Mr. Obama is making the flawed assumption that feeding these particular sharks will not encourage more sharks to come to dinner.

Support, Challenge or Reject Keynesian Economics?

What is the purpose?

Chapter 10 – Economic Globalization

Unit 3 – Ch 10-14

What is Sustainable Prosperity?

•Sustainable Prosperity = living a satisfying life, as an individual and as a member of a community, in a way that can be maintained into the future.

•Different people have various perspectives on what the criteria for “sustainable prosperity” may be.

How did Economic Globalization develop?

1. The establishment of a new international monetary system (see notes from last week)

2. The creation of the World Bank and the International Monetary Fund

3. The expansion of the free market economy into former Soviet-bloc countries at the end of the Cold War

4. The impact of new technologies on the movement of $$ around the world.

What is the United Nations?• The United Nations is an

international organization founded in 1945 after the Second World War by 50 countries committed to maintaining international peace and security, developing friendly relations among nations and promoting social progress, better living standards and human rights.

2. World Bank & IMF?• The World Bank = agency of United Nations -

provides loans to less developed countries that are in financial difficulty, from Bretton Woods Agreement, in charge of long-term financial assistance for countries in need.

• International Monetary Fund = agency of United Nations, from the Bretton Woods Agreement, its purpose was to work together with the World Bank to bring stability to international monetary affairs and to help expand world trade. Funded by quotas (proportional shares) that member countries pay based on their size in world economy. In charge of:▫ Monitoring exchange rates ▫Provide short-term financial assistance

3. Expansion of Free Market – Cold War• The Cold War, that lasted over 40 years (1946 –

1989) was another driving force of change with economic globalization.

• For 43 years, the world was divided between▫The communist world – The Soviet Union with a

planned economy.▫The Western Capitalist democracies – The United Sates

with a free market economy.• As a result of the Cold War, many communist

countries decided to switch to a free market economy.

• By 2000, an additional 3 billion people were participating in the global market economy.

• Today, the entire world is part of the global economy.

4. Technology and Communications• New technologies decentralized the international money

markets, this means that instead of going through an investment dealer, people could use their personal computers to invest in companies and governments around the world.

The Electronic Herd• Stocks and bonds could now be done from the computer, by

the stroke of a computer key billions of dollars could be transferred worldwide.

Herd-like effect: profitable investments attracted• more money, while funds that lost money lost even more

investors. • “Like a herd of cattle, these investors can easily be spooked

by rumors that can cause a huge flow of money in and out of countries. The movement of this money can have a big impact on the currency and economy of a country, especially smaller ones.” – economist Thomas Friedman.

People of Economic Influence

Section 2 – Review

John Maynard Keynes • British economist, developed theories

that called for a large role for government in the economy.

• He argued that falling wages resulted in decreased spending

• Direct government intervention in the economy was necessary to increase total spending and prevent- or lift the economy out of recession.

• Today, Keynes’s arguments form the basis of the rationale for gov’t spending and taxation to stabilize the economy.

• Gov’ts spend and decrease taxes when consumer spending is too low and threatens a recession.

• Gov’ts reduce spending and increase taxes when consumer spending is too great and inflation becomes a problem.

Friedrich Hayek• Believed when gov’ts try to plan or

control societies, those societies are doomed to fail.

• Human societies are too complex to be planned

• He analyzed totalitarian regimes (USSR and Nazi Germany), where governments had enormous control over every aspect of society, including the economy.▫ These gov’ts claimed they were

creating an ideal state, i.e. stripping the people of the basic rights and freedoms.

• Role of government must be limited in any society (generally accepted policy today)

Free Trade and Economic GlobalizationSection 3

Contemporary Economic Globalization

• Economic Globalization = free trade • Of the 193 Countries in the world, 190 have

signed at least one trade agreement.

Import vs. Export

Import – bringing goods into the country

Export – sending goods outside of the country

What is a tariff?•A tariff is a tax imposed on imports to

increase their price and thus reduce competition with domestic products.

General Agreement on Tariffs & TradeGATT

•GATT = agency of the United Nations•Established in 1947 (end of WWII)•Operated according to 3 principles:

▫Conducting trade in a non-discriminatory manner (equal advantage)

▫Treating imported goods from a member country in the same manner as domestic goods (equal taxation)

▫Protecting domestic industries through tariffs

FTA = NAFTA•1989 FTA – Free Trade Agreement

between United States and Canada.•Removed most tariffs between the two

nations.•1994 FTA is extended to include Mexico &

becomes NAFTA – North American Free Trade Agreement = largest free trade area in the world.Canada Wanted:

•access to large US market because of significant difference in population size.

United States Wanted:•Canada’s natural resources:-Oil-Gas-Minerals-Lumber

2 Perspectives on Free Trade

•Freer trade provides countries around the world with great opportunities and benefits.

•Freer trade actually results in a number of negative impacts for countries and their citizens.

Impact of Freer Trade on Canada •The problem surrounding Canada-US trade is

the population size.•The United States has 10 times Canada’s

population and is the world’s largest economy.Two things can happen: 1. American industries can easily swamp

Canada’s smaller market with their products or services, forcing local industries to adapt and compete or face closure.

2. Smaller Canadian industries can adapt and grow by selling their goods or services in the huge US market.