mexico Canada Japan Saudi Arabia

Types of Trade Barriers Tariffs Revenue Tariff Protective Tariff Quotas Voluntary Export Restrictions Non-Tariff Barriers Export Subsidies

Quota Revenue tariff Protective tariff Export subsidy 2. An excise tax on an imported item that is mainly designed to reduce the amount of imports is a/an: Quota Revenue tariff Protective tariff Export subsidy

Quota Revenue tariff Protective tariff Export subsidy 2. An excise tax on an imported item that is mainly designed to reduce the amount of imports is a/an: Quota Revenue tariff Protective tariff Export subsidy

3. Who is NOT hurt by a Tariff? Domestic producers Foreign producers Companies that use the imported item Consumers

3. Who is NOT hurt by a Tariff? Domestic producers Foreign producers Companies that use the imported item Consumers

4. Which is NOT true about trade restrictions? They put a bigger burden on the poor The costs far outweigh the benefits The benefits are easier to see than the costs They result in a higher standard of living

4. Which is NOT true about trade restrictions? They put a bigger burden on the poor The costs far outweigh the benefits The benefits are easier to see than the costs They result in a higher standard of living

5. Sd and Dd are the domestic supply and demand curves for a product 5. Sd and Dd are the domestic supply and demand curves for a product. The world price of the product is $8. If the market is open to international trade but there is a tariff of $2 per unit imposed, what is the total government revenue generated?  $2 $20 $40 $60

5. Sd and Dd are the domestic supply and demand curves for a product 5. Sd and Dd are the domestic supply and demand curves for a product. The world price of the product is $8. If the market is open to international trade but there is a tariff of $2 per unit imposed, what is the total government revenue generated?  $2 $20 $40 $60

Arguments for Trade Barriers Why do trade restrictions exist? (1) explain the argument, (2) list the problems (counter-arguments) (3) state whether it makes economic sense Military Self-Sufficiency Increase Domestic Employment Diversification-for-Stability Infant Industry Protection Against Dumping Cheap Foreign Labor Arguments for Trade Barriers

The need to protect U.S. workers from the dumping of foreign products 6. Which is a valid counterargument to the call for higher tariffs to save U.S. jobs?  The need to protect U.S. workers from the dumping of foreign products Strategic trade policy calls for equal treatment of all trading nations so that they will have the same competitive conditions U.S. firms and workers must be protected from the ruinous competition of nations where wages for workers are low Imports may eliminate some U.S. jobs, but they create others, so they may have little or no effect on employment

The need to protect U.S. workers from the dumping of foreign products 6. Which is a valid counterargument to the call for higher tariffs to save U.S. jobs?  The need to protect U.S. workers from the dumping of foreign products Strategic trade policy calls for equal treatment of all trading nations so that they will have the same competitive conditions U.S. firms and workers must be protected from the ruinous competition of nations where wages for workers are low Imports may eliminate some U.S. jobs, but they create others, so they may have little or no effect on employment

7. Which is a valid counterargument to the infant industry argument for protective tariffs?  It results in too many benefits for domestic firms that export goods and services It is difficult to determine which infant industries will become mature industries with a comparative advantage The objective would be better achieved through strategic trade policy The objective would be better achieved by import quotas and nontariff barriers

7. Which is a valid counterargument to the infant industry argument for protective tariffs?  It results in too many benefits for domestic firms that export goods and services It is difficult to determine which infant industries will become mature industries with a comparative advantage The objective would be better achieved through strategic trade policy The objective would be better achieved by import quotas and nontariff barriers

Exchange Rates Appreciation and Depreciation Who supplies and who demands foreign exchange and why? Determinants of Flexible Exchange Rates Change in tastes Change in relative incomes Change in relative inflation rates (prices) Change in relative interest rates Change in expected rates of returns on other financial investments Fixed Exchange Rates Exchange Rates

8. What is a problem with a “strong dollar”? More economic growth More inflation More unemployment More exports

8. What is a problem with a “strong dollar”? More economic growth More inflation More unemployment More exports

9. Consider the currency market for Japanese yens and U. S. dollars 9. Consider the currency market for Japanese yens and U.S. dollars. An increase in the demand for Japanese yen results in:  An appreciation of the yen and a depreciation of the dollar A depreciation of the yen and a depreciation of the dollar An appreciation of the yen and an appreciation of the dollar A depreciation of the yen and an appreciation of the dollar

9. Consider the currency market for Japanese yens and U. S. dollars 9. Consider the currency market for Japanese yens and U.S. dollars. An increase in the demand for Japanese yen results in:  An appreciation of the yen and a depreciation of the dollar A depreciation of the yen and a depreciation of the dollar An appreciation of the yen and an appreciation of the dollar A depreciation of the yen and an appreciation of the dollar

Increase in Demand for the Yen

10. Consider the currency market for Japanese yens and U. S. dollars 10. Consider the currency market for Japanese yens and U.S. dollars. An increase in the supply for Japanese yen results in:  An appreciation of the yen and a depreciation of the dollar A depreciation of the yen and a depreciation of the dollar An appreciation of the yen and an appreciation of the dollar A depreciation of the yen and an appreciation of the dollar

10. Consider the currency market for Japanese yens and U. S. dollars 10. Consider the currency market for Japanese yens and U.S. dollars. An increase in the supply for Japanese yen results in:  An appreciation of the yen and a depreciation of the dollar A depreciation of the yen and a depreciation of the dollar An appreciation of the yen and an appreciation of the dollar A depreciation of the yen and an appreciation of the dollar

Increase in the Supply of the Yen

Determinants of Foreign Exchange We demand a foreign currency to ( DYen): Buy foreign goods (Pe, Pog, I, Npot, T) Make financial investments in foreign country (high interest rate) We supply our currency when we ( S$):

Determinants of Foreign Exchange They demand our currency to ( D$): Buy our goods (Pe, Pog, I, Npot, T) Make financial investments in our country (high interest rate) They supply foreign currency when they ( Syen):

11. If interest rates in the US increase compared to those in Japan, then we would expect: Yen appreciates; $ depreciates Yen depreciates; $ appreciates Yen appreciates; $ appreciates Yen depreciates; $ depreciates

11. If interest rates in the US increase compared to those in Japan, then we would expect: Yen appreciates; $ depreciates Yen depreciates; $ appreciates Yen appreciates; $ appreciates Yen depreciates; $ depreciates

If interest rates in the US increase compared to those in Japan, then we would expect:

12. If the US has rapid economic growth compared to Japan: Yen appreciates; $ depreciates Yen depreciates; $ appreciates Yen appreciates; $ appreciates Yen depreciates; $ depreciates

12. If the US has rapid economic growth compared to Japan: Yen appreciates; $ depreciates Yen depreciates; $ appreciates Yen appreciates; $ appreciates Yen depreciates; $ depreciates

If the US has rapid economic growth compared to Japan:

Trade Deficits Causes Effects

13. Relatively rapid U.S. growth between 2001 and 2007, contributed to large U.S. trade deficits by:  increasing U.S. national income, which decreased U.S. exports. reducing real interest rates in the United States. increasing U.S. tax revenues and reducing the Federal budget deficit. increasing U.S. national income, which increased U.S. imports.

13. Relatively rapid U.S. growth between 2001 and 2007, contributed to large U.S. trade deficits by:  increasing U.S. national income, which decreased U.S. exports. reducing real interest rates in the United States. increasing U.S. tax revenues and reducing the Federal budget deficit. increasing U.S. national income, which increased U.S. imports.

14. Present consumption supported by large trade deficits may come at the expense of:  debt to foreign interests. foreign ownership of formerly U.S. owned assets. large sacrifices of future consumption. all of these.

14. Present consumption supported by large trade deficits may come at the expense of:  debt to foreign interests. foreign ownership of formerly U.S. owned assets. large sacrifices of future consumption. all of these.

U.S. Trade Deficits EFFECTS Increased current consumption CAUSES Rapid economic growth Large deficits with China China fixes the value if its currency (undervalues it) Oil imports Declining savings rate Favorable view of US assets EFFECTS Increased current consumption But decreased future consumption Increased U.S. indebtedness Foreign ownership of factories Foreign ownership of financial assets