1.The UK might experience an economic decline due to leaving the EU. The EU is a single market.

Therefore, its members have no tariff and quota on trading goods. When UK decided to leave EU,
the country cannot benefit from the internal free trade,leading to less specialization ， which
could cost the British economy a great decline. However, the UK now is free to trade with other
countries,especially the emerging economies namely China,India etc. With the growing trade with
developing countries who can provide low wage labour and cheaper raw materials. The British
economic growth is anticipated.
2.The UK consumer surplus may decrease.When the UK left the EU, there would be more tariffs on
the imports from EU countries,so UK’s import goods’ cost will increase as will as their prices will
also increase. Because of habitual behavior , consumers’ PED on imported goods <1. They will still
buy goods which are even expensive than before. Therefore Uk’s consumer surplus will decrease.
But in the long term ,the consumer surplus may not decrease because British consumers might
buy other countries goods which are much more cheaper instead of EU’s.
3.The British pattern of trade would change.When the UK decided to leave, the trade barriers
would increase between the UK and the EU ,which could limit UK’s import and export with the
EU.Therefore, UK may shift their trades to other countries. Therefore, its import ， export and
volume of goods will all change, and this will effect UK’s patterns of trade.
4.the unemployment rate might increase in the UK.When the UK left the EU ,the foreign direct
investment from EU will decrease. Thus, some companies in the UK which received FDI would stop
working. Therefore, the workers will lose their jobs, British’s unemployment rate will increase.
Citizen’s living standard will decrease.But the proportion of British companies which are
financially supported by EU investors is relatively lower than the ones established by domestic
investors. This means tha there were just a small number of factories that EU built in the UK, so
the unemployment rate will not decrease too much.Besides, in the long run, the FDI from the rest
of world will inject into the UK,which could boost the employment eventually.

definition
1.the first reason is developing EU’s infant industries.Setting
common external tariff on agricultural products may restrict other
countries’ export to EU. Therefore,EU will have more time and get
more experiences to develop their infant industries related to
agriculture, and in order to compete in the international level.

2. The EU needs to protect their employees working for agricultural industries.

Because EU has less agricultural comparative advantage comparing to other countries who have
low cost labour, the imports prices are lower than domestic price. Therefore,-he EU’s citizens
preferring to buy imported agricultural goods but not domestic goods leading to a low produce,
which will cause a structural unemployment in the EU’s domestic industries,so they need to set a
common external tariff to restrict imported goods.
EU set a common tariffs in order to improve their current account
When EU set 18% tariffs on agricultural, the price of their import goods will be expensive than bef
ore. So in the EU,the number of people who buy imported agricultural goods will decrease,leading
to a declining total value on imports.Therefore the current account will improve.

4.In addition,topics...

3.

However
because the agricultural products are relatively inelastic in short run ， EU’ s current account may
not be able to improve.
Because of the habitual behavior ,people prefer to buy
imported goods, the PED of agricultural goods are less than
1.Higher tariffs causing high
price will not change people’s demand,so the value of impor
ts will not decrease too much. The CA will not improve.

Common External Tariff could harm EU’s Consumer surplus.

 Deficit -(consumer、investors)loss in confidence/反之亦反

 Surplus-employment in export industry-however inequality
Topic 2 Exchange rate
A) exchange rate systems
 A floating rate system:a currency’s exchange rate is simply determined by the free market
forces of demand and supply, without any intervention by the central bank
 Fixed exchange rate system:a country maintain a fixed exchange rate against on or more
other currencies
 Managed exchange rate system: There are exchange rate where the currency is allowed to
float but with element of interference from the government.
B) GOVERNMENT intervention in currency market
 Interest rates:higher interest rate relative to other countries will attract invest in the country-
本币需求高-外汇储备高-本币升值（hot money）
 Quantitative easing（量化宽松）
使用前提：standard monetary policy is no longer effective
使用目的：encourage consumption，borrowing，investment，produce---stimulate economy
操作手段：money supply
 Foreign currency transactions 外币交易
定义：FCT involves buying and selling foreign currency to manipulate the domestic currency.
C)factors influencing floating exchange rates
 Inflation: a lower inflation- lower export price-relatively more competitive-foreign currency
 Speculation: speculator
 Government finances:a government with a high level of debt, defaulting. 该国货币贬值-
Lose confidence-sell bonds
 Balance of payments
 International competitiveness-competitiveness-demand for export
 Interest rate：Interest rates:higher interest rate relative to other countries will attract invest
in the country-本币需求高-外汇储备高-本币升值（hot money）
D）The distinction between revaluation and appreciation
Appreciation: the value of a currency increases relative to another currency in a floating exchange
rate system
Revaluation: is a calculated upward adjustment to a country’s official exchange rate relative to
chosen baseline
E)the distinction between devaluation and depreciation
Depreciation: the value of a currency falls relative to another currency in a floating exchange rate
system
Devaluation:is a calculated downward adjustment to a country’s official exchange rate relative to
chosen baseline
F) The impact of changes in exchange rates
 The current account
1.Marshall Lerner condition:a devaluation in a currency only improves the current account
(balance of trade) if the sum of long run export and import demand elasticities is greater than or
equal to 1
PEDx+PEDm>1
2. J curve effect
A depreciation in the exchange rate can cause a deterioration of the current account in the short
run however in the long run the demand becomes more price elastic and therefore the current
account begins to improve
 why in the long run the demand becomes more price elastic
① Takes time to find alternatives/subsitutes
② In short run Habitual behavior, in long run consumer preference would change
③ Contract may keep the purchase in the short run
④ Domestic producers need time
 意义：time lags can affect economic policy/micro-macro
 局限性：imported inflation---raw materials--reduces the competitiveness of exports
 Economic growth and unemployment
经济增长角度
Exchange rate appreciate-X,M-AD is likely to fall-经济放缓
-局限性
1. XM 占比小-对经济影响小
2. Elasticity
3. Asymmetric information
4. Lower Inflation
劳动力雇佣角度
A decreasing exchange rate-increase exports-encourage export sectors produce-demand labour-
unemployment decrease
An increasing exchange rate-----unemployment increase
 Rate of inflation
A depreciation in the exchange rate
-imports price increase-cost of imported raw materials increase-leading to the cost push inflation
-net ex- AD 上涨-consumption-upward pressure on the average price -inflation
 FDI（financial account）
A depreciation-wage and production cost relatively falls-more attractive to FDI- financial account
improve
反之亦反
【G】the consequences of depreciation、devaluations
获利方 受损方
Lerner condition-exporters Consumers who buy imports
Domestic tourism Real Debt increase
Employment -export International traveling
Economic growth might increase Domestic firms-cost of raw materials
Current account Foreign exporters
Study abroad

SPICED
Strong Pound=Imports Cheaper+Exports Dearer

Topic 3 international competitiveness

定义：IC measures the relative cost and value of a countries exports
【A】measures of international competitiveness
 Relative unit labour costs： calculated by dividing total wages by output in a given period
国家 A：10000 人民币的工资 每人生产 10 杯子 所以 RULC 1000rmb/ cup-----900/cup
国家 B：300 元一杯---10 万一杯 钱/每件

A fall in relative unit labour costs----comparative advantage-country is more competitive

 Relative export prices-relative export prices are the prices of a country’s exports compared to
the export prices of other countries

 Relative productivity measures:the productivity per worker per working hour compared to
other countries 件/每时每人
 Skill and education of the workforce
 Time lost to strikes
 Loyalty
 Motivation
【B】factors influencing international competitiveness
 Productivity
 Exchange rate depreciation-short term boost-
局限性：long run -reduce the competitiveness/ 产品本身没有竞争
 Wage-wage 越高-cost 高- export price 高- poor competitiveness
局限性：wage 高工人 incentive，产量高降低平均成本
 Regulations：products/workers