At the in-between phases of the simulation, when Canada had built a batch of substructure betterments such as roads and communicating which increased the value of the Canadian dollar much higher than the Euro or the Pound, the European states avoided trading with them if possible because the exchange rate for their dollar was so much more than our dollar. It would be us more Euros for fewer dollars.
Therefore, we largely tried to merchandise with other European Union states or the UK because we were either interchanging the same currency or doing money due to the United Kingdom ‘s less valued lb. Associating to what we ‘ve discussed in category, we have learned that for illustration, US purchases of belongings or investings in Canada raises the demand for Canadian dollars, something other states tried to avoid in order to non increase their dollar value further. Associating this to existent life, US concerns have, in the yesteryear, done a batch of concern with Canada ‘s fabrication sector because they could acquire merchandises cheaper here than they could in their ain state. However, as of late Canada ‘s dollar is about on par with the US dollar, and because of that the US companies can non acquire the Canadian merchandises about every bit cheaply because if they were to interchange their American measures with Canadian, they would non acquire about the same sum of Canadian dollars for the dealing as they normally would, and hence can non purchase as much with the same sum of American dollars. Because of this, Canada ‘s exports are enduring to a great extent because American companies have found it cheaper to exchange to American makers.
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In twelvemonth 11, we built a high capacity mill on oil, significance we could bring forth nine oil cards every twelvemonth, which was a really big sum. Similarly, Italy produced a big sum of brick, and Germany specialized in fabrics. By making this, each state concentrated their financess and attempts bring forthing their specific merchandise, and so purchasing the brick, ore etc. that they needed and selling their excess merchandise, in our instance oil. Associating this to the class, we studied that in trade theory, specialisation led to higher productiveness, which led to higher planetary criterion of life, which would finally take to wealth maximization. Associating this event in the game to existent life, every state has certain merchandises it can bring forth more expeditiously due to endure, work force, natural resources etc.
For illustration, Canada can bring forth pound much cheaper than companies in the US can ; therefore the US companies normally buy Canadian timber. Similarly, if Canada were to do oranges, they would probably hold to be grown in a nursery and would be non really efficient or really tasty compared to oranges grown in Florida. Therefore Canadians normally buy Florida oranges over Canadian oranges because they were more efficient to do and therefore cheaper and besides likely gustatory sensation better.[ 2 ]
LumberOrangesCanada200USA016*Without trade is utilizing 1 resource per square, nevertheless with trade it allows Canada to set both its resources in timber and the USA to set both resources into oranges. Now both can concentrate on what ‘s most efficient for themselves, and trade for the remainder.
Why we trade:
As portion of France we had to a great extent industrialized our oil ; nevertheless we did non hold any brick or adequate fabrics to construct substructure. Rather than wait twelvemonth after twelvemonth to bring forth adequate resources to construct a mill to derive more resources, we realized it would be cheaper to utilize the money earned from selling our plentiful resources ( pound, oil etc. ) to merchandise for the resources we could non do as much of. This manner we were able to concentrate on other things, like office towers and our GDP growing. As we learned in this category, Different states have different natural, human and capital resources, and different ways of uniting these resources to bring forth.
For a existent universe illustration, China and the United States trade rather a batch because each has different natural, human, and capital resources. The type of merchandises that China exports to the United States are labour-intensive life necessities that the United States will ne’er bring forth anymore and has no competitory advantages because China can bring forth them cheaper and better.[ 3 ]
Impact of revenue enhancements and disbursement:
In our really last twelvemonth we saw a Consumer Price Index of 1.1 % and a GDP Growth rate of 9.8 % , the highest we of all time achieved in the European Union. We achieved these impressive Numberss by take downing our revenue enhancement rate to an all clip low of 9 % and increasing disbursement degrees by an all-time high of 200 Euros. As we learned in Economics, in theory increased disbursement degrees should make more demand for goods and services, which stimulates the economic system. Besides, by cutting taxing puts more money in the citizen ‘s pockets, which they will theoretically pass, exciting the economic system.
One downside to this is if disbursement degrees increase excessively high or revenue enhancement rates are lowered for excessively long rising prices tends to happen. A existent life illustration is with Canada seeking to claw out of the recession, the Canadian authorities has increased disbursement for substructure, making demand for goods and services, which creates occupations, which increases productiveness. Another existent universe illustration is when George Bush was President of the United States he tried to give US citizens more disposable income by cutting revenue enhancements to excite the economic system.[ 4 ]These graphs show that when disbursement degrees increased and revenue enhancement rates decreased we saw unbelievable growing of our GDP. The most noteworthy illustration is Year 16 on the x-axis.
With disbursement degrees at an all-time high of 200 Euros and revenue enhancement rates at an all clip low of 9 % , GDP growing reached the highest per centum yet, at 9.8 % , as shown on these three graphs.
Economic Mutuality and Convergence:
Throughout the simulation game the EU states had meetings that helped them form and be after schemes for optimal GDP growing and substructure betterments.
By forming installing of heavy mills in each state as a whole we were able to form specialisation in each state. We specialized in oil for illustration which we volitionally traded to Germany and Italy and in return received their specialised goods that we do n’t do. In this category we learned that in theory specialisation leads to interdependence, which leads to convergence, which leads to eventual universe trade. For illustration, in the existent universe China specializes in specific goods and services as does the states of ASEAN. Together these two powers are increasing trade with each other which is fostering the two states mutuality to each other.
Their entire trade volume for 2008 is more than $ 230 billion US dollars.[ 5 ]