IB Mock Exams Reflection: Economics is my subject. It is the only subject that I actually want to study for, really understand every aspect, and do well on in test conditions. During my spring break, I actually didn’t study for my other exams because I was reading up on Econ and reviewing hard because 1) it interested me and 2) I had so much motivation to do well. I felt that if I could ace this, I know that the business undergraduate major is for me. The studying had paid off and I had gotten a really good score on the IB Mock. However, for some reason I wasn’t that happy when I got my test back. I really thought that I could do better especially on one of the explain questions. But its good to know, I know exactly what to study/improve on.

Plans for Revision: For all my classes, I laid out a excel spread sheet that tells me what to study on exactly what day for each other those classes. I’ve followed it pretty well and I hope to continue that. For me the OSC revision guide is very helpful and if there is something I don’t understand  on it, I would refer to the McGee textbook and read up on it. After every section that I read, the way I revise is I go to the past paper packets and do random questions specific to the topic I’ve learnt. Not only do I refresh my memory but I get into the habit of seeing IB type questions.

Predicted Grade: I don’t want to say out loud my predicted grade, however it is one that I was hoping for at the very beginning of this course. With the mock exam, I am glad that it showed my capabilities with IB HL Economics. With my revision plan, I hope to keep up that predicted grade and that it follow through and through for the IB exams in May.

Strengths:

• Different modes of studying – Visual and Auditory
• Notes panel
• Very detailed and organized
• Search Engine for faster ways of studying

Limitations:

• Sound gets annoying
• It takes too long to load for the other slides
• The visual aid becomes monotone

Overall Evaluation:

It looks like a very useful and organized site that would definitely help me in the future. I wouldn’t want the commentary on each slide but I know the notes and step-by-step explanations are going to be useful for me. I like that it is all on the web and I know that it will be there and I won’t be able to “lose” it.

I actually think that this test has told a lot about what I have to improve. I always get anxious when in time situation so I write and write as much as I can without a plan. In every single test I have done, I’ve always had time left in the ending. Therefore,I know that I can write a plan. I have to organize my work so mjuch better because if I do I know I can get the depth instead of breath in my writing. If I just plan, I am sure I can get into the “7″ band of grading.

Special thanks to Ms.Q for taking so much time for writing comments on the End of Unit Test. It has helped a lot to know my faults.

Just like Liberia, Somalia does depend on their working class. Also, they don’t export and import much as they are unable to. They rely on the agriculture to push them forward.

Somalia's population is just over 10 million and its population growth is 2.824%. The life expectancy is 50 years old. GDP per capita is very low at less than $600. 43% of Somalia's population lives below the poverty line. The percentages of aid in gross capital formation is 345.7%, which is second in the world. Somalia's dependency ratio per 100 people is 102. There are only 0.04 physicians per 1,000 people. The number of primary school girls ou … Read More

via Sami's Economics Blog

There are four aspects to making the bottom billion – low per capita income, high population growth, high unemployment and underemployment, and over dependance on primary sector. Liberia fits all of these characteristics starting from the low per capita income which is $500. There is a widespread of absolute poverty as 80% of the population is below the poverty line. These information can be seen in the HDI values, shown in the next section. Income inequality becuase of the gini coefficient lies at 52.6 ranking at 169 of the world.

The HDI Values are seen in the image below. It shows the income per capita, education, health, and life expectancy. In the Image below the list, it shows the HDI values of Libera compared to the world.

The unemployment rate in Liberia according to the CIA Factbook as recent as 2010 is 85%. This reflects the amount of the population, which is approx. 3.7 million, that is below the poverty line which is 80%. Due to the civil wars and government corruption it has left the economy of Liberia at its worse.

It is one of the countries that are highly dependant on foreign assistance/aid. A lot of the improvement of its infrastructure and rising incomes really will rely on the foreign aid and improvement of the government. They only started with the exports as debt was a huge thing that was putting their whole country down.

Liberia definitely is developing slowly and thus is in the bottom billion.

1. Evaluate a country’s decision to join a FTA
2. There has been an increasing trend in different parts of the world for countries to engage in economic integration through the formation of trading blocs. Using suitable examples, explain the different types of trading bloc that may be formed.

Demands of the Question

In paper 1, we must choose one of the questions worth 25 mar

ks. These 25 marks are to be done in one hour. The question clearly states about economic integration. For the first question about evaluation, one must seek pros and cons, define what FTA, real world examples and what my opinion ends on. For an explain question, the second question, one must explain it step-by-step so One can understand. In this question, we must explain each type of trading bloc and have a real world example for each.

Question 1 Format – Evaluate a country’s decision to join a FTA (15 Mark)

1. Free Trade Area – agreement where countries agree to trade freely among the members of the group, but are able to trade with countries outside the FTA which ever they wish

Positive -

i. No barriers

ii.     Political/Economic Cooperation

iii.     Larger market

Negatives -

i.     Affected Domestic Producers and Consumers

ii.     Undermines Free Trade

iii.     Adjustment Costs

iv.     Environment Costs

3.Real World Example – NAFTA: United States, Canada, and Mexico, ASEAN

4. What is the value of FTA for a country?

Question 2 Format – Explain the different types of trading bloc that may be formed (10 Mark)

1. Free Trade Areas – An agreement made between countries where the countries agree to trade freely among the members of the group but are able to trade with countries outside the FTA in whichever way they want. Real World – NAFTA and CAFTA
2. Customs Unions – Agreement made between countries, where the countries agree to trade freely among themselves, and they also agree to adopt common external barriers against any country attemping to import into the customs union. Real World – Switzerland-Liechtenstein Customs Union
3. Common Markets – Customs union with common policies on product regulation and the free movement of goods, services, capital and labor. Real World: MERCOSUR (Argentina, brazil, Paraguay and Uruguay
4. Economic Union  – Common market where the level of integration is more develop. Member states may adopt common economic policies. -    Fixed Exchange Rate, Single common currency. Real World – CAP of the EU

Triple A

Trade creation

Trade creation is the increased trade that occurs between member countries of trading blocs following the formation or expansion of the trading bloc. This comes about as the removal of trade barriers allows greater specialisation according to comparative advantage. This means that prices can fall and trade can thus expand.

Sovereign countries belonging to a free trade area trade freely amongst themselves but have individual trade barriers with countries outside the free trade area. All members have most favoured nation status, which means that they are all treated equally.

Examples include the North American Free Trade Area (NAFTA) between the USA, Canada and Mexico; Asia Pacific Economic Cooperation (APEC) and the Common Market of Eastern and Southern Africa (COMESA).

Customs Union

In a Customs Union, countries have free trade amongst themselves, as in an FTA, but they are no longer fully sovereign over trade policy. There will be some degree of standardisation of trade policies. They will have a common external tariff (CET) which is applied to all countries outside the customs union. The countries will be represented at trade negotiations with organisations such as the World Trade Organisation by supra-national organisations, e.g. the European Union.

Common Market

This trading bloc is a customs union, which has, in addition, the free movement of factors of production such as labour and capital between the member countries without restriction. Mercosur is an example of a common market comprising of a number of South American nations. The European Union is also a common market and people and capital can flow between EU members without restriction.

Economic Union

This is a common market where the level of integration is more developed. The member states may adopt common economic policies, e.g. the Common Agricultural Policy (CAP) of the European Union. They may have a common currency like the Euro in the EU. This will involve common monetary policy – in the case of the EU, monetary policy is operated by the European Central Bank (ECB) in Frankfurt.

Powerpoint Slides

Diagrams

The Eurozone is the only one in the world that has brought in countries to convert into a single currency. A single currency means that a currency is used by all the members of an economic federation. The upside to single currency is that there is long term investments, lower inflation, increased trade and investments, and lower transactions between nations. Although, the huge downside for the single currency means that if one country’s economy is doing well and one country is doing badly then all of the “eurozone” is considered in a recession. It is an all for one and one for all system. This completely applies to which an article I read shows how Spain is imprisoned into the Eurozone single currency.

Before the Eurozone single currency was in place, Spain was doing really well with its economy. Although, like what happened to the USA recently, they hit a rock bottom and their economy had hit a recession. Spain had “seen its budget deficit balloon thanks to plunging revenues and recession-related costs.” At that time, the Eurozone was introduced and it had become appealing to Spain to join in in this single currency. They had experienced rapid growth due to the Eurozone because the Eurozone had helped them out greatly during that time as funds flooded into Spain. Right now, Spain is on a debt crisis. Spain is only in this crisis – “Has seen its borrowing cost shoot up in recent weeks, reflecting growing fears of a possible future default.” – because of their association with the Eurozone.

Spain have abilities to fix their currency on their own through fiscal and monetary means. As well as, there is evidence shown that Spain’s cost rise higher than other eurozone countries. Since Spain is no longer its own currency it is not able to go and fix its currency like the last time – fall into recession and build it back up to make it competitive again. According to the article, “Spain has to achieve “internal devaluation”: it must cut wages and prices until its costs are back in line with its neighbors.” With Spain being in the Eurozone the future doesn’t seem to bright. Unlike America, they are not seeing growth. Being in the Eurzone does not help them at all. Leaving the Eurozone, will only create more problems in the short and long term. Therefore, Spain is “locked in” with no other options to go to.

The famous Japan Airlines, JAL, has recently been reported to be heading towards bankruptcy, and many customers who have been a frequent user of JAL are starting to use other airlines that are cheaper. After facing this trouble, JAL has set a number of considerations to save themselves. One thing JAL plans to do is to operate more regional jets on domestic routes with higher profitability. For International passengers, JAL plans to replace the ol … Read More

via Kanako’s Blog

Trade data underlines fears that weak pound is raising costs for importers and not yet providing significant boost to exports

The Marshall-Lerner and J-curve models applies to the current situation of Britain’s trade gap. The Marshall-Lerner condition looks at the impact of a depreciation on the current account of the balance of payments of a nation. This condition is saying how the current account would improve after a depreciation only if the sum of the PED and PEX is greater than one. This condition, in the real world, stays true in the long run but not in the short run. Therefore, this is where the J-curve comes in. This is because in the short run there are many factors that effect the consumers because at first there will be fewer exports sold when prices fall due to the inability for people to react immediately. It takes time before depreciation will take in place and this is explained through the J-curve. Things will be worse before it gets better.

Britain’s current trade gap has given hope for an economic recovery based on their increase of exports. Thus, they had depreciated their currency in the hopes of increasing their exports and decreasing their imports. Although, this had worked against them since their exports are demand inelastic. If their exports are demand inelastic, therefore the little/great change in their price will only effect the quantity demanded of their exports by a little and not as much as they need. In this moment, Britain had their total of exports rise by 1% but had their imports rise by about 5%. Therefore, their hope had decreased because their consumer consumption of imports are outweighing their equivalent exports.

However, like the J-curve mentions, things have to get worse before they get better. Many economists, in this article, show optimism for the rising exports and profits of businesses.

Many economies in the world are still recovering from the recent economic crisis. In order to do that, countries must decrease their deficit and that is through increasing their exports and imports. With the United States in the same or worse situation as other countries, the look upon countries where they can increase their exports and thus decrease their imports. The main reason the United States is in deficit right now is because of the huge surplus of China. At the moment, China exports to the United States and the United States rely heavily on the China for imports, thus causing the deficit-surplus relationship. The issue now is, due to the major exports China does, are they creating an “artificially low currency” (Australia, 2010) in order to influence their exports and imports?

The balance of payments of a nation is a measurement of their international trade performance and how well it is managing to match its imports and exports of goods and services and flow of investments in and out of a country. In terms of the issue between China and the United States, China seems to be handling too “well” its imports and exports. The currency exchange is greatly affected by what happens with the balance of payments. The Chinese must have a floating because in most articles it refers to “depreciating” its currency, which refers to downwards movement in a floating exchange rate. A floating exchange rate relies on the market forces, supply and demand, for the movement of the rate. In terms of a goal, all countries would want to match up its imports and exports of goods and services and keep their currency low in order to sell more. In the image on the right hand side, we can see the renmenbi against the us dollar – and how it keeps lowering.

When a country gains more from their exports than they spend on their imports,

they eventually will reach a surplus in their balance of payments. A surplus in the balance of payments means that a country is gaining more from their exports than they spend on their imports. A country is able to do this when their currency allows for the exports to be cheap and imports to be expensive, thus gaining a lot from their exports. The currency must be depreciated. Although, when a country is in a surplus their currency starts to rise due to their highly demanded currency by other countries to buy their goods or services. This can be seen in Figure 1, below.

According to Economic models, when a country’s currency starts to rise, then self-correction must be in place to bring it back to a balance. This will happen because when currency starts to rise, the exports become expensive and imports cheaper, thus pushing a country to rely more on imports and cut back on exports.

Although, this is not the case for China, as the United States suspect. The United States claims that China is purposely depreciates its currency so that their “products are cheaper for US consumers and American products cost more in the Chinese market.” (BBC News, 2009).  The Chinese currency “has depreciated 6.9% against the dollar since February 2009”. Other evidence, which contribute to the argument of the United States, are “China’s foreign exchange reserves, already the world’s largest, jumped nearly 20% from a year” (BBC, 2009). By devaluating their currency, “prevent effective balance of payments adjustments or to achieve an unfair competitive advantage in international trade.” (Wolverson, 2010)

The balance of payments not only include imports and exports of goods /services and flow of investments in and out of a country but foreign exchange reserves. These foreign exchange reserves are what governments hold in order to influence exchange rates. With a jump of nearly 20% foreign exchange reserves, this may be evidence that China rely on their foreign exchange reserves to influence their or other countries exchange rate in order to depreciate theirs.

The US wants a bill to be passed to “punish China for currency manipulation in the lame-duck session following the election.” (Australian, 2010). However, the bill is said to probably not pass and so this argument by the United States is made largely because the “growth of China highly threatens [the] growth and stability of the U.S economy.” (Wolverson, 2010) As mentioned before, the lowering of the Chinese currency brings about a huge surplus on the Chinese economy but rising deficit on the United States economy, as the United states buys from the Chinese and the Chinese gains.

Resources

Australian. (2010, September 29). Currency wars: a fight to be weaker | The Australian.The Australian | The Australian Homepage | TheAustralian. Retrieved December 1, 2010, from http://www.theaustralian.com.au/business/news/currency-wars-a-fight-to-be-weaker/story-e6frg90x-1225931769011

BBC News. (2009, October 16). BBC NEWS | Asia-Pacific | US criticises ‘inflexible yuan’. BBC News – Home. Retrieved December 1, 2010, from http://news.bbc.co.uk/2/hi/asia-pacific/8310001.stm

Wolverson, R. (2010, October 19). Confronting the China-U.S. Economic Imbalance – Council on Foreign Relations. Council on Foreign Relations. Retrieved December 1, 2010, from http://www.cfr.org/publication/20