Economics 360 International Economic Problems
Prof. Christopher Clague
Adams Humanities 4181
Phone 594-5503
Home phone (858) 412-3251 (not after 9PM, please!)
Office Hours: TTh 10:15-10:45 and 3:30-4:00 and by appointment
Email: christopher.clague@gmail.com
Required texts
1. James Gerber, International Economics, 5th Ed. (3-hole version $160,e-book $87)
2. A Course Reader containing exercises, tables, and a paper, “A Three-Good Model of
International Trade,” by Prof. Clague. The exercises are an important part of the course,
as they form one basis for the homework and the tests. (about $5)
3. MyEconLab is available to you through Blackboard. There will be weekly homework
assignments on MyEconLab.
Course Description and Scope:
In this course, you will learn theories, policies, and institutions of international trade and finance.
The purpose of this course is to construct an analytical framework for exploring international
economic problems, to gain a fuller appreciation of the economic interrelationships that link
nations and people, and to use this opportunity to become genuinely better informed about the
world surrounding us. The course is divided into three parts. Part I, on international finance,
deals with the foreign exchange market, exchange rate systems (fixed and flexible exchange
rates), open economy macro, and international financial crises. Part II, on international trade,
explains the theory of comparative advantage, the factor-endowments theory of trade, economies
of scale and learning by doing as bases for trade, and the economics and politics of trade
restrictions. These two parts provide the conceptual framework for discussing four regional
topics in Part III: the European Union, the North American Free Trade Association, Latin
American economic development, and the miraculous growth of East Asian countries.
Grading
Homework and quizzes
In-class Exam 1
In-class Exam 2
In-class Exam 3
(Remedial Exam 25%)
25%
25%
25%
25%
There are three in-class exams. Each in-class exam is worth 25% of your grade. There will be no
make-ups. You have a chance to drop one of your in-class exams and take the remedial
comprehensive exam in order to replace the one that you drop. I will only substitute your old
grade for the new one if you have improved your score. The remedial exam is comprehensive and
worth 25% as well. If you miss an exam for any reason, that will count as the exam that you drop
and therefore, you must take the remedial comprehensive exam. You must take your exam at
the scheduled time and place. Note that the exam dates below are not tentative – exams will be
given in class on the days listed.
Homework. MyEconLab homework assignments will typically be due on Wednesdays at
11:59PM. In-class quizzes will normally be on Thursdays.
Class Date
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Jan17
Jan22
Jan24
Topic
Introduction
National Income Accounts
BP Accounts; Foreign exchange
market
Jan29 Exchange Rates and ER systems
Jan31 Exchange Rates and ER systems
Feb 5 Open Economy Macro
Feb 7 Money and the BP
Choice of ER System
Feb12 International Financial Crises
Feb14 International Financial Crises
Feb19 Review
Feb21 Test 1 February 21
Feb26 Comparative Advantage
Feb28 Comparative Advantage
Mar 5 Trade and Factor Prices
Three-Good Model
Mar 7 Beyond Comparative Advantage
Mar12 Beyond Comparative Advantage
Mar14 Tariffs and Quotas
Three-Good Model
Mar19 Tariffs and Quotas
Mar21 Tariff Politics
Mar26 Tariff Politics
Mar28 Test 2 March 28
Spring Recess
Apr 9 European Union
Apr11 European Union
Apr16 NAFTA
Apr18 NAFTA
Apr23 Latin America
Apr25 Latin America
Apr30 East Asia
May 2 East Asia
May 7 Test 3
May14 Final Exam 10:30-12:30
Tuesday, May 14
Chap
1
9
9
10
10
11
10, 11
Quizzes MyEc Reader
Tests
Lab
Exd
1
H0
2
Quiz 1 H1
4, 5
Quiz 2
H2
H3
12
6
7
8, 9, 9a
10
H4
Test 1
3
11
H5
4
5
3, 12
Quiz 3
H6
13
6
H7
14
7
H8
15
Test 2
14
16
H9
13
17
H10
15
18
Quiz 4
H11
16
19
H12
Test 3
Final
Exam
Learning Objectives
Part I: International Finance. You will learn how the international economy in represented in the
national accounts and the balance-of-payments accounts. I present the items in the balance of
payments as elements of the supply of and demand for foreign exchange. In our newly globalized
world, the behavior of the macro economy is strongly affected by international trade and capital
movements, and we shall see how monetary and fiscal policies work in this environment. We
shall consider the choice of exchange-rate systems (flexible rates, temporarily pegged rates, truly
fixed rates, common currency) for the United States and other economies. Finally, we look at
recent international financial crises: how they originated, how they might be prevented, and how
to cope with them when they occur.
Part II. International Trade. You will deepen your understanding of the concept of comparative
advantage (which you already learned in your principles course). We’ll explore the basics of the
factor-endowments theory, a well-developed body of theory that attempts to explain both the
causes and consequences of trade and factor movements on the level of income and its
distribution. The important message of this theory is that, while trade generally increases real
national income, it has strong effects on factor prices and hence income distribution. However,
there are other reasons why countries engage in international trade and foreign direct investment,
such as economies of scale and learning by doing, and trade based on these phenomena does not
have strong effect on factor prices. We shall also examine the effects of trade restrictions on
national income and its distribution, and the politics of trade restrictions. While economists
regard trade as generally beneficial, they recognize that in the presence of market failures trade
restrictions can increase national and sometimes even global welfare.
Part III. Regional Issues. The concepts and theoretical tools developed in Parts I and II will
inform our analysis of the issues of economic integration and economic development. The
Europeans have accomplished an extraordinary amount of economic integration with large
economic benefits and some tensions and conflicts among the countries and between economic
interests within the countries. They are now struggling to maintain a common currency in the
face of severe financial strains. The North American Free Trade Association aims at much less
integration than the European Union but still has generated both economic benefits and political
tensions between and within countries. An important issue for both these regional groupings is,
how much coordination of economic policies (say, with regard to labor market regulation and
social welfare expenditures) is required for economic integration to be successful? Economic
development is very powerfully affected by the opportunities and challenges offered by
international trade and investment. The Latin American countries, with abundant natural
resources, pursued industrialization through import substitution, while the East Asian countries,
densely populated and with meager endowments of natural resources, have become industrial
exporters on a massive scale. Why have some of the East Asian countries catapulted themselves
from poverty to developed-country status, while the Latin American countries have generally not
narrowed the gap between themselves and the economic leaders? We shall discuss how
economic policies related to international trade and investment contribute to the explanation of
these different outcomes.