Economic Systems and Growth Macroeconomics Economic Systems and Growth Candy Trade activity: comparative advantage; specialization; low opportunity cost producer; smaller countries benefit from economies of scale; benefits are highest when trade is free to happen on a comparative advantage Balance of trade: difference between imports and exports; trade deficit: more imports; trade surplus: more exports Middleman: specializes in trades; used car dealer; craigslist Transaction costs: time, effort, and resources need to consummate an exchange of goods or services Twizzlers: ask who likes twizzlers; pick someone far away; ask them if they want me to pass it back or if they want to come up front and get it; if we pass it back, each person takes one or two twizzlers from the bag; Purpose:

Goals Explain the positives of trade policies for Protectionism and Free Trade and identify different trade relationships in the US. Define and provide examples of import quotas and tariffs. Explain depreciation and appreciation of money.

I. Trade Policies Positives of Protectionism Shield developing industries Fosters competition domestically Promote industries that are essential to national security Positives of Free Trade Incentive for domestic manufacturers to be efficient Gains from comparative advantage Fosters competition abroad Protectionism: restrict international trade; ensures fair competition between domestic goods and imports; Free trade: government barriers at a minimum A country can be protectionist with certain industries while having no barriers with others Protectionism: keep prices regulated; not dependent upon other nations for goods; there’s more to be gained from comparative advantage than losses from international competition; linked as a contributing factor to international warfare; trade redistributes jobs, doesn’t make them disappear We should have some kind of self-sufficiency, without being isolated

Import Quotas Tariffs I. Trade Policies Limit on the number of certain goods brought in for sale Tariffs A tax on imports or exports Farm Bill in 1981 put limits on the import of sugar; the limits have remained the same, regardless of a change in demand or population; part of the reason corn syrup and artificial sweeteners are popular among producers; 127% tariff on paper clips made elsewhere; protects the paperclip industry domestically; nobody complains because they are still very cheap Smoot-Hawley Tariff Bill of 1930: higher trade tariffs; meant to stimulate economy and save jobs; less imports meant less money for foreigners to spend on our exports; trade decreased; unemployment increased; revenue tariffs are modest; protective tariffs are higher; doesn’t necessarily stop the import but decreases

Appreciation: increase in value Depreciation: decrease in value II. Exchange Rates Defined: Rate at which one currency can be traded for another, when individuals, banks, companies, and countries buy and sell currency. Appreciation: increase in value Depreciation: decrease in value “Foreign-exchange rate”/ forex rate/ FX rate; based on a variety of factors; find numbers for today

Fixed-Exchange Rate System Flexible Exchange Rates Each country tries to keep the value of its currency constant against one another Flexible Exchange Rates Exchange rates are determined by supply and demand China has attached their dollar to ours; they buy and sell our currency to keep our exchange rate stable; By contrast, Canada has not interfered with their exchange rate since 1998; Bretton-Woods System or adjustable-peg system; modified fixed exchange rate; each country had to establish the worth of their currency according to the gold standard, then work to keep it stable against all other currencies