1. Warm-up 1.What is the opportunity cost for Egypt to produce 1 bushel of corn? Cotton? 2.Same for Venezuela? 3.Who should specialize in corn? Why? 4.Who should specialize in cotton? Why?

2. International Economics EQ: Why should we trade with other nations?

3. What is meant by a FAVORABLE balance of trade? Balance of Trade is-- Value of the Exports = Value of the imports What do we call it when -- Value of the exports > Value of the imports Trade Surplus Value of the exports < Value of the imports THE U.S.A!! Trade Deficit What do we call it when --

4. What is the U.S. trade deficit?

5. Analyze…. What can we say about the green nations? How about the red?

6. What is the relationship to the trade and GDP? Y = C + I + G + NX

7. Where is your shirt from?

8. So, where do most U.S. imports come from?

9. Japanese Shipping Company

10. Korean Shipping Company

14. It is fairly obvious, which country is our trading partner? #1 CANADA

15. Top 15 International Trading Partners 1. Canada 2. China 3. Mexico 4. Japan 5. Germany 6. United Kingdom 7. South Korea 8. France 9. Taiwan 10. Netherlands

16. Top 5 Countries Receiving U.S. Exports 1.Canada 2. Mexico 3. Japan 4. China 5. United Kingdom Top 5 Countries Supplying U.S. Imports 1. Canada 2. China 3. Mexico 4. Japan 5. Germany

18. What is the U.S. # 1 import?

19. What does the U.S. export? High tech items: – industrial lathes – computer chips – fighter jets – health care products

20. With a partner, why do nations trade? Why should they not trade?

21. What do you think? 1.If the U.S. sells computers to Japan, in what currency does Japan purchase the computers? What could the U.S. do with the currency it receives? 2.If Japan buys American bonds, what currency will they use the purchase them? 3.If the U.S. is running a trade deficit, how do they fund it?

22. Exchange Rates Why do they fluctuate?

23. Assume that the United States and France are the only two countries in the world and that exchange rates between the two countries are flexible. Assume that there is an increase in the U.S. demand for French goods. Explain how this increase in demand will affect each of the following. (i) The supply of dollars (ii) The international value of the dollar

24. S D Currency doesn’t flow this way S D Dollar Euro dollar Euro S1 P Q P Q P1 P Q Q1 D1 P Q P1 Q1 SupplySupply buy PayPay French goods

25. Assume that there is an increase in real interest rates in the U.S., but not in France. Explain how this increase in interest rates will affect each of the following: (i) The international value of the dollar in the foreign exchange market (ii) The quantity of dollars supplied in the foreign exchange market

26. Increase in interest rates in U.S. relative to France. If you lived in France, where would you like to invest your hard-earned money? S D P QEuro S1 SupplySupply In the U.S. How do you do it? Go through the-- P1 Q1 S D P QDollar D1 Q1 P1 Buy Dollars INVESTINVEST Receive higher interest rate

27. Summary What happens to the balance of trade when the U.S. dollar appreciates? Depreciates? What effect does contractionary monetary policy have on the value of the U.S. dollar on the international currency market? Why?

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