Fed Chairperson Recommendation

Consumer indicators

Consumer confidence

Consumer confidence is an economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Consumer confidence is expressed through their activities of savings and spending. and measured by the consumer confidence index (CCI). If consumers are uncertain about the economy, they will buy less, and the economy will slow further. If consumer confidence increases, then the economy will grow. Generally consumer confidence is high when interests and unemployment rates are low.

The reason why consumer confidence is important to macroeconomics is the fact that consumers are responsible for two-thirds of the nation's economic activity, or the gross domestic product (GDP). If the Consumer Confidence Index is trending upwards, it is likely for stocks to go higher as well. Yet once the Confidence gets too high, the excessive demand it is creating could result in inflation as firms might not be able to meet demand. That in return could lead the Federal Reserve to raise interest rates. 

"As the labour market has strengthened, so has US consumer spending. However with wage growth remaining subdued, there are few signs of runaway spending growth, with consumers staying in cautious mood"

The CCI, however, is a lagging indicator, so whatever the survey says, remember that it doesn't tell us what is going to happen, but what has happened and if it can be expected to continue.

As consumer confidence rises, it means consumers are more likely to and will spend more money on goods and services. Therefore in the short run the aggregate demand in the country will rise, and shift to the right. the new point at which producers will be able to supply the goods is going to be at a higher price level. When the consumer confidence keeps rising and people demanding more it can lead to inflation as too much pressure is put on producers to fill the demand in the short run. Therefore, too much consumer confidence leads to too much demand and shortage in supply leading to rapid increase in prices causing inflation.

Country Specific Protectionist Policies

Country: Indonesia,
The market: Live beef,
The form of protectionism: quotas

          As Indonesia already had a quota for cattle import, there already was a welfare loss marked with the green triangles. and instead of people demanding Q2 at world price, they were wanting Q4 at Pquota1. Now that the government cut the quota even more, by 80%! Now since the price is higher due to the lack of supple,  people only demand Qeq at the price of Pquota2.  This gives us an even bigger welfare loss; the whole blue area + the green, consisting of loss on consumer surplus and loss of production efficiency.


       Before domestic suppliers provided 0-Q1 and Q3-Q4, and importers Q1-Q3. Now only Q1-Q5 of the cattle is imported, which is a huge change over that short period of time. And domestic suppliers are expected to supply 0-Q1 and Q5-Qeq.    

         Indonesia imports most if not all of it's cattle from Australia, and while they already had quotas placed on the trade, they decided to cut them almost by 80%! The reason government uses to justify this is that they want Indonesia to become more independent and for domestic producers to come to the rise. When before the cut, they ordered about 250 000 head a quarter then now just around 50 000. Due to the lack of supply yet on going demand for meat, Indonesia is facing a major shortage. If it doesn't work out then they might increase the quota a little again.

      Due to Indonesia having a very low level supply of cattle on their own, I don't think there is a single winner in this situation. Yes, it may help the Indonesian domestic cattle suppliers to come to the market a bit more, but in the meanwhile the people still want food and cattle is something that takes time to grow. You can't just slash the quota so much and expect people to wait for domestic cattle and pay a ridiculously high price until then. People will still want to eat, and in my opinion, they should if at all cut the quota little by little allowing the domestic suppliers to raise their cattle and not be pressured.
     

       This quote is a loss for everyone; Australia lost their main cattle importer, the people in the country have to pay a higher price for meat and might even run out of meat, and even though domestic suppliers might earn a bit more money then before they also have a lot of pressure put on them.

http://www.abc.net.au/news/2015-09-03/first-australian-live-cattle-export-resumes-indonesia/6746336

International trade article

"Under the new central scheme Price Stabilisation Fund (PSF), the government has started importing pulses after a gap of two years to boost domestic supply and check retail prices of pulses that have sky-rocketed beyond Rs 150 per kg.

          

In a statement the government said: "In order to ensure retail distribution to the consumers, it was decided to import 5,000 tonnes of tur dal and 5,000 tonnes of urad dal by MMTC. The first consignment of imported Dal would be reaching Mumbai by September 5."

            

The government said it has taken several measures to increase availability and control the price of essential commodities, especially pulses and onions. States have been empowered to impose stock limits on pulses, export of all pulses is banned except Kabuli Chana, organic pulses and lintels to the tune of 10,000 tonnes and there is zero duty on import of pulses, it added.

India imports about four million tonnes of pulses largely through private trade." Yet as we read, the private stakeholders have raised the prices so high that most people aren't able to buy them any more. Yet the are considered essential commodities that should be available for everyone.

As India can't produce sufficient amount of pulses themselves, the government has stepped in "to reimburse Rs 113.40 crore of losses on pulses imported between 2006-2011 by NAFED, PEC, STC and MMTC, apart from losses incurred in the sale of pulses up to six months after closure of the scheme". Therefore this will enable PSUs to be financially sound to intensify trading activities to cool down prices of essential commodities.

When we read we see that there is zero duty on import of pulses, therefore it will cost less to import pulses and lower amount they are sold for. If the government supplies a great amount to the market that is way below the price at the moment. Private suppliers will have to decrease their prices as well in order to still be in the business, and the zero duty on imports gives them more incentive to do so. 

As we see from the graph, when supply is increased in a market it causes a shift of the supply line to the right, resulting in a new equilibrium price and quantity. In this case we don't know yet how much the prices have changed as they are only starting the imports. Yet we can see that when supply is increased the prices fall. With the price falling people demand more. Therefore the new equilibrium point will be at Q2, P2. Price will be lower therefore more will be demanded.

http://economictimes.indiatimes.com/news/economy/foreign-trade/governement-to-pay-agencies-rs-113-40-crore-for-losses-on-pulses-import/articleshow/48772248.cms

Elimination of Tariff exercise

Arguments for and Against Free Trade in a Developing Country 

Background:  You live in a developing country in Latin America.  Your country currently has many policies that make it difficult for foreign companies to sell products there, including high tariffs.  A new economic proposal is being debated in your national legislature. This proposal, if it passes, would eliminate the 40% tariff on agricultural machinery.  This would probably lead to future policies that would reduce or eliminate other trade barriers, opening the doors to free trade in your country. 

Your job:  You are a reporter for the leading newspaper in the capital city of your country.  You are assigned to decide whether your paper should be for or against the 40% tariff.  You conducted six interviews with interested citizens and government officials about the proposal to eliminate the tariff.  You must now analyse the information from the interviews and form an opinion for your newspaper about this proposal. 

Directions: For each of the six interviews, make a check mark to indicate whether the person was in favour of the protective tariff or opposed to it.  Then summarize the reasons each offered to support his or her position. 

1.  Mr Juarez (Govt Official):__X __ Eliminate the tariff   _____ Keep the tariff

Why?  The tariff should be eliminated as we want for our markets to expand and people to have more choice. It will bring more competition and more development into the market and force the prices to go down.  We want more people to have possibilities on buying machinery to create new vacancies and do develop the agriculture.

2.  Mr and Mrs Baez (Own a bakery):_X_ Eliminate the tariff   _____ Keep the tariff

Why? Yes I think tariff should be eliminated, it would eventually do good for everyone. I own a bakery and buy a lot of base ingredients like flower, butter, milk etc. every month/week. And these are mostly made from agricultural products, therefore as we would eliminate the tariffs, agriculture could develop much more efficient and the prices of products would drop. Meaning I’d get my basic needs cheaper, would be able to sell cheaper and earn more profit!

3.  Mr Rodriguez (Farmer): _X__ Eliminate the tariff   _____ Keep the tariff

Why?  The tariff should be eliminated as it would let us farmers develop our lands better and efficient. With new technology we might even be able to grow things we weren’t able to before. We will also be able to grow crops more efficiently and be able to sell them cheaper; therefore more people would have the available funds for food.  I probably might even earn more profit.

4.  Ms Sanchez (Teacher): _____ Eliminate the tariff   __X__ Keep the tariff

Why? I think the tariffs should be kept, as we want our domestic producers to do well. As well as my sister’s husband works in machinery factory and I wouldn’t want him to lose his job because some foreign traders want to earn more profit here. As well as if we import more and produce less domestically it means out GDP will fall – life quality will fall.

5.  Mr Lopez: (Machinery Factory Worker)_____Eliminate the tariff  __X__ Keep the tariff Why?  Keep the tariff. If the tariff will be eliminated, then there will be loads of foreign supply being imported to the country that will be priced lower. That means less people will be buying our domestic produced machinery therefore prices would be lowered and less people will be needed for manufacturing. It would mean that I’d have to possibility to lose my job!

6.  Ms Miranda: (Economist) __X__ Eliminate the tariff   _____ Keep the tariff

Why?   The tariff should be eliminated as it would help our agricultural market to develop. The market would grow much bigger and have more variety as new technology brings more opportunities. When the machinery will be cheaper to buy, it means more people/farmers will be able to buy it which also means they will probably need more workers. Therefore products will be cheaper, all production of agricultural products will be more efficient, evolve more workers and expansion of the market.  Plus it gives way more work for me to analyse all the effects and write articles!

Prioritize your Opinions:  Should a Developing Country Have Free Trade? 

You have read and summarized six interviews about whether a developing country should eliminate a protective tariff and move toward free trade.  You may have found that there are important arguments on both sides of the question, and that sometimes the interviews provide conflicting information.  For example, people for and against the protective tariff believe that more jobs will be created for people in the developing country if their opinion is followed.  To complete your assignment for the newspaper, you must decide if you are for or against removing the tariff. 

Look through your notes for the people who were in favour of the proposal to eliminate the tariff.  List the five reasons that you think were most convincing to support this opinion.  After each reason, indicate how important you think that reason is by assigning one-to-five stars.  (One star means that you think the reason is of minor importance; five means that you think the reason is crucially important.)  Do the same for the people who were against the proposal to eliminate the tariff.  Then write your conclusion in the space provided. 

Five Important Reasons to Eliminate the Protective Tariff / how strongly I feel about this Reason

1. Ability to sell different goods cheaper, making them available to a wider range of people****      

2. Ability to earn more profit through paying less for production **     

3. Ability to produce agricultural products cheaper and more efficiently *****

4. It would encourage agricultural development and innovation for new machinery ****  

5. More production means more demand for workers***

Five important reasons not to eliminate the protective tariff

1. People working in the factories might lose their jobs**

2.Domestic production will decrease ***

3.Might cause decrease in GDP***

4.Free trade will make it harder for smaller companies to enter the competition or maybe even continue  in the business with foreign machinery**

5.Domestic producers want to keep the price on a high level to earn profit.*

Conclusion: MY NEWSPAPER SHOULD BE FOR THE PROPOSAL TO ELIMINATE THE PROTECTIVE TARIFF ON AGRICULTURAL MACHINERY.

The tariffs should definitely be eliminated, as for that also speak the reasons why we should/shouldn’t eliminate them.  The reasons that speak against the elimination of the tariff are just temporary problems that it will bring, like structural unemployment. Yet as the reasons speaking for the elimination of the tariff, they show long term changes for the better. As we eliminate the tariffs, we are on the way to open the market up for free trade. Without the tariff the prices of agricultural machinery would drop as the quantity is imported is usually made more efficiently and cheaper therefore they are able to sell cheaper. Lower prices for the machinery, mean that more farmers/companies will be able to buy them and increase their capital. Therefore they will be able to produce more, higher more people, yet sell their products at lower prices making them available for more people.

Free trade chart

As before the country was producing 9 tons of apple and selling them at 3.50€ a kilo, yet, as consumers would always like more, and the World price is only at 2.00€. The domestic production is cut down by 3tons so they would sell at the price of 2€ like the world price. Yet at that point more people want to buy apples. As we decreased the domestic production to only 6tons, yet at the given price people want to buy 12tons, we have to import the remaining 6 tons.

Advantages that come with free trade

• Increased production: Free trade enables countries to specialise in the production of those commodities in which they have a comparative advantage, resulting in lower average costs and increased productivity. More so increased competition promotes innovative production methods, and ensures goods and services, as well as inputs, are supplied at the lowest prices. 

• Production efficiencies: Free trade improves the efficiency of resource allocation. The more efficient use of resources leads to higher productivity and increasing total domestic output of goods and services.

• Benefits to consumers: Consumers benefit in the domestic economy as they can now obtain a greater variety of goods and services. As well as the goods can be bought at the lowest prices possible

• Foreign exchange gains: When countries trade, they pay with their own currency and this money is then used by the supplier country to pay for things they import form other countries.

• Economic growth: The countries involved in free trade experience rising living standards, increased real incomes and higher rates of economic growth. This is created by more competitive industries, increased productivity, efficiency and production levels.

• Employment: Employment will increase in exporting industries. 

Disadvantages of free trade

•  Short term structural unemployment: This can impact upon large numbers of workers, their families and local economies. Often it can be difficult for these workers to find employment in growth industries and government assistance is necessary.

• Increased domestic economic instability from international trade cycles, as economies become dependent on global markets: businesses, employees and consumers are more vulnerable to downturns in the economies of our trading partners.

• International markets are not a level playing field: Countries with surplus products may dump them on world markets at below cost. Some efficient industries may find it difficult to compete for long periods under such conditions. Further, countries whose economies are largely agricultural face unfavourable terms of trade ;ratio of export prices to import prices. 

• Developing or new industries may find it difficult to become established in a competitive environment with no short-term protection policies by governments, according to the infant industries argument, it's difficult for them to develop economies of scale.

• Free trade can lead to pollution and other environmental problems as companies fail to include these costs in the price of goods in trying to compete with companies operating under weaker environmental legislation in some countries.

• Pressure to increase protection: the impact of falling employment means that protection pressures start to rise in many countries.

http://www.hsc.csu.edu.au/economics/global_economy/tut7/Tutorial7.html

Student workpoint 21.2

BS emission standards in India

Only BS-IV compliant vehicles will be sold and registered from 2017: Government

http://economictimes.indiatimes.com/industry/auto/news/industry/only-bs-iv-compliant-vehicles-will-be-sold-and-registered-from-2017-government/articleshow/48544844.cms

"NEW DELHI: Sale of four-wheelers not meeting Bharat Stage (BS)-IV emission norms will be barred in India from April 2017, with the government deciding to bring the entire country under the ambit of the tighter pollution control standard."
"The sale and registration of vehicles not meeting the new emission norms won't be allowed in the country from April 2017 and only Bharat Stage compliant four-wheeler vehicles will be manufactured," said a transport ministry spokesperson. 

"From April 1, 2017, the mass emission standards for Bharat Stage IV shall come into force all over the country," the road transport & highways ministry said in a statement. "With this, only those newly manufactured four-wheeler vehicles, which are compliant with the BS-IV standards, will be allowed to register and move on roads with effect from the notified dates in the notified areas."
The new norms will reduce emissions of carbon monoxide (CO),hydrocarbon (HC), oxides of nitrogen (NOx) and sulphur (SOx), which are much less in BS-IV fuel compared to BS-III fuel. 

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India is a country that has a huge population and is known for their abundance of cars and low pollution standards. As most of the population is rather poor people choose to go for the older and cheaper vehicles which pollute more. 

With banning the sales and registration of four-wheelers that do not meet the Bharat Stage IV emission norms the government is limiting the negative externalities that come with using older cars. As well as they will be helping the car sellers in India to have more business. People won't be able to buy old cars from each other any more. This decision will be good news to car manufacturers, yet for people in India it means that more saving up will probably have to be done to buy car that meet the standards. This decision of applying the new emission standards might actually decrease the level of cars in the country overall, as people now becoming old enough to drive a car, might not have enough available funds to buy a newly manufactured car that meets the standards. 

Higher priced cars with higher standards also means more money will be going to big companies that pay taxes. And more taxes means more money for the government to improve the country even further.

Yet most importantly the constant pollution rate will be decreased which therefore will raise the living qualities and possibly make India more attractive to tourists, which in return can bring in even more money in long term.