The Canadian Economy in a Global Setting pptx

Trade Differs From Domestic Trade  International trade involves potential barriers to trade.. Trade Differs From Domestic Trade  International trade involves multiple currencies that

Economy in a Global

SettingChapter 3

Laugher Curve

Frank: According to this economist, Ernie,

it’s all very simple.

In an endogenous business cycle where variable-span diffusion

indices are neither rising nor falling and the capital-to-output ratio is

low, then the interplay of liquidity preferences and reserve ratios escalates and interest rates rise, causing the yield ratio to drop on common stocks.

Laugher Curve

Ernie: I get it!

In other words, when the economy goes higgledy-piggledy, the TSE goes blooey!

The Canadian Economy

strength is its people and its other

resources

perfect

Diagram of a Market

Economy

market economies, is divided into three groups: business, households, and

government

to business and are paid by business

for doing so The place where this takes place is called the factor market

Diagram of a Market

Economy

and sells them to households and

government The place where this takes place is called the goods market

Diagram of a Market

Economy

activities:

 It gives some of its tax revenues directly

back to individuals (income redistribution).

 It oversees the interaction of business and

households in the goods and factor markets.

Economy, Fig 3-1, p 56

 Business is the name given to private

producing units in our society

 Businesses decide what to produce,

how much to produce, and for whom

to produce it.

 Entrepreneurship is the ability to

organize and get something done

 It is an important part of business, and

an important ingredient in the economy

Consumer Sovereignty

and Business

produce, they are guided by consumer

sovereignty

 Consumer sovereignty means that

consumers’ wishes rule what is

produced by businesses

Consumer Sovereignty

and Business

profit for the general good of society,

the Canadian economic system allows

the invisible hand to work

Sole Proprietorship

 Minimum bureaucratic hassle.

 Direct control by owner.

 Limited ability to get funds.

 Unlimited personal liability.

 Businesses with two or more owners.

 Advantages:

 Ability to share work and risks.

 Relatively easy to form.

 Businesses that are treated as a person and are legally owned by their

stockholders who are not liable for the

actions of the corporate "person."

 No personal liability.

 Increasing ability to get funds.

 Ability to shed personal income and gain added expenses.

 Legal hassle to organize.

 Possible double taxation of income.

 Monitoring problems.

Finance and Business

 The dynamic stock market allows initial public offerings (IPOs) to quickly

change value and to make their owners rich (or poor)

are very important, as they add

competitive pressure to the “traditional” economy

 Households are a single person or

groups of persons living together and

making joint decisions

economic institutions – government and business

Households as

Suppliers of Labour

is wages and salaries

which businesses produce and

government governs

 An actor – collects money in taxes

and spends that money on its

projects, such as healthcare and

education.

 A referee – sets the rules that

determine relations between

businesses and households.

Government as an

Actor

20 percent of the nation’s total output

and employ about 800,000 individuals

over 450,000 workers and spend about

$250 billion per year

 They spend their tax revenues on social services,administration, education, and roads

Provincial and Local

Federal Government

federal government’s revenue, while

sales taxes make up about 20 percent

 The two largest categories of spending

are social services and debt charges

Expenditures of the

3-3, p 64

 Government controls the interaction of

households and business

 It sets the rules of interaction and acts

as a referee, changing the rules when it sees fit

 It decides whether economic forces will

be allowed to operate freely

The Global Setting

 International issues must be taken into

account in just about any economic

decision a country or a firm faces

Global Corporations

 Corporations with substantial operations

on both the production and sales sides

in more than one country are called the global corporations

 Global corporations are increasingly

more important in international trade

Global Corporations

 Global corporations offer great benefits for nations

 They create jobs, bring new ideas and new

technologies to a country, and provide competition

for domestic companies, keeping them on their toes.

Global Corporations

problems for governments

 Because a global corporation exists in a number

of nations, no single government regulates or

controls it.

 If they don’t like the policies of the host nation,

they can simply leave taking their jobs with

them.

Global Corporations

governments unto themselves – they

can dominate the economy of a small

nation

International Trade

 The volume and value of international

trade have grown substantially over the last century

 There have been significant fluctuations

in trade around the increasing trend

What and With Whom

Canada Trades

are the United States and the European Union

imports involve manufactured goods

Canada Trades

 Balance of trade – the difference

between the value of exports and the

value of imports

 The merchandise trade balance

 The services balance

What and With Whom

Canada Trades

goods and a net importer of services

over the past 30 years

 The overall balance of trade has been

positive during that time, since the

merchandise trade balance exceeded

the balance in services

Canadian Exports by

 The Current account balance

measures trade in goods and services

and includes the interest we pay to the

foreigners

The Canadian Balance

Trade Differs From

Domestic Trade

 International trade involves potential

barriers to trade.

 Quotas are limitations on how much of

a good can be shipped into a country.

 Tariffs are taxes on imports.

 Non-tariff barriers are indirect

regulatory restrictions on imports and

exports.

Trade Differs From

Domestic Trade

 International trade involves multiple

currencies that are bought and sold in

foreign exchange markets

Trade Differs From

Domestic Trade

 The exchange rate is the rate at which one currency is traded for another

demand and supply for the currency

Institutions Supporting Free Trade

 Most economists, liberal and

conservative alike, generally oppose

trade restrictions

 Despite political pressures to restrict

trade, nations have entered into a

variety of international agreements and organizations

Free Trade

Organizations

 The World Trade Organization (WTO)

is committed to getting nations to agree not to impose new tariffs or other trade

restrictions except under certain limited conditions

General Agreement on Tariffs and

Trade (GATT) – an agreement among

many subscribing nations on certain

conditions of international trade

Free Trade

Organizations

 The push for free trade has a

geographic dimension

 Groups of nations have formed free trade

associations – groups of nations that have reduced

or eliminated trade barriers among themselves.

 NAFTA – U.S.-Canada-Mexico free trade zone that is phasing in reductions in

tariffs.

Organizations

 The leading examples of this are the

European Union (EU) and the North

American Free Trade Agreement

(NAFTA)

International Economic Policy Organizations

 There is no international counterpart to

a nation’s federal government

 Any meeting of a group of nations to

discuss trade policy is voluntary

 There is no international body that has

powers of compulsion

Policy Organizations

 Governmental international organizations

that encourage international cooperation

include:

 The United Nations (UN)

 The World Bank – a multinational, international financial

institution that works with developing countries to secure

low-interest loans.

International Economic Policy Organizations

 Governmental international organizations

that encourage international cooperation

include:

 The International Monetary Fund (IMF) – a

multinational, international financial institution

concerned primarily with monetary issues.

Policy Organizations

 There are also informal organizations

such as:

and the U.S.) which meets to promote negotiations

and coordinate economic relations among nations.

International Economic Policy Organizations

 There are also informal organizations

such as:

Group of Five plus Canada, Italy and Russia and does similar work as the Group of Five.

SettingEnd of Chapter 3