Review for Test 3

Special Topic:Immigration (a bit in Ch. 4, but more covered in class)

Explain what causes economies to grow.

Real GDP = f(Land, Labor, Capital, Entrepreneurship | Technology)

What are the various paths to obtaining permanent residency in the U.S.?(Four general categories)

Explain under what circumstances wages are more likely to fall with immigration

Immigrant labor is a substitute for native labor vs. a complement for native labor

Short run effects vs. long run if immigrant labor attracts capital to an area

Skilled vs. unskilled labor

When native workers can easily attain more human capital (skills) vs. not able to do so?

Be able to understand supply and demand analysis for when:

Immigrant labor is a perfect substitute for native labor (supply of labor increases)

Immigrant labor is a complement to native labor (demand for native labor increases)

Why are past immigrants more likely to see wages drop with new immigration than native workers?

What kinds of things would you reward in a points-based immigration system?Why, from an economic standpoint?

What are some of the short comings of a points-based immigration system? (See powerpoint.)

Know what is meant by brain drain.

Know the harms of brain drain on developing countries

Know the potential benefits to the developing countries (even though losses are probably larger)

Know what is meant by brain waste

Overall questions for the issues of low wages, child labor, and environment.

1.Is the market "unfair" because it is inefficient?

Externalities / Monopoly / Government subsidy

2.Is the market "unfair" because some moral tenet is violated?

3. In either case, whether the reason for trade to be viewed as unfair is economic or moral, the question remains: what should be done to address cases of "unfair" trade?

Will trade policy fix the problem?

Chapter 8:Labor Standards

Explain what can be done if labor (or environmental standards) differ between countries.Harmonization, mutual recognition, separate standards

Know four main objections to using trade policy to enforce labor standards.

1.Lack of effectiveness;

2.The tendency to veer towards protectionism;

3.Disagreements over specific content of standards;

4.The potential for a trade war.

Know the four fundamental principles of the ILO:

1.Freedom of association and the effective recognition of the right to collective bargaining

2.The elimination of all forms of forced or compulsory labour

3.The effective abolition of child labour

4.The elimination of discrimination in respect of employment and occupation

Be able to describe current trends in child labor.

Chapter 8:Environmental Standards

Know the two types of pollution - transboundary and nontransboundary.

Know what an externality is and how it applies to nontransboundary pollution.

Explain why when a cost like pollution is ignored, the price of the good is too low the market overproduces.

Explain why when an externality is internalized (the firm must pay for damage via a tax, for example), the price of the good increases and the quantity produced decreases.

Explain the pollution haven hypotheses and give reasons why it does not appear to be true.

Explain the Environmental Kuznets Curve.

Know what a public good is (nonrival, nonexcludable)

Explain how a public good applies to transboundary pollution like CO2 emissions.

Understand that public goods are underproduced by market.

Understand what is meant by a free rider.

Know what the Paris Agreement is and the worries about free riders.

Describe what is meant by a climate club and how it punishes free riders.

Describe alternatives to trade policies to fix environmental issues.

Chapter 9Trade and the Balance of Payments

Know what types of transactions are in the current account.

Know what types of transactions are in the financial account.

Understand that a U.S. current account deficit implies a financial inflow in the financial account because (in a simple example) if imports > exports, this leaves financial resources in the hands of foreigners who then invest the funds in the U.S.The U.S. is borrowing from the rest of the world.This means that foreign residents are buying U.S. bonds or U.S. stocks or direct investment, for example.

Understand that a U.S. current account surplus implies a financial outflow in the financial account because (in a simple example) if exports > imports, this leaves financial resources in the hands of U.S. citizens who then invest the funds in abroad.The U.S. is loaning to the rest of the world.This means that U.S. residents are buying foreign bonds or foreign stocks or direct investment, for example.

Know that the balance of payments implies that the accounts balance.If the U.S. imports than it exports, the U.S. must compensate the world for the excess of exports over the imports.This occurs with the trade of loans, bonds, stocks, or direct investment.

Know what remittances are.

Know what is meant by direct investment and portfolio investment.

Know that I = S + (T - G) - CA

Understand that because the U.S. typically runs a government budget deficit, we write:

I + (G - T) = S - CA

Demand for funds to borrow = supply of funds to borrow (savings)

Use the supply and demand for loanable funds graph to show the demand and supply for loanable funds in a country.Demand for funds represents I + (G - T).Supply of funds represents S (saving).The difference between is CA (current account).

Know that the world interest rate becomes the country's interest rate if financial flows are allowed.

Be able to see the excess supply or excess demand in the loanable funds graph and know if this implies whether the country is borrowing or loaning funds to the world.

Know what happens to the current account if the government runs a larger budget deficit.

Understand that because the current account deficit is due to difference is how much people in countries want to save and where the best financial investments are in the world, the use of tariffs to combat current account deficits does not fix the underlying causes.

Know and explain what changes in an economy will cause a current account deficit to shrink.(Change in government deficits, change in household saving, change in demand for investment by firms.)

Know the pros and cons of owing financial resources to the world.

Be able to discuss the pros and cons of forgiving debt of developing countries.

Extra Topic:Trade with China Topic (Based on article and powerpoint)

Know reasons for trade dispute with China and discuss them in terms of which are reasonable

Intellectual property - what is China accused of doing?

Balance of payments / Trade deficit - Is this a problem caused by Chinese actions?

Currency manipulation - is it currently occurring?

Chinese subsidies - do they happen?

Know the basics of the trade statistics with China

Know that tariffs cost the U.S. and give some estimates of cost per job saved

Be able to discuss the benefits and costs of the trade war

Be able to explain the causes of a trade deficit and why tariffs will not reverse a trade deficit

Special Topic:American Factory

Be able to discuss the questions posed in the discussion activity.

1.Do you think locating a factory in a foreign country (in this case a Chinese company in the U.S.) is made difficult by cultural differences?

2.What do you think the U.S. workers learned about the Chinese way of doing business?

3.What do you think the Chinese businessmen learned about the U.S. workers?

4.Based on what you saw in the film, do labor / safety standards differ between the U.S. and China?How?

5.Do you think that the U.S. workers should have unionized?

Special Topic:Globalization and Covid-19 Discussion

From discussion article:

Be able toexplainthe potential long-run effects on trade can be thought of in three categories:

(1) changes in the structure of demand(Give an example.)

(2) acceleration of Industry 4.0 (automation/smart technology)(What does this mean?)

(3) protectionism dressed up as national security(Give an example.)