[MUSIC] Welcome back. We just have discussed it about exports, but we cannot speak about exports without talking about imports. Let's folk on about imports now. Remember what we said, that exchange rate depreciation could improve my export competitiveness. And then some of you might have said well, so let's depreciate my currency by 9%. Not so fast dude. Check what happens with our imports when we depreciate our currency. First, let's suppose you are importing stuff, what? It doesn't matter from abroad and the exchange rate is still Brazilian reais. Again remember, exchange rate is just the price of a currency in terms of another currency. We have an exchange rate between a sterling pound and dollar, euro and dollar, whatever it is. But now we are discussing about just an example, Brazilian reais, and the currency exchange rate in now example is back is 1 to 1. I need R$1, to $1. But let's not forget now we are importing, not exporting. So I have someone abroad that wishes to sell to our country. And the price abroad is $100 and the current exchange rate is one to one. You need R$1 to US$1. So $100, 1 to 1, I will import at the price of R$100.00. But then someone said, let's depreciate by a 90%. Let's not depreciate buy a 9%. We don't need that to figure out. Let's just appreciate the Brazilian real by 20% and that will be enough for you to see what's going to happen or given the fact that our previous exchange rate was 1 to 1. If we experienced an exchange rate depreciation of 20% we're going to need R$1.20 to US$1. Back to our example. Abroad, R$100, our exchange rate, R$1.20 to US$1. How much is going to be in reais if I'm going to import 120? Again, if you're confused, make the rule of tree, $100, R$1.20, $1. How many reais, 120. What kind of conclusion you could get? The price of our imports increased when we experience a currency depreciation. And if we import for final household consumption or even capital goods that sometimes I needed to increase domestic investment of gross capital formation, sometimes a massive currency depreciation that you are pledging 90% could trigger inflationary pressure to the country. That's why sometimes you see your country is experienced a currency depreciation later on, it's very likely we'll see that inflation will take place in your country. Why, because the price of imported goods is going to be more expensive. That's something that you have to put. Okay, I'm not that loss professor, but exports depend only on the exchange rate? Good question, you small grass hooper. Not just that. What else? Let's be reasonable and think. Don't get too close. Don't get too crazy. Don't get to stick on macroeconomics, for example. Forget that we are in a class. You need to export something, yes. How can I export? Let's see. To make my stuff cheaper, yes. Good stuff. What else? Well, I think that I might be wrong. The willingness of my buyer is higher and he willing to buy, thank you very much. That's exactly what you need. What I need to do, not just, not that expensive export. You need more than that, for example, if the potential buyer has no income or its GDP is going down to whom you are supposed to sell it to the moon, it's impossible. So even though you experience exchange rate depreciation, we need someone with income to buy your stuff. If the GDP of that country is going down into a recession, it doesn't matter how cheap your goods is, whatever. It's going to be very difficult for you because that country has no income. Now you've got the picture. Thus, if I want to transform macro economically speaking, exchange rate depreciation is not the only condition that could lead the country to boost its exports, but also the income of my buyer. It makes sense, right? Listen, do you want to buy my stuff? How much it is R$100 or $100? I'll make $80. Well, if you have no income, it matters not if I make cheaper for you. Do you understand how macroeconomic is not that difficult? If you want to convince someone to buy, I just give you a discount. But if that discount is not enough, because my buyer has no income, bingo has no way to sell it. That's exactly microeconomics. Don't make a big deal. I want to sell it, make cheaper. But I have no income, no deal. That's microeconomics. And sometimes you read a book full of information and formula. But, keep the mind that we need that simple way. But if you want to put in a methodical way, or in an equation, we can say that export is a function of exchange rate and international income that I deduct as y star. What's International Income? International GDP. It depends on my exchange rate, the price of my currency in terms of all the country's currency and the income of my client, which is international GDP, which stands in this case as a y start. It's not that difficult. So imports are not that much different if I want to move on. Well, at least in terms of what affects my imports, we have seen two things. One, exchange rate depreciation makes my imports more expensive, we see that we have seen that. What else could impact my imports? Use your previous knowledge about exports. Let me help you. You don't need to rush. Don't jump to the conclusion, get back a little bit to exports. Exports needs to be currency depreciation and my client needs to have income, thank you. What about my imports? If my exports depends on international income, my client's income, or someone country with income to buy it seems quite plausible that if my country is in a recession, I will not be able to purchase abroad. Is that too difficult to understand? For example, both exports and imports depends on exchange rate. My exports depends on my client income, but my imports depend my income. Am I rich? Am I GDP going up? I'm good, my GDP is booming or I'm going down. No, I'm going down. So if my GDP is going down, I'm not going to be willing to buy anything from abroad. So what kind of understand you can get? Imports depend not just on my exchange rate, but also on my domestic GDP, domestic income. If you want to put in an equation, you have imports equal to propensity marginal to import times income plus an autonomous variable. Boring, but just in an elegant way to put what you have discussed. But before we move forward, I want to make some tree questions here. Let me pose a question and eventually to drop some wrong ideas. Remember that (X- M), exports minus imports is equal to trade balance. Here it comes. The question is always a trade surplus good. What's the trade surplus? X- M above zero. So answer this question or try to think at least. Is always a trade surplus good? And then you say, gosh, here he comes Dumas with some tr questions. If asking some used questions, it seems that that is going to be a little bit more difficult. But try to answer. I'll wait one, two minutes. One month, two months. Now joking, not that much. What are we going to do now? Let's suppose a counter that has the same level of exports onwards, you see the question do not forget is always a trade deficit. Bad or good, let's say all surpluses, good. Let's suppose my export is constant, but as the country has entered into a recession, its imports collapsed. Do you see exports moving forward, constant imports going down. Why my imports are going down because I am a recession. Can you see that my export is not increasing? But my imports are going down because I'm a huge recession. I will pause a trade surplus. Is this good? No, for example, take for instance, Japan. Japan has many times experienced this situation, and obviously this trade surplus does not mean a healthy economy. So let's break down some paradigm, trade surpluses good, it depends. If you were in a recession, that's not good sign. If you're not a recession, it might be. Let's have another question. So if trade surplus is not always good, is always a trade deficit bad? Not always. And then I say Dumas, microeconomics is so difficult. No, it's not. Think, is a trade deficit always bad? Was trade deficit X- M? Exports minus imports is below 0. I am importing more than exports. You know the answer. I'm pretty mature, you know the answer. But sometimes we block our mind just because wow, this is macroeconomic. I need to wait for Dumas or my professor or teacher to tell me the answer. Think, do you really think that sometimes if I import more than I export this is bad for my country? If a country is importing for example, capital goods, they could improve my export competitiveness later on? This temporary deficit, therefore, is not that bad for the economy. Makes sense? For example, we have in our mind eventually the trade deficit is always bad. Well, sometimes my country, your country, everybody's country need to buy capital goods to increase the competitiveness of your exports. So now today you are in a trade deficit. Why, because you import capital goods to improve competitivity. But tomorrow, next year, or two or three years later on, you're going to get back to the trade surplus. So analyze what your country is important. Is this is a consumer good? If it's consumer good, it's okay. But bear in mind, consumer good will not make your export competitiveness a little bit higher. It would be better if your country is importing capital goods. Then this capital goods will turn into high export competitiveness. Eventually, you are a little bit confused. But that's the point, think is not everything quite straightforward. And then let's wait for a moment and move on for the next lesson. When I got to discuss about Keynes John Maynard Keynes's multiplier. [SOUND
