MACROECONOMICS
UNIT 4 PRESENTATION
LEADER: PETER PEVENSIE
(TEACHER NOTE: AS THE LEADER YOU WILL SEE THAT PETER DID NOT SUBMIT ANY
SLIDES)
CHAPTER 29.1: HOW THE FOREIGN EXCHANGE MARKET WORKS (SLIDES 3 - 7) BY
SUSAN PEVENSIE (TEACHER NOTE: GREAT SLIDES)
CHAPTER 29.4: EXCHANGE RATE POLICIES (SLIDES 8 - 10) BY LUCY PEVENSIE (GREAT
SLIDES)
CHAPTER 30.1& 30.2: GOVERNMENT SPENDING & TAXATION (SLIDES 11– 14) BY
EDMOND PEVENSIE (EDMOND LIVED UP TO HIS REPUTATION. HIS SLIDES WERE VERY
UNDER PAR. ALSO, NOTE THAT IT WAS NOT NECESSARY FOR HIM TO COVER 30.1 AND
30.2)
CHAPTER 34.1: PROTECTIONISM (SLIDES 17-21 ) BY EUSTACE SCRUBB (GREAT SLIDES)
CHAPTER 29.1 HOW THE FOREIGN EXCHANGE MARKET WORKS
• SAM WALTON, THE FOUNDER OF WALMART AND SAM'S CLUB, ONCE SAID,
"THERE IS ONLY ONE BOSS. THE CUSTOMER. AND HE CAN FIRE
EVERYONE IN THE COMPANY FROM THE CHAIRMAN ON DOWN JUST BY
SPENDING HIS MONEY SOMEWHERE ELSE." THIS ALSO CORRELATES TO
CURRENCY EXCHANGES.
• THE FOREIGN EXCHANGE MARKET IS WHERE PEOPLE OR FIRMS WILL USE
ONE CURRENCY TO BUY ANOTHER CURRNECY.
• IT IS ALSO THE LARGEST MARKET IN THE WORLD ECONOMY. A 2013
STUDY SHOWED THAT AN AVERAGE OF 5.3 TRILLION DOLLARS WERE
TRADED EACH DAY!
SLIDE BY Susan Pevensie
FOREX MARKET & MOST
TRADED CURRENCIES
SLIDE BY Susan Pevensie
PARTICIPANTS
&
EXAMPLES
• DEMAND AND SUPPLY ARE CLOSELY • A BRITISH FIRM EXPORTING ABROAD
INTERRELATED AS THOSE WHO DEMAND ONE WILL EARN U.S. DOLLARS AND DEMAND
CURRENCY WILL ALSO SUPPLY ANOTHER.
THE BRITISH POUND.
• THERE ARE FOUR GROUPS THAT PARTICIPATE IN
THE MARKET:
• INTERNATIONAL TOURISTS VISITING
ENGLAND WILL SUPPLY U.S. DOLLARS
• FIRMS INVOLVED IN INTERNATIONAL TRADE OF
GOODS AND SERVICES AND DEMAND THE BRITISH POUND.
• TOURISTS VISITING OTHER COUNTRIES • A U.S. FINANCIAL INVESTORS WHO ARE
• INTERNATIONAL INVESTORS BUYING OWNERSHIP ONLY INVESTING, NOT PURCHASING,
OF A FOREIGN FIRM IN U.K. GOVERNMENT BONDS WILL
• INTERNATIONAL INVESTORS MAKING FINANCIAL SUPPLY THE U.S. DOLLAR AND DEMAND
INVESTMENT THAT DO NOT INVOLVE THE BRITISH POUNDS.
OWNERSHIP.
SLIDE BY Susan Pevensie
THINGS TO
REMEBER
•APPRECIATING – WHEN THE
DOMESTIC CURRENCY EXCHANGES
FOR MORE OF OTHER COUNTRY'S
CURRENCY.
EX. $1 USED TO BUY £1
BUT NOW $1 BUYS £1.25
•DEPRECIATING – WHEN DOMESTIC
CURRENCY EXCHANGES FOR LESS
OFF THE COUNTRY'S CURRENCY.
EX. $1 USED TO BUY £1.25
BUT NOW $1 BUYS £1
SLIDE BY Susan Pevensie
WHO'S
REALLY
HAPPY?
SLIDE BY Susan Pevensie
29.4 EXCHANGE RATE
POLICIES
EXCHANGE RATE POLICIES COME IN A RANGE OF
DIFFERENT FORMS
- LET THE FOREIGN EXCHANGE MARKET
DETERMINE THE EXCHANGE RARE
- LET THE MARKET SET THE VALUE OF THE
EXCHANGE RATE MOST OF THE TIME, BUT HAVE
THE CENTRAL BANK SOMETIMES INTERVENE TO
PREVENT FLUCTUATIONS THAT SEEM TOO LARGE
- HAVE THE CENTRAL BANK GUARANTEE A
SPECIFIC EXCHANGE RATE
- SHARE A CURRENCY WITH OTHER COUNTRIES
Slide by Lucy Pevensie
29.4 CONTINUED
• FLOATING EXCHANGE RATE
• U.S DOLLAR IS A FLOATING EXCHANGE
RATE, AS ARE CURRENCIES OF ABOUT 40%
OF THE COUNTRIES IN THE WORLD
ECONOMY
• FLOATING EXCHANGE RATE ADVOCATES
OFTEN ARGUE THAT IF GOVERNMENT
POLICIES WERE MORE PREDICTABLE AND
STABLE, THEN INFLATION RATES AND
INTEREST RATES WOULD BE MORE
PREDICTABLE AND STABLE
Slide by Lucy Pevensie
29.4 CONTINUED
USING SOFT PEGS AND HARD PEGS
• WHEN A GOVERNMENT INTERVENES IN THE
FOREIGN EXCHANGE MARKET SO THAT THE
CURRENCY'S EXCHANGE RATE IS
DIFFERENT FROM WHAT THE MARKET
WOULD HAVE PRODUCED, IT ESTABLISHES
A "PEG" FOR ITS CURRENCY
• SOFT PEG- THE NAME FOR AN EXCHANGE
RATE POLICY WHERE THE GOVERNMENT
USUALLY ALLOWS THE MARKET TO SET
EXCHANGE RATE, ESPECIALLY IF THE
EXCHANGE RATE SEEMS TO BE MOVING
RAPIDLY IN ONE DIRECTION
• HARD PEG- THE CENTRAL BANK SETS A
FIXED AND UNCHANGING VALUE FOR THE
EXCHANGE RATE
Slide by Lucy Pevensie
30.1-
GOVERNMENT
SPENDING
• THERE ARE 3 PARTS TO
GOVERNMENT SPENDING
• BUDGET DEFICIT
• BUDGET SURPLUS
• BALANCED BUDGET
BUDGET DEFICIT
• WHEN THE GOVERNMENT SPENDS MORE THAN IT RECEIVES IN TAXES
• ITS TALLIED UP AT THE END OF THE YEAR
BUDGET SURPLUS
• WHEN THE GOVERNMENT RECEIVES MORE MONEY THAN IT SPENDS
BALANCED BUDGET
• HAPPENS WHEN THE SPENDING AND TAXING ARE FAIRLY EQUAL
CHAPTER 34.1 PROTECTIONISM
WHAT IS
PROTECTIONISM?
• WHEN A GOVERNMENT LEGISLATES
POLICIES TO REDUCE OR BLOCK
INTERNATIONAL TRADE
• THESE POLICIES WORK TO PROTECT
DOMESTIC WORKERS AND
PRODUCERS FROM FOREIGN
COMPETITION
• THESE TAKE THREE PRIMARY FORMS:
TARIFFS, IMPORT QUOTAS, NONTARIFF
BARRIERS
PROTECTIONISM (CONTINUED)
TARIFFS
• TARIFFS ARE TAXES THAT THE
GOVERNMENT IMPOSE ON IMPORTED
SERVICES AND GOODS
• THIS MAKES IMPORTS MORE
EXPENSIVE THAN JUST PRODUCING
THEM AT HOME, SO THEY ARE
DISCOURAGED
• I.E. FLAT SCREEN TVS FROM CHINA
HAVE FACED A 5% TARIFF RATE
PROTECTIONISM (CONTINUED)
IMPORT QUOTAS
• IMPORT QUOTAS ARE QUALITATIVE
RESTRICTIONS ON THE QUANTITY OF
PRODUCTS A COUNTRY CAN IMPORT
• THIS ALSO DISCOURAGES IMPORTS AND
ENCOURAGES PRODUCERS HERE IN
AMERICA TO MAKE THEIR OWN
• I.E. RONALD REAGAN IMPOSED A QUOTA
ON THE IMPORT OF JAPANESE
AUTOMOBILES
PROTECTIONISM (CONTINUED)
NONTARIFF BARRIERS
• NONTARIFF BARRIERS ARE ALL THE OTHER
WAYS A COUNTRY CAN CREATE RULES AND
REGULATIONS BESIDES TARIFFS AND IMPORT
QUOTAS
• EVEN THINGS SUCH AS SAFETY
REGULATIONS CAN BE CREATED
SPECIFICALLY FOR CERTAIN IMPORTS
• THE WORLD TRADE ORGANIZATION WAS
CREATED TO REGULATE TRADE AMONG 150
NATIONS
PROTECTIONISM (CONTINUED)
WHY PROTECTIONISM IS
ENCOURAGED
• PROTECTIONISM IS STILL USED AND
ENCOURAGED TO THIS DAY DUE TO THE
MANY BENEFITS IT PROVIDES
• IT PROTECTS JOB IN OUR HOME COUNTRY,
BENEFITS NATIONAL SECURITY, AND ALLOWS
NEW INDUSTRIES TO HAVE A CHANCE WHEN
STARTING UP
• MANY BUSINESS THAT EXIST TODAY WOULD
NOT HAVE HAD A FIGHTING CHANCE IF
PROTECTIONISM DID NOT EXIST
