UNIT VII:
The 7 Billion
Name: ______
VOCABULARY
SPECIALIZATION
ECONOMIC INTERDEPENDENCE
ABSOLUTE ADVANTAGE
COMPARATIVE ADVANTAGE
LAW OF COMPARATIVE ADVANTAGE
EXPORTS
IMPORTS
TRADE BARRIER
QUOTA
DUMPING
TARIFF
REVENUE TARIFF
PROTECTIVE TARIFF
VOLUNTARY EXPORT RESTRAINT
EMBARGO
TRADE WAR
PROTECTIONISM
INFANT INDUSTRIES
FOREIGN EXCHANGE MARKET
FOREIGN EXCHANGE RATE
FIXED RATE OF EXCHANGE
INTERNATIONAL TRADE: (p. 510-518)
BENEFITS / ISSUESAbsolute Advantage / Comparative Advantage
What are the advantages of Free Trade? (p. 515)
What groups have active trade agreements? (p. 532-535)
How do they work?EUROPEAN UNION
NAFTA
OPEC
WTO
Measuring Economic Output: Gross Domestic Product
A. Gross Domestic Product:
1. Considered the most important measurement, what is GDP?
______
*Key words: final good/within borders/during year*
2. Most figures used to compute GDP are based on reliable ______
3. What’s counted, what’s not counted?
a. What are intermediate products? ______(NOT included)
b. What are secondhand sales? ______
c. Why are secondhand sales NOT included in GDP measurements?
______
d. Why are goods produced by US companies in other countries NOT included in GDP measurements?
______
e. Why are nonmarket transactions such as housework, home maintenance, and other simple tasks NOT included in GDP measurements?
______
f. Why are components of the underground economy such as illegal drugs or arm sales and gambling NOT included in GDP measurements?
______
Review Questions:
For each question below respond (Y) Yes if it would be included in GDP measurement or (N) No if it would not be included in GDP measurement.
_____ 1. Sale of a used refrigerator.
_____ 2. Value of police protection in a village.
_____ 3. Purchase of $10 worth of gas.
_____ 4. Cost of having brakes replaced on your car.
_____ 5. Vacuuming and dusting your home.
_____ 6. Purchase of rubber products to make tires.
_____ 7. Cars produced by Ford in Canada.
_____ 8. Pay a neighborhood child $5 for mowing your lawn.
_____ 9. Cost of storage for your car during the winter.
_____ 10. Computers produced by IBM in Malaysia
_____ 11. Hostess purchases flour to make bread.
_____ 12. You purchase flour to make cookies.
_____ 13. Cars produced by Nissan in the United States.
_____ 14. Sale of used clothes by AMVETS.
_____ 15. You purchase new clothes from Gap for schools.
4. Calculating GDP
a. Economists group national spending on final goods and services according to the four sectors of the economy:
1. ______– spending by households (C )
2. ______– spending by businesses (I)
3. ______(G)
4. ______– total exports minus total imports (X)
Formula: C + I + G + X = GDP
B. Real vs. Nominal GDP:
1. Real GDP measures changes in actual output. It uses “______” prices to eliminate the influence of inflation.
a. Real GDP changes when there is a change in ______
2. Nominal GDP measures changes in actual output and price. It uses “______” prices and takes into account inflation in the economy.
b. Nominal GDP changes when there is a change in ______
3. FORMULAS for GDP accounting:
a. Nominal GDP = Quantity (current year) X Price (current year)
b. Real GDP = Quantity (current year) X Price (base year)
c. GDP Deflator = (Nominal GDP/Real GDP) X 100
Nominal GDP / Real GDP / GDPYear / (in billions) / (in billions) / deflator
1960 / $513.40 / $1,970.80 / 26.1
1965 / 702.7 / 2473.5 / 28.4
1970 / 1010.7 / 2873.9 / 35.1
1975 / 1585.9 / 3221.7 / 49.2
1980 / 2708 / 3776.3 / 71.7
1985 / 4038.7 / 4279.8 / 94.3
1987 (base) / 4540 / 4540 / 100
1990 / 5546.1 / 4897.3 / 113.2
1991 / 5724.8 / 4867.6 / 117.6
1992 / 6020.2 / 4979.3 / 120.9
1993 / 6343.3 / 5134.5
1994 / 6738.4 / 5344
4. Understanding the numbers above:
a. The GDP deflator shows you how much prices change from year to year. It is NOT in dollar terms.
Ex. From 1985 to 1987 prices increased 5.7% (100 – 94.3)
From 1990 to 1991 prices increased 4.4% (117.6 – 113.2)
b. Real GDP allows you to measure increases in actual output without the influence of inflation. It is in dollar terms.
Ex. From 1990 to 1991 Real GDP declined by $29.7 billion (4897.3 – 4867.6)
From 1993 to 1994 Real GDP increased by $209.5 billion (5344.0 – 5134.5)
c. Nominal GDP allows changes in price to be measured. It is in dollar terms.
Ex. From 1990 to 1991 Real GDP declined but Nominal GDP increased by 178.7 billion. Why did this number go up if production went down? Prices went up!
You will need to use the information above to complete homework questions:
November 2010
Labor Force / Employed / Unemployed / Unemployment RateBuffalo-Niagara Falls MSA / 582,300 / 535,800 / 46,500 / 7.99%
Review Questions: Use the information on the previous page to answer the following.
______1. What is the GDP deflator value for 1993?
______2. What is the GDP deflator value for 1994?
______3. What was the percent increase in price (inflation rate) from 1987 – 1990?
______4. If something cost $1 in 1987, how much did it cost in 1960?
______5. From 1990 to 1991 did the actual number of goods produced in the
economy or Real GDP increase or decrease?
______6. From 1990 to 1991 did Nominal GDP increase or decrease?
7. What caused the difference between Real GDP and Nominal GDP from 1990 – 1991?
______
______8. From 1987 to 1990, how much did the actual number of goods produced
in the economy or Real GDP increase?
______9. From 1987 to 1990, how much did Nominal GDP increase?
10. Why did Nominal GDP increase at such a faster rate?
______
Review Questions:
Read each of the following and determine how each transaction would be recorded in GDP measurements?
1. In December 1990, Ford purchases $300,000 worth of glass windshields to be used in their car manufacturing production. Their U.S. plants sell $13.5 million worth of cars during the first 3 months of 1991.
______a. How many dollars would be recorded in 1990 GDP?
______b. How many dollars would be recorded in 1991 GDP?
2. In 1994 you purchased a 1981 Chevy Monte Carlo from its original owner for $2,500. He paid $12,847 for the car in 1981. To protect the body from salt, you put the car in storage from November of 1994 through March of 1995 at a cost of $50 per month.
______a. How many dollars would be recorded in 1981 GDP?
______b. How many dollars would be recorded in 1994 GDP?
______c. How many dollars would be recorded in 1995 GDP?
3. In March of 1995 you purchase a new mountain bike at a cost of $650. After a long summer of riding you get the bike tuned-up for a cost of $43. In March of 1996 you sell the bike for $400 and use that money to buy a new bike for $720.
______a. How many dollars would be recorded in 1995 GDP?
______b. How many dollars would be recorded in 1996 GDP?
ECONOMIC DEVELOPMENT
Developed Nations-
Transitional Economies (Developing Countries)-
Less Developed Countries (LDC’s)-
Infrastructure-
THE SIX STANDARDS USED TO DETERMINE LEVEL OF DEVELOPMENT:
1) ______-
2) ______-
· ______-
· ______-
3) ______-
· ______-
· ______-
4) ______-
What does energy use say about a nation’s overall quality of life?
5) ______-
6) ______-
Botswana: (p. 550 in your textbook)
How has the government of Botswana helped keep the nation’s economy growing?
In the article, what tells investors that Botswana is a relatively safe place to invest?
ECONOMIC STRATEGIES FOR LDC’s
EDUCATION-
CREATING A FULL CURRICULUM WHICH IS MANDATORY FOR ALL CHILDREN UP TO A CERTAIN AGE WILL INCREASE WHAT THE LABOR FORCE IS CAPABLE OF DOWN THE ROAD
BUSINESS INVESTMENTS-
ENCOURAGING FOREIGN COMPANIES TO INVEST IN A COUNTRY INCREASES THE LABOR FORCE NEEDED AND PUTS MORE MONEY INTO THE ECONOMY
BORROW FROM WORLD BANK-
THE WORLD BANK ALLOWS LDC’S TO BORROW FROM THEM AT A VERY LOW INTEREST AND WITH EXTRA TIME TO PAY BACK THE DEBT
BUILD INFRASTRUCTURE-
BUILDING ROADS, SCHOOLS, POWER STATIONS, BRIDGES INCREASE THE ABILITY OF THE COUNTRY TO SHIP GOODS AND PROVIDE SERVICES TO ITS PEOPLE AND ANY COMPANY INTERESTED IN DOING BUSINESS/INVESTING IN A COUNTRY
GOVERNMENT SPENDING-
THIS INCREASES THE AMOUNT OF CAPITAL IN CIRCULATION WHICH CAUSES AN INCREASE IN DEMAND; OFTEN RESULTING IN MORE JOBS
MICROLOANS-
SMALL LOANS, USUALLY UNDER $5,000 THAT AVERAGE PEOPLE LEND TO INDIVIDUALS IN LDC OR TRANSITIONING ECONOMIES SO THEY CAN GET THEIR BUSINESS OFF THE GROUND. THE PERSON GETTING THE LOAN PAYS IT BACK IN MONTHLY PAYMENTS AT A LOW INTEREST
INTERNATIONAL MONETARY FUND (IMF)-
With its near-global membership of 188 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities—and manage the challenges—posed by globalization and economic development more generally. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties. The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.
UNITED NATIONS DEVELOPMENT PROGRAM-
UNDP partners with people at all levels of society to help build nations that can withstand crisis, and drive and sustain the kind of growth that improves the quality of life for everyone. On the ground in 177 countries and territories, we offer global perspective and local insight to help empower lives and build resilient nations.
World leaders have pledged to achieve theMillennium Development Goals, including the overarching goal of cutting poverty in half by 2015. UNDP's network links and coordinates global and national efforts to reach these Goals. Our focus is helping countries build and share solutions to the challenges of:
· Poverty Reduction and Achievement of the MDGs
· Democratic Governance
· Crisis Prevention and Recovery
· Environment and Energy for Sustainable Development
UNDP helps developing countries attract and use aid effectively. In all our activities, we encourage the protection of human rights, capacity development and theempowerment of women.
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