Lecture 24: international TradeMonetary Policy Wrap-upSome terrif, quota stuff wont be coveredno exchange rates1. Zero expectationsActivist2. Adaptive expectationsPassive3. Rational expectationsCurrent Fed1. Transparent2. Do no harm3. why is inflation so low? (there’s not any inflation)Given all the expansionary policy?The fed is pumping money into the economyWhy don’t we have inflation? Excess reservesBanks now holding extra reservesFed start paying interest in reservesIsland: no trade: cut down the last palm treeTrade allows us to both better offWhy buy a sandwich?Opportunity costTrade when opportunity costs of production are highProduce when opportunity costs of production are lowComparative AdvantageAbsolute advantageWe use comparative advantage to show: Specialization and trade is beneficial even if a nationenjoys absolute advantage in everything.Comparative advantage Output Per Worker Day Change in output(move one worker from Textile is US and toTextile in China) Opportunity cost per unitFood Textiles Food Textile Food TextilesUS 9 3 9 -3 1/3 T 3FChina 1 2 -3 6 2T .5 F6 3Trade creates
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