Option U

(a). The international trading system has contributed to economic growth and development in less developed countries significantly. As opposed to protectionism, which may exclude less developed countries from participating in trade, the international trading system has allowed less developed countries to participate in trade, specializing in goods/services that can be efficiently made or made with a lower cost relative to the more developed countries. This would allow the less developed countries to export more and have receive more revenue. Incoming revenue, which sets off chains of spending, spurs economic growth to occur as money circulates within the economy. Improved growth can increase the amount of development that occurs as more people spend, earn, and become more productive. For example: Country A exports to a more developed Country B 100 units of toys, each toy costing $3. This comes in as $300 of revenue. Let’s say that 5% is taxed by the government, leaving $270 left, and that 5 workers spent 2 hours each making the 100 toys collectively. If they were working for $5 an hour, the firm that exported the goods would pay $50 in wages to its workers and perhaps another $25 to cover the costs of running the factory, leaving $195 in profit. This firm could use the profit to invest, increasing GDP. If they invest in more workers or better equipment, the people who are now employed or the people who earned the money from selling the equipment now have more money to spend. They in turn, would consume goods and services of use to them, and thus continues to set off chains of spending. As more money moves through the economy, it has the ability to positively affect more and more people. The more people who have more money, the better they can live and perform, thus improving development. Also, the taxes that the government collected could be used to improve health services or education, thus causing development as well. Therefore, international trade benefits less developed countries.

Option M

(a). Under a floating exchange rate system, changes in a country’s exchange rate may occur as the market’s fluxes naturally determine the exchange rates. Decisions concerning exports and imports change the demand for currencies, and when demand for a currency changes, the two currencies involved shift in opposite directions. For example if Country A imports more from B, demand for currency B increases, appreciating B and simultaneously depreciating currency A. Factors that affect exchange rates include relative growth rates, relative inflation rates, relative interest rates, expectations about a country’s future performance, and currency speculation.

(b). The argument that exchange rates are the most important factor in determining a country’s export sales is valid. Exchange rates change according to the factors discussed above. Import absorption, competition of exports and imports, capital flows, and expectations are all factors that affect exchange rates and are affected by exchange rates. Currency speculation and expectations for future growth are very influential on exchange rates. Changes in exchange rates cause buying power to fluxuate as well. Changes in buying power and consumer optimism ultimately determine a country’s export sales. Therefore, exchange rates are the most important factor.

Option J

(a). The two types of inflation are demand-pull and cost-push.

In the former case, inflation results as aggregate demand shifts to the right, causing an inflationary gap. The government may attempt to reduce inflation by pursuing contractionary policy – 1. reducing government spending 2. increasing personal/business taxes 3. decreasing the supply of money, and increasing interest rates. Possible consequences include a decrease in aggregate demand (directly from less G) and decreased purchasing power (from increased taxes and interest rates), which directly put a cap on spending. Reducing demand-pull inflation is plausible, and very likely may result in success.

In the latter case, inflation results as there is a supply shock (usually a sharp increase in the price of oil), and aggregate supply shifts to the left, causing a deflationary gap. The government may attempt to reduce inflation by pursuing expansionary policy-1. increasing government spending 2. decreasing personal/business taxes 3. increasing the supply of money, and decreasing interest rates. Possible consequences include an increase in aggregate demand, or no change at all. Increased government spending would shift AD to the right, fixing the gap, but worsening inflation, defeating the purpose. By decreasing taxes and lowering interest rates, the government risks the possibility of firms and households saving the money that they think they have more of. Then, there would be no change in AD and AS, and the inflation would not be fixed. Reducing stagflation is very difficult and very tricky, and more often than not, may result in failure.

Option B

(a). In many economies, the public sector, or the government, is the sole provider of health care and education. It is also possible to allow the private sector, or the market, to have a partial or complete control over the provision of health care and education. In most cases, the public sector facilitates these public goods with the goal of improving welfare within the society, and ultimately, induce economic development. Thus the main focus would be benefitting the society. Should the private sector have a role in the provision of these two public goods, the market may be able to provide them with better quality and efficiency than the public sector due to the competition that would arise.  However, the main focus of many firms within the private sector is profit and efficiency, often times at the cost of quality. Furthermore, even if the private sector had economic development in mind, it would be difficult to provide health care and education at a cost that benefits both society and the firm. Partaking in the provision with the goal of benefitting society would cause a loss to the firm. Therefore in order to diminish the risk of having health care and education that is efficient in terms of cost but poor in terms of quality, the market should not have a role whatsoever in the provision of health care.

Egypt Extra Credit Opportunity

http://finance.yahoo.com/news/How-Hosni-Mubarak-Got-Filthy-usnews-3723955512.html?x=0

From background videos and discussion in class, I was really shocked that there was such a uniform movement in Egypt in opposition to Mubarak. I admired their initial nonviolent protest, but I wasn’t surprised when there were outbursts of violence and clashes between pro and anti Mubarak supporters. At first, when I saw that pro-Mubarak people harmed anti-Mubarak supporters, I immediately took the side of anti-Mubarak supporters and developed a dislike for Mubarak and his people. However, I then realized that Aljazeera and BBC, two rather liberal sources of media, would only portray one possible side. Thus, I tried to view the situation from both points of view.

Although it has been said that Mubarak is a crook, for the reason of ensuring his election for the past 30 years, the article describes the extent of his wealth. In supporting the military and other officials, it is understandable that people with high positions can conduct an election in which the candidate they support is re-elected. And although it may have been unfair, there are positive aspects of Mubarak keeping his position. As stated in class, he has indeed upheld the treaty with the U.S. and Israel. Also, from the article, if he pays the military and officials, it could be a factor in disciplined soldiers and order. I understand how Mubarak’s wealth can be taken as offensive because people rioting include rising food prices and a lack of job opportunities in their cause for protest. If he is making so much money, why doesn’t he alleviate the people’s suffering?  However I think he is key in terms of peace between the U.S. and the middle east, including Israel.

I don’t think that Mubarak should step down for the reason of keeping relations between Egypt and the U.S., but I do think that he should improve the conditions of the people or pass a policy that helps the people. On the note that violent outbreaks continue to occur, the working class is diminishing and thus there is a decrease in the production possibilities curve of the working class, but also an increase in the supply of food for everyone else.

 

Mini-Commentary on Water Scarcity

• Title of extract: China’s Climate Emissions Are Global Issue, But Water Scarcity Is Greater Domestic Priority
• Source of extract: Circle of Blue Water news
• Date of extract: October 7, 2010
• Categories: scarcity

Original Post

Commentary:
With already “11 nuclear plants generating 11,000 megawatts” the government of China still aims to increase by 60,000-75,000 megawatts by the year 2020. Also, China will soon reach 3.5 billion – 4.5 billion tons of coal produced and consumed. This large increase of coal production creates emissions that deplete the freshwater supply available to China. The estimated demand for water by 2030 is 215 trillion gallons, which is 52 trillion gallons more than what China has. This points to the increased scarcity of water and causes questions to arise about where China will get the needed water.
Current efforts to limit the increasing scarcity of water include reducing water consumption. However, this method is limited in terms of how much they can actually reduce consumption. The scarcity of water will force China to re-evaluate the distribution of uses for water by cutting usage where possible or redistributing the water to increase the amount used for production. If this is insufficient, China may be unable to increase production; on the flip side, if they acquire freshwater from other sources, production may still grow.
The graph that I would draw for this article is a conceptual graph of production possibilities. Coal produced would be on the y-axis and amount of available freshwater would be on the x-axis. I would show a movement of the production possibilities curve inward as water limits coal production.Another possibility would be for China to acquire freshwater from other sources. In this case, the PPC would be able to move outward.

Sanguinary Mud a Barrier to Growth?!

• Title of Extract: Factory involved in Hungary sludge flood restarts
• Source of Extract: Pablo Gorondi
• Date of Extract: 10/15/2010
• Category: Unit 1/Economic Growth vs. Economic Development, Production Possibilities

Key Points –

• location – Budapest, Hungary
• the Ajkai Timfoldgyar metals plant had a broken reservoir that released a colossal flood of red sludge onto the neighboring village
• this plant began to restart 10/15/2010
• 9 dead, 50 injured
• plant has 1,100 employees, will reach original capacity of production ~ Tuesday
• toxic red sludge: result of production of alumina, used to make aluminum
• Contradiction of plant’s decision from Greenpeace: area is still currently uninhabitable, safety measures still unclear, airborne dust is a condition in the area
• red sludge is stored, however currently has no economic use
• technical director Jozsef Deak and managing director Zoltan Bakonyi may be charged with public endangerment and environmental damage

Economic Connections –

• hindrance of economic growth
• possible hindrance of economic development
• effect on production possibilities

Facebook+Microsoft > Google ?!?!

• Title of Extract: Google, Facebook battle for ‘future of the Web’
• Source of Extract: Sharon Gaudin
• Date of Extract: 10/14/2010
• Category: Unit 2/ Market Structures (Monopoly, Perfect Competition, Oligopoly, etc.)

Key Points-

• Microsoft and Facebook announced that they will be working together as a search engine
• now, when using the Bing search engine, one can see what car or product their friend liked
• Bing + Facebook may allow people to gain insight on a large purchase before buying
• social web? or search engine?
• Microsoft and Yahoo have worked against Google before, but w/o success
• Google > Microsoft, but Facebook > Google
• Google is not alarmed; they handled 72.15% of U.S. searches
• new concept in progress: social search

Economic Connections:

• Search engine business: Oligopoly
• can discuss the concept of competition entering this industry