Mr. Mutti		Economics 233
Carnegie 204		Fall Semester, 2002
Office Hours:	M-W-F	11:00-12:00
	T-TH	2:00-3:00

International Economics

Objectives and Scope

I hope that by taking this course you will be able to: (1) identify the causes and consequences of changes in international trade and financial flows, and (2) evaluate the effects of government intervention to alter patterns of production, trade, investment, and international payments. I also hope you will be better able to assess current controversies over globalization and the role of international organizations such as the WTO, IMF, and World Bank.

The first half of the course is devoted to international finance issues, which are more closely related to macroeconomic material you have studied. In this section of the course, we first learn how economists keep track of international transactions in balance of payments accounts and then relate those measures to movements in the exchange rate and changes in the domestic money supply. We are then prepared to evaluate how changes in prices and income in an economy affect its balance of payments, and, in turn, how changes in the balance of payments affect the performance of the economy. We will consider questions of the following type:

· The United States has a large balance of trade deficit, and Japan has a large surplus. How long can that continue? Is that a sign of U.S. economic weakness and Japanese strength?

· How can China keep its exchange rate fixed at 8.28 yuan per dollar? Why have many countries instead chosen flexible exchange rates instead of fixed rates?

· Over the summer the U.S. dollar depreciated against the Japanese yen and the euro. Why are the effects of a currency depreciation likely to be different for the United States than for the Netherlands or for Russia or for India?

In a second bloc of international finance material we consider questions that involve several countries simultaneously.

· Does the IMF play a helpful role in controlling international financial crises, or should it be abolished? What are the pros and cons of the recent $30 billion loan to Brazil? What conditions should the IMF attach to such loans?

· The euro is the common currency for 11 members of the European Union. Why have countries such as Britain chosen not to adopt the euro?

· Are international financial crises just the consequences of speculation? Should international capital flows be discouraged?

The second half of the course is devoted to international trade issues, which are more closely related to microeconomic material you have studied. In this section of the course, there are two major blocs of material to cover. The first bloc deals with the questions of the following sort:

· What can a country gain by trading? Should poor countries simply refuse to trade, or do they stand to lose more from marginalization than from globalization?

· What determines which goods a country will export and import? Is the Japanese challenge to U.S. technological leadership a predictable result of free market forces or the outcome of government intervention?

· In what ways does trade alter the distribution of income in a country?

Our second bloc of trade material deals with policy questions:

· In March 2002 President Bush imposed tariffs on imports of steel into the United States. What are the economic consequences of such protection?

· In August 2002 the Congress approved fast-track authority for the President to negotiate international trade agreements. Why was this issue important to the President, and what compromises did he accept for this bill to pass?

· China joined the WTO in 2001, and Russia hopes to join in the near future. What do these countries expect to gain by joining?

· WTO members launched a new round of multilateral trade negotiations in November 2001. What agenda items for this round of negotiations are especially important to gain broad participation of developed and developing countries?

Textbook and Reading

R. Carbaugh, International Economics, 8th Edition, 2002
Student subscription to The Wall Street Journal.

Course Requirements

Your grade depends upon the following components:

Hour exam #1	100 points
Term paper	125 points
Hour exam #2	100 points
Journal, assignments and participation	75 points
Final exam	100 points 500 points

Your term paper will interpret the international macroeconomic position of a country and the policy options it faces, based on our study of balance of payments concepts and exchange rate determination in the first half of the course. Two key data sources will be the International Monetary Fund, International Financial Statistics, and the World Bank, World Development Indicators, which can be accessed from the storage server. In preparing your term paper, you will complete various analyses of these data and post them on our class web page. To give you practice in interpreting and writing about such data, for each of our exercises, you will be expected to comment on the work of another student who is researching a similar country.

You also will keep a current economic events reading journal to be handed in twice during the semester. The purpose of the journal is to encourage us to be aware of changing international economic circumstances and to apply some of our classroom insights in explaining those situations. You may complete this assignment with a partner of your choosing or you may do all the work by yourself. To give us more experience in this type of analysis, the class will have an electronic (Blackboard) discussion group that considers a different set of articles each week. You will be a member of a group that chooses the discussion articles for a week during the semester. When your group is not leading the discussion, you as an individual will be expected to contribute a comment on at least one of the articles posted that week.

Due dates are noted on the outline. For each day that a term paper or journal is late, you lose one-third of a grade (eg. you drop from a B to a B-). Thus, you weigh the benefits and costs of having an extension.

Homework is intended to provide an early warning signal, before exams or papers, of whether you are mastering course concepts. You may work together in discussing homework assignments, but each individual must turn in a paper in her/his own words.

Course Outline

(Link to Part A Outline)

I.	International Finance
	A.	Balance of Payments Interpretation and Exchange Rate Determination C: 11, 12 (pp.361-371, 375-380, 385-387), 13
	B.	Adjusting to Balance of Payments Disequilibria - Income and Price Effects C: 14, 15
	EXAM #1 - approximately October 9th

	C.	Choices of Exchange Rate Systems, Implications for Macroeconomic Policy, and the role of the IMF C: 16, 17, 18

* TERM PAPER DUE OCTOBER 18TH*

FIRST INSTALLMENT OF READING JOURNAL DUE NOVEMBER 1st

(Link to Part B Outline)

II.	International Trade
	A.	The Basis for Potential Gains from Trade and Expected Patterns of Trade C: 2, 3, 4
	B.	Trade Restrictions and Policy Choices C: 5, 6
	EXAM #2 - approximately December 4th
	C.	Multilateral Trade, Special Interests of Developing Countries, and Trade Blocs C: 7, 8, 9

*SECOND INSTALLMENT OF READING JOURNAL DUE DECEMBER 13th*