Deep's Econ Blog

Final Reflection

deep1106 — Tue, 05 Apr 2011 05:09:52 +0000

Looking back at the amount of time I spent studying for my mock exam, there is no doubt I should have put in more effort and time into studying. While I find that short-term studying is generally effective for acquiring decent grades on my tests, the mock exam consisted of questions that were taught over the past two years, therefore long-term revision would have been effective. Although I achieved a 5 on the IB scale, I easily could have acquired a higher grade if I studied over an extended period of time, and not the morning of the exam. In order to prevent achieving the same score on my final IB exam, I will create a systematic plan for revision and will have to commit to sticking with it. The plan will consist of daily revision but it will take no longer than 45 minutes. By committing to this plan everyday I am confident I will be able to achieve a good score on the final IB exam.

Afghanistan Economy

deep1106 — Tue, 01 Feb 2011 06:26:12 +0000

Indeed Afghanistan is a developing country, while the country is struggling with warfare, Afghanistan is slowly improving. Its GDP per capita as of 2006 is $288.6. Since the fall of Taliban in 2001, the country has made several changes in the agricultural sector and service sector to improve economical growth additionally, Afghanistan has received international aid to assist its fragile economy. Regardless of the its recent progress Afghanistan still remains as a country in peril, its highly dependent on international aid and its geographical location creates further trade problems. Although the unemployment rate has declined by 5 percent in 2010, 35 percent of its citizens remain unemployed. While an estimated 35% is unemployed, estimations also suggest 70% are underemployed. The population growth of Afghanistan has slightly declined, as of 2010 the population growth is an estimated 2.47. Furthermore, more than half of Afghanistan’s citizen live under the poverty line, as estimated by the United Nations.

Using an appropriate diagram, explain who gains and who loses from the introduction of a tariff

deep1106 — Thu, 20 Jan 2011 03:17:00 +0000

Tariffs

A tariff is a tax on imports, which can either be specific (so much per unit of sale) or ad valorem (a percentage of the price of the product). Tariffs reduce supply and raise the price of imports. This gives domestic equivalents a comparative advantage. As such, tariffs are distorting the market forces and may prevent consumers from gaining the benefit of all the advantages of international specialisation and trade. The impact of a tariff is shown in Figure 1 below.

Figure 1 Impact of a tariff

The tariff has the effect of shifting the world supply curve vertically upwards by the amount of the tariff. The level of imports will fall from QaQd to QbQc. The government will also raise revenue, shown by the blue shaded area. The level of domestic production will increase from 0Qa to 0Qb.

Type of Protectionism
Tax on imports that can be specific (per unit of sale) or ad valorem (percentage of price of the product)
Reduce World Supply to protect domestic industries, comparative advantage
increase price of imports; source of government income
Tax on imports leads to imports shrinking and domestic market increasing

Diagrams and Definitions

deep1106 — Sun, 16 Jan 2011 10:16:17 +0000

Australia’s Deficit (via Suvan’s IB Economics Blog)

deep1106 — Tue, 07 Dec 2010 19:20:44 +0000

You provide a thorough explanation as to Australia’s current currency situation which is extremely helpful. Similar to most currency’s, I think you could have stated the self-correcting mechanism, as support for your “Australia will come back” statement. Other than that, I found it very insightful, it was pleasant to read about Australia when the majority of the class choose the same countries.

Australia currently has a current account deficit. According to an article by Bloomberg.com, this is due to two major events. The first is that due to Australia’s appreciating currency, the world’s products have become cheaper for Australians to purchase so residents are spending more than they earn. This applies to business firms as well. Importing products has become cheap, but due to the increase in value of the Australian dollar, Australia’s … Read More

via Suvan’s IB Economics Blog

“The Spanish Prisoner”

deep1106 — Mon, 06 Dec 2010 20:43:05 +0000

In 2002, the Spanish dropped the Spanish Paseta and adopted the Euro. Having the same currency as the majority of Europe, trade became much simpler and cheaper. Though initially Spain benefitted from the change, they are in deep trouble now. Since the Euro is a currency that is shared by several European countries, Spain cannot act on its behalf to improve its current economic situation. While Germany is suffering as well, Spain does not seem to be coping well, they cannot implement policies to aid their deprived stance. Spain is a prisoner. The best way to fix its economy is buying leaving the Euro and take back the Paseta again, by this they will be able to manipulate the currency however they want. Though this may sound simple, moving back to their old currency is not an easy process, their best option is to try to steadily heal their mauled economy, even though all signs point away from recovery.

Hope might be in sight for the UK: The Marshall-Lerner Condition and The J-Curve

deep1106 — Mon, 06 Dec 2010 20:17:13 +0000

There is no doubt the the Pound has depreciated, its value of against the dollar has tumbled. But because the exports and imports are demand inelastic, the change in prices are likely to not cause a considerable shift in quantity demanded; therefore while imports are expensive but the quantity has not changed, and exports become cheaper, the Marshall Lerner condition. Since this condition has not applied, the UK currency, pound, has devaluated. The position at which the UK is in, can be represented by the lower half of the J-curve diagram. But as seen in the J-curve the negative area, bottom half of the diagram eventually moves to the surplus area, this may happen with the UK. Since exports are cheap and many countries demand it, the UK will have a good source of income. Additionally, due to the profit generated through exports, hopefully the cost imports can be covered by this.

Yuan against Dollar

deep1106 — Mon, 06 Dec 2010 12:52:40 +0000

As a result of the global financial crisis, several countries are finding it hard to find the pathway to stability. Countries seek to decrease their current account deficit through increasing the number of exports and reducing the number of imports. Governments are trying to wean their citizens off international goods and lean them towards domestic goods, while attempting to increase the demand of its exports. Eventually when exports exceed the number of imports, countries will be able to pull themselves out of a financial hole.

Examining the U.S. and China, the U.S. is experiencing a significant deficit, which corresponds to the colossal economic surplus Chinas experiencing. Balance of payments refers to the monetary transactions between a country and the rest of the world. These transactions include payments for the country’s exports and imports of goods, services, and financial capital. Currently the U.S. heavily depends on imports to satisfy its citizens, the majority of its imports come from China, this leads the Chinas gain and the loss of the U.S. Due to the minimal fluctuations of the Chinese currency, the U.S. accuses the country of intentionally setting its currency at a low value, which gives China an advantage in exports.

The graph above delineates the fluctuations of the Chinese yuan, expressed in dollars. While it may seem that the yuan has had its ups and downs, compared to the rest of the world, these fluctuations are not as dramatic, the range for change is small compared to that of other countries. We can assume China has a fixed floating currency, for while other floating currency nations suffer the volatile changes in currency exchange markets, China seems to be doing well. A floating exchange market allows the currency of a nation to be controlled by market forces supply and demand, there is no government intervention. Fixed floating market allows for a the currency to shift only for a small range, this allows China to dampen the effects of shocks and prevent a balance of payment crisis. While the U.S. wishes for China to be punished, China now holds the United States’ fragile economy under its palm. Owning a huge portion of U.S. government bonds, China posses great leverage. The U.S. seems to be frustrated over its inability to change Chinas ways, this is something the U.S. is not familiar with.

Additional evidence that may suggest that the Chinese manipulate their currency to maintain high demand of cheap exports, are the foreign exchange reserves. In order to keep its currency from appreciating, China influences foreign exchange rates to maintain their trade advantage.

The diagram above marks a phase of the self-correcting mechanism. When a country, China, earns more though exports than imports, they achieve a surplus in their balance of payments. A contributing factor for countries to be able to keep their exports in high demand are cheap currency values. Cheap currency values allow for exports to be cheap, leading to a higher international demand, while making imports expensive, reducing domestic demand for global goods. This signals that a currency is depreciating. However, after a certain point, the country’s surplus leads to a rise in the currency demanded, which eventually leads to appreciation. The worldwide demand for yuan may be seen in the diagram above. But, recently China has been able to keep the value of a its currency cheap, without having to experience the self-correcting mechanism, which would lead it to appreciate, thus the U.S. asserts that China manipulates its currency to gain a trade advantage.

My Reflection part 2 (via Harmeets Econ Blog)

deep1106 — Mon, 06 Dec 2010 00:37:21 +0000

Dissimilar to many students, you thoroughly examine your weaknesses as a test taker, and this may be very helpful for you. Being able to identify our mistakes is the first step, but you go beyond the first step and provide methods of how to improve your test-taking ability.

I am a perfect student. Most of the time. But the very rare occasions that I do make mistakes, I am smart enough to know what I did wrong. One “Danger Zone” Trap I fell into last year was using non- descriptive abbreviations, such as PED, or YED. Another trap I fell into last year was the ill time management. Though I believe I got better at it towards the end of the year I was terrible in the beginning of the year. Finally the last big “danger z … Read More

via Harmeets Econ Blog

Reflection on understanding of section 4.5

deep1106 — Mon, 29 Nov 2010 19:43:16 +0000

After taking the data response test, I can confidently say “I know my stuff”. For me, many times I find myself saying “I know it” but when tests come along, the scores reflect poor understanding. However this time I worked hard and truly understood each diagram which fostered economic theories I learnt about. Generally, my understanding on this section is solid but I still need to focus on small and specific details such as; when GDP increases so does the imports demanded, to not get confused between international demand and aggregate demand.