Assignment:
Units 1 to 3; Introduction to International Economics and Globalization, Trade Theories and Measuring Cross-Border Economic Activity
1. Watch the following video about The problems with GDP as an Economic measure, by Joseph Stiglitz (Economic Nobel prize winner, 2001) and identify the problems of the GDP as the indicator of society's economy and society's well-being. Focus on the 3 following areas: a) Economy, b) Environment, and c) Health.
Youtube Video- "Joseph Stiglitz - Problems with GDP as an Economic Barometer"
2. In 1986, the world price of oil dropped sharply. Since the USA, at that time, was an oilimporting country, this was considered good for the U.S. economy. However, in Texas, that year there was a profound recession. Why?
3. The U.S. labor movement-which mostly represents blue-collar workers-has traditionally favored limits on imports from less-affluent countries. Is this a shortsighted policy or a rational one in view of the interests of union members? How does the answer depend on the model of trade?
4. Suppose that Italy and France produce two goods: textiles and wine. They only use Labor to produce these goods. In one day of work, a French worker can produce either 10 kg of cheese or 5 liters of wine. Instead, in one day of work, an Italian worker can produce either 4 kg of cheese or 1 liter of wine. Which country has absolute advantage in producing each of the two goods? Which country has comparative advantage in producing each of the two goods? Would they find it convenient to trade with each other?
5. Consider the following international transactions, assuming that you are from the UK. The structure of the Balance of Payments (BoP), as seen in the webinar, is reported in Table 1. Suppose that we want to input the transactions in the UK Balance of Payments. Complete Table 2 indicating how each transaction would be reported in the UK BoP, i.e. the sub account (Current/Capital/Financial account, and the additional sub-category) and the sign with which it will appear, as in the example. [HINT: remember that in the Financial Account when we "import capital", i.e. when there is a financial inflow, it is recorded with a +, while an outflow is a minus.]
TABLE 1. STRUCTURE OF THE BALANCE OF PAYMENTS
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Current Account
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Balance of Goods (exports/imports)
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Balance of Services (exports/imports)
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Balance of Income (receipts/expenditures)
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Unilateral Transfers (receipts/expenditures)
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Capital Account
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(receipts/expenditures)
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Financial Account
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Official Reserve Assets (inflow/outflow)
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Other Assets - Foreign Direct Investment, Portfolio Investment, Loans, ... (inflow/outflow)
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Statistical Discrepancy
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TABLE 2. RECORDING INTERNATIONAL TRANSACTIONS IN THE BoP
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TRANSACTION
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BALANCE OF PAYMENTS ACCOUNT AND SIGN (+/-)
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1. Export of goods to Germany.
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Current Account, Balance of Goods (+)
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2. Import of goods from US
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3. Import of insurance from Italy
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4. North American tourists' expenditures in the UK
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5. Expenditures of UK tourists in China
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6. Remittances from Indian citizens, resident in the UK
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7. UK direct investments in Saudi Arabia
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8. Interest received from UK investments in Argentina
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9. A citizen of Morocco buys UK Government Bonds.
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10. Interest payments for foreign direct investment in UK
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11. A patent is bought from France
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12. Humanitarian aid to Third World Countries
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