International	
  	
  
Economics	
  
	
  theory	
  and	
  policy	
Chapter1	
  Introduction
Japan	
  has	
  been	
  in	
  long	
  stagnation.
What	
  should	
  we	
  do?
Abenomics??
What	
  is	
  a	
  resource	
  to	
  economic	
  growth?
Capital	
  Accumulation
Human	
  Resource	
Human	
  Resource
Natural	
  Resource
Why	
  is	
  trade	
  so	
  important?
Trade	
  is	
  almost	
  the	
  same	
  as	
  
Innovation	
quantity	
  of	
  goods	
  A	
  
produced	
quantity	
  of	
  go...
What	
  image	
  do	
  you	
  have	
  about	
  Micro,	
  
Macro	
  and	
  International	
  Economics
What	
  is	
  Economics?	
!   Economics is a study of mankind in
the ordinary business of life.(Alfred
Marshall)	
	
!   Ec...
MicroEconomics and MacroEconomics	
!   Microeconomics	
  
!   the study of how individual households and firms makedecisio...
Micro,	
  Macro	
  and	
  International	
  
Economics	
household	
household	
household	
household	
company	
company	
compa...
Microeconomics	
  versus	
  
Macroeconomics	
  questions	
  	
Micro	
  Economics	
!   Should	
  I	
  go	
  to	
  business	...
Micro	
  and	
  Macro	
  Economics	
household	
household	
household	
household	
company	
company	
company	
company	
Microe...
International	
  Economics	
household	
household	
household	
household	
company	
company	
company	
company	
household	
hou...
Contents	
!   Part1	
  International	
  trade	
  theory	
  
!   Part2	
  International	
  trade	
  policy	
  
!   Part3	
 ...
Part1	
  International	
  trade	
  theory	
!   2World	
  trade:	
  An	
  overview	
  
!   3Labor	
  productivity	
  and	
 ...
Part2	
  International	
  trade	
  policy	
!   9The	
  instruments	
  of	
  trade	
  policy	
  
!   10The	
  political	
  ...
Part3	
  Exchange	
  rates	
  and	
  open	
  
economy	
  macroeconomics	
!   13National	
  income	
  accounting	
  and	
  ...
Part4	
  International	
  macroeconomic	
  policy	
!   19International	
  monetary	
  systems:	
  An	
  historical	
  
ove...
Learning	
  Goals	
  in	
  Introduction	
!   Distinguish	
  between	
  international	
  and	
  domestic	
  
economic	
  is...
What	
  type	
  of	
  issues	
  can	
  you	
  image	
  
regarding	
  international	
  economics?
7	
  themes	
  	
  recur	
  throughout	
  the	
  study	
  of	
  
international	
  economics	
1.  The	
  gains	
  from	
  t...
1.The	
  gains	
  from	
  trade	
!   【Chap3】The	
  two	
  countries	
  can	
  trade	
  to	
  their	
  mutual	
  benefit.	
 ...
Ten Principles of Economics
from Mankiw 	
!   Ⅰ.	
  How	
  People	
  Make	
  Decisions.	
  
!   1:People	
  Face	
  Trade-...
2.The	
  pattern	
  of	
  trade	
!   Who	
  sells	
  what	
  to	
  whom?	
  
!   Climate	
  and	
  resources	
  clearly	
 ...
Theories	
  in	
  the	
  pattern	
  of	
  trade	
!   【Chap2】The	
  trade	
  between	
  any	
  two	
  countries	
  is	
  
p...
3.How	
  much	
  trade?	
!   The	
  seemingly	
  eternal	
  debate	
  over	
  how	
  much	
  trade	
  
allow	
  is	
  the	...
Imports	
  of	
  goods	
  and	
  services	
  
	
  (%	
  of	
  GDP)	
16	
   18	
  
27	
  
34	
  
54	
   54	
  
182	
  
0	
 ...
Trade	
  policy	
!   【Chap4	
  and	
  5】Strong	
  effects	
  on	
  income	
  distribution	
  
within	
  countries	
  of	
  ...
4.Balance	
  of	
  payments	
!   The	
  issue	
  of	
  a	
  countries	
  balance	
  of	
  payments	
  emerges	
  in	
  a	
...
5.Exchange	
  rate	
  determination	
!   【Chap14-­‐17】Focusing	
  on	
  the	
  modern	
  theory	
  
of	
  floating	
  excha...
6.International	
  policy	
  coordination	
	
  
!   【Chap9】Discussing	
  the	
  Rationale	
  for	
  an	
  international	
 ...
7.Internatinal	
  Capital	
  Markets	
!   Some	
  special	
  risks	
  are	
  associated	
  with	
  international	
  
capit...
Trade	
  and	
  Money	
focus	
Trade(Part1&2)	
  
	
Money(Part3&4)	
issue	
The	
  real	
  transactions	
  
(a	
  physical	
...
International	
  Economics	
household	
household	
household	
household	
company	
company	
company	
company	
household	
hou...
7	
  themes	
  	
  recur	
  throughout	
  the	
  study	
  of	
  
international	
  economics	
1.  The	
  gains	
  from	
  t...
20130126 international economics chap1 introduction
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20130126 international economics chap1 introduction

  1. 1. International     Economics    theory  and  policy Chapter1  Introduction
  2. 2. Japan  has  been  in  long  stagnation.
  3. 3. What  should  we  do?
  4. 4. Abenomics??
  5. 5. What  is  a  resource  to  economic  growth?
  6. 6. Capital  Accumulation
  7. 7. Human  Resource Human  Resource
  8. 8. Natural  Resource
  9. 9. Why  is  trade  so  important?
  10. 10. Trade  is  almost  the  same  as   Innovation quantity  of  goods  A   produced quantity  of  goods  B   produced The  production     Possibility   Frontier
  11. 11. What  image  do  you  have  about  Micro,   Macro  and  International  Economics
  12. 12. What  is  Economics? !   Economics is a study of mankind in the ordinary business of life.(Alfred Marshall) !   Economics is a study of how society manages its resources.(N.Gregory Mankiw) !   The science that deals with the production,distribution,and consumption of goods and services,or the material welfare of mankind. (Random House Dictionary)
  13. 13. MicroEconomics and MacroEconomics !   Microeconomics   !   the study of how individual households and firms makedecisions and how they interact with one another in markets. !   Macroeconomics: !   the study of economy as a whole. and economy wide phenomena including inflation,unemployment,and economic growth. Paul Krugman John Forbes Nash Amartya Sen Ben Bernanke John Maynard Keynes Milton Friedman
  14. 14. Micro,  Macro  and  International   Economics household household household household company company company company Microeocnomics  analyzes   the  behavior  of  consumer   and  company   Macroeconomics  analyzes   the  whole  economy  and   policy  for  stabilizing  the   economy  conducted  by   the  government
  15. 15. Microeconomics  versus   Macroeconomics  questions   Micro  Economics !   Should  I  go  to  business   school  or  take  a  job  right   now?   !   What  determines  the  salary   offered  by  Citi  Bank  to   Cherie  Camajo,  a  new  MBA?   !   What  determines  a   university  or  college  of   offering  a  new  course?   Macro  Economics !   How  many  people  employ  in  the  economy  as  a  whole   this  year?   !   What  determines  the  over   roll  salary  levels  paid  to   workers  in  a  given  year?   !   What  determines  the   overrall  level  of  prices  in  the   economy  as  a  whole?  
  16. 16. Micro  and  Macro  Economics household household household household company company company company Microeconomics  analyzes   the  behavior  of  consumer   and  company   Macroeconomics  analyzes   mechanism  of  the  whole   economy  and  the  policy   for  stabilizing  the   economy  conducted  by   the  government
  17. 17. International  Economics household household household household company company company company household household household household company company company company Nation Nation International  Economics   analyzes  international   trade  and  investment   occur  between   independent  nations. Trade  of  goods  and  services Capital  flow
  18. 18. Contents !   Part1  International  trade  theory   !   Part2  International  trade  policy   !   Part3  Exchange  rates  and  open  economy  macroeconomics   !   Part4  International  macroeconomic  policy  
  19. 19. Part1  International  trade  theory !   2World  trade:  An  overview   !   3Labor  productivity  and  comparative  advantage:  The  Ricardian   model   !   4Specific  factors  and  income  distribution   !   5Resources  and  Trade:  The  Heckscher-­‐Ohlin  Model   !   6The  Standard  trade  model   !   7External  Economies  of  scale  and  the  international  location  of   production   !   8Firms  in  the  global  economy:  Export  decisions,  outsourcing,  and   multinational  enterprises  
  20. 20. Part2  International  trade  policy !   9The  instruments  of  trade  policy   !   10The  political  economy  of  trade  policy     !   11Trade  policy  in  developing  countries   !   12Contriversies  in  trade  policy    
  21. 21. Part3  Exchange  rates  and  open   economy  macroeconomics !   13National  income  accounting  and  the  balance  of  payments     !   14Exchange  rates  and  the  foreign  exchange  market:  An   asset  approach   !   15Money  interest  rates,  and  exchange  rates   !   16Price  level  and  the  exchange  rate  in  the  long  run   !   17Output  and  the  exchange  rate  in  the  short  run   !   18Fixed  rates  and  foreign  exchange  intervention  
  22. 22. Part4  International  macroeconomic  policy !   19International  monetary  systems:  An  historical   overview     !   20Optimum  currency  area  and  the  European  experience   !   21Financial  globalization  :  opportunity  and  crisis   !   22Developing  countries  :  Growth,  crisis,  and  reform  
  23. 23. Learning  Goals  in  Introduction !   Distinguish  between  international  and  domestic   economic  issues.   !   Explain  why  seven  themes  recur  in  international   economics,  and  discuss  their  significance   !   Distinguish  between  the  trade  and  monetary  aspects   of  international  economics
  24. 24. What  type  of  issues  can  you  image   regarding  international  economics?
  25. 25. 7  themes    recur  throughout  the  study  of   international  economics 1.  The  gains  from  trade   2.  The  pattern  of  trade   3.  How  much  trade?   4.  Balance  of  payments   5.  Exchange  rate  determination   6.  International  policy  coordination   7.  The  international  capital  markets  
  26. 26. 1.The  gains  from  trade !   【Chap3】The  two  countries  can  trade  to  their  mutual  benefit.   !   International  migration  and  international  borrowing  and   lending  are  also  forms  of  mutually  beneficial  trade   !   【Chap4】Labor  for  goods  and  services.   !   【Chap6】Current  goods  for  the  promise  of  future  goods.   !   【Chap21】International  exchanges  of  risky  assets  such  as  stocks   and  bonds.       !   International  trade  may  hurt  particular  groups  within  nations.   !   International  trade  will  have  strong  effects  on  the  distribution   income.
  27. 27. Ten Principles of Economics from Mankiw !   Ⅰ.  How  People  Make  Decisions.   !   1:People  Face  Trade-­‐offs.   !   2:The  Cost  of  Something  Is  What  You  Give  Up    to  Get  It.   !   3:Rational    People  Think  at  the  Margin.   !   4:People  Respond  to  Incentives.     !   Ⅱ.  How  People  Interact.   !   5:Trade  Can  Make  Everyone  Better  Off.   !   6:Markets  Are  Usually  a  Good  way  to  Organize  Economic  Activity.   !   7:Governments  Can  Sometimes  Improve  Market  Outcomes.   !   Ⅲ.  How  the  Economy  as  a  Whole  Works   !   8:A  Country's  Standard  of  Living  Depends  on  its  Ability  to  Produce  Goods   and  Services.   !   9:Prices  Rise  When  the  Government  Prints  Too  Much  Money.   !   10:Society  Faces  a  Short-­‐Run  Trade-­‐off  between  Inflation  and   Unemployment.  
  28. 28. 2.The  pattern  of  trade !   Who  sells  what  to  whom?   !   Climate  and  resources  clearly  explain  why  Brazil  exports   coffee  and  Saudi  Arabia  exports  oil.   !   Why  does  Japan  exports  automobiles,  while  the  United   States  exports  aircraft?   !   One  of  the  most  influential  explanations  links  trade   patterns  to  an  interaction  between  the  relative  supplies   of  national  resources  such  as  capital,  labor,  and  land  on   one  side  and  the  relative  use  of  these  factors  in  the   production  of  different  goods  on  the  other.  
  29. 29. Theories  in  the  pattern  of  trade !   【Chap2】The  trade  between  any  two  countries  is   proportial  to  the  products  of  their  GDP  and  diminishes   with  distance.   !   【Chap3】International  differences  in  labor  productivity.   !   【Chap5】Interaction  between  the  relative  supplies  of   national  resources  and  the  relative  use  of  these   factors  in  the  production  of  different  goods  on  the   other.   !   【Chap7&8】Substantial  random  components  in  the   pattern  of  international  trade.  
  30. 30. 3.How  much  trade? !   The  seemingly  eternal  debate  over  how  much  trade   allow  is  the  most  important  policy  theme.   -­‐100   -­‐80   -­‐60   -­‐40   -­‐20   0   20   40   60   80   100   1979   1980   1981   1982   1983   1984   1985   1986   1987   1988   1989   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   exports   import   net  exports   (Trillion  yen)
  31. 31. Imports  of  goods  and  services    (%  of  GDP) 16   18   27   34   54   54   182   0   20   40   60   80   100   120   140   160   180   200   Japan   U.S   China   United   Kingdom   Germany   Korea   Singapore   (Source)The  world  Bank   http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS %
  32. 32. Trade  policy !   【Chap4  and  5】Strong  effects  on  income  distribution   within  countries  of  trade.   !   【Chap9  and  10】A  analytical  framework  for  determining   the  effects  of  government  policies  that  affect   international  trade.   !   【Chap10  and  Chap12】The  relative  power  of  different   interest  groups  within  countries  is  often  the  main   determining  factors  in  government  policies  toward   international  trade.
  33. 33. 4.Balance  of  payments !   The  issue  of  a  countries  balance  of  payments  emerges  in  a  variety   of  specific  contexts.   !   【Chap8】In  discussing  foreign  direct  investment  by  multinational   corporations.   !   【Chap13】In  relating  international  transactions  to  national  income   accounting.   !   【Chap17  through  22】In  discussing  virtually  every  aspect  of   international  monetary  policy.
  34. 34. 5.Exchange  rate  determination !   【Chap14-­‐17】Focusing  on  the  modern  theory   of  floating  exchange  rates.   !   【Chap18】The  working  of  fixed-­‐rate   systems.   !   【Chap19】The  historical  performance  of   alternative  exchange-­‐rate  systems.   !   【Chap20】The  economics  of  currency  areas   such  as  the  European  monetary  union.  
  35. 35. 6.International  policy  coordination   !   【Chap9】Discussing  the  Rationale  for  an  international  treaty   such  as  GATT  and  WTO  and  looking  at  whether  the  current   rule  of  the  game  for  international  trade  in  the  world   economy  can  or  should  survive.   !   【Chap19】The  theory  of  international  macroeconomic   condition  and  the  developing  experience.
  36. 36. 7.Internatinal  Capital  Markets !   Some  special  risks  are  associated  with  international   capital  markets.   !   Currency  fluctuations   !   National  default   !   The  growing  importance  of  international  capital   markets  and  their  new  problems  demand  greater   attention  than  ever  before   !   【Chap21】The  functioning  of  global  asset  markets   !   【Chap22】Foreign  borrowing  by  developing  countries    
  37. 37. Trade  and  Money focus Trade(Part1&2)   Money(Part3&4) issue The  real  transactions   (a  physical  movements  of   goods  and  tangible   commitment  of  economic   resources) The  financial  transactions   (such  as  foreign  purchase   of  U.S  dollars) The  conflict  between  US   and  Europe  over  Europe’s   subsidized  exports  of   agriculture  products. The  dispute  over  whether   the  foreign  exchange  value   of  the  dollar  should  be   allowed  to  float  freely  or  be   stabilized  by  government   action.
  38. 38. International  Economics household household household household company company company company household household household household company company company company Nation Nation International  Economics   analyzes  international   trade  and  investment   occur  between   independent  nations. Trade  of  goods  and  services Capital  flow
  39. 39. 7  themes    recur  throughout  the  study  of   international  economics 1.  The  gains  from  trade   2.  The  pattern  of  trade   3.  How  much  trade?   4.  Balance  of  payments   5.  Exchange  rate  determination   6.  International  policy  coordination   7.  The  international  capital  markets  
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