1. 20b – International Trade and Foreign Exchange Markets
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2. 20b – Macro – International Trade
Facts about Trade
Trade Restrictions
Exchange Rates
Trade Deficits

3. 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?

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

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

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

7. 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

8. 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

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

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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

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

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

23. 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

24. 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

25. Increase in Demand for the Yen

26. 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

27. 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

28. Increase in the Supply of the Yen

29. 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$):

30. 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):

31. 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

32. 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

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

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

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

36. If the US has rapid economic growth compared to Japan:

37. Trade Deficits
Causes
Effects

38. 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.

39. 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.

40. 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.

41. 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.

42. 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