Third Term – Economics 4.1 and 4.2

1. ThirdTerm – Economics 4.1 and 4.2 1.Grade for ENGLISH AND PARTICIPATION (15%, 15%) x Eliminated - Not appropriate for a class that meets only once a week, I still do not know all of you, for example. This could change for Term 4. 2. GRADE, 3RD TERM 50% of grade - 1st Asssessment, week 4 (August 26) – multiple choice, fill-in, matching, T/F ------ (I will provide a study guide week 3) 50% of grade - 2nd Assessment, week 6 (Sep 9) - multiple choice, fill-in, matching, T/F -------- (I will provide a study guide in week 5) 3.EXTRA CREDIT OPPORTUNITY One time only, due in week 4. There will be 6to 10 extra points possible. Send me an email by Wednesday August 14th at 3:00pm, saying that you are interested. If I do not get an email, no extra credit assignment for you.

2. Economics – 3rd Term 4. Video of the dog, why did we see that? 5. Hand-out on your desks, listen for the parts you are not responsible for, the rest you need to know for week 6 assessment 6. Today´s worksheet, work on it in pairs or groups the rest of class, it is not for an assessment but it is highly recomended to finish it at home and bring it to class next Monday

3. 4.3 Economics – 3rd Term • FINAL CHANCE – ECONOMIC SUPPLY AND DEMAND MODEL, NEXT THURSDAY (week 2), 20 MARK ASSESSMENT • 16 MARKS FOR EXAM plus 4 marks for HW question

4. 4.3 Economics • Final Exam for the Term (50%) – Monday of week 7 • Since we are not using English and Participation then the 2 assessments in weeks 2 and 4 will be 25% each of the grade

5. 4.3 Economics – 3rd Term • WEEK 4 ASSESSMENT ON ALL OF THE MATERIAL WE COVERED AFTER THE ECONOMIC SUPPLY AND DEMAND MODEL • THE SLIDES WILL BE ON WIKISPACES AT THE END OF THIS WEEK • It will be necessary to study the slides on Wikispaces and ask the teacher about topics you do not understand

6. 4.3 Economics - Week 4 Assessment • Multiple choice, fill-in, matching and True/False

7. 4.1 and 4.2 • Today - Review of answers to handout and continuing with Macroeconomics lecture • Assessment – Week 4

8. Peruvian Central Bank What are the functions of the BCRP? The BCRP functions, as defined by the Constitution, include the following: -to regulate money and credit in the financial system - manage international reserves - issue notes and coins - periodically report on the country’ finances

9. Autonomy of a central bank What does the BCRP’s autonomy consist of? In order to fulfill its mission, the BCRP must enjoy autonomy (independent, not controlled by the government)

10. Prints the money

11. Prints the money

12. Prints the money

13. More about the BCRP (Peruvian Central Bank) • What is the mission of the BCRP? ---To preserve monetary stability. The Central Bank has established an inflation target of 2.0% BCRP actions are oriented towards maintaining this level of inflation in the Peruvian economy.

14. From its website…..Peruvian Central Bank Inflation is detrimental to economic development because it prevents money from adequately fulfilling its functions as a medium of exchange, as a unit of account, and as a store of value. Inflation discourages investment. The devaluation of money resulting from continuous rises in the prices of goods and services affects interest rates and thus both consumers and businesses Thus, by maintaining low inflation, the BCRP creates the necessary conditions for normal economic activity which, in turn, contributes to achieve higher levels of sustained economic growth.

15. Exports/Imports - Introduction • Exports are goods that are made (manufactured, produced) in a country, and sold to a company or person in another country • Example of a Peruvian export: copper

16. Imports • Imports – a country buys a good or service from another country • Example: Kia (Korea) sells 10,000 Optima model cars to a Lima car dealer • Has anyone ever seen all the cars sitting in car lots in Callao, when you fly into Lima?

17. Why do countries export and import? • No country in the world has all the natural resources, climate or geography to produce all the goods and food required by its population Many countries have more than enough of a specific resource or product and can export some of this "surplus" to other countries

18. Example - Canada • Many Canadians like to eat bananas, which can only be cultivated on tropical climates • Canada is close to the Arctic circle, no bananas can be grown on its soil and the easiest way to get them is to import them

19. Canada´s Exports • But Canada has huge reserves of oil, which some countries do not have at all • As Canada has more than enough of oil to support its own needs, it can export some of its oil production to countries that require it and are willing to pay for it

20. Examples of Exporting/Importing - Japan • Japan cosumes more than 5 million barrels of oil a day • But it only produces 138,000 barrels a day • So it must import almost ALL of its oil needs

21. From your Geography textbook • Example: Japan, its export and imports…..

22. Example - Russia • Produces 11 million barrels of oil a day (number one in the world) • Uses only 2.5 million barrels a day • So, it exports the remaining 8.5 million (daily) • USA (big producer, but big consumer also)

23. Cap`n Crunch • Why doesn´t Laive start producing this cereal to sell to Peruvian consumers?

24. Top 20 Peruvian Exports 1 Copper Ores 2 RefinedCopper & Alloys 3 Gold 4 Zinc Ores 5 MeatFlourforAnimals 6 Non-CrudeOil 7 CrudeOil 8 Molybdenum Ores 9 Coffee 10 Silver

25. Top 20 Peruvian Exports 11 Lead Ores 12 Iron Ores & Concentrates 13 Knitted Sweaters 14 Fresh Vegetables 15 Tin 16 Zinc 17 CopperWire 18 KnittedMens & BoysShirts 19 Prepared Vegetables 20 FishFats & Oils

26. Top Peru Imports - $41 billion in 2012 • Agriculture and other machinery, certain chemicals, plastics, TVs, telecommunications equipment, iron, steel, wheat, soybeans, vaccines, cotton, paper • Cars ($2-3 billion)

27. Peru´s Major Trade Partners • No surprise……United States, China, Brazil, European Union and Chile

28. Exports add to the GDP of Perú • The Peruvian company exporting the good counts the exports as sales (all sales of all companies is the GDP of a country)

29. What effect does a change in your country´s currency have on your country´s exports? – Ifan American and wanttobuy a Peruviangood, thepersonorcompany has topayforthegood in Soles – So, the American has totakehis American dollars and buy Soles first -If Soles are more expensive (Sol up to 2.40 forexample = dollardown), thenthePeruviangoodscost more forthe American Ifthishappens… Peruvianexportstothe USA will decline

30. Example • I am buying a bottle of fishoilfor S./100 • Theexchangerateis 2.50 Soles to 1 US dollar • I need 40 US dollarstoobtain S./100 • Thenwiththe S./100 I nowhave I buythebottle of fishoil

31. Example • So, what if the dollar goes down (Nuevo Sol goes up), how does that affect the American company that is buying a bottle of fish oil from Perú? • We need to do a new calculation to find out how many dollars it takes to get S./100 because it is now different

32. New calculation • Supposetheexchangerateisnow 2.00 Soles foreach US dollar • So now I need 50 dollarstogetthe 100 soles instead of 40 dollars • AmericanswillbuylessfishoilfromPeru, thisisbadforthePeruvian GDP,buthaving a strong Sol isgood (forpurchasingpower, interestrates, etc..)…There are alwaystradeoffs

33. Peru in 2012 – Budget Surplus, Trade Surplus Budget Surplus - $2 billion – this is good Why? Simple, receipts are higher than expenditures Trade Surplus - $5 billion – this is good Why? Rich minerals are in need around the world, Peru is benefitting

34. USA - Budget Deficit, Trade Deficit • Budget Deficit $1.2 trillion Why? Taxestoolow, spendingtoomuch (governmentservices, defense, social security) • TradeDeficit $487 billion Why a deficit? Oilimports AND productsthat are beingproducedwithcheap labor are cheapertobuythantomakethem in the USA (high labor costs), likeforclothing and electronics

35. Other statistics, Perù • Top growingeconomy in all of LatinAmericathelast 12 years • Real GDP growthnowaround 5-6% • Yetinflationisonly in the 2-4% range • Unemploymentis in the 7% range

36. Tariff • A tax on an imported good or service

37. Free Trade Agreements

38. FDI

39. To nationalize a company • To make it government owned, instead of privately owned • In a worst case, take the investment of the foreign company and force them out of your country

40. FDI - Ecuador • The Associated Press July 24, 2010, 5:48PM ET Ecuador president imposes oil nationalization law QUITO, Ecuador President Rafael Correa announced Saturday that he will enact a change to Ecuador's hydrocarbons law allowing the government to nationalize oil fields if a private operator doesn't comply with local laws. The law will go into effect Monday without the approval of the National Assembly because lawmakers failed to meet the time limit set to decide the bill's fate, Correa said.

41. When General Motors (US) builds a Chevrolet in MÉXICO • Adds to Mexican GDP, creates a job for Mexican worker, but the profit goes to General Motors • GM benefits with lower costs (cheaper labor plus the customers are all there, do not have to transport the cars), etc..

42. June 27, 2013 General Motors to invest $691 million in 3 Mexican plants June 27, 2013 The Mexican unit of U.S. automaker General Motors said it planned to invest $691 million to expand its operations in Guanajuato, San Luis Potosi and Mexico states "GM is about to reach 78 years in Mexico and we celebrate it with this new investment, which means more employment and development opportunities for the regions of Silao, San Luis Potosi and Toluca; and more advanced technology that will benefit our customers,"

43. Look at the trend • Trend

44. FDI - Ecuador vs. Peru • http://www.tradingeconomics.com/ecuador/foreign-direct-investment-net-inflows-percent-of-gdp-wb-data.html • http://www.tradingeconomics.com/peru/foreign-direct-investment-net-inflows-percent-of-gdp-wb-data.html

45. Bubbles We spoke of people getting too overconfident and overinvesting, causing a unsustainable growth with an ugly, ending, here is what the Japanese stock market did • http://finance.yahoo.com/echarts?s=%5En225+interactive#symbol=^n225;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined; • http://finance.yahoo.com/echarts?s=%5EIXIC+Interactive#symbol=^ixic;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

46. Study Guide, Week 6 Assessment • Everything from Week 4 • + FDI, to nationalize, Free Trade Agreements (tariffs), Bubbles

47. 1st bimester

48. 1stbimester recap of the Definition of Economics • What is the Economic Problem? • We (you, me, the people of this school, Peru, the World) have unlimited wants and yet finite resources with which to achieve them. We cannot have everything we want. • This is called a scarcity (limit of) resources so we must decide what we will produce/consume

49. 2nd bimester

50. The Demand and Supply Curve Economic Model • Objectives: • Understand the demand curve • Understand the supply curve • What happens when supply and demand meet and what causes an increase or decrease in one or the other?