1 INTERNATIONAL ECONOMICS Print the following information on the 3” x 5” card 1.Your name, home country 2.Other countries in which you have lived 3.Other countries you have visited 4.Economics courses you have completed 5.Other Economics courses this semester 6.Other international courses or experience (This information is for my use only)

2 Learning Objectives Review the Syllabus & Calendar Explain aggregate characteristics of national economies Describe the trends and patterns in international trade

3 Learning Objectives Review the Syllabus & Calendar Explain aggregate characteristics of national economies Describe the trends and patterns in international trade

4 Prerequisites Principles of Microeconomics, ECO 284, Principles of Macroeconomics, ECO 285, and Junior Standing Or an approved waiver –If you lack the prerequisite, contact me as soon as possible!

5 Copyright © 2007 Pearson Addison-Wesley. All rights reserved.1-5 Branches of International Economics Trade (international microeconomics) –Why do nations engage in international trade? –What goods and services do nations trade? –How does international trade affect national income, welfare, and jobs? –How do trade barriers affect national welfare? –How are countries affected by international movements of labor and capital?

6 Copyright © 2007 Pearson Addison-Wesley. All rights reserved.1-6 Branches of International Economics (cont.) Finance (international macroeconomics) –What is the balance of payments? –What is an exchange rate and what factors determine the exchange rate? –What is the relationship between exchange rates, prices, and interest rates? –How are countries affected by foreign direct investment and lending? –How effective are domestic policies given the global economy?

7 Learning Objectives Review the Syllabus & Calendar Explain aggregate characteristics of national economies Describe the trends and patterns in international trade

8 Characteristics of National Economies Gross National Product (GNP) & Gross Domestic Product (GDP) GNP -- the value of final goods and services produced by domestically-owned resources. GDP -- the value of final goods and services produced within a country’s borders.

9 Characteristics of National Economies Imports are the goods and services we buy from other countries. Exports are the goods and services we sell to people in other countries.

10 Exports and Imports as a Percentage of U.S. National Income Trade is growing faster than income

11 Characteristics of National Economies Index of Openness measures importance of trade When trade is balanced, most use = 100( Exports/GDP)

12 Characteristics of National Economies Purchasing Power Parity (PPP) GNP estimates adjusted to provide a better comparison across countries Shows how many US$ needed to buy here what the average citizen could buy in a foreign country

13 Discussion Where are the poorest countries located? …the richest countries? Which countries are the most open?...least? Which country exported most in 2004? …imported?

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19 Learning Objectives Review the Syllabus & Calendar Explain aggregate characteristics of national economies Describe the trends and patterns in international trade

20 Patterns and Trends in International Trade Trade has grown rapidly -- compare Index of openness for 1980 and 2004 –See Figure 1-1, page 11 –World GDP has grown 1950 base year (index value = 100) 2004 index value ~ 750 –World exports have grown much faster 1950 base year (index value = 100) 2004 index value ~ 2750

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22 Patterns and Trends in International Trade The Direction of Trade for Six Regions –See Figure 1.2 –Which regions account for the bulk of world exports? –Which regions have declining shares? –What changes or consistencies can you find between the two periods? For example, countries trade most often with ___________ –Due to lower transaction costs (including transportation & information)

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25 Patterns and Trends in International Trade –US was the world’s largest importer & 2 nd largest exporter in 2004 –Which countries were our largest trading partners in 2004? See Table 1.2 –Which category represented the largest share of world trade in 2003? See Table 1.3 –Which category represented the largest share of US exports in 2003? …Egypt? See Table 1.4

26 Patterns and Trends in International Trade Trends in the Volume of Trade –In 1960, the U.S. exported less than 5% of total output and imported 4.5% of the goods and services consumed domestically. –Since, 1960 the composition of imports have changed dramatically food and raw material imports have fallen machinery comprise close to 50% of total imports

27 Patterns and Trends in International Trade Balance of Trade and International Borrowing –The merchandise balance of trade is the value of merchandise exports minus the value of merchandise imports –In the latest 12 months, the U.S. had a $806.4 billion deficit The Economist, January 12, 2008, page 90.

28 Patterns and Trends in International Trade Top Ten Trading Partners –See Table 1.2, page 16 –In 2004, ______% of all of US merchandise exports went to Canada. –Similar to 1995, when 21.63% of all of US merchandise exports went to Canada.

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31 Patterns and Trends in International Trade What goods do countries trade? –See Table 1.3, pages 19 & 20 –It ranks goods by their share of the value of ‘03 trade –Industries are identified by Standard International Trade Classification (SITC) Code –Divides industries into ten broad categories (0-9) Example: 7 is machines and transport equipment 78 is road vehicles 781 is passenger motorcars rank #1 for rank #2 for ‘96, at 4.8%; 2003 rank? Surpassed by office machines, computers & parts

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34 Patterns and Trends in International Trade What goods do countries trade? –Countries typically import agricultural commodities, raw materials, capital goods, or semi-manufactured goods –A large share of imports do not compete directly for purchase by the final consumer notable exceptions (cars, clothing, computers, toys)

35 Patterns and Trends in International Trade What goods do countries trade? –Commodity composition of trade Table 1.4, p exports of selected countries Table 1.5, p23 -- imports of selected countries

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40 Copyright © 2007 Pearson Addison-Wesley. All rights reserved World Trade in Services Value of $2.1 trillion in 2004 (about 20% of international trade) U.S. is largest exporter and importer of services Most traded services: transportation, travel, other services (banking, medicine, consulting, insurance & education)

41 Patterns and Trends in International Trade Conclusions –Real-world trade is complex –Abstract economic models aid understanding

42 Homework Read Preface, Chapter 1, and Chapter 2 Answer Chapter 1 exercises 1, 2, 5, 6 & 9 (typed or neatly written). See link to questions on my web calendar of assignments.