Serina's Economics Blog

Data Response 4.6

12yamase — Fri, 24 Feb 2012 03:08:29 +0000

Question 1

Distinguish between foreign aid and foreign direct investment.

There are three main types of foreign aid: Bilateral, Multilateral, and Humanitarian. Bilateral aid is given by one country to another, in other words it is a loan. Multilateral aid is when separate countries pay money into one central organization (ex. IMF) and it then distributes money to countries who need it the most. Humanitarian aid can both be by individual country to country or via a major organization such as one of the UN agencies. Humanitarian aid is not a loan, and it is sent to the country in order to help them against a specific problem (ex. tsunamis, droughts, earthquakes). In contrast, foreign direct investment is an investment abroad, usually where the company being invested in is controlled by the foreign corporation.

Question 2

Explain why the earthquake and tsunami in Japan is likely to affect Japan’s capacity to donate foreign aid.

The earthquake and tsunami in Japan is likely to affect their capacity to donate foreign aid because it will force Japan to use capital to support and rebuild their own country before prioritizing other nations. They will need to fix their infrastructures, subsidies companies, etc. Thus, this will lead to a decrease in the amount of capital left to donate foreign aid.

Question 3

Explain how reductions in Japanese foreign aid might affect the economic development of the recipient nations.

The article states, ”The ODA [official development assistance] from Japan will be affected because they will be using their own money for reconstruction. Our development projects will also slow down and our export to Japan will also be affected.” From this we can see that recipient nations such as Philippines will have a slower economic development since there would be reductions in Japanese foreign aid. Japan would be unwilling and or unable to provide aid to other nations and build hospitals in Cebu because they will need to rebuild the cities affected by the tsunami and earthquake.

Question 4

Evaluate the arguments for and against foreign aid.

Foreign aid could be beneficial for nations who are affected by natural disasters such as earthquakes, tsunamis, droughts, etc. It provides harmony between the two nations. If your country wants aid from other nations when you are in chaos, then foreign aid should be given to others. Furthermore, foreign aid can encourage the citizens to have a positive spirit. There would be capital that can be used for improving the health systems and also to improve efficiency of the labor force.

However, there are disadvantages because if foreign aid leads to an overdependence to other countries. In addition, when countries give aid through an organization, in a multilateral way, the donor will not know details to how the money is spent

Data Response: 4.5 Upwardly Mobile Africa

12yamase — Wed, 22 Feb 2012 12:52:33 +0000

Question 1

Explain how improving infrastructure, like establishing mobile phone networks, can help to improve the rate of economic growth.

Since there are not enough infrastructures in Africa, mobile phones can be a replacement for landlines. By establishing and building infrastructure, people are able to work in a better environment. Furthermore, by improving infrastructure they are able to lower the transportation cost as well as time. Economic growth will also be seen because clean water and improving sewer systems would reduce health costs.

Question 2

Explain how improved mobile phone networks in developing countries in Africa can contribute to reductions in levels of poverty.

By establishing mobile phone networks, students in Africa can receive information from a distance, without require to travel many miles to attend the university. Furthermore, mobile phone networks can alert jobseekers, convey weather reports, medical advices, entertainment purposes ..etc. Improved mobile phone networks in developing countries can contribute to reductions in levels of poverty because people are able to convey messages and communicate efficiently. The health system can be improved because doctors and patients can communicate from a distance.

Question 3

Discuss the advantages and disadvantages of foreign direct investment for developing countries.

Advantages: Foreign direct investments leads to stimulation of the economy where more people can be trained and employed. Therefore, growth in the human capital is observed. Furthermore, foreign direct investment can lead to more infrastructures to be built, which can lead to a better quality of life.

Disadvantages: Since the best paying jobs are directed by the foreigners, the profit tends to go to the foreigners and not to the workers. Ex) Building a factory in another country.

Data response 4.4: The Role of International Trade

12yamase — Wed, 22 Feb 2012 00:02:54 +0000

Question 1

Describe the role of the World Trade Organization.

The World Trade Organization supervise and liberalize global trade by providing a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements.

Question 2

Using diagrams to aid your explanation, analyse the impact of imposing a tariff on an imported good.

In the short run, there is a positive impact on domestic producers when tariffs are imposed on imported goods. If tariffs are not imposed, there would be a low entry of barrier, and foreign goods will be sold in the nation for a cheaper price. When the tariffs are imposed, S world will shift to S world plus tariffs. By doing this, the government will help the domestic producers to gain more control of the industry. Furthermore, for the domestic consumers, they will be demanded to pay more. And they will have limited choices since there would be a higher barrier of entry. Overall, we can see that the idea of imposing tariffs are advantageous for domestic producers. However, for foreign producers and the consumers, it will be a disadvantage.

Question 3

Discuss why Brazil, China and India are reluctant to agree to the demands from the US and the EU to reduce the level of protection on their manufactured goods.

Brazil, China, Russia, and India is aiming to diversify their production. This is because an over dependence on primary products can lead to problems such as deterioration of the terms of trade for developing countries, low income elasticity of demand for primary products, and an increased trade between developed countries. Furthermore, there is price volatility for primary products because it is relatively an inelastic good. Although there are clear economic benefits for developing nations to agree to lower protectionism on their products, governments have several reasons why they are reluctant to agree tot he demands from the US and the EU. Firstly, by increasing competition for the domestic producers, they is a risk that sun rise industries are going to get wiped out. China would like to keep their money secured in their nation rather than relying on foreign markets. For China, it is easier to control and handle when it is kept in the Bank of China.

Data Response 4.3 – Role of Domestic Factors

12yamase — Fri, 10 Feb 2012 03:11:14 +0000

Question 1

Explain how a microcredit system works.

Microcredit systems extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

Question 2

Examine the benefits of using microcredit systems in developing countries to promote economic development.

There are benefits because microfinance can enable people to self-employ and start a business. Thus, the unemployment rate will decrease. If the person is educated or has skills, they can specialize in producing a certain product. With the money they earn, they can avoid poverty to an extent and raise their standard level of living. In addition, there is a benefit of using microcredit systems because woman can be empowered and gain more status. The microcredit systems allows more people to work and increases productivity.

Question 3

Examine the problems associated with operating microcredit systems and whether these could contribute to a worsening in the levels of poverty.

Firstly, there is a problem because not all microfinance institutions are well managed. It is a difficult industry to monitor, and most institutions do not organize and keep all records of transactions. Another key problem associated with operating microcredit systems are the high rate of interest, which could go as high as 28 percent. The poor people do not have a lot of choice because the village moneylenders charge five times more. Furthermore, in order to succeed, poor people cannot just have money to start jobs. They need a good support structure, skills, training, etc. People can borrow a lot of money, and end up realizing that they cannot pay back. Thus, there is a high chance of poor people making bad choices and worsening the levels of poverty.

Data Response 4.2

12yamase — Fri, 10 Feb 2012 02:57:51 +0000

Question 1

Identify the indicators of development the article identifies as priorities for the Cuban government.

The Cuban government prioritizes health care for its citizens. They prioritize developing their hospitals, clinics, and rehabilitation facilities.

Question 2

Examine the evidence in the article that suggests the inhabitants of Cuba experience low livings standards.

The article states that there are Cubans who are living “in poverty and cursing the delights of the socialist economy-stand jammed in lines at stores to exchange food stamps for groceries.” Furthermore, there is “no gasoline in Cuba to fill the car up before heading off to work in the morning, and they don’t have meat for lunch everywhere.” The living standards in Cuba is generally low since the “country was on the verge of economic collapse after the Soviet Union ended its generous financial aid program.”

Question 3

Analyze the advantages and disadvantages to the Cuban economy as a result of allocating resources to the health sector.

Firstly, since the Cuban government prioritizes health care, for people who are sick, they will greatly benefit from the situation. Since they are advanced in the medical field, the citizens will have access to medicine that are not available in other countries. However, since the government spends a lot of money on the medical field, for individuals who are not sick, they will be unsatisfied with the level of living standards in Cuba. There will be opportunity costs for spending a great deal of money in the medical field, such as poor education, poor infrastructure and roads, unemployment, poor defense and warfare, etc. Furthermore, in the article, it stated that people from other nations “illegally buy medications, such as the famous Cuban vaccine for meningitis, which is produced nowhere else in the world.” This indicates that there is a black market for medicines that are not sold elsewhere. Although it is an advantage for a nation to specialize in a particular field, thinking about the long run, I believe it is necessary for Cuba to invest money in other fields such as education and unemployment.

Long Question (2)

It is argued that economic development is a more complex concept than economic growth. Discuss the extent to which economic development can be satisfactorily measured.

Economic development is a process where there is improvement in the lives of all people in the country. This involves not only living standards, such as greater availability of goods and services but also the promotion of attributes such as self-esteem, dignity and respect and the enlarging of people’s freedom to choose and to take control of their own lives. The economic growth is best measured by the increase in a country’s real level of output over a period of time i.e. the increase in real GDP (adjusted for inflation). Economic development can be measured checking the human development index, which includes life expectance, literacy rate, etc.

Developmental Economics: Short Q&A

12yamase — Fri, 03 Feb 2012 06:13:16 +0000

Question 1) Explain the importance of human capital in contributing to economic development.

Human factors are one of the key aspects that contribute to economic development. It is important for the nation to improve both the quantity and quality of the human capital. Firstly, there is a general assumption that when the population increases, young individuals will join the labor market. By increasing the quantity of the labor force, the producers are able to supply goods and services efficiently. However, just because there are a lot of people working, it will not completely lead to economic development. The labor force must be educated and trained in various skills. Although educating individuals involves a great amount of spending, in the long run, quality of human capital is key to contributing to economic development.

Question 2) Explain the difference between economic growth and economic development.

The economic growth occurs where there is an increase in the productive potential of the economy and is best measured by the increase in a country’s real level of output over a period of time i.e. the increase in real GDP (real means adjusted for inflation). On the contrary, economic development is a process where there is improvement in the lives of all people in the country. This involves not only living standards, such as greater availability of goods and services )and also the ability to purchase them) but also the promotion of attributes such as self esteem, dignity and respect, and the enlarging of people’s freedom to choose and to take control of their own lives.

Question 3) Discuss the view that the achievement of higher economic growth rates should be the priority of developing economies.

I believe that there should be a balance between focus on higher economic growth rates as well as improvement in living standards of citizens. Developing nations usually prioritize higher economic growth rates because we will see an increase in output of the nation’s economy.

Question 4) Explain what is meant by sustainable development.

In order for a developing country to have sustainable economic growth, they will need to have a sustainable quantity of resources. It is important for the nation to think in terms of the long run, and implement new methods so that they can maintain without relying on the natural resources that may run out in the future. To have a sustainable development, one must think of the four factors of production: natural resources, human resources, physical capital & technology, and institutional factors.

Question 5) Explain how extending property rights and land ownership can help bring about more sustainable development.

By extending the property rights and land ownership, the government is able to protect the environment and other resources more effectively. They will be able to make someone responsible for owning the property. By directly assigning a person who is in charge and responsible, they will most likely try to sustain the quality of the property for their future purposes.

Question 6) Discuss the view that economic growth will inevitably conflict with sustainable development.

It will be very difficult for everyone in the nation to benefit evenly. Thus, when there in an economic growth, it will lead to inequality of income. Furthermore, pollution and other negative externalities will be a key aspect. There would be a lot of pressure on the environment when the developing nation has little legal protection of the environment. In addition, there would be lifestyle changes because individuals will feel pressure when there is a push for growth.

International Economics Terminology

12yamase — Fri, 03 Feb 2012 05:48:17 +0000

Factor endowments are the factors of production that a country has available to produce goods and services.

Specialization exists where a country specializes in the production of goods and services where they have comparative advantage in production. They will then trade to get the goods and services in which they do not specialize.

Absolute advantage for a good exists where a country is able to produce more output than other countries using the same inputs of factors of production.

Comparative advantage for a good exists where a country is able to produce a good at a lower opportunity cost of resources than another country.

Free trade is international trade that takes place without any barriers, such as tariffs, quotas, or subsidies.

A tariff is a duty tax that is placed upon imports to protect domestic industries from foreign competition and to raise revenue for the government.

A quota is an import barrier that set upper limits on the quantity or value of imports that may be imported into a country.

A subsidy is an amount of money paid by the government to a firm, per unit of output, to encourage output, to encourage output an to give the firm an advantage over foreign competitors.

A Voluntary Export Restraint (VER) is a voluntary agreement between an exporting country and an importing country that limits the volume of trade in a particular product/products.

The infant industry argument proposed that new industries should be protected from foreign competition until they are large enough to compete in international markets.

Dumping is the selling of a good in another country at a price below its unit cost of production.

Anti-dumping is legislation to protect an economy against the import of a good at a price below its unit cost of production.

A free trade area (FTA) exists when an agreement is made between countries, where the countries agree to trade freely among the members of the group, but are able to trade with countries outside the free trade area in whatever ways they wish, for example, the North American Free Trade Agreement between the US, Canada and Mexico.

A customs union is an agreement made between countries, where these countries agree to trade freely among themselves, and they also agree to adopt common external barriers against any country attempting to import into the custom union.

A common market is a customs union with common policies on product regulation, and the free movement of goods, services, capital, and labor.

The World Trade Organization, also known as the WTO, is an international body that sets the rules for global trading and resolves disputes between its member countries. It also hosts negotiations concerning the reduction of trade barriers between its member nations.

The Balance of Payment is a record of the value of all the transactions between the residents of a country with the residents of all other countries over a given time period.

The balance of trade is a measure of the revenue received from the exports of goods minus the expenditure on the imports of goods over a given time period.

The currency account is a measure of the flow of funds from trade in goods and services, plus net investment income flows (profit, interest and dividends) and net transfers of money (foreign aid, grants, and remittance).

The capital account is a measure of the buying and selling from the export of goods and services and income flows is greater than the expenditure on the import of goods and services and income flows over a time period.

The current account surplus exists where the revenue from the export of goods and services and income flows is greater than expenditure on the import of goods and services and income flows over a given time period.

The current account deficit exists where revenue from the export of goods and services and income flows is less than the expenditure on the import of goods and services and income flows over a given time period.

The Marshall-Lerner condition states that a depreciation, or devaluation, of a currency will only lead to an improvement in the current account balance if the elasticity of demand for exports plus the elasticity of demand for imports is greater than one.

The J-Curve theory suggests that in the short term, even if the Marshall-Lerner condition is fulfilled, a fall in the value of the currency will lead to a worsening of the current account deficit, before things improve in the long term.

An exchange rate is the value of one currency expressed in terms of another, for example, $1 = 1.60 euros

A fixed exchange rate is an exchange rate regime where the value of a currency is fixed to the value of another currency, or to the value of some other commodity like gold.

A floating exchange rate is an exchange rate regime where the value of a currency is allowed to be determined fully by the demand and supply of that currency on the foreign market.

A depreciation is when the value of a currency decreases in terms of another currency in a floating exchange rate system.

An appreciation is when the value of a currency increases in terms of another currency in a floating exchange rate system.

Purchasing power parity (PPP) theory suggests that under a floating exchange rate system, exchange rates adjust to offset differential rates of inflation between countries that are trading partners in order to restore balance of payments equilibrium.

The terms of trade is an index that illustrates the value of a country’s average export prices relative to their average import prices.

Deteriorating terms of trade, also known as adverse terms of trade, exist when the average price of exports falls relative to the average price of imports.

Elasticity of demand for exports is a measure of the responsiveness of the quantity demanded of exports when there is a change in the relative price of exports.

Elasticity of demand for imports is a measure of the responsiveness of the quantity demanded of imports when there is a change in the relative price of imports.

Portfolio: Semester 2

12yamase — Mon, 06 Jun 2011 02:40:20 +0000

Source

Semester Two: Portfolio

Definitions and Diagrams – Prezi Presentation
Evaluation – Evaluating BBC Article on Japan Deflation
Collaboration – Top 3 Countries, Article Review on China, Blog Comment
Reflection – Economics Project: Reflection on Data Given
Showcase - Test Review 1 , Test Review 2
Improvement – President’s Dilema

President’s Dilema: Reflection

12yamase — Fri, 20 May 2011 03:21:38 +0000

Today, we had a formative presentation on possible solutions to the current economic crisis. I was in charge of presenting historical graphs and basic information about the crisis. I believe it was good that we had good visual aid because it is appealing to the eye. We got very strict questions about politics and economics. They believe that we should not cut down on submarines and aircraft carriers, since it is a symbol of “power.” Overall, our group lacked team effort and only the presentators worked hard on this project.

President’s Dilema: Demand & Supply

12yamase — Thu, 12 May 2011 15:40:43 +0000

How can demand and supply side policies help people like W. Jorgensen?

W.Jorgensen is concerned about the increased price of oil that has made it necessary for the car company to increase prices of goods. However, due to this increase in price, more people are not able and willing to buy new cars. In order to help people like W. Jorgensen, our group came up with a plan to promote hybrid / eco friendly cars. By promoting eco friendly cars, the government can help people who are unable to purchase expensive oil for their cars.