Monday, April 26, 2010

WH II Honors: 27 April 2010

Prayer

Current Events:
New aerial footage has surfaced of the violence that broke out at the Arizona state capitol building after a new illegal immigration bill was signed into law on Friday. The pro-illegal immigration protesters took to the streets pelting police with rocks and water bottles as a means to voice their discontent.

"the right of the people peaceably to assemble . . . "

1st Amendment



Does Arizona Immigration Law Go Too Far?

Arizona Senatorial Candidate J.D. Hayworth on the passing of new immigration laws and its impact on the state.



We the People of the United States, in Order to form a more perfect Union . . . insure domestic Tranquility, provide for the common defense . . . do ordain and establish this Constitution for the United States of America.

Preamble to the Constitution
AZ governor threatened with economic boycott.


Ch. 17 Sec. 1 Quiz is on Thursday. Be sure to consider the Quiz Prep Page.


Section 4 Cultural and Intellectual Trends
Mass Culture: Radio and Movies
Mass Leisure

Strength Through Joy (Kraft durch Freude), 4:15

The organization had the self-declared goal of creating "a National Socialist Volksgemeinschaft ("people's community") and the perfection and refinement of the German people." It aimed to reach this goal by organizing tight and thoroughly structured recreational programs. Robert Ley, one of KdF's founders, quoted Hitler:

"I wish that the worker be granted a sufficient holiday and that everything is done, in order to let this holiday as well all other leisure time to be truly recreational. I wish this, because I want a determined people with strong nerves, for truly great politics can only be achieved with a people that keeps its nerves."



Reading Check

Examining

How did the "Strength through Joy" program help to support the Nazi regime?

Artistic and Literary Trends

Art: Nightmares and New Visions

During and after the war, the dada movement burst onto the art world. Dadaists rejected all traditional conventions and believed that there was no sense or truth in the world. Paintings and sculptures by Jean Arp and Max Ernst were intended to shock and disturb viewers. Other dadaist artists created collages, photomontages, or sculptures made of objects they found abandoned or thrown away.
Max Ernst, "The Wavering Woman," 1923, Oil on canvas, Dusseldorf

Cubism and dada both helped to inspire surrealism, a movement that attempted to portray the workings of the unconscious mind. Surrealism rejected rational thought, which had produced the horrors of World War I, in favor of irrational or unconscious ideas. The Spanish surrealist Salvador Dali used images of melting clocks and burning giraffes to suggest the chaotic dream state described by Freud.

Salvador Dali, Christ of St. John of the Cross

Literature: The Search for the Unconscious
Joyce to the World Video (James Joyce Video) Documentary, 2:24

What makes James Joyce's Ulysses so compelling that it continues to attract devoted readers one hundred years after its publication? Joyce to the World explores the global phenomenon known as "Bloomsday" celebrated every year on June 16th, the day the novel takes place.

Celebrate the 100-year anniversary of this amazing tradition when Joyceans around the world open a book, raise a pint, and dress in costume in homage to their fictional heroes. With extensive biographical footage and commentary, viewers follow Joyce from his early life in Dublin to his later years of self-exile with his wife, Nora Barnacle.

Interviews with award-winning actors, writers and scholars including Brian Dennehy, Frank McCourt, Malachy McCourt, Fionnula Flanagan and Senator David Norris, bring audiences inside the artist's mind and explain why so many are drawn to his work. Die-hard fans and those just beginning their exploration of this acclaimed artist will find Joyce to the World a treasured resource for years to come.





Reading Check

Examining

Why were artists and writers after World War I attracted to Freud's theory of the unconscious?

The Heroic Age of Physics

The Uncertainty Principle, 2:08



Reading Check

Explaining

How did Heisenberg's uncertainty principle challenge the Newtonian worldview?

Preview

Chapter 18: Nationalism Around the World, 1919–1939

Nationalism was a major force in the Middle East, Africa, and India after World War I. In China, the Nationalists forced the Communists into retreat and formed a republic. An expansionist military took power in Japan. Economic crisis led to military dictatorships throughout Latin America.

Section 1 Nationalism in the Middle East
World War I was the final blow for an Ottoman Empire in its decline since the late eighteenth century. One of its final acts was an act of genocide, the slaughter of Armenians seeking independence. Nationalist leaders in the collapsing empire established the independent states of Turkey, Iran, and Saudi Arabia. Britain and France withdrew their promised support for Arab nationalists and set up British mandates in Iraq and Jordan, and French mandates in Lebanon and Syria. Saudi Arabia had vast supplies of newly discovered oil and suddenly attracted Western oil companies that would bring the kingdom untold wealth. Palestine became a site of conflict beginning with the British Balfour Declaration of 1917, which declared Palestine the site for a Jewish homeland. Tensions between Jews and Muslims only worsened as Jewish immigrants fleeing Nazi persecution flooded Palestine.

Section 2 Nationalism in Africa and Asia
After World War I, Germany lost its African colonies to Britain and France. Violent suppression and the slow pace of reform in the colonies led many Africans to agitate for independence. Two African Americans, W.E.B. Du Bois and Marcus Garvey, were influential in building African cultural awareness and Pan-African unity. Mohandas Gandhi built a large movement for Indian independence through nonviolence. Indian Muslims felt sidelined by the largest independence organization, the Indian National Congress, and called for a separate Muslim state. Rapid industrialization in Japan led to support for territorial expansion to improve Japan's access to raw materials and markets. After a period of pacifism prompted in part by pressure from the United States, Japan conquered Manchuria, and the military took control of the government. The Communist International helped build Communist parties in China and Southeast Asia.

Section 3 Revolutionary Chaos in China
As central authority collapsed in China, rival Nationalist and Communist Party forces briefly joined ranks. The two groups split after a Nationalist massacre of Communists. The Nationalists, led by Chiang Kai-shek, founded a new Chinese republic in 1928. The Communists, led by Mao Zedong, went into hiding in the cities. Mao's plans, however, were for a revolution led by peasants. In 1933 Mao's forces used guerrilla tactics to break through Nationalist lines closing in on them. They then began the Long March to the last surviving Communist base. Chiang had plans for land reform and a Western-style constitutional government. To make Western ideas palatable, he blended them with Confucian themes. Although he did achieve some meaningful reforms, Chiang's support came mainly from the rural gentry and the urban middle class; his reforms did little to redistribute wealth.

Section 4 Nationalism in Latin America
American investors directly controlled many Latin American industries beginning in the 1920s. Latin American nationalists claimed that U.S. investments propped up the regions' dictators. The Great Depression weakened regional economies and led to the creation of government-run industries, since Latin Americans could not afford many imported goods. Economic crisis and instability prompted military leaders to overthrow the elected governments—which were dominated by small elites—and to establish authoritarian regimes. Dictators sometimes gained an urban following by promising better factory conditions. Industrialization became a core government project. Fascist symbols and nationalist slogans were used amid harsh political repression. In Mexico, a single-party state dominated society. The popular Depression-era leader Lázaro Cárdenas nationalized foreign-owned oil companies and redistributed land to Mexican peasants. Artists helped build national identity in many Latin American countries.

Gandhi's March to the Sea
Note Taking

Identify Causes and Effects

Recognizing causes and effects can help you understand the significance of certain events. In a chart like the one below, record the causes and effects of Gandhi’s leadership of India’s independence movement.


To mobilize mass support, Gandhi decided to take a stand against the British salt monopoly, which he saw as a symbol of British oppression. Natural salt was available in the sea, but the British government required Indians to buy only salt sold by the monopoly.

On March 12, 1930, Gandhi set out with 78 followers on a 240-mile march to the sea. As the tiny band passed through villages, crowds responded to Gandhi’s message. By the time they reached the sea, the marchers numbered in the thousands. On April 6, Gandhi waded into the surf and picked up a lump of sea salt. He was soon arrested and jailed. Still, Indians followed his lead. Coastal villages started collecting salt. Indians sold salt on city streets. As Gandhi’s campaign gained force, tens of thousands of Indians were imprisoned.

All around the world, newspapers criticized Britain’s harsh reaction to the protests. Stories revealed how police brutally clubbed peaceful marchers who tried to occupy a government salt works. Slowly, Gandhi’s campaign forced Britain to hand over some power to Indians. Britain also agreed to meet other demands of the Congress party.

Cf.
Mohandas Gandhi: Hind Swaraj

Section 1 Nationalism in the Middle East

Section 1 Nationalism in the Middle East
World War I was the final blow for an Ottoman Empire in its decline since the late eighteenth century. One of its final acts was an act of genocide, the slaughter of Armenians seeking independence. Nationalist leaders in the collapsing empire established the independent states of Turkey, Iran, and Saudi Arabia. Britain and France withdrew their promised support for Arab nationalists and set up British mandates in Iraq and Jordan, and French mandates in Lebanon and Syria. Saudi Arabia had vast supplies of newly discovered oil and suddenly attracted Western oil companies that would bring the kingdom untold wealth. Palestine became a site of conflict beginning with the British Balfour Declaration of 1917, which declared Palestine the site for a Jewish homeland. Tensions between Jews and Muslims only worsened as Jewish immigrants fleeing Nazi persecution flooded Palestine.


Decline and Fall of the Ottoman Empire

Impact of World War I
Nationalist movements brought immense changes to the Middle East in the aftermath of World War I. The defeated Ottoman empire was near collapse in 1918. Its Arab lands, as you may have read, were divided between Britain and France. However, in Asia Minor, the Turkish peninsula between the Black Sea and the Mediterranean Sea, Turks resisted Western control and fought to build a modern nation.

Massacre of the Armenians

"1915 Armenian genocide" resolution approved

The U.S. House of Representatives' Foreign Affairs Committee has passed a resolution recognizing the 1915 Armenian massacre as genocide. The Turkish President says the decision is unacceptable and is not regarded by the Turkish people as of any value.



Emergence of the Turkish Republic
In 1920, the Ottoman sultan reluctantly signed the Treaty of Sèvres, in which the empire lost its Arab and North African lands. The sultan also had to give up some land in Asia Minor to a number of Allied countries, including Greece. A Greek force landed in the city of Smyrna (now Izmir) to assert Greece’s claims. Turkish nationalists, led by the determined and energetic Mustafa Kemal, overthrew the sultan, defeated the Greeks, and declared Turkey a republic. Kemal negotiated a new treaty. Among other provisions, the treaty called for about 1.3 million Greeks to leave Turkey, while some 400,000 Turks left Greece.
Kemal later took the name Atatürk (ah tah turk), meaning “father of the Turks.” Between 1923 and his death in 1938, Atatürk forced through an ambitious program of radical reforms. His goals were to modernize Turkey along Western lines and to separate religion from government. To achieve these goals, Atatürk mandated that Islamic traditions in several fields be replaced with Western alternatives (see Biography).

Biography
Atatürk (1881–1938)

President Kennedy - Speech about Ataturk, 1:56



“Atatürk” is the name that Mustafa Kemal gave himself when he ordered all Turkish people to take on surnames, or last names. It means “Father of the Turks.” In 1920, he led Turkish nationalists in the fight against Greek forces trying to enforce the Treaty of Sèvres, establishing the borders of the modern Republic of Turkey. Once in power, he passed many reforms to modernize, Westernize, and secularize Turkey. Atatürk is still honored throughout Turkey today—his portrait appears on postage and all currency. Why is Atatürk considered the “Father of the Turks”?

Reading Check

Evaluating

How did the Ottoman Empire finally end?

The Modernization of Turkey

Atatürk’s Reforms in Turkey

*Replaced Islamic law with European model
*Replaced Muslim calendar with Western (Christian) calendar
*Moved day of rest from Friday to Sunday
*Closed religious schools and opened state schools
*Forced people to wear Western-style clothes
*Replaced Arabic alphabet with Latin alphabet
*Gave women the right to vote and to work outside the home.

Westernization Transforms Turkey

Atatürk’s government encouraged industrial expansion. The government built railroads, set up factories, and hired westerners to advise on how to make Turkey economically independent.

To achieve his reforms, Atatürk ruled with an iron hand. To many Turks, he was a hero who was transforming Turkey into a strong, modern power. Others questioned Atatürk’s dictatorial powers and complete rejection of religion in laws and government. They believed that Islam could play a constructive role in a modern, civil state.

Reading Check

Identifying

What radical step did Ataturk Take to modernize Turkey?

The Beginnings of Modern Iran

The success of Atatürk’s reforms inspired nationalists in neighboring Persia (present-day Iran). Persian nationalists greatly resented the British and Russians, who had won spheres of influence over Persia in 1907. In 1925, an ambitious army officer, Reza Khan, overthrew the shah. He set up his own dynasty, with himself as shah.

Like Atatürk, Reza Khan rushed to modernize Persia and make it fully independent. He built factories, roads, and railroads and strengthened the army. He forced Persians to wear Western clothing and set up modern, secular schools. In addition, he moved to replace Islamic law with secular law and encouraged women to take part in public life. Muslim religious leaders fiercely condemned Reza Khan’s efforts to introduce Western ways to the nation.

Reza Khan also persuaded the British company that controlled Persia’s oil industry to give Persia a larger share of the profits and insisted that Persian workers be hired at all levels of the company. In the decades ahead, oil would become a major factor in Persia’s economy and foreign policy.

Reading Check

Comparing

How was Reza Shah Pahlavi's modernization of Persia different from Ataturk's transformation of Turkey?

Arab Nationalism

Oil became a major factor throughout the Middle East during this period. The use of gasoline-powered engines in various vehicles during World War I showed that oil was the fuel of the future. Foreign companies began to move into the Middle East to exploit its large oil reserves.

Partly in response to foreign influence, Arab nationalism grew after World War I and gave rise to Pan-Arabism. This nationalist movement was built on the shared heritage of Arabs who lived in lands from the Arabian Peninsula to North Africa. Today, this area includes Syria, Jordan, Iraq, Egypt, Algeria, and Morocco. Pan-Arabism emphasized the common history and language of Arabs and recalled the golden age of Arab civilization. The movement sought to free Arabs from foreign domination and unite them in their own state.

The Middle East, 1920s, Cf. http://www.phschool.com/webcodes10/index.cfm?fuseaction=home.gotoWebCode&wcprefix=nap&wcsuffix=2721

Map Skills

Population movements and foreign influences changed the Middle East after World War I.

1. Locate

(a) Turkey (b) Persia (c) Palestine (d) the Persian Gulf

2. Human-Environment Interaction

What natural resource was discovered in the Middle East around this time? What effect did its discovery have on the region?

3. Make Inferences

List the ways foreign influence affected the Middle East in the 1920s.

Arabs were outraged by the European-controlled mandates set up at the Paris Peace Conference. During World War I, Arabs had helped the Allies against the Central Powers, especially the Ottoman empire. In return for their help, the Allies led the Arabs to believe that they would gain independence after the war. Instead, the Allies carved up the Ottoman lands, giving France mandates in Syria and Lebanon and Britain mandates in Palestine and Iraq. Later, Britain gave a large part of the Palestinian mandate, Trans-Jordan to Abdullah for a kingdom.

Arabs felt betrayed by the West—a feeling that has endured to this day. During the 1920s and 1930s, their anger erupted in frequent protests and revolts against Western imperialism. A major center of turmoil was the British mandate of Palestine. There, Arab nationalists and Jewish nationalists, known as Zionists, increasingly clashed.

Reading Check

Examining

How were many Middle Eastern states created after World War I?

The Problem of Palestine
Two Views of One Place

Posters encouraged visitors and settlers to go to Palestine. At the same time, Palestinian Arabs tried to limit Jewish settlement in the area.
The Arab-Israeli Conflict: A Brief History

Since Roman times, Jews had dreamed of returning to the land of Judea, or Israel. In 1897, Theodor Herzl (hurt sul) responded to growing anti-Semitism, or prejudice against Jewish people,in Europe by founding the modern Zionist movement. His goal was to rebuild a Jewish state in Palestine. Among other things, violent pogroms against Jews in Russia prompted thousands of them to migrate to Palestine. They joined the small Jewish community that had lived there since biblical times.

During World War I, the Allies made two conflicting sets of promises. First, they promised Arabs their own kingdoms in former Ottoman lands, including Palestine. Then, in 1917, the British attempted to win the support of European Jews by issuing the Balfour Declaration. In it, the British advocated the idea of setting up “a national home for the Jewish people” in Palestine. The declaration noted, however, that “nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine.” Those communities were Arab. The stage was thus set for conflict between Arab and Jewish nationalists.

Vocabulary Builder

advocated—(ad vuh kayt id) v. supported or favored

From 1919 to 1940, tens of thousands of Jews immigrated to Palestine due to the Zionist movement and the effects of anti-Semitism in Europe. Despite great hardships, Jewish settlers set up factories, built new towns, and established farming communities. At the same time, the Arab population almost doubled. Many were immigrants from nearby lands. As a result, Palestine's population included a changing mix of newcomers. The Jewish population, which was less than 60,000 in 1919, grew to about 400,000 in 1936, while the Muslim population increased from about 568,000 in 1919 to about 1 million in 1940.

At first, some Arabs welcomed the money and modern technical skills that the newcomers brought with them. But as more Jews moved to Palestine, tensions between the two groups developed. Jewish organizations tried to purchase as much land as they could, while Arabs sought to slow down or stop Jewish immigration. Religious differences between Jews and Arabs heightened tensions. Arabs attacked Jewish settlements, hoping to discourage settlers. The Jewish settlers established their own military defense force. For the rest of the century, Arab and Jews fought over the land that Arabs called Palestine and Jews called Israel.

Reading Check

Explaining

Why did the Balfour Declaration produce problems in Palestine?

Chapter 18 References

The End of the British Empire, Cf. http://www.nationalarchives.gov.uk/education/empire/g3/default.htm

Video clips of Gandhi and other Indian leaders

The life of Gandhi

Find out more about African independence

The Arab-Israeli Conflict: A Brief History

Middle East

Oil

Section 2 Preview



Ch. 17 Sec. 1 Quiz is on Thursday. Be sure to consider the Quiz Prep Page.




How To Take Effective Notes
Email to gmsmith@shanahan.org

Tuesday: p. 555, Picturing History

Reading Check

Explaining

Why was the radio an important propaganda tool for the Nazis?

Reading Check

Examining

How did the "Strength through Joy" program help to support the Nazi regime?


AP Economics: 27 April 2010

Prayer

Current Events:


Push for Tough Economic Control


We will pick up in Chapter 25.

Chapter 26

Chapter 26 Open Economy Macroeconomics
Chapter Overview
After covering the balance of payments, this chapter examines how exchange rates are determined and then relates them back to the current and capital accounts. Fixed and flexible exchange rate systems are then discussed in the context of monetary and fiscal policy effectiveness in an open economy.

Chapter Outline

The Current Account

Current account deficits and exchange rates, 4:34

The Current Account

Cf. http://www.youtube.com/watch?v=yCjwXz7ZXwU

Imports and Exports
Income
Transfers
The Capital Account, p. 669, Slide 7, Slide 8
Checkpoint: The Balance of Payments, p. 671, Slide 9
Exchange Rates, p. 671

Exchange Rates and Globalization, 3:03

Dr. Tawni Ferrarini's International Economics course at Northern Michigan University. The video simplifies the concepts of exchange rates and globalization and puts a real world perspective on those concepts.


Defining Exchange Rates, p. 671
Nominal Exchange Rates, p. 672

International Fisher Effect, 2:58

The International Fisher effect is a hypothesis in international finance that says that the difference in the nominal interest rates between two countries determines the movement of the nominal exchange rate between their currencies, with the value of the currency of the country with the lower nominal interest rate increasing. This is also known as the assumption of Uncovered Interest Parity.


Real Exchange Rates, p. 674

Purchasing Power Parity, Slide 11

"Big Mac," PPP - Purchasing Power Parity, Real Exchange Rates, 2:26

The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price.

This purchasing power exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. Using a PPP basis is arguably more useful when comparing differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of different countries, rather than just a nominal gross domestic product (GDP) comparison. The best-known and most-used purchasing power parity exchange rate is the Geary-Khamis dollar (the "international dollar").

PPP exchange rates (the "real exchange rate") fluctuations are mostly due to market exchange rates movements. Aside from this volatility, consistent deviations of the market and PPP exchange rates are observed, for example (market exchange rate) prices of non-traded goods and services are usually lower where incomes are lower. (A U.S. dollar exchanged and spent in India will buy more haircuts than a dollar spent in the United States). PPP takes into account this lower cost of living and adjusts for it as though all income was spent locally. In other words, PPP is the amount of a certain basket of basic goods which can be bought in the given country with the money it produces.

There can be marked differences between PPP and market exchange rates. [1] For example, the World Bank's World Development Indicators 2005 estimated that in 2003, one United States dollar was equivalent to about 1.8 Chinese yuan by purchasing power parity [2] — considerably different from the nominal exchange rate that put one dollar equal to 7.6 yuan. This discrepancy has large implications; for instance, GDP per capita in the People's Republic of China is about US $1,800 while on a PPP basis it is about US $7,204. This is frequently used to assert that China is the world's second-largest economy, but such a calculation would only be valid under the PPP theory. At the other extreme, Japan's nominal GDP per capita is around US $37,600, but its PPP figure is only US $30,615.


Exchange Rate Determination, p. 675
A Market for Foreign Exchange, p. 675, Slide 12
Flexible Exchange Rates, p. 676

1971, Nixon moves the world to flexible rates, 4:06

On August 15, 1971, President Nixon announced on TV 3 dramatic changes in economic policy. He imposed a wage-price freeze. He ended the Bretton Woods international monetary system. And he imposed a temporary surcharge (tariff) on all imports. The Bretton Woods system was created towards the end of World War II and involved fixed exchange rates with the U.S. dollar as the key currency - but also a role for gold linked to the dollar at $35/ounce. The system began to falter in the 1960s because of an excess of dollars flowing out of the U.S. which foreign central banks had to absorb. A run on gold in 1968 was stemmed by a patch on Bretton Woods known as the two-tier gold system. All of this was ended unilaterally by the Nixon decision. After a brief attempt to create a modified fixed exchange rate system, the world moved to flexible rates.


Currency Appreciation and Depreciation, p. 677, Slides 13 & 14

China Currency Revaluation Debate, 2:03

China Commerce Minister says appreciation of currency will do little improve balance of payments. Better cooperation in helping increase U.S. exports to China is discussed.


Determinants of Exchange Rates, p. 678, Slide 15

What Determines the Foreign Exchange Rate?, 2:13

To determine the foreign exchange rate for different currencies, check the local paper for exchange rates, and pay attention to the inflation rate. Avoid exchanging money with countries that spend more money than they bring in with advice from a financial consultant in this free video on currency exchange.

Expert: Roger Groh
Bio: Roger Groh is the founder of Groh Asset Management.


Exchange Rates and the Current Account, p. 678, Slide 16

Exchange rates, 1:45


Changes in Inflation Rates, p. 678

Changes in Domestic Disposable Income, p. 678
Exchange Rates and the Capital Account, p. 679, Slide 17
Interest Rate Changes, p. 679, Slide 18
Exchange Rate Changes
Exchange Rates and Aggregate Supply and Demand
Checkpoint: Exchange Rates
Monetary and Fiscal Policy in an Open Economy
Fixed and Flexible Exchange Rate Systems
Policies Under Fixed Exchange Rates
Policies Under Flexible Exchange Rates
Checkpoint: Monetary and Fiscal Policy in an Open Economy
Ideas for Capturing Your Classroom Audience
Here is a true story. On a flight from the United States to France the cabin crew
announced that wine, beer, etc. could be purchased for either 5 U.S. dollars or 4
euros. Who got the better deal, the people paying in U.S. currency or the people
paying in euros? This is a very simple example of purchasing power parity.
Play a game of name that currency. Pick a country (or a currency) and see if anyone can identify the currency (or country). Illustrate the various currencies of the world by visiting a Web site such as http://www.x-rates.com/. Among other things, this site provides you with the opportunity to calculate values in different currencies and generate graphs of currencies relative to each other over different periods of time.
Put it in context. Illustrate U.S. International Trade in Goods and Services with
the graph on this Foreign Trade Statistics page from the U.S. Census Bureau. This
will give students an overview of the size of U.S. trade. The page is located at:
http://www.census.gov/indicator/www/ustrade.html.
Trade data is available on the Web site of the Bureau of Economic Analysis at
http://www.bea.gov/International/Index.htm.
Do some international comparison shopping. Visit the Web sites of Amazon.com
in the United States and in the United Kingdom (www.amazon.com.uk). Find the
price in pounds and then translate it to U.S. dollars using the current exchange
rate. You can also do this by pointing out the two prices, one in Canadian dollars
and one in U.S. dollars, listed for greeting cards and paperback books.
Chapter Checkpoints
The Balance of Payments
Question: Ronald McKinnon, writing in the April 20, 2006 issue of The Wall Street
Journal, notes, China's saving is even higher than its own extraordinary high
domestic investment of 40% of GDP. . . . The result is that China (like many other
countries in Asia) naturally runs an overall current account surplus. . . .�Why would this be true? (Hint: look back at the discussion on the relationship between federal and trade deficits in the chapter on Deficits and the Public Debt.)

The point is to check that students can: apply the extended “leakages and injections” approach to the analysis of the cited article.
Exchange Rates
Question: If China were to revalue its currency by 10% so in effect the yuan appreciated by 10%, would this have an impact on the U.S. current account?

The point is to check that students can: integrate the understanding of the effect of changes in currency values on imports and exports and therefore on the current account.
Monetary and Fiscal Policy in an Open Economy
Question: The United States seems to rely more on monetary policy to maintain stable prices, low interest rates, low unemployment, and healthy economic growth.
Does the fact that the United States has really embraced global trade (imports and
exports combined are over 25% of gross domestic product) and we have a flexible
(floating) exchange rate help explain why monetary policy seems more important
than fiscal policy?

The point is to check that students can: understand how the exchange rate system
(fixed or flexible) impacts the effectiveness of monetary and fiscal policy.
Examples Used in the End-of-Chapter Questions
Question 2 refers to remittances. For a map illustrating the amounts of remittances to various countries see the Web site of the Multilateral Investment Fund from the Inter-American Development Bank. The site is located on the Web at: http://www.iadb.org/mif/remesas_map.cfm?language=English&parid=5&item1d=2.
Question 4 asks “how are most exchange rates determined?” and the answer is by
supply and demand in free markets. China has been viewed as an exception, but in
2005 the Chinese government took an important step toward allowing its currency
to float. For more information see the story by Peter S. Goodman in The
Washington Post titled, “China Ends Fixed-Rate Currency: Administration Hails
Policy Shift” (July 22, 2005, page A01, available on the Web at: http://www .washingtonpost.com/wp-dyn/content/article/2005/07/21/AR2005072100351.html.
Question 11 refers to the devaluation of Zimbabwe’s currency in mid-2006. But they
“only” (in simple terms) removed three 0’s. Turkey, in January 2005, took six 0’s off in the “redenomination” of their currency. Learn more about Turkey (and how things have worked out) on this site from the BBC: http://news.bbc.co.uk/1/hi/business/1833730.stm.
For Further Analysis
Using the AS/AD Model to Explore the Impacts of Changes in the Value of the
Dollar
The example provided in the student handout can be used as an in-class small group
exercise or as an individual in-class exercise. It is designed to complement and
extend the text’s material exchange rates and their effect on the U.S. economy using the AS/AD model. The exercise begins with the analysis described by Figure 4 in the chapter and then has students consider the opposite case (of dollar appreciation).
The exercise concludes asking students to evaluate the differing effects and
address the question of “what’s better” for the U.S. economy: a strong dollar or a
weak dollar?
The format of the exercise asks students to demonstrate their understanding by
analyzing a reverse situation to that described in the text. It also provides a chance to introduce students to the debates about economics and to get them to think about whether appreciation or depreciation is better for an economy and whether it benefits or hurts certain portions of society.
If you wish to elaborate on the analysis you can ask students to consider financial effects such as capital flows and the interest rate; this material is covered in the chapter. You may wish to supplement the assignment with current articles about the value of the dollar and views as to whether the U.S. government should “manage” the dollar more than it does at present. Other points that could be addressed include how long the long run really is and whether the short-run effects may swamp the long run. Stone’s section in microeconomics about the different definitions of time in economics is very useful.
Web-Based Exercise
This example can be used as a small group exercise or as an individual exercise. The exercise provides an opportunity for students to apply the material in the chapter about purchasing power parity and the Big Mac Index to get a feel for forecasting exchange rates. The exercise asks students to look at the Big Mac Index data from some previous period(s) and see if the currencies noted as “overvalued” subsequently depreciated and if those noted as “undervalued” subsequently appreciated.
You can change how extensive this assignment is by adding more past periods of
time or supplementing the Big Mac data with articles about various currencies
explaining the factors affecting them.
Students may also be intrigued by The Economist’s “lattenomics” that uses
Starbucks coffee instead of burgers. A video clip and explanation are among the
resources on the site at http://www.economist.com/markets/Bigmac/Index.cfm.
PPP and the Big Mac
As described in the text, the Big Mac Index published by The Economist has always
been meant to be a humorous and intuitive way to explain purchasing power parity.
However, as simple as it is, the Big Mac Index has been pretty good at predicting the future course of some currencies. Visit the Web site for the Big Mac Index at
http://www.economist.com/markets/Bigmac/Index.cfm and answer the following:
Collect data to answer the following:
1) Pick three currencies that were listed as overvalued at the time and three
that were listed as undervalued. Have those currencies subsequently moved
in the indicated directions?
2) Describe the limitations of the Big Mac Index.

Tips from a Colleague
The most challenging part of this chapter is the material on the current and capital accounts. Students are likely to understand that if we import more than we export we have a trade deficit, but the logic of why this results in a capital account surplus is likely to elude them. You might consider a simple intuitive illustration of swapping goods. Offer to trade an inexpensive stick pen for a student’s hat or other item which has an obviously higher value. Explain that such a direct swap of goods would be similar to imports and exports. When the student suggests that the goods being traded are not equal in value, offer different amounts of money (hypothetically) to make up the difference. Explain that the willingness of someone to take U.S. money to make up the difference is analogous to the increased holdings of U.S. assets by foreigners that make up the capital account.

Ch. 26 References

JFK Confers with Advisors on Gold & the Balance of Payments

At the end of World War II, the US became the mainstay of the Bretton Woods international monetary system. Under this system, the US dollar was the key currency and interchangeable into gold at $35 per ounce. Until the late 1950s, the dollar tended to be undervalued (dollar shortage). But after that time, there was a dollar surplus and a resulting drain on the US gold supply. The standard remedy would have been a tight monetary policy and austerity. But the Kennedy administration was elected in 1960 on a platform of economic expansion. There are hours of White House tapes of Kennedy and his advisors fretting over the dollar/gold situation. This clip contains illustrative excerpt from April 18, 1963. At the meeting are JFK, Treasury Secretary C. Douglas Dillon, George Ball, and Robert V. Roosa. Kennedy can be heard responding. The speaker presenting the report is probably Dillon.


Email HW to gmsmith@shanahan.org


1. Be sure to review Chapters 20-26 (we will have Tests on this material as well, TBA). Some students have asked to be tested as close as possible after covering the material.

2. Ch. 26, p. 687-8, #11-15.

3. As review for HW, typical questions that you may encounter on the actual AP Economics Macro Test are included daily:

Review Questions (Princeton):
24. Which of the following will shift the demand curve for the Mexican peso to the left?

a) Speculation that the peso will increase in value
b) An increase in interest rates in Mexico relative to other countries
c) A lower rate of inflation in Mexico relative to other countries
d) An increase in incomes elsewhere relative to Mexico
e) A decrease in the international demand for Mexican-made textiles

25. Skip

a)
b)
c)
d)
e)

26. The long-run classical aggregate supply curve is

a) horizontal at market price
b) vertical at full-employment output
c) positively sloped
d) vertical at the physical limit for output
e) negatively sloped

WH II Honors: 26 April 2010

Prayer
Current Events:

Reporters covering a “Don’t Ask, Don’t Tell” protest at the White House were forced out of Lafayette Square by police. The scene, captured on video, is remarkable given the historical importance of the park as a protest spot across the street from 1600 Pennsylvania Avenue.

"Congress shall make no law . . . . abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."

1st Amendment

Chapter 17 The West Between the Wars 1919-1939

The Rise of Dictators
Rise of Nazism
Victory of Nazism
The Nazi State
Women and Nazism
Anti-Semitic Policies
Preview

Section 4 Cultural and Intellectual Trends
Note Taking

Reading and Listening Skill:
Identify Supporting Details Use a concept web like the one below to record details related to the main ideas of this section.

A magazine cover shows a Jazz Age flapper.

Mass Culture: Radio and Movies

Early Radio History, 4:53


What were people listening to? They listened to a uniquely American form of music: jazz.

In the 1920s, many radios tuned into the new sounds of jazz. In fact, the 1920s are often called the Jazz Age. African American musicians combined Western harmonies with African rhythms to create jazz. Jazz musicians like trumpeter Louis Armstrong and pianist Duke Ellington, took simple melodies and improvised endless subtle variations in rhythm and beat. They produced original music, and people loved it. Much of today’s popular music has been influenced by jazz.
Louis's Music Class

1. Louis Armstrong - West End Blues 1928, 3:20

West End Blues is one of the most famous recordings in the history of jazz for the following reasons: 1) Armstrong's introduction showed how dazzling his skills as a trumpeter were; 2) he laid the groundwork for jazz soloists to be considered true artists, the same as musicians in other styles of music and; 3) the recording introduced Earl Hines as the first real jazz pianist, who was Armstrong's equal in creative musical thought.

Activity: Follow the outline below of West End Blues.

1. Trumpet introduction by Armstrong
2. Ensemble plays with Armstrong heard above all
3. Trombone solo
4. Call and response: clarinet solo alternates with Armstrong scat-singing
5. Piano solo by Earl Hines, playing with a trumpet-like attack
6. Armstrong solos: holds a high B-flat for almost four measures
7. Earl Hines' piano enters to join Armstrong for ending.

2. Louis Armstrong & His Hot Seven - Potato Head Blues (1927), 3:10

With the addition of a tuba and drum set, the Hot Five became the Hot Seven for a series of recordings. Louis Armstrong was the among first to record improvised solos during what jazz musicians call breaks. A break is a pause in the ongoing rhythm of a composition-as happens several times during the clarinet solo. A related musical practice is stop-time, in which the instruments hit typically just one beat per measure. Potato Head Blues provides an excellent example of how Armstrong's natural sense of rhythm made his solos swing.

Activity: Follow the outline below of Potato Head Blues and count the number of breaks you hear.

1. Ensemble
2. Trumpet solo with banjo accompaniment
3. Clarinet solo in high register with banjo accompaniment, includes several breaks
4. Banjo break
5. Trumpet solo with Armstrong accompanied by the band in stop-time
6. Ensemble



3. Heebie Jeebies-Louis Armstrong and his Hot Five, 2:53

Heebie Jeebies was one of the first jazz recordings to include scat singing. Armstrong departs from some of the words, instead singing rhythmic "nonsense syllables" called "scat." This recording brought scat singing to the public's attention. The "heebie jeebies" was a popular dance when this song was recorded.

Activity: Follow the outline below of Heebie Jeebies. Listen closely to hear exactly when Armstrong departs from the original lyrics and begins to scat, and when he continues with the words of the song.

1. Introduction with piano and banjo
2. Ensemble enters
3. Trumpet solo
4. Clarinet solo
5. Armstrong sings
6. Ensemble
7. Armstrong talks/sings at end


4. What a Wonderful World, 2:22

What a Wonderful World was one of Louis Armstrong's favorite songs; he loved it. It is one of the few songs he recorded without playing his trumpet; stringed instruments provide the background music. The song became a hit in England, and became popular in the United States when it was featured in the movie, Good Morning, Vietnam, twenty years later. Louis Armstrong loved children; listen to see if you hear feeling in his voice.

Activity: Follow the words of What a Wonderful World. This song is an excellent example of Louis Armstrong's singing style: sometimes he's right on the beat, sometimes just before the beat, and sometimes just behind the beat. Indicate how he attacks the beat beside the verses of the song. Why do you think it was one of Armstrong's favorite songs? Do you think it could become one of your favorites? Write your own poem describing "A Wonderful World."

What a Wonderful World

I see trees of green,
Red roses too,
I see them bloom
For me and you
And I think to myself
What a wonderful world.


I see skies of blue
And clouds of white,
The bright blessed day
The dark sacred night
And I think to myself
What a wonderful world.


The colors of the rainbow,
So pretty in the sky,
Are also on the faces
Of people going by.
I see friends shaking hands,
Saying "How do you do?"
They're really saying,
"I love you."


I hear babies cry,
I watch them grow.
They'll learn much more
Than I'll ever know.
And I think to myself,
What a wonderful world.
Yes, I think to myself,
What a wonderful world.



Find out more about jazz

Cf. http://www.smithsonianjazz.org/class/whatsjazz/wij_start.asp

1st Celluloid film, 1888 - Roundhay Garden Scene, :03

The earliest celluloid film was shot by Louis Aimé Augustin Le Prince using the Le Prince single-lens camera made in 1888. It was taken in the garden of the Whitley family house in Oakwood Grange Road, Roundhay, a suburb of Leeds, Yorkshire, Great Britain, possibly on October 14, 1888. It shows Adolphe Le Prince (Le Prince's son), Mrs. Sarah Whitley, (Le Prince's mother-in-law), Joseph Whitley and Miss Harriet Hartley. The 'actors' are shown walking around in circles, laughing to themselves and keeping within the area framed by the camera. It lasts for less than 2 seconds and includes 4 frames.



Birth of a Nation by D.W. Griffith - Trailer (1915), 2:22

Two brothers, Phil and Ted Stoneman, visit their friends in Piedmont, South Carolina: the family Cameron. This friendship is affected by the Civil War, as the Stonemans and the Camerons must join up opposite armies. The consequences of the War in their lives are shown in connection to major historical events, like the development of the Civil War itself, Lincoln's assassination, and the birth of the Ku Klux Klan.



Joseph Goebbels - Götterdämmerung (Wagner), 3:23



Reading Check

Explaining

Why was the radio an important propaganda tool for the Nazis?

Mass Leisure

Strength Through Joy (Kraft durch Freude), 4:15

The organization had the self-declared goal of creating "a National Socialist Volksgemeinschaft ("people's community") and the perfection and refinement of the German people." It aimed to reach this goal by organizing tight and thoroughly structured recreational programs. Robert Ley, one of KdF's founders, quoted Hitler:

"I wish that the worker be granted a sufficient holiday and that everything is done, in order to let this holiday as well all other leisure time to be truly recreational. I wish this, because I want a determined people with strong nerves, for truly great politics can only be achieved with a people that keeps its nerves."



Reading Check

Examining

How did the "Strength through Joy" program help to support the Nazi regime?

Artistic and Literary Trends

Art: Nightmares and New Visions

During and after the war, the dada movement burst onto the art world. Dadaists rejected all traditional conventions and believed that there was no sense or truth in the world. Paintings and sculptures by Jean Arp and Max Ernst were intended to shock and disturb viewers. Other dadaist artists created collages, photomontages, or sculptures made of objects they found abandoned or thrown away.

Cubism and dada both helped to inspire surrealism, a movement that attempted to portray the workings of the unconscious mind. Surrealism rejected rational thought, which had produced the horrors of World War I, in favor of irrational or unconscious ideas. The Spanish surrealist Salvador Dali used images of melting clocks and burning giraffes to suggest the chaotic dream state described by Freud.

Literature: The Search for the Unconscious

Joyce to the World Video (James Joyce Video) Documentary, 2:24

What makes James Joyce's Ulysses so compelling that it continues to attract devoted readers one hundred years after its publication? Joyce to the World explores the global phenomenon known as "Bloomsday" celebrated every year on June 16th, the day the novel takes place.

Celebrate the 100-year anniversary of this amazing tradition when Joyceans around the world open a book, raise a pint, and dress in costume in homage to their fictional heroes. With extensive biographical footage and commentary, viewers follow Joyce from his early life in Dublin to his later years of self-exile with his wife, Nora Barnacle.

Interviews with award-winning actors, writers and scholars including Brian Dennehy, Frank McCourt, Malachy McCourt, Fionnula Flanagan and Senator David Norris, bring audiences inside the artist's mind and explain why so many are drawn to his work. Die-hard fans and those just beginning their exploration of this acclaimed artist will find Joyce to the World a treasured resource for years to come.



Reading Check

Examining

Why were artists and writers after World War I attracted to Freud's theory of the unconscious?

The Heroic Age of Physics

The Uncertainty Principle, 2:08


Reading Check

Explaining

How did Heisenberg's uncertainty principle challenge the Newtonian worldview?

Ch. 17 References


The Great Depression

Photo Essay on the Great Depression

Cf. http://www.pbs.org/wnet/historyofus/tools/browser12.html

Diaries of people who lived during the Depression

Cf. http://teacher.scholastic.com/activities/our_america/great_depression/

People and events of the Dust Bowl

Cf. http://www.pbs.org/wgbh/americanexperience/films/dustbowl/

Original photographs from the times

Cf. http://memory.loc.gov/ammem/fsahtml/fatop1.html

Cf. Click on links to view original documents from Mussolini's life and times.

Cf. http://www.nationalarchives.gov.uk/education/heroesvillains/g3/

Weimar:

Cf.
http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/germany/weimaract.shtml

Nazis:

Cf.
http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/germany/nazisact.shtml


Click on "Germany Image Gallery" for the slideshow.

Cf. http://www.worldwar2database.com/cgi-bin/slideviewer.cgi?list=preludegermany.slides

Read a detailed account of the life of Hitler

Cf. http://library.thinkquest.org/19092/hitler.html

Test yourself on how Hitler came to power

Cf. http://www.schoolhistory.co.uk/lessons/riseofhitler/index.htm

Nazi propaganda posters: Election, Sower of peace, 'One People, One Nation, One Leader,' Saving for a Volkswagen, Jews, Anti-Bolshevism.

Cf. http://www.bbc.co.uk/history/worldwars/wwtwo/nazi_propaganda_gallery.shtml

Soviet Russia

Stalin and Industrialization of the USSR
See original documents and learn more about Stalin's methods.

Cf. http://www.nationalarchives.gov.uk/education/heroesvillains/g4/

View Soviet posters

Cf. http://www.internationalposter.com/country-primers/soviet-posters.aspx

Review Stalin's takeover of power from the BBC:

Cf. http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/russia/stalinsact.shtml

Find out more about jazz

Cf. http://www.smithsonianjazz.org/class/whatsjazz/wij_start.asp

Hitler Youth Anthem: Es zittern die morschen Knochen

This is the official song of the youth wing of the NSDAP, the Hitler Youth.



Television broadcasting in The Third Reich



Joseph Goebbels - Götterdämmerung (Wagner)



Hitler Speeches and Wagner Music, from the documentary "Triumph of the Will", footages of Hitler's speeches with Wagner (Ride of the Valkyries).



How To Take Effective Notes
Email to gmsmith@shanahan.org

Monday: p. 554, Preview Questions, #1-2

Finish the sentences:

Last week, what I liked least about the class was . . .

Last week, what I liked most about the class was . . .


AP Economics: 26 April 2010

Prayer

The Ch. 20 Make-Up Test is today. Put your name on both the Scantron and the Test. You may write on the Test.

Current Events:

NYU's Smith Fears Dodd Bill May Lose Bank-Tax Provision

Roy Smith, a professor of finance at New York University's Stern School of Business, talks with Bloombergs Margaret Brennan about the outlook for legislation to overhaul U.S. financial regulation. (Source: Bloomberg)


Push for Tough Economic Control


We will pick up in Chapter 25.

Chapter Overview
This chapter presents the analysis of absolute and comparative advantage and employs supply and demand analysis to explain the determination of the terms of trade. Arguments regarding free trade and globalization are discussed. The chapter concludes with a section on the dynamics of trade as illustrated by trade in cashmere.
Chapter Outline

The Dynamics of Trade: Cashmere
Ideas for Capturing Your Classroom Audience


References

Milton Friedman - Free to Choose 1990 - 1 of 5 The Power of the Market PL 2/5


Chapter 26 Preview

Chapter 26 Open Economy Macroeconomics
Chapter Overview
After covering the balance of payments, this chapter examines how exchange rates
are determined and then relates them back to the current and capital accounts.
Fixed and flexible exchange rate systems are then discussed in the context of monetary and fiscal policy effectiveness in an open economy.
Chapter Outline
The Balance of Payments

Balance of payments - structure of the current account, 7:11

The Balance of Payments

Cf. http://www.youtube.com/watch?v=JKRBpJZ92QM

The Current Account

Current account deficits and exchange rates, 4:34

The Current Account

Cf. http://www.youtube.com/watch?v=yCjwXz7ZXwU

Imports and Exports
Income
Transfers
The Capital Account
Checkpoint: The Balance of Payments
Exchange Rates

Exchange Rates and Globalization, 3:03

Dr. Tawni Ferrarini's International Economics course at Northern Michigan University. The video simplifies the concepts of exchange rates and globalization and puts a real world perspective on those concepts.


Defining Exchange Rates
Nominal Exchange Rates

International Fisher Effect, 2:58

The International Fisher effect is a hypothesis in international finance that says that the difference in the nominal interest rates between two countries determines the movement of the nominal exchange rate between their currencies, with the value of the currency of the country with the lower nominal interest rate increasing. This is also known as the assumption of Uncovered Interest Parity.


Real Exchange Rates

Purchasing Power Parity

"Big Mac," PPP - Purchasing Power Parity, Real Exchange Rates, 2:26

The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price.

This purchasing power exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. Using a PPP basis is arguably more useful when comparing differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of different countries, rather than just a nominal gross domestic product (GDP) comparison. The best-known and most-used purchasing power parity exchange rate is the Geary-Khamis dollar (the "international dollar").

PPP exchange rates (the "real exchange rate") fluctuations are mostly due to market exchange rates movements. Aside from this volatility, consistent deviations of the market and PPP exchange rates are observed, for example (market exchange rate) prices of non-traded goods and services are usually lower where incomes are lower. (A U.S. dollar exchanged and spent in India will buy more haircuts than a dollar spent in the United States). PPP takes into account this lower cost of living and adjusts for it as though all income was spent locally. In other words, PPP is the amount of a certain basket of basic goods which can be bought in the given country with the money it produces.

There can be marked differences between PPP and market exchange rates. [1] For example, the World Bank's World Development Indicators 2005 estimated that in 2003, one United States dollar was equivalent to about 1.8 Chinese yuan by purchasing power parity [2] — considerably different from the nominal exchange rate that put one dollar equal to 7.6 yuan. This discrepancy has large implications; for instance, GDP per capita in the People's Republic of China is about US $1,800 while on a PPP basis it is about US $7,204. This is frequently used to assert that China is the world's second-largest economy, but such a calculation would only be valid under the PPP theory. At the other extreme, Japan's nominal GDP per capita is around US $37,600, but its PPP figure is only US $30,615.


Exchange Rate Determination
A Market for Foreign Exchange
Flexible Exchange Rates

1971, Nixon moves the world to flexible rates, 4:06

On August 15, 1971, President Nixon announced on TV 3 dramatic changes in economic policy. He imposed a wage-price freeze. He ended the Bretton Woods international monetary system. And he imposed a temporary surcharge (tariff) on all imports. The Bretton Woods system was created towards the end of World War II and involved fixed exchange rates with the U.S. dollar as the key currency - but also a role for gold linked to the dollar at $35/ounce. The system began to falter in the 1960s because of an excess of dollars flowing out of the U.S. which foreign central banks had to absorb. A run on gold in 1968 was stemmed by a patch on Bretton Woods known as the two-tier gold system. All of this was ended unilaterally by the Nixon decision. After a brief attempt to create a modified fixed exchange rate system, the world moved to flexible rates.


Currency Appreciation and Depreciation

China Currency Revaluation Debate, 2:03

China Commerce Minister says appreciation of currency will do little improve balance of payments. Better cooperation in helping increase U.S. exports to China is discussed.


Determinants of Exchange Rates

What Determines the Foreign Exchange Rate?, 2:13

To determine the foreign exchange rate for different currencies, check the local paper for exchange rates, and pay attention to the inflation rate. Avoid exchanging money with countries that spend more money than they bring in with advice from a financial consultant in this free video on currency exchange.

Expert: Roger Groh
Bio: Roger Groh is the founder of Groh Asset Management.


Exchange Rates and the Current Account

Exchange rates, 1:45


Changes in Inflation Rates

Changes in Domestic Disposable Income
Exchange Rates and the Capital Account
Interest Rate Changes
Exchange Rate Changes
Exchange Rates and Aggregate Supply and Demand
Checkpoint: Exchange Rates
Monetary and Fiscal Policy in an Open Economy
Fixed and Flexible Exchange Rate Systems
Policies Under Fixed Exchange Rates
Policies Under Flexible Exchange Rates
Checkpoint: Monetary and Fiscal Policy in an Open Economy
Ideas for Capturing Your Classroom Audience
Here is a true story. On a flight from the United States to France the cabin crew
announced that wine, beer, etc. could be purchased for either 5 U.S. dollars or 4
euros. Who got the better deal, the people paying in U.S. currency or the people
paying in euros? This is a very simple example of purchasing power parity.
Play a game of name that currency. Pick a country (or a currency) and see if anyone can identify the currency (or country). Illustrate the various currencies of the world by visiting a Web site such as http://www.x-rates.com/. Among other things, this site provides you with the opportunity to calculate values in different currencies and generate graphs of currencies relative to each other over different periods of time.
Put it in context. Illustrate U.S. International Trade in Goods and Services with
the graph on this Foreign Trade Statistics page from the U.S. Census Bureau. This
will give students an overview of the size of U.S. trade. The page is located at:
http://www.census.gov/indicator/www/ustrade.html.
Trade data is available on the Web site of the Bureau of Economic Analysis at
http://www.bea.gov/International/Index.htm.
Do some international comparison shopping. Visit the Web sites of Amazon.com
in the United States and in the United Kingdom (www.amazon.com.uk). Find the
price in pounds and then translate it to U.S. dollars using the current exchange
rate. You can also do this by pointing out the two prices, one in Canadian dollars
and one in U.S. dollars, listed for greeting cards and paperback books.
Chapter Checkpoints
The Balance of Payments
Question: Ronald McKinnon, writing in the April 20, 2006 issue of The Wall Street
Journal, notes, China's saving is even higher than its own extraordinary high
domestic investment of 40% of GDP. . . . The result is that China (like many other
countries in Asia) naturally runs an overall current account surplus. . . .�Why would this be true? (Hint: look back at the discussion on the relationship between federal and trade deficits in the chapter on Deficits and the Public Debt.)

The point is to check that students can: apply the extended “leakages and injections” approach to the analysis of the cited article.
Exchange Rates
Question: If China were to revalue its currency by 10% so in effect the yuan appreciated by 10%, would this have an impact on the U.S. current account?

The point is to check that students can: integrate the understanding of the effect of changes in currency values on imports and exports and therefore on the current account.
Monetary and Fiscal Policy in an Open Economy
Question: The United States seems to rely more on monetary policy to maintain stable prices, low interest rates, low unemployment, and healthy economic growth.
Does the fact that the United States has really embraced global trade (imports and
exports combined are over 25% of gross domestic product) and we have a flexible
(floating) exchange rate help explain why monetary policy seems more important
than fiscal policy?

The point is to check that students can: understand how the exchange rate system
(fixed or flexible) impacts the effectiveness of monetary and fiscal policy.
Examples Used in the End-of-Chapter Questions
Question 2 refers to remittances. For a map illustrating the amounts of remittances to various countries see the Web site of the Multilateral Investment Fund from the Inter-American Development Bank. The site is located on the Web at: http://www.iadb.org/mif/remesas_map.cfm?language=English&parid=5&item1d=2.
Question 4 asks “how are most exchange rates determined?” and the answer is by
supply and demand in free markets. China has been viewed as an exception, but in
2005 the Chinese government took an important step toward allowing its currency
to float. For more information see the story by Peter S. Goodman in The
Washington Post titled, “China Ends Fixed-Rate Currency: Administration Hails
Policy Shift” (July 22, 2005, page A01, available on the Web at: http://www .washingtonpost.com/wp-dyn/content/article/2005/07/21/AR2005072100351.html.
Question 11 refers to the devaluation of Zimbabwe’s currency in mid-2006. But they
“only” (in simple terms) removed three 0’s. Turkey, in January 2005, took six 0’s off in the “redenomination” of their currency. Learn more about Turkey (and how things have worked out) on this site from the BBC: http://news.bbc.co.uk/1/hi/business/1833730.stm.
For Further Analysis
Using the AS/AD Model to Explore the Impacts of Changes in the Value of the
Dollar
The example provided in the student handout can be used as an in-class small group
exercise or as an individual in-class exercise. It is designed to complement and
extend the text’s material exchange rates and their effect on the U.S. economy using the AS/AD model. The exercise begins with the analysis described by Figure 4 in the chapter and then has students consider the opposite case (of dollar appreciation).
The exercise concludes asking students to evaluate the differing effects and
address the question of “what’s better” for the U.S. economy: a strong dollar or a
weak dollar?
The format of the exercise asks students to demonstrate their understanding by
analyzing a reverse situation to that described in the text. It also provides a chance to introduce students to the debates about economics and to get them to think about whether appreciation or depreciation is better for an economy and whether it benefits or hurts certain portions of society.
If you wish to elaborate on the analysis you can ask students to consider financial effects such as capital flows and the interest rate; this material is covered in the chapter. You may wish to supplement the assignment with current articles about the value of the dollar and views as to whether the U.S. government should “manage” the dollar more than it does at present. Other points that could be addressed include how long the long run really is and whether the short-run effects may swamp the long run. Stone’s section in microeconomics about the different definitions of time in economics is very useful.
Web-Based Exercise
This example can be used as a small group exercise or as an individual exercise. The exercise provides an opportunity for students to apply the material in the chapter about purchasing power parity and the Big Mac Index to get a feel for forecasting exchange rates. The exercise asks students to look at the Big Mac Index data from some previous period(s) and see if the currencies noted as “overvalued” subsequently depreciated and if those noted as “undervalued” subsequently appreciated.
You can change how extensive this assignment is by adding more past periods of
time or supplementing the Big Mac data with articles about various currencies
explaining the factors affecting them.
Students may also be intrigued by The Economist’s “lattenomics” that uses
Starbucks coffee instead of burgers. A video clip and explanation are among the
resources on the site at http://www.economist.com/markets/Bigmac/Index.cfm.
PPP and the Big Mac
As described in the text, the Big Mac Index published by The Economist has always
been meant to be a humorous and intuitive way to explain purchasing power parity.
However, as simple as it is, the Big Mac Index has been pretty good at predicting the future course of some currencies. Visit the Web site for the Big Mac Index at
http://www.economist.com/markets/Bigmac/Index.cfm and answer the following:
Collect data to answer the following:
1) Pick three currencies that were listed as overvalued at the time and three
that were listed as undervalued. Have those currencies subsequently moved
in the indicated directions?
2) Describe the limitations of the Big Mac Index.

Tips from a Colleague
The most challenging part of this chapter is the material on the current and capital accounts. Students are likely to understand that if we import more than we export we have a trade deficit, but the logic of why this results in a capital account surplus is likely to elude them. You might consider a simple intuitive illustration of swapping goods. Offer to trade an inexpensive stick pen for a student’s hat or other item which has an obviously higher value. Explain that such a direct swap of goods would be similar to imports and exports. When the student suggests that the goods being traded are not equal in value, offer different amounts of money (hypothetically) to make up the difference. Explain that the willingness of someone to take U.S. money to make up the difference is analogous to the increased holdings of U.S. assets by foreigners that make up the capital account.

Ch. 26 References

JFK Confers with Advisors on Gold & the Balance of Payments

At the end of World War II, the US became the mainstay of the Bretton Woods international monetary system. Under this system, the US dollar was the key currency and interchangeable into gold at $35 per ounce. Until the late 1950s, the dollar tended to be undervalued (dollar shortage). But after that time, there was a dollar surplus and a resulting drain on the US gold supply. The standard remedy would have been a tight monetary policy and austerity. But the Kennedy administration was elected in 1960 on a platform of economic expansion. There are hours of White House tapes of Kennedy and his advisors fretting over the dollar/gold situation. This clip contains illustrative excerpt from April 18, 1963. At the meeting are JFK, Treasury Secretary C. Douglas Dillon, George Ball, and Robert V. Roosa. Kennedy can be heard responding. The speaker presenting the report is probably Dillon.


Email HW to gmsmith@shanahan.org


1. Be sure to review Chapters 20-25 (we will have Tests on this material as well, TBA). Some students have asked to be tested as close as possible after covering the material.

2. Read Ch. 26

p. 687-8, #5-10.

3. As review for HW, typical questions that you may encounter on the actual AP Economics Macro Test are included daily:

Review Questions (Princeton):
21. Which of the following will cause the aggregate demand curve to shift to the left?

a) Expectations of surpluses of goods in the future
b) A decrease in income taxes
c) An increase in government spending
d) An increase in foreign income
e) Expectations of inflation in the future

22. According to Keynesian economists,

a) the investment demand curve is relatively elastic
b) fiscal policy is more effective than monetary policy
c) the economy is inherently stable
d) inadequate supply is largely to blame for periods of stagnation
e) real GDP will naturally adjust to the full-employment level

23. Which of the following results from stagflation

a) Unemployment decreases
b) The price level decreases
c) The Phillips curve shifts to the right
d) The Phillips curve shifts to the right
e) Read GDP increases