Macroeconomics

1. Macroeconomics The study of the behavior and decisions of entire economies.

2. Globalization A modern term used to describe the changes in societies and the world economy that result from dramatically increased international trade and cultural exchange.

3. Why do nations trade? “Countries engage in international trade for two basic reasons, each of which contributes to their gain from trade. First, countries trade because they are different from each other. Nations, like individuals, can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second, countries trade to achieve economies of scale in production. That is, if each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. In the real world, patterns of international trade reflect the interaction of both these motives.” ~Paul Krugman, International Economics

4. Fostering and Limiting Trade Fostering Trade • World Trade Organization (1995)~ Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. • European Union (1951/1999)~ A regional economic agreement among 27 countries across the European continent. • NAFTA (1994)~ This agreement removed most barriers to trade and investment among the United States, Canada, and Mexico. Limiting Trade Protectionism- The use of trade barriers to protect industries from foreign competition. Types of Trade Barriers • Import Quota • Voluntary Export Restraint • Tariff • Informal Barriers

5. Development- Process by which a nation improves the economic, political and social well being of its people. Developed-High level of material well being (US) Less Developed- Low level of material well being (Ethiopia) Newly Industrializing- Better performing LDC’s (Mexico) Indicators of Development Per capita GDP Energy Consumption Labor Force Literacy Infant Mortality Life Expectancy Consumer Goods Levels of Development: Key Content

6. Levels of Development Northern Europe Western Asia Western Europe Eastern Europe Canada Southern Europe United States Northern Africa South Central Asia East Asia Tropic of Cancer Central America Caribbean Western Africa Eastern Africa Southeast Asia Equator Middle Africa South America Southern Africa Tropic of Capricorn Oceania Three Levels of Development • Developed Countries • Less Developed Countries • Newly Industrialized Countries

7. **ISSUES IN DEVELOPMENT** • Rapid population growth • Resource distribution • Lack of physical capital • Lack of human capital • Political Factors • Colonial Dependency • Civil War/Social Unrest • Corruption • Debt

8. Rapid population growth Many countries of the world are experiencing rapid population growth and although every case is different one consistent similarity is that these nations are most often less developed countries. Examples: Sudan, Ethiopia and Kenya Why is population growing in these countries? ~At the core it is simple math - many more people are being born than are dying.

9. Population…continued Why are there more babies being born? • Children may be needed to help earn money • Lack of contraceptive devices may lead to unwanted pregnancies and babies. • The local or national culture or government may encourage large families • Parents may be fearful of infant mortality (children dying very young) • Better medical facilities could be increasing the lives of mothers and therefore increasing their chances of having larger families Why are there fewer deaths now? • Better birthing facilities • More widely available medicines and medical expertise • A general improvement in diet and nutrition in many countries

10. Resource Distribution In parts of Africa, Asia, and Latin America, physical geography makes development more difficult. Only about 10 percent of the world’s land is arable, or suitable for producing crops.

11. Lack of Physical Capital The lack of economic activity typical of LDCs is due in part to a lack of physical capital. Subsistence agriculture provides little opportunity for individuals or families to save.

12. Lack of Human Capital Health and Nutrition Proper food and nutrition are necessary for physical and mental growth and development. Inadequate nutrition is called malnutrition. Education and Training To be able to use technology and move beyond mere subsistence, a nation must have an educated work force. Brain Drain The scientists, engineers, teachers, and entrepreneurs of LDCs are often enticed to the benefits of living in a developed nation. The loss of educated citizens to the developed world is called “brain drain.”

13. Political Factors • shifting from colonial dependency • political instability • Corruption • Debt

14. Shifting from colonial dependency> • Many nations, specifically on the African continent, were under colonial domination until recent times. • This domination created an economic structure that was “export” heavy and “import” light. This unequal balance of trade made nations dependent on the colonial power for manufactured products. • In addition to hyper-dependency for manufactured goods, colonies often lacked infrastructure and internal leadership.

16. Political Instability> Political instability plagues less developed nations with civil wars and social unrest acting to prevent the necessary social stability required for sustained development.

17. Corruption> “Corruption is a major cause of poverty as well as a barrier to overcoming it. The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty.” ~ Peter Eigen Corruption limits the amount of access that the people have to their resources.

18. The Debt Issue World Bank International Monetary Fund World Trade Organization

19. World Bank 1944; headquartered in Washington, D.C. 186 countries They provide low-interest loans, interest-free credits and grants to developing countries.

20. International Monetary Fund 1944; Bretton Woods Conference 186 countries Creates structural adjustment programs (SAP) in less developed nations across the globe.

21. World Trade Organization January 1, 1995; headquartered in Switzerland 153 countries The only global international organization dealing with the rules of trade between nations.