End of Unit Test for Section 4

During this test, there are many things I can do to increase my score.  Overall, I got the main idea correct.  I just did not support my argument well enough.  There were many things I could do to strengthen my arguments.  By providing more definitions (I only included 3 or 4 in the first section) and providing real world examples I could support my argument better.  Also, my examples were not detailed enough.  So, when I use more examples, I need to include more depth.  Overall, I think I can approve much between now and the next test.  Thank you Ms. Q for your help and comments on improvement!!

Republic of Congo

The democratic republic of Congo is a country living in poverty.  They are in the bottom 60 countries in the world.  This developing country is defined developing by four categories.

GDP per capita..

The GDP per capita in Congo is $300.  This places them at the 230 in the list of countries based off of GDP.  That means most countries are much richer than Congo.

High Population Growth…

The population growth is 3.165% which places them at number 10 in the world.  That means compared to other countries, they have a very high population growth.

High Unemployment and Underemployment Rate…

These are not available, however, by the other factors, one can assume it is very high.

Over dependence on Primary Sector…

They dont have many exports at all because there is much corruption in the government.  They are extremely, extremely poor.

 

This would not be a country to do a seminar on, because there are not enough available statistics.

Using an Appropriate diagram, explain who gains and who loses from the introduction of a tariff.

Question: Using an Appropriate diagram, explain who gains and who loses from the introduction of a tariff.

Demands of the question: This question is part of paper 2, so it takes 20 minutes.  From the question, we know that we have to use a diagram.  The question also explains that we have to discuss BOTH who gains AND who loses.  Also, since it says the “introduction of a tariff”  we must discuss how the economy changes from before having a tariff to after the tariff is put into place.

Triple A: Here are the notes from triple a on “tariffs.”

Protectionism (protecting against imports) has arisen in various forms. These include:

Tariffs

A tariff is a tax on imports, which can either be specific (so much per unit of sale) or ad valorem (a percentage of the price of the product). Tariffs reduce supply and raise the price of imports. This gives domestic equivalents a comparative advantage. As such, tariffs are distorting the market forces and may prevent consumers from gaining the benefit of all the advantages of international specialisation and trade. The impact of a tariff is shown in Figure 1 below.

Figure 1 Impact of a tariff

The tariff has the effect of shifting the world supply curve vertically upwards by the amount of the tariff. The level of imports will fall from QaQd to QbQc. The government will also raise revenue, shown by the blue shaded area. The level of domestic production will increase from 0Qa to 0Qb.

Key Points from Triple A:

• Tariffs are a type of protectionism.
• A tariff is a tax on imported goods.
• Tariffs reduce world supply, which raise the price.
• Prices are higher after tariffs are imposed.
• There are more domestic suppliers after a tariff is imposed, and there are fewer world suppliers after a tariff is imposed.

Power Point Slides on Tariffs:

This slideshow requires JavaScript.

Diagram for Tariff:

Evaluation Suggestions: When writing an answer to this question, you need to remember to refer to the diagram.  Explain that the prices rise when tariffs are imposed, so the consumer looses because they have to pay more for a specific product.  Also, world suppliers loose because the world supply is reduced.  You need to refer to this in the diagram by showing the shift in supply curve.  Also refer to the diagram showing that the number of domestic suppliers increase, so they are winners.   However, the world suppliers are reduced, so they lose in this instance.  Talk about dead weight loss and government revenue, and be sure to point out these triangles and rectangles on the diagram that you draw.   Instead of just talking about dead weight loss, refer to the inefficient domestic suppliers who are now able to enter the market.

Comment on Jessie’s Blog

Comment:Jessie, this blog post is done very well.  Good Job.  It made the J Curve idea really easy to understand.  Although, you did not talk about whether or not this idea is just a theory or if it is a concept that is evident in many different economies.  Some more real world examples would help.  Overall, though, I thought this blog post was done very, very well.  It really simplified the concept making it very easy to understand! GOOD JOB!

Jessie’s Blog Post:

Things get worse before they get better

December 8, 2010 by 11smitje

People are worried that even though the UK is trying to  rebalance its payments by increasing exports, but currently its imports are increasing at 5 times the rate of their exports. This is because of the J-curve idea. Initially when a currency depreciate, imports become more expensive but exports do not increase, making the currency worse off. This is because domestic firms are already contracted to importing and cannot change, so they must buy the expensive imports until they can renegotiate their contracts. Also, the world firms are already contracted to previously cheaper countries, so it will take time for them to get contracted with the U.K. Although it seems like Things are getting worse, as people are buying expensive imports and exports have not increased. However, given time the economy, in theory, will improve.

Response to “UK trade gap widens unexpectedly as imports rocket”

This blog post is in response to the article “UK trade gap widens unexpectedly as imports rocket.”:

Britain’s trade gap widened more than expected in March as imports shot up five times faster than exports, according to official data that cast fresh doubts over the prospects of an export-driven economic recovery.

Contrasting with surveys indicating fast-growing overseas demand, partly thanks to a weak pound, the Office for National Statistics reported that the UK’s deficit on trade in goods widened by £1.2bn in March to £7.5bn. That compared with a deficit of £6.3bn in February, when exports bounced back after the harsh weather in January had dampened business activity and blighted transport. Economists had forecast March’s goods trade deficit to widen only slightly to £6.4bn.

While many businesses say overseas orders have been improving, the official data underlined worries among economists that, for now at least, a weak pound is raising costs for importers but not yet providing a significant boost to exports. At the same time there are fears that financial troubles in the eurozone, a key trading partner for the UK, will hamper demand.

“Net exports are one of the greatest hopes for growth this year and next given the improvement in competitiveness associated with the pound. Thus far, all the weakening in sterling has brought is inflation and we are still holding our breath for the long awaited boost to growth,” said Alan Clarke, UK economist at BNP Paribas. “Although the weakness of the pound improves competitiveness, unless this is accompanied by an expansion in overseas demand, then there will be little if any improvement in the performance of exports.”

Manufacturing offers some hope

The ONS reported that total exports of goods in March rose by 1% but total imports rose by 5.2%, with imports of cars, other consumer goods and chemicals in particular outweighing the equivalent exports. The total trade gap in goods and services with the rest of the world widened to £3.7bn in March from a deficit of £2.2bn in February as the surplus on trade in services also deteriorated. Imports from the EU rose almost four times faster than exports.

Britain has not run a surplus in visible trade – manufactured goods, food and drink and oil – since 1982, and the deficit peaked at £93bn in 2008. The trade balance for goods and services combined has been in the red in every year since 1997, as the biggest component, manufacturing, has deteriorated particularly sharply.

Still, both parties in the new coalition government have pledged to help manufacturing return to strength after the recession.

The trade numbers follow official March manufacturing data showing the fastest output growth in almost a decade. Economists said that expansion accounted for some of the rise in imports in March as factories bought in components.

Most analysts still see exports picking up this year and businesses appear to share their optimism. A survey of UK firms trading internationally by HSBC showed 92% expect volumes to stay the same or increase over the next six months.

“We believe that trading internationally will help UK businesses beat the recession,” said HSBC’s Ian Tandy.

This article represents the idea of Marshall-Lerner condition.  The Marshall-Lerner Condition states that for a currency devaluation to have a positive impact on trade balance, the sum of price elasticity of exports and imports (in absolute value) must be greater than 1.  This condition was created by and named after Alfred Marshall and Abba Lerner, who were economists studying this particular area.  The condition gives a reason for why a reduction in value of a nation’s currency need not immediately improve its balance of payments.  there is a mathematical formula for the Marshall-Lerner Condition, so one can use the formula to see find if there will/should be devaluation of a currency.

United States: Current Account Deficit (via Johanne’s Economic IB Blog)

This is really interesting Jo! It was surprising that the economy changed from surplus to deficit in such a short amount of time. I would have never guessed that it would change that quickly. Since the USA is at 6.4%, is it the worst in the world? I would not have thought that the USA would have the worst deficit since they have one of the largest economies in the world. But anyways, GOOD JOB!!

In 2010, the United States’ economy has a current account deficit. Although, the United States’ has not always been in this situation. From the 1980s to around the late 90s, they were in a surplus and were a really strong economy. The current account ranged from 5 billion to 100 billion.  But from the start of the new millennium, their current account started to go downhill, all they way to a deficit of 800$ billion in 2006. As one economy experi … Read More

via Johanne’s Economic IB Blog

China Current Account

China’s current account deficit historically has been more surpluses than deficits.  As shown in the graph to the left, since  1982, China’s current account balance has been close to zero.  It was not until the most recent years, around about 2000-2001 that China’s surplus has started to rise dramatically.  Now, China’s current account surplus is over 350 billion USD.

Currently, China’s Cash surplus in terms of GDP is -2.12 %.

Here is a recent article about China’s Current Account.  It comes from the Wall Street Journal:

BEIJING—China’s current-account surplus in the third quarter more than doubled from a year earlier, its foreign-exchange regulator said Thursday, indicating the country still faces challenges in rebalancing the economy away from a reliance on external demand.

The current-account surplus—the broadest measure of China’s trade balance with the outside world—was $102.3 billion in the third quarter, the State Administration of Foreign Exchange said in a statement.

In the second quarter the surplus was $72.9 billion, up 35% from a year earlier, which was a sharp rebound from the first quarter, when it fell 32% from a year earlier.

The rebounding surplus may reinforce concerns, voiced by some economists in recent months, that China’s external imbalances are returning to pre-crisis levels after temporarily declining during the global economic downturn. Such concerns could, in turn, put further pressure on China to allow faster yuan appreciation.

The third quarter’s current-account surplus was equivalent to 7.2% of gross domestic product, according to a Dow Jones Newswires calculation, compared with 5.5% of GDP in the second quarter and 4.5% in the first quarter.

“China was making the argument that since the current-account surplus was falling as a percent of GDP, that indicates the yuan isn’t undervalued,” said Tom Orlik, an economist with Stone & McCarthy Research Associates. “Now that it is rising again, it puts them in a difficult position.”

The capital and financial account surplus—a measure of net capital inflows—fell in the third quarter to $5.7 billion, SAFE said in the statement, from $25.8 billion in the second quarter.

China’s foreign-exchange reserves rose by $107.3 billion in the third quarter, SAFE said, excluding the effect of exchange-rate movements and asset prices. The value of the country’s total international reserves, which includes foreign-exchange reserves as well as reserves held at international financial institutions, rose by $108 billion in the third quarter, it said.

Including the effect of exchange rate and asset price changes, China’s foreign-exchange reserves rose by $194 billion in the third quarter to $2.648 trillion, the People’s Bank of China said in October.

 

Reflection

This project has been a good learning experience.  Although I do not prefer it to be the normal way of learning, it has helped me in learning macro-economics. I feel like my knowledge on macro-economics as a whole would be stronger if I were to learn this in a traditional setting, but I know a lot about stagflation now, so I guess it is good that I know about stagflation.

In the conference room, I felt our group did a good job answering all of the questions.  We really understood what we were talking about when answering all of the  questions.  I felt like our actual presentation could have been stronger, but overall I was pleased with how we did.

GM in trouble?

Initiative response to following article: http://www.foxnews.com/politics/2010/04/23/gm-hot-water-ftc-truth-advertising/

GM is finally repaying their government loans, which is a good thing, but Americans and politicians are saying its not so much on the good side.  GM owed the government some $8.1 BILLION.  The fact that they are repaying this should be a good sign.  It would normally show that GM is having at least a normal profit right and that the government is getting money back that could be spent in other places.  But, the people of america do not see it like this.  They were first disappointed that the government gave GM a second chance, but now they are just mad that GM is repaying the loans.

Why would they be mad if GM is repaying their loans.  The company GM is repaying their government loans by using bailout money.  This bailout money comes from other loans that GM will one day have to pay off.  The company is in fact not making normal profit and is still losing costs, because the costs are much higher than that of the revenue.

Not only is GM still in debt and can’t make the money it needs to survive for long, they are also in trouble for advertising.  Recently commercials are saying that GM has paid off all of its loans.  While the company did pay off its government loans, they are paying it with money from other loans that they need to pay off.  The company might be looking at facing legal trouble if investigations show that the commercials were misleading and misguiding.  This may cause even more financial or political issues for GM.

Overall, GM is not in a good public eye at the moment.

Earth Day, Printless Day

April 20th was earth day.  So, the Canadian Academy high school decided to have a print free day.  No students were allowed to print paper in hopes of reducing paper usage and thus helping the environment.

Instead of using paper, students and teachers used technology to get through the day.  While I understand the reasoning for this, I tend to wonder if one day with out printing actually does help.

The technology we use -desktops, laptops, cell phones, etc.- takes a lot to produce and create.  From the assembly line to transportation, all of the production uses energy.  This can release waste into the environment that is causing global warming.  Now, I would have to do an excessive amount of research to find out if this is true or not, but think about it: if we were to stop using technology and go back to the paper and pencil for a day, how much energy could we save.

Our high school has 193 desktop computers in the main building.  If we were to turn all of these off for a day, imagine the energy we could save.  The high school also has a numerous amount of laptops.  If they were left off and not charged for a day, then surely the school could save energy.  Maybe this is unreasonable, but it seems as if saving energy could help the environment just as much if not more than saving paper.  With paper, at least the trees can be replanted.