HND经济学答案

Economics 2: The World Economy Outcome1, 2 and 3Candidate Name: Xu LunSCN: 095352561Due Date: January 4th 2011Tutor Name: Zhang JuOutcome 1This report is aiming to use tables and figures to present Premier a clear picture of what the real world economy is and help him to make a major choice of weather or not join the European Union. I am a member of government, I will use my knowledge and skills to help Mr Premier have a better understanding of the world economy rules and I hope which can help a little.First of all, when countries trade goods and services without wishing, or being able, to impose any barrier to the trade, which is called Free Trade. The reasons why we do Free Trade business are a lot, but to obtain more financial resources is believed more important. And their goal of Free Trade is never changed-to reduce non-tariff barriers. For instance: in 2009, there’s an agreement about Free Trade was signed between South Korea and East Asia Union. It can helps a lot on both sides economy development.Free Trade is the main reason why we should join European Union, and which has also been called International Trade, originally focus on goods and services could be exchanged freely between two countries without any barriers. Before compare or explain, there needs two assumptions. First one is no barriers of any kind would be imposed upon entry of the goods to any market. Second is the selling price would be the “economists price”which we can understand as price is uncertainty. Recently, there are some popular topics has been discussed a lot. Like Free Trade always talked with Trade Protection, Non-tariff banners and Tariff banners. What’s more, Free Trade also can bring us a lot of benefits. Increase the world-wide output is one the key benefits. Also, it can increase the foreign currency reservation. Everything has two sides, Free Trade brings the culture erosion too.On the International Trade, there are two kinds of policy: liberalization and protectionism. Let’s take a look at their history, in 1815, the British Corn Laws took effect, which can ensuring self-sufficiency, then in 1846 it was abolished. There was a time of Free Trade until 1914, especially in the exchange between UK and it colony.But soon the continental countries also reduced their trade barriers with gold standard. The First World War also became the terminator of world economy, which caused hyper-inflation and great depression. Tariffs and other trade barriers increased, the states tried to stimulate their exports by devaluing their currencies in 1930s. After World War II, with the framework of GATT in 1948, the international division of labor could develop beneficially, without trade barriers.There are many reasons for protectionism. About protect employment, the countries are trying to move expenditure from imports to domestic products by tariff or non-tariff, but most economists argue that this is ineffective and may result in retaliatory action or even trade wars. But many times when there happened a world-wide depression, this method was used at first. In the beginning of 2009, America approved an act that improved the tariff of spring of mattress which produced in China. In order to protect the employment after financial crisis, America did this just right for itself.Another one is to protect against dumping, If one product was dumping, they either want to be the monopoly or want to makes a lot of money in a short time. This way is very danger for the dumped country, if they successful became monopoly, the economy will be parasite on the other country. Also the unfair competition will impact the economy. In 2009, many counties include America and European countries had approved a higher tariff on steel which has been produced in China. They believed China had dumped steel in their country and want to reduce the loss.On the International Trade, there are two barriers, one of them is tariff. Because of the world wide recession, this kind of method had been used a lot to protect domestic industry and raise government income. Tariff is tax or custom placed on foreign products to raise the price artificially and suppressed domestic demand for them. The tax may be ad valorem, which means a percentage of price of the goods or specific. But this has been failed for the high perceive of value. According to the case in 2009,the EU council announce 77%-85% punitive tariff from Chinese fastener enterprise. This is a typical case of tariff protection.Another one is the Non-tariff method, probably the best know is the quota. It is a physical limitation on the quantity of imports. Embargoes are an extreme form of barrier. It always used when two countries have political cleavages or conflict of interest. Complex Customs Procedures is one of the quotas too. This way creating laborious and bureaucratic system which is designed to frustrate the foreign importers. For example, in 2009, India had launched an embargo to toys which produced in China for the period of 6 months.In order to know about Free Trade more clearly, the theory of Absolute Advantage and the theory of Comparative advantage is important to know. AA means when one country can produce a good or service to a pre-determined quality more cheaply than other country. Like in the UK, Education is always their AA. The CA is a comparative cost advantage. It is the way how to define the Opportunity Cost. CA can be limited or scarce resources which have Alternative Uses. The mainly of CA is the original basis for International Trade. Each country has 10 resources and uses at half of these resources to each commodity. Also in the UK, Heavy Engineering had been their AA, but now is their CA. Let’s see a nother case first:Here exists two countries, A and B have the following possibilities for two commodities, Tractors and Wool. Each country has 10 resources and devotes half of these resources to each commodity.Tractors Wool Country A 100 1000County B 50 750From the case we can see, Country A has an AA over Country B in both commodities. But the advantage it has is much higher for Tractors. Using the same resources asCountry B it can make twice as many tractors. On the other side, we can see wool for the same resource got advantage of 1.25. The opportunity cost is like this, for Country A the “cost” of 1 Tractor is 10 bales of wool which we got from 1000/100. And for Country B it is 15, from the formula like this 750/50.The UK government has an excellent ability of changing their specialisation. The specialisation can consist of two parts. One part is circulate in or out in land, labor, capital, enterprise. Another one is percentage in GDP. The Knowledge Industries are known as long noted for its expertise in manufacturing. There also have Pharmaceuticals, Building Designation and environment. These industries bring the possibility of long term growth and based on heavy capital investment. There also has a lot of reason why it changed. Transport costs and tariff is one of them, the higher the fee, the lower the profit, which is a key reason for it’s change. Also, Opportunity Costs may change as resources are moved from one industry to another. It has a great power to define your business is sunrise or sunset.Now, let move on to the World Trade Organisation. The WTO was founded in 1995, and it replaced the GATT which had been established in 1948. Because GATT has less power to manage the world trade, WTO using a greater power of policy wants to change the situation that the increasing issues of world trade. Through these years, The WTO is becoming more and more mature in the world trade business. It can execute norms at most of the condition with a fair way. One of the primary norms of WTO is all member agree to extend unconditional most-favored –nation status to one another, which can reduce a lot of problem and increase the trade number. Also the norm of reciprocity is concerned most attractive principal that both country can use the lower tariff to trade more profitable. “safeguards” or loopholes and exceptions to other norms are recognized as acceptable if they are temporary and imposed for short-term-balance of payment reasons. The WTO also deals with many problems, which increased the international trade. Such as Uruguay Round (1993): reduced remaining tariffs by a further 40%. What’s more, the WTO is not like god, it still hassome cases which cannot be solved easily. Like France, Japan and Switzerland are defending their right to subsidise their good export.European Union is another major organisation in the world. EU was established in 1958 initially, it almost include every European countries and has a great power to influence the world trade and economy. The main aim of EU is to eliminate tariff between countries, which will profit every member. Also create an economic and monetary union is important, which can save a lot of exchange cost and simplify the procedure.The role of EU is considered a lot, The EU Common Commercial Policy establishes uniform principles which covering trade between all member countries. It includes changes in tariff rates, the conclusion of tariff and trade agreements with non-member countries. EU is a framework for ensuring the even-handed and effective enforcement of single market rules has been established, which make it more efficiency to excute policy.Outcome 2The balance of payments is a general government account, and it is the record of all financial transactions between UK and the other country. It includes current account which has trade in goods and services, and capital account which obtain capital flow into and out of UK, and financial account which handle the flow of direct investment portfolio. What’s more, there was a significant change in new European System Accounts in 1998. On the current account, Because UK is a heavy importer of foreign cars and traditionally had a fairly large deficit in trade of goods balance and in the last 30 years and has really only been in surplus in the very early 1980 and then mainly because of the exports of North Sea Oil. UK got surplus in the early 1980s. For instance, in 1981, UK got￡4846 million from trade in goods.Next one is trade in services, UK has done very successfully in this aspect, it is mainly about 12 industries which UK is good at. Such as Business, which means train employees in business, Personal, like a personal detective, and Recreation, in the entertainment part. For the financial account, there are direct investment and portfolio investment. The last one is net errors and omissions. The balance of payments is effectually the annual balance sheet of a country. Payments may get delayed, temporarily lost, or fluctuation in exchange rate may lead to this item. And this item then counteracts the balance taking account of any errors.Trade in goods￡million 1999 2000 2001 2002 2003 Exports(goods) +166,166 +189,093 +188,320 +211,608 +220,858 Imports(goods) -195,217 -230,305 -236,927 -280,197 -310,612 Balance-29,051-41,212-48,607-68,589-89,754 From the Chart above, we can see the UK’s trade is deficit. What’s more, the deficit of UK is enlarges steadily. Some reasons are included in it: first of all, the preferences on imports because of stronger pound. Then lacking of innovation which leads to uncompetitive is another one. The last one is the scarcity of raw materials. Forinstance, in 2001, the UK’s Textile clothing imports amounte d to about 143.42 billion pound, it made a great contribution to its deficit.Trade in services￡million 1999 2000 2001 2002 2003 Export of+76,525 +87,773 +102,357 +119,186 +153,145 services-60,963 -70573 -79,745 -93,444 -106,347 Import ofservicesBalance of+15,562+17,200+22,612+25,742+46,798 trade inservicesFrom the table we can see that the service sector is the AA of UK, the UK has 12 services sectors which is top 3 higher than others countries. And about 27 services sectors which is the top 10 all over the world. It was because the UK’s specialities and heritage advantage which had been globalized. Of course, its economy which based on service had led to sufficient resource to be supported. For instance, in 2005, the UK’s transportation has covered 16.2% of the export.Trade in goods and Trade in services￡million 1999 2000 2001 2002 2003 Balance of trade-29,051 -41,212 -48,607 -68,589 -89,754in goods+15,562 +17,200 +22,612 +25,742 +46,798 Balance of tradein services-13,489-24,012-25,995-42,847-42,956 Balance ofcurrent accountWhich we all know that is, the balance of payments was not the only key indicator of the health of the UK economy for trade gap. In the 1970s, the UK was still a manufacturing country, but now they have been changed into a service-basedeconomy with quick process. Of course, one of the reasons which cause this result is because the Multi-Nationals felt that the production were expensive. Like ICI, British Telecom, Other Multi-Nationals include Food, General, Nestle and so on. The production cost is too expensive is the mainly reason that cause some companies move out of UK. And on the common external tariffs, which means all member countries to the Economic Union usually have to create tariffs on non-member countries as a condition to joining. Products changed into services are good because services make much money of foreign currency then occupy the local sustainable economic development.The next topic is about the relationship between the exchange rate and the balance of payments. In 1989 and 1988 two year. The US Dollar has raised a lot. Beneficial effects on the gains of financial account attached with value pound. It is hardly to know the real value of the ERR which cause shaken inventors confidence then weaken the FA. The fluctuation of the ERR have there parts, Minor, Finance and Major. At the last shaken, the confidence of investors has decreased and at last withdrawal. Monetary policy interference the local economy to appreciation value of pound deteriorates the deficit of BOP.For example, the exchange rate in the year of 1990 is 100. And in 1988 US dollar/pound is 1.78, then the exchange rate index is 105.3. On the contrary, in 1994, US dollar/pound is 1.53, the exchange rate index is 89.2. So we can draw a conclusion that the increasing of exchange rate will lead to deficit, the decreasing of exchange rate will lead to surplus.In order to join EU, there are some limitations: the government budget deficit must not exceed 3% of GDP is one of them. If the country reached this prescript and some other one, it will got chance to join EU. EU always wants to reach the target like single currency, which has been realized. Single language, seems to be hard and single government. For EU has realized single currency, let’s take a look at it. The mostfavourable function of it is the member country can reduce the transaction cost which means no currency exchange fee. And can eliminate the exchange rate risk for no need to exchange money.Everything has two sides, the single currency has lost the independent of monetary policy, and it cannot make monetary authority and will cool the economy. What’s more, foam will be created. Besides that, the member country will lose the liability to devalue money independently. That is a great headache on export for the inflation.The single currency also has a great impact on individuals and businesses. For individuals, there will be no currency conversation cost for holiday makers and easy to making price of comparation. On the other hand it is symbol of cultural lose and weaken personal purchasing power.For businesses, the single currency will increase competition for there’s no exchange fee cost. And removal exchange rate for no need to exchange. Also, it will increase the lay off ratio of research and development fee.Outcome 3As we all know about the Less Developed Countries, most of these countries are located in Africa which is 92.17% and Asia is 7.83%. The typical African LDC countries would be Eritrea, Zaire, Mali. In Asia, Bangladesh is often suggested as the best example. And all of the LDCs have many major characteristics. Like low productivity and high productivity. There still exists some factors which will have an impact on world economy. Human capital and Technology is what I say. Zimbabwe is one of the LDCs, in this country, not only lower productivity it has, but also the high inflation it has, which made it more and more poor. It active labour force supply is sufficient but most of them have little education, which creates less treasure. Madagascar is also a LDC, it has lower technology and nearly zero capability of creation, the environment quality is awful too, which caused it is a still poor.One the other hand, human capital aspect, the education of Germany is extremely shinning in the world. The high discipline of motivation is also belong to Germany and Japan. For the technology, UK’s management is the world’s best, and high capability is Japan again.In LDCs, they will face a lot of problems: such as extreme poverty and hunger, gender equity and empower woman which is also called gender discrimination. The former one caused by natural catastrophe like flood and drought or lower productivity of agriculture products. On my view, overpopulation is a major reason too. For instance, Angola has met a flood in 2009, which lead to 200 thousands people stricken and destroyed a lot of farmland. The latter one usually is cultural factor and prejudice of people. Namibia is similar to Angola in 2009, which has also been through flood disaster in 2009 and lead to 350 thousands people stricken. In addition, the traditional manners on gender attitude also create this situation.The Newly Industrialised Countries have a lot of features, which include investing heavily in human capital and conquering poor natural resources. And Muliti-National Firms are the companies which produce products in more than one country. TheMNCs have power to influence both NICs and LDCs on benefits and problems.For LDCs side, MNCs will bring them a lot of benefits. Like increase the employment which means increase the personal income, bring new methods and technology, contribute to economic growth and assist regional policy and so on. For instance, in Angola, Haier which mainly concentrate on produce air-condition had been set up factory in the country. It produced amount of work opportunities and increase the income of local people.On the contrary, the NICs will face some problems that MNCs bring. Like the bigger size of the company the higher power of them to use it to bargain with government aid worker representatives, may use up natural resources of host country very quickly and move if they see the possibility to reducing cost else where. For instance, in China, P&G has come into it at a early time, it use high technology and good quality capture a lot of people, which means it eliminate domestic competition, Just as monopoly. It reduced the employment and decreased the income at last for the unemployment.In conclusion, from the above we can see, EU is aiming to eliminate tariff between countries, which will profit every member. Also create an economic and monetary union is important, which can save a lot of exchange cost and simplify the procedure. The member country can reduce the transaction cost which means no currency exchange fee. And can eliminate the exchange rate risk for no need to exchange money. On the other hand, the member country cannot make monetary authority and will cool the economy. By the way, foam will be created too. So I recommend to join the European Union.Reference/view/2432.htm/CCI/nscl.asp?ID=6013/default.asp/chinese/News/fullstorynews.asp?newsID=11404 /ziliao/2002-06/19/content_447438.htm。