13. Tariffs Tariff revenue 2.00 2.50 Domestic supply Domestic demand Price (RM) Quantity World price = 2 World price with tariff = 2.50 t = .50 Initial imports 3.00 100 125 175 200
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15. Quotas Price (RM) Quantity 2.50 Domestic supply Domestic demand World price=RM2= World supply 2.00 Quota 3.00 100 125 175 200 World supply with quota
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31. THE BALANCE OF PAYMENTS – 1.5 (11) Net capital account transactions 0 (12) Balance of payments (5 + 10 + 11) 51.9 (11) Statistical discrepancy 615.5 (10) Balance on capital account (6 + 7 + 8 + 9) 355.3 (9) Change in foreign government assets in the United States 4.1 (8) Change in U.S. government assets abroad (increase is –) 1077.9 (7) Change in foreign private assets in the United States – 821.8 (6) Change in private U.S. assets abroad (increase is –) CAPITAL ACCOUNT ?????? (5) Balance on current account (1 + 2 + 3 + 4) – 72.9 (4) Net transfer payments ????? (3) Net investment income – 344.9 Income payments on investments 369.0 Income received on investments ????? (2) Net export of services – 291.2 Import of services 339.6 Export of services ?????? (1) Net export of goods – 1,473.1 Goods imports 807.6 Goods exports CURRENT ACCOUNT TABLE 21.1 United States Balance of Payments, 2004
32. Multiplier Effect & Aggregate Expenditure (extension from Chapter 11): Planned aggregate expenditure ( AE ) in an open economy: In equilibrium: m = marginal propensity to import (or MPM) multiplier
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48. Changes in a Country’s Income Income increases in the Malaysia Imports increase Demand for foreign currency to buy imports increase which means the supply of the RM increases The increase in supply of the RM causes the price of the RM to decrease
50. Changes in a Country’s Prices Inflation in the Malaysia increases Imports increase because foreign goods are cheaper Demand for foreign currency to buy imports increases which means the supply of the RM increases The increase in supply of RM causes the price of RM to decrease
52. Changes in Interest Rates Interest rates in the Malaysia increase Demand for Malaysia interest-bearing assets increases Demand for RM to buy Malaysia assets increases The increase in the demand for RM causes the price of RM to increase
54. Changes in Trade Policy Malaysia trade restrictions on imports increase Demand for imports to the Malaysia decreases The demand for foreign currencies decreases, which means the supply of RM decreases If foreign countries retaliate with restrictions on Malaysia exports, the demand for RM decreases
58. Monetary Policy with Flexible Exchange Rate Increase in M Interest rate fall Investor earning lower IR Seek better investment abroad Sell local currency Buy foreign currency Exchange rate fall (depreciate) Local (foreign) product cheaper (more expensive) Net export increase