National Economics and Global Trade

1. National Economics and Global Trade Chapters 13, 14, 17 & 18

2. GDP - $ amount of all goods produced in a nation in a year • It’s a measure of national output • Easy to compute - # of all goods produced in a year multiplied by their cost. • Exclusions – • Intermediate products – products already used in other products (don’t get counted twice) • Secondhand sales (used goods) • Non market transactions • Underground economy (illegal or unreported activity) • We like to see increases in GDP – tells us economy is growing. • GDP is sometimes mistakenly used as quality of life indicator • Best overall measure of economic health and national wealth. • Can be expressed in overall sum, or ‘pre capita’ – overall sum divided by population. Gross Domestic Product

4. GNP – measure of a nation’s income over a year. • Is based on GDP, but GNP takes in account goods purchased by consumers produced in other countries. • First of five income measures used by the National Income and Product Accounts (NIPS) • 2. Net National Product • 3. National income • 4. Personal income • 5. Disposable personal income Gross National Product

5. Four interdependent sections of national economy that compromise a nation’s buying, selling and growth. • Consumer sector • Individuals and families who purchase and work. • Investment Sector • Business and individuals who provide capital. • Government Sector • Foreign Sector Economic Sectors

6. Inflation – rise in price levels and/or devalue of fiat money. • Price Index – used to measure price changes over a given period of time. • Base year – serves as your basis • Market Basket – representative selection of what you want to track • When the GDP has not been adjusted to reflect inflation, it is called the current GDP; a real GDP takes these into account. GDP and Price Level

7. US Population is currently, 314 million, and is statistically declining. • What affects population? • Fertility rate – amount of babies expected to be born • Life expectancy – how long citizen live • Net Immigration – how many non-citizen move in • How is GDP affected by population growth? • Youngest & oldest citizens are biggest drain on social services-Dependency ratio • Productivity depends on sizeable workforce. • Jobs must keep up with numbers. GDP and Population

8. GDP/Economic growth is a necessity because it: • Raises the standard of living • Increases the tax base • Increases employment • Helps economies of other nations • Labor productivity, entrepreneurs, renewal resources and capital are essential to economic growth. • Despite all these factors, economic growth is interrupted by business cycles – the ups and downs of economics. Economic Growth

9. Causes • Capital Expenditures • Inventory Adjustments • Innovation and imitation • Monetary Factors • External Shocks • Phases • Recession – economy peaks, the declines for two quarters (6 mths). • Once a trough (lowest point) is reached expansion (recovery occurs) • A depression is a severe recession with significant job and shortages. The Business Cycle

10. Unemployment rate is the number of jobless divided by those with jobs. • Kinds of unemployment: • Frictional unemployment • Short term – workers in between jobs • Structural unemployment • Shift in economic sectors causes a lack of jobs – technological changes, social changes, etc. • Cyclical unemployment • Directly related to business cycle • Seasonal unemployment • Changes in weather or demand in products based on climate • Technological Unemployment • Workers are obsolete due to automation • Underemployment • Individuals who have jobs, but can not support themselves. Unemployment

11. Export – goods transported out of the nation for foreign sales • Import – goods transported into the nation from foreign sources. • You export items you have an absolute advantage of – you can make them cheaper and more efficiently. • National goal is to EXPORT more than you IMPORT – favorable trade balance • If you IMPORT more than you EXPORT, this is a trade deficit. Trade

12. Your nation protects itself with a protective tariff to promote domestic industry and protect the nation from being overrun with foreign goods. • Reasons to protect a nation from dependency on foreign goods: • 1. Defense • 2. Promoting domestic industries • 3. Protecting domestic jobs • 4. Keep profits in nation • North America Free Trade Agreement • 1993 • Reduced or eliminated tariffs between the United States, Canada and Mexico • Pros • Revitalized Mexican economy • Cons • Many industrial jobs left US and Canada for cheaper labor in Mexico • World Trade Organization • 1947 • Negotiates trade treaties between nations • Promotes freer trade and monitors tariffs • Settles trade disputes. Tariffs, NAFTA, and the WTO

13. Developing Economies are usually dependent on trade from larger GDP nations. • Characteristics of Developing economies • Under-developed industry • Dependence on a single commodity for income • Majority of population works in agriculture or obtaining food • History of being colonized by a European/Western power (located in Latin America, Africa and Asia) • Obstacles to Development • Population • Natural Resources/Geography • Education • Available Technology • Religious/Cultural Restraints • Debt to larger GDP nations • Capital Flight • Government Instability and Corruption • War Developing Economies