Lecture 5 The Open Economy.pptVIP

Lecture 5 The Open Economy;Contents;Trade as a percentage of GDP;1-*;US Trade deficit as a percentage of GDP;US – a surplus in services;A deficit in goods, especially in consumer goods and industrial supplies;Trade as a percentage of GDP China: 1978-2007: From 5% ? 35% (export) 30% (import);Trade as a % of GDP: Low income countries have higher percentage than high income countries ;Trade as a percentage of GDP in China and several developed countries ;US and China;China’s Trade surplus with US as a percentage of China’s total trade surplus over time;Trade deficit with China in total deficit;Trade between US and China;Trade between US and China;China’s Foreign Reserves: 1978-2008 billion dollars;China’s foreign reserve;A substantial part of China’s foreign reserve is used to purchase US treasury securities;Comparative advantages  (trade of different goods);Trade of different goods;Comparative Advantage in Apparel, Textiles, and Wheat;Comparative Advantage in Apparel, Textiles, and Wheat;Comparative Advantage in Apparel, Textiles, and Wheat;Misconceptions About Comparative Advantage;Misconceptions About Comparative Advantage;Misconceptions About Comparative Advantage;How patterns of trade are determined?;Example;Capital flow;Saving and investment in an Open Economy;1-*;Saving and Investment in an open economy;Saving and investment in an open economy;A increases in G ? S decreases ? S curves shifts left ? trade deficit ? Twin deficits;Twin deficits;An international coordination of monetary policy during this financial crisis;G-20: Finance ministers and central bank governors of 19 countries + EU;G-20 Summit;G20-Summit;Exchange rates;The Big Mac Index;The Big Mac Index;Net export;Saving-invest and net export;An increase G ? lower NX (twin deficits again). ;An increase in world interest rate;An increase in investment;Trade policy;Nominal Exchange Rates;Nominal exchange rate;Nominal exchange rate;Purchasing Power of Parity;The Big Mac Index;The Big Mac