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Economics 2.3,2.4,3.2
Macroeconomics
Conceptual Lens: Global Economy
2.3 Explain the impact of government policies on international
trade (e.g., tariffs, quotas, sanctions, subsidies, banking,
embargos, etc.)
2.4 Analyze the role of NC and the US in the world economy
(e.g., furniture industry, tourism, fishing, etc.).
3.2 Explain how fiscal policy and monetary policy influence
overall levels of employment, interest rates, production, price
level and economic growth (e.g., business cycle, standard of
living, recession, depression, Consumer Price Index, etc.).
Fiscal Policy
• How the government spends its money and how
it taxes households and businesses.
• Taxation – money coming in
– Income or Revenue
• Expenditures–
– Money going out
– Government Spending
Fiscal Policy
• National debt – how
much money the
government owes
• Budget Deficit– the
government spends
more money
(revenue/income)
than it takes in
– In the RED
– Also called deficit
spending
• Budget surplus –
the government takes
in more than it
spends
Monetary Policy
• Regulated by The
Fed
– How much the
government (The
Fed) restricts or
releases the flow of
money into the
economy
– Interest rates
– How the Fed controls
the money supply
– Tight and Easy
Money Policy
Monetary Policy
**not in notes**
Federal Reserve
The Fed raises the
discount rate – banks
must pay a higher rate
of interest to borrow
money
Banks
Banks borrow money
from the Fed at a high
discount rate – they
raise interest rates
Consumers
Consumers borrow
money from banks –
they charge a high
interest rate due to the
high discount rate
Money Supply
Consumers do not
borrow as much money –
therefore they cannot
spend as much money –
the money supply
decreases
Monetary Policy
• Discount Rate
– The interest rate charged to banks to borrow money
from the Fed
– “Bank for banks”
• Open Market Operations
– Sale or purchase of US Treasury bonds to control the
money supply
• Interest Rates
– The higher the discount rate charged by the Fed to
banks, the higher a consumer’s interest rate will be
Progressive Tax
• Tax that increases as your income
increases
– Income tax – tax on income
– Personal Income tax
• Tax on personal income (usually comes out of your
paycheck)
– Corporate Income tax
• Tax on income made by corporations (big
businesses – stock)
Regressive Tax
• Tax that takes a
larger percent of
income from those
who earn less
– Excise tax
• Tax on specific items
such as gas,
cigarettes, and alcohol
• Already in the price
– Sales tax
• Tax on purchases
FDIC
• Federal Deposit Insurance
Commission
– Created during the Great
Depression by President
Roosevelt
– Designed to protect the
money a customer has
deposited in a bank
– The government insures a
depositor’s money up to
$250,000 limit
– Makes customer feel
secure that their money
will not be lost or stolen
The Federal Reserve
• Central bank
• “Bank for Banks”
– Also called the “Fed”
• Purpose: Monetary
Policy
– Controls the money
supply
– Sets interest rates
Reserve Requirement
• Set by the Fed – monetary policy
• The amount of money banks are required
to keep on hand
Tight-Money Policy
• The Fed raises the reserve
requirement
• Banks must hold onto more
money – can’t loan any out
• Pumps less money into the
economy
• Reduces inflation
• Interest rates increase
Easy-Money Policy
• The Fed lowers the reserve
requirement
• Banks are free to loan out
more money
• Pumps more money into the
economy
• Increases inflation
• Interest rates decrease
Outsourcing
– Helps producers
with cost
– People are
without jobs,
especially if it is
outsourced
overseas
Downsizing
– Producers layoff
employees
– Helps producers
with cost
– People are
without jobs
North Carolina’s Economy
Service Industry
• A result of
population shifts
• Service industries
thrive due to
population increases
• As the population
increases, the
demand for goods
and services
increases
• Motels, Hotels,
Amusement Parks,
Movie Theaters,
Restaurants, etc.
North Carolina’s Tourism Industry
•
•
•
Tourism Industry
Tourism plays an important role in North
Carolina's economy, with nearly every
sector of the state's economy benefiting
from tourist activities. Tourism generates
$2.2 billion in federal taxes and $2.1 billion
in state and local taxes.
Investment in Tourism
– Despite the recession and resulting
tightened budgets, North Carolina has
made calculated investments in the
tourism industry to keep the industry
alive.
North Carolina’s Furniture Industry
•
•
•
•
Furniture Industry
The traditional North Carolina furniture
industry has been experiencing drastic
changes in the past decade.
Competition from countries like China and
the rising imports of furniture into the
United States have led many furniture
manufacturers in the state to shut down
plants and lay off workers.
The industry's transformation into a global
one raises many questions about
government action and government policy.
North Carolina’s Fishing Industry
•
Fishing Industry
• North Carolina’s unique location and
geography bring a wealth of marine
fisheries to our coastline
– The result? North Carolina’s commercial
fishing industry valued in the billions.
• Access to working waterfronts is a major
issue facing the commercial fishing
industry in North Carolina.
• Many areas once reserved for
commercial boats are being sold and
developed into private waterfronts,
making it increasingly difficult for
watermen to earn a living.
• Cheaper imports, inexpensive foreign
labor and consumers looking for a deal
are taking a toll on the industry.
Globalization
• The worldwide movement toward
economic, financial, trade, and
communications connections.
Free Trade
• International trade
without restrictions
• Why trade??
– Greater choice of
consumer goods
– Specialization – more
efficient production of
goods
– Beneficial to both
countries that are
trading with one
another
NAFTA
• North American Free
Trade Agreement
– Eliminated trade barriers
between the US,
Canada and Mexico
– No tariffs!!
– Opened new markets,
created jobs, and
encouraged growth in
member economies
– NAFTA remains
controversial due to high
poverty rates in Mexico
and lax environmental
protection policies in
Mexico
Foreign Trade
• Exports – goods and services the US sells
to other countries
• Imports – goods and services that the US
buys from other countries
• The United States competes with other
nations in producing and selling goods
• Foreign trade is voluntary – it benefits both
nations
Global Interdependence
• Nations depend on one
another for trade
– Imports, Exports
Comparative Advantage
• The ability of one country to specialize
and produce a good at a lower opportunity
cost than another country can
• Nations or businesses that do not have a
comparative advantage may be driven out
of business
• Comparative advantage gives people an
incentive to specialize and trade
• Explanation of Comparative Advantage
Exchange Rate
• How much is a given amount of money
in one nation worth in another nation
Foreign Aid
• Government programs
that provide economic
or military assistance
to another country
• Example:
– US giving foreign aid
to the Allied powers
during WWII.
– Humanitarian aid
efforts (pledges of
money to needy
nations such as Haiti
or the tsunami in the
Indian Ocean)
Developed Country
• Nations that
are wealthy
• Citizens
have a high
standard of
living
Undeveloped Countries
Developing countries
– Poor nations
– Depend on foreign aid
– US helps developing
nations
– Why???
International Monetary Fund
• IMF
• Monitors exchange
rates and payment
balances between
nations
• Who owes who?
World Trade Organization
• WTO
• Deals with the global rules of trade
between nations
European Union
• EU
• An alliance of 25 European countries
• Goals:
– Free movement of goods, workers, and
capital among member countries.
– Launched a single currency – the Euro
World Bank
• International financial institution that
provides loans to developing countries for
capital programs
• Goals:
– Reduction of poverty around the world
– Promote foreign investment, international
trade, capital investment
Trade Barriers and Political
Actions that Affect Trade
• Protective Tariffs
• Taxes placed on products
imported from another
country.
• Purpose?
– To raise the price of
foreign goods so that
people will buy
American made goods
Embargoes
• Sanctions against
another country that
prevents another
country from trading
with it.
– Examples:
– OPEC Oil Embargo
OPEC Oil Embargo
• OPEC imposed an oil embargo on the US in 1973.
There was a shortage of oil in the US.
• Supply?
• Demand?
• Price?
Economic Sanctions
• A tool used by countries or international organizations to persuade a
particular government or group of governments to change their
policy by restricting trade, investment, or other commercial activity.
• Part of US foreign policy
• Economic sanctions:
–
–
–
–
Embargoes
Boycotts
Freezing of assets
Bans on travel, technology
• Examples in which sanctions may be applied:
–
–
–
–
Development of WMD (Weapons of mass destruction)
Violation of human rights
Unfair trade
North Korea, Cuba, Iran, Iraq
Infrastructure
• Capital investment of a country that
underlies and makes possible economic
activity
– Examples:
•
•
•
•
Telecommunications
Transportation (highways, bridges)
Utilities (electricity, water)
Waste Removal
• Underdeveloped nations experience a low
level of trade due to underdeveloped
infrastructure
Treaties
• Formal agreements
between nations
• Ensure peace and
prevent the
outbreak of war
• Often include
economic
agreements
• Why are these
important?
• Human rights
– Rights every human
possesses
– Some nations violate human
rights prompting the UN to
impose economic sanctions
on these nations
– Examples: Iraq under
Saddam Hussein
• Child labor
– Countries who require
children to work may have
limited trade with other
countries
Zoning Laws
• Laws and codes
that regulate where
commercial
facilities and
residential housing
can be built
– Leads to NIMBY
(Not in my back
yard………citizens
don’t want certain
businesses in their
community