Discussion 1

A balance of trade (trade balance) is the difference between the monetary values of exports and imports of a country’s economic output over a given period of time. Trade balance can be positive (favorable) when the value of exports is greater than the value of imports. The positive trade balance is also called trade surplus. On the other hand, if the value of imports is greater than the value of exports, the trade balance indicates trade deficit.

Trade balance affects the Gross Domestic Product (GDP) of a country since net export is a component of the GDP. It also affects the exchange rate of a country’s currency.

1. How does trade stimulate long term economic growth? Explain.
2. Which part of international trade creates more jobs? Is it export or import? Why?
3. Is it trade deficit or trade surplus that contributes more to economic growth? Why?
4. Why do countries impose trade restrictions on goods and services they import from other countries? What are the pros and cons of trade protectionism?

Discussion 2

Quantity supplied and demanded for products change as the prices of the products change. Similarly, supply and demand for foreign currency result in changing prices of a currency. The price of a currency changes as demand for foreign currencies changes. This price of foreign currency, in terms of U.S. currency, is known as the foreign exchange rate. Exchange rate simply indicates how many USA dollars it will cost us to purchase a unit of foreign currency. This floating foreign exchange rate changes daily with the international supply and demand for currency.

1. What are the impacts of currency devaluation and revaluation on international trade?
2. What are the factors that increase and decrease the demand for a foreign currency?
3. What is the difference between pegged currency (fixed exchange rate) and floating exchanged? What are their pros and cons of the two forms of the exchange rates?
4. What is currency war? How does it affect trade between countries?

Case Study

International trade has pros and cons. Economists generally support free trade. International trade has played a significant part in promoting economic development and technology transfer among countries. There are also various arguments in favor of restricting international trade: protecting jobs, defending national security, helping infant industries, preventing unfair competition, and responding to foreign trade restrictions.

1.    What is the impact of free trade on domestic job creation policy? Elaborate with examples.

2.   What the impacts of outsourcing and off-shoring on trade liberalization (globalization) and economic structure?

3.   What are the pros and cons of importing cheap goods and services?