Inter-temporal Production Possibilities and Trade Essay

Instead of trading one good for another(prenominal) at a point in time, we exchange goods today in beget for some goods in the time to come. This kind of trade is known as inter-temporal trade. Even in the absence of international capital movements, any saving faces a trade-off amid role now and consumption in the future.Economies usually do not consume all of their current return some of their output takes the form of investiture in machines, buildings, and other forms of ar fitting capital. The more investment an economy undertakes now, the more it give be able to produce and consume in the future. To invest more, however, an economy must pass resources by consuming less (unless there be unemployed resources, a possibility we temporarily disregard). Thus there is a trade-off between current and future consumption.The shape of the inter-temporal production possibility frontier will differ among countries. Some countries will become production possibilities that are colo ured toward turn over output, while others are non-white toward future output. We will want in a moment what real differences these biases correspond to, but start lets simply suppose that there are deuce countries, Home and contrary, with different inter-temporal production possibilities. Homes possibilities are biased toward current consumption, while Foreigns are biased toward future consumption. The inter-temporal comparative supply curves for Home and Foreign reflect how Homes production possibilities are biased toward present consumption whereas Foreigns production possibilities are biased toward future consumption.In other words, Foreigns relative supply for future consumption is shifted out relative to Homes relative supply. At the equilibrium real use up rate, Home will export present consumption in return for imports of future consumption. That is, Home will institute to Foreign in the present and receive repayment in the future.Homes inter-temporal production poss ibilities are biased toward present production. But what does this mean? The sources of inter-temporal comparative advantage are somewhat different from those that give rise to ordinary trade. A state that has a comparative advantage in future production of consumption goods is one that in the absence of international borrowing and lending would have a low relative price of future consumption, that is, a towering real interest rate. This high real interest rate corresponds to a high return on investment, that is, a high return to amusive resources from current production of consumption goods to production of capital goods, construction, and other activities that upraise the economys future ability to produce.So countries that borrow in the international market will be those where highly productive investment opportunities are available relative to current productive capacity, while countries that lend will be those where such opportunities are not available domestically. germhtt p//classof1.com/homework-help/international-economics-homework-helpView as multi-pages