Globalization is becoming very important in economic discussions. While some politicians favor protectionist policies because they feel these policies protect domestic producers, others claim free trade increases economic activity and has advantages for the country as a whole. Describe a recent foreign purchase. Do you think it is better to source from overseas or should tariffs be in place to protect American industries? Why or why not?
The Economist regularly publishes the Big Mac index to examine the validity of purchasing power parity. If purchasing power parity holds, a consumer should be able to take the same amount of money required to buy a Big Mac in the U.S. and buy a Big Mac in any other country. What are the reasons purchasing power parity may not hold? If the U.S. dollar depreciates against the euro and purchasing power parity holds, would a Big Mac in Europe become more or less expensive? Why? If purchasing power parity doesn’t hold, does an American tourist in Europe pay more or less for a Big Mac? Why?