EC 340 Survey of International Economics Past Paper 2025 PDF

EC 340 Survey of International Economics January 14, 2025 © Steven J. Matusz, 2025 1  Professor Matusz Ma (as in “mama”) tusz (rhymes with “juice”) © Steven J. Matusz, 2025 2 © Steven J. Matusz, 20...

EC 340 Survey of International Economics January 14, 2025 © Steven J. Matusz, 2025 1  Professor Matusz Ma (as in “mama”) tusz (rhymes with “juice”) © Steven J. Matusz, 2025 2 © Steven J. Matusz, 2025 3  o G ee n ! G r © Steven J. Matusz, 2025 4 © Steven J. Matusz, 2025 5 Objective of course is to use tools How countries benefit from trade learned in introductory economics even as some groups are harmed to explore some of the big issues in international economic relations…it is as much about Costs and benefits of limiting ideas as it is about facts trade and the broad outline of actual trade policies Market forces that determine value of country’s currency Causes and consequences of trade deficits How openness to financial flows impacts effectiveness of monetary & fiscal policies © Steven J. Matusz, 2025 6  Count best 3 of 4 exams (25% each) Matusz Office Hours Count best 5 of 9 problem Tuesdays & Thursdays, 10:15 am – 11:30 am (no sets (5% each) appointment necessary) 220B Marshall-Adams Hall Extra credit for earning average of at least 70% on all problem sets Wang Office Hours Exams are all multiple Wednesdays and Fridays, 3:00 pm – 4:00 pm choice or true/false type Zoom questions Problem sets might include other types of questions © Steven J. Matusz, 2025 7 Exam 1: February 11 (In class) Exam 2: March 25 (In class) Exam 3: April 24 (In class) Technically not required, but very useful Exam 4: April 29 Can use previous edition Price varies based on purchase or (7:45 am – 9:45 am) rent, physical or eBook © Steven J. Matusz, 2025 8  It’s important to read the syllabus completely to know things like the makeup policy for exams, how grades are calculated, general course expectations, and so on © Steven J. Matusz, 2025 9 Trade Financ How countries benefit e Determinants of the (Micr from trade value of a country’s o) (Macr o) currency over a period of years or decades Determinants of the Determinants of shorter types of goods that a term movements in the particular country value of a country’s exports or imports currency How trade creates both Trade imbalances & winners and losers international borrowing within every country or lending Policies used to Macro policy in an open influence trade, economy including the formation of international agreements © Steven J. Matusz, 2025 10  Annual Average Trade Wage $600 $80,000 United States $500 U.S. Imports from $60,000 $400 Mexico (Billions) $300 $40,000 Mexico $200 $20,000 $100 U.S. Exports to Mexico (Billions) $0 $0 00 04 08 12 16 20 00 04 08 12 16 20 20 20 20 20 20 20 20 20 20 20 20 20 © Steven J. Matusz, 2025 11  Annual Average Trade Wage $120 $80,000 $100 U.S. Imports from Switzerland (Billions) United States $75,000 $80 $60 $70,000 $40 U.S. Exports to $65,000 Switzerland $20 Switzerland (Billions) $60,000 $0 00 04 08 12 16 20 00 04 08 12 16 20 20 20 20 20 20 20 20 20 20 20 20 20 © Steven J. Matusz, 2025 12 Two questions: (At least) two answers: How can high-wage High wages increase cost, countries compete with but better technology and low-wage countries? more productive workers reduce cost How can countries with Labor not the only input outdated technology or less-skilled workers compete with countries at the technological frontier that also have a highly- skilled workforce? © Steven J. Matusz, 2025 13 Remember that the book is recommended, not required. This information is for those who are following along with the textbook. Name me one Chapter 2: Trade and proposition in all of the Technology: The social sciences that is Ricardian Model both true and non- trivial. Stanislaw Ulam (1909-1984), Mathematician and nuclear physicist © Steven J. Matusz, 2025 14  Paul Samuelson (1915 – 2009) Nobel laureate in economics (1970) “Comparative advantage! That this idea is logically true need not be argued before a mathematician; that it is non- trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.” © Steven J. Matusz, 2025 15  Comparative advantage is an idea that begins to address some big questions Why countries trade What goods a country exports or imports On the Principles of How trade can allow the Political Economy world to squeeze more out of limited resources and Taxation-- 1817 © Steven J. Matusz, 2025 16 Mercantilism was the But Ricardo prevailing school of understood that there thought during was a fallacy here Ricardo’s era A nation’s power stemmed from its holding of gold and silver If I have more money, I can Exports were good because buy more stuff other countries paid with gold and silver From similar reasoning, But it does not follow that imports were bad we can all buy more stuff if we all have more money, Government policy should since there is a fixed therefore encourage exports amount of stuff available! and discourage imports © Steven J. Matusz, 2025 17  England’s PPF Portugal’s PPF Quantity Quantity 500 of Cloth 500 of Cloth 450 450 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 0 20 40 60 80 100 120 140 160 0 50 100 150 200 250 Quantity of Quantity of Wine Wine © Steven J. Matusz, 2025 18  England’s PPF Portugal’s PPF Quantity Quantity 500 of Cloth 500 of Cloth 450 450 400 400 350 350 300 300 250 250 Series1; Initial 200 Series1; Initial 200 Production; 150 Production; 150 150 150 100 100 50 50 0 0 0 20 40 60 80 100 120 140 160 0 50 100 150 200 250 Quantity of Quantity of Wine Wine © Steven J. Matusz, 2025 19  England’s PPF Portugal’s PPF Quantity Quantity 500 of Cloth 500 of Cloth 450 450 400 400 Series1; New Production; 300 350 350 300 300 Series1; Initial 250 Production; 150 250 Series1; Initial 200 200 Production; 150 Series1; New 150 150 Production; 50 100 100 50 50 0 0 0 20 40 60 80 100 120 140 160 0 50 100 150 200 250 Quantity of Quantity of Wine Wine © Steven J. Matusz, 2025 20  England’s PPF Portugal’s PPF Quantity Quantity Quantity of Portuguese of Cloth 500 Quantity of British wine of Cloth 500 wine increases by by falls by 50 100 450 450 Quantity of British cloth Quantity of Portuguese 400 400 increases by 150 cloth falls by 100 350 350 300 Series1; New 300 Production; 300 250 250 200 200 Series1; Initial Production; 150 150 Series1; Initial 150 Production; 150 100 100 Series1; New Production; 50 50 50 0 0 0 20 40 60 80 100 120 140 160 0 50 100 150 200 250 Quantity of Quantity of Wine Wine © Steven J. Matusz, 2025 21 In this example, England has Portugal is said to have the a higher opportunity cost of comparative advantage in producing wine compared wine (where it has the lower with Portugal opportunity cost compared with England) To produce one more unit of Similarly, the opportunity wine, England must use the cost of cloth is 1/3 wine in resources that could instead England, and 1 wine in have produced 3 more cloth Portugal In contrast, to produce one Therefore, England has a more wine, Portugal would comparative advantage in only have to use resources cloth needed to produce 1 more cloth © Steven J. Matusz, 2025 22  England’s PPF Portugal’s PPF Quantity Quantity 500 of Cloth 500 of Cloth 450 450 Opportunity cost of wine is the 400 (absolute value of) the slope of 400 350 the PPF 350 300 Opportunity cost of cloth is the 300 inverse of the opportunity cost 250 250 of wine 200 200 150 150 100 100 50 50 0 0 0 20 40 60 80 100 120 140 160 0 50 100 150 200 250 Quantity of Quantity of Wine Wine © Steven J. Matusz, 2025 23