Ms. Q, Thank-you for taking the time to look over our tests to give us feedback. Your comments helped me to better understand my weaknesses in answering “Explain” and “Evaluate” type of questions. I missed out on quite a few points because I did not define certain words. I can definitely improve on my response by including real world examples to strengthen my analysis. Using CRAMPSS especially, would help me structure my analysis.
08
Feb
11
Reflection on End of Unit Test
01
Feb
11
Common Characteristics of Sudan
Sudan is a country in northeastern Africa. Recently, a referendum took place on whether the region should continue to be a part of Sudan of become independent. The final results of the vote were published on January 30th, with 98.83% in favor of independence. Sudan’s GDP per capita is relatively low at $2,200. The public debt is 94.2% of the total GDP. The inflation rate has reached 11.8%. Furthermore, the current unemployment rate is outrageous at 18.7%, which is almost double that of the US. What’s more outrageous is that 40% of the total population is below the poverty line. In addition, the HPI value is 34%, and Sudan is ranked 104th among 135 countries for which this index is calculated. Sudan’s population growth rate is 2.497% and the life expectancy is 54 years.
The following link is a video that talks about the inside stories of the referendum in Sudan:
21
Jan
11
Using an appropriate diagram, explain who gains and who loses from the introduction of a tariff
1. Demands of the Question
The demands of the question require the student to write for 20 minutes, as this is a question from paper 2. The question explicitly states three major things, which the student must consider in his writing. The first thing is to use an “appropriate diagram”. Along with that, an account of the meaning of the diagram must be given. The second requirement is to “explain” an economic concept or theory. In an “explain” question like this, the student must make the concept or theory clear to someone else, stating the steps involved in reaching this understanding. The third task is to answer the question which would require naming “who gains and who loses from a tariff”.
2. Definitions:
Tariff: Duty (tax) that is placed upon imports to protect domestic industries from foreign competition and to raise revenue for the government
3. Triple A
- Type of protectionism (protecting against imports)
- 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
- Gives domestic equivalents a comparative advantage
- Tariffs are distorting the market forces and may prevent consumers from gaining benefit of all the advantages of international specialization and trade.
13
Jan
11
Portfolio
Definitions
http://static.slidesharecdn.com/swf/ssplayer2.swf?doc=definitionppt-110113070611-phpapp01&stripped_title=definition-ppt&userName=11wadhka
Diagrams
Evaluation
1)
2) Bush Tax Cuts
Reflection
1) IB Papers
2) Section 4 Reflection
Collaboration
1) Debate
2) Comment on peer’s blog
Relations between China and US have been unstable in the recent years. The US is particularly disappointed (according to the understanding of the US) in China’s manipulation of their currency. China moved its exchange rate system from a fixed to a managed currency exchange rate in 2005. A fixed exchange rate system is where one currency is fixed in the value against another. It involves the government working to keep the parity through invention on currency markets where there is a surplus or deficit of their currency. A managed currency exchange rate, which is what China is currently following is where the rate is floating (supply and demand determine exchange rate) between upper and lower limits that to the government keeps to. The government may intervene in times of major fluctuations. A managed exchange rate system brings more stability but at less cost to the national reserves.
In the recent G-20 summit in Seoul, Obama’s main goal was to initiate China to reduce its current account surplus. The U.S. claims that China’s increasingly large current account surplus is “destroying jobs and limiting growth in the U.S.”. The Americans are claiming that the Chinese are “manipulating their own currency” by benefiting from high exports and greater flow of money in the Chinese economy. The current account surplus in China is a result of Chinese increasing exports, a form of investment. A current account surplus in China suggests that its exports are greater than it is importing. With more Chinese investment in the U.S., the more capital U.S. workers get to use, making them more productive and increasing their wages. The Chinese’ trade surplus however, means the U.S.’ trade deficit and the U.S. is importing more than it is exporting.
Figure 1:
The figure above shows the result of reducing the current account surplus in China, which is what the U.S. desires most. A current account surplus in China s The current account records imports and exports of goods and services and it also records income flows which includes flows of interests, profits and dividends that have risen from investment flow and transfer of money. A current account surplus suggests that China is gaining more revenue from their exports than they are spending on their imports. Because China’s exports are greater than its imports, they have more money flowing into the economy than flowing out of the economy. With trade to the U.S., its exports are becoming more expensive and so China has an advantage in trading. If China were to make the yuan cheaper, the supply of the yuan would increase. China would buy more currencies and sell more yuan in the foreign market. As seen in Figure 1 above, the quantity of yuan supplied to the market is Q1 and the price of exchange rate is at P1. As a result of China reducing its exports, quantity of yuan supplied would increase from Q1 to Q2 and the price of exchange rate would decrease from P1 to P2. Due to the decrease in the price of exchange rate, the yuan would depreciate, and their exports would be cheaper. On the other hand, with a depreciating yuan, the U.S. would purchase more imports. However, the local producers in the U.S. would suffer from consumers not buying their goods. The imports of American goods into China would decrease because the dollar would be more expensive/stronger as compared to the yuan.
Although an appreciation of yuan would decrease exports and import goods in China, China does not “balance” its payments because the surplus allows for greater exports to U.S., allowing for greater inflow of money into the Chinese economy. Moreover, if China continued to make the yuan more expensive, Americans will continue to suffer. If the Chinese continued with reduced imports and increased exports, the supply of their currency would decrease and the yuan would appreciate against the dollar. The Chinese producers will have to produce goods at a lower price, and prices for consumers would decrease. Chinese exports to the U.S. will however, become cheaper and Americans would be able to allow for Chinese imports of goods.
In the end, I think that it is up to China to decide what they want to do with their currency exchange system. If they continue with a managed exchange rate system and have a current account surplus, the U.S. is bound to be frustrated, and this may ruin ties between the U.S. and China. If China however, chose to depreciate its value so that its exports became cheaper, this would work to the U.S.’ advantage. At the same time however, the U.S. should be thinking about the effects of smaller surpluses in China. The U.S. will not be able to grow economically if it does not invest and with foreign investments, the country would be disinvesting.
In the month of March, the UK trade gap unexpectedly widened more than anticipated, causing imports to be five times faster than exports. Britain is worried about the weakening pound which is increasing costs for importers and hindering the boost of exports. It has been reported that the UK’s deficit on trade in goods increased from £1.2bn to £7.5bn just in March. Although according to businesses, overseas orders are improving, economists worry that the weak pound is “raising costs for importers but not yet providing significant boost to exports”.
The Marshall Lerner condition and the J-curve could be the solution to UK’s problem increasing costs of imports and less stimulation of exports. The Marshall Lerner conditions suggests that the current account will improve after a depreciation if the sum of the price elasticities of demand for imports and exports is greater than 1. The further above 1 the sum of the elasticities is, the greater the improvement in the current account will be. The only problem with the Marshall Lerner condition is that it won’t work to the UK’s advantage in the short run, but will help it is in the medium-to long run. In the short run, a few extra exports will be sold when prices fall and therefore people around the world will not react instantly. It will be a while before the export demand changes. At this point, the UK is probably at the bottom of the J-curve. However, as time progresses, lower export prices will lead to an increase in demand for them and so the current account will begin to improve. This will be in the medium run, where the UK will be around the middle of the J-curve.
The Spanish and American economies resemble each other quite a lot in that they both experienced a “property bubble” which was followed by a rise in private-sector debt. Moreover, both economies underwent recession and were faced with increasing unemployment. Both economies have seen their budge deficit balloon because of plunging revenues and other costs. However, Spain, unlike America has adopted the euro, a currency shared with other countries. There are many pros and cons of this and I will analyze these.
There are many cons to having a shared economy. Spain, because of its shared currency is faced with paying debts of borrowing costs. When Spain first adopted the euro and was experiencing rapid growth, it had other problems developing at the same time. Their prices and wages rose rapidly in order to feed a large trade deficit. When the recession came along however, and the “bubble burst”, Spain was forced to pay for debts and costs. At this time, they should have been taking measures to restore profitability and stability to Spanish industries, and doing all they could do boost their economy, not paying for costs and being left uncompetitive in critical foreign markets. Because of its uncompetitiveness, it must achieve “internal devaluation”: cut in wages and prices until costs are back in balance with its shared currency economies. An internal evaluation mean years of high unemployment in order to decrease wages, which leads to falling incomes.
The pros of having a single currency include being able to finance deficit in the long-term. A single currency allows for more flexibility. Moreover, if Spain had a single currency and had to face with uncompetitiveness, it could easily let its currency fall, “making its industry competitive again”.
Although America’s recovery from the recession has not been good, it has still seen GDP growth and can expect growth to balance their current deficit. Spain however, has had no significant recovery and this has implications of Spain’s fiscal future.
30
Nov
10
Section 4 Reflection
After taking the summative and formative “Explain” type test, I better understand what I’m having trouble with and what I’m doing fine on. Currently, I seem to understand exchange rates better than balance of payments. On the test, my understanding of the question is flawed by my reasoning. I seem to have a slight misunderstanding with supply and demand in relation to exports and imports. I will continue to revise these concepts.
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