ECON 50- International Economics (LPS)

Spring 2017
General Information
Instructor: Gokhan Oz
Office: 438, McNeil Building
Office Hours: Mondays 1:30-2:30pm and Tuesdays 2:00-3:00pm
Email: gokhanoz@sas.upenn.edu
Meeting Time: Tuesdays, 6-9pm

Course Description and Prerequisites

This course is an introduction to the theory of international trade and international macroeconomics. We will study theoretical models to explain patterns of trade, distribution of gains from
trade and trade barriers. We will then discuss contemporary policy issues in this area. Under
international macroeconomics we will look at money and foreign exchange markets, exchange rates
in the short and long run, income accounting, history of international monetary systems, financial
crises and growth.
Note: Economics 50 is a one-semester course in International Economics. Students wishing
to study the subject in greater depth should take instead the two-semester sequence Economics
251-252.
Prerequisites: Economics 1 and 2 or Economics 10.

Textbook
The required text for this course is the 10th edition of International Economics: Theory & Policy
by Paul R. Krugman, Maurice Obstfeld, and Marc Melitz (Pearson).

Courseware
I will use the Canvas site as the main way for communicating with the class. You should know
how to use Canvas to access all that material. The Library provides tutorials and help in case you
are not familiar with Canvas.

Grading
Problem Sets (4)- 30%
Problem sets must be submitted on the specified due dates (see below for further details). Each
problem set will be graded on a scale from 0 to 10. Late homework submissions are going to be
penalized. 1 point is going to be deducted for each day after the deadline.
Exams(3) - 60%
The exams are closed books and notes, in class. There will not be make-up for exams. If a
student cannot take the exam at the specified time and has a VALID EXCUSE, as defined by the
University, the grade will be the ninety percent of the other exams.
The exam dates are,
1. Midterm 1 February 14th
2. Midterm 2 April 4th
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3. Final May 2nd to 10th (TBD)

Debate - 10%
The debate will take place on the last day of classes (April 25th). Students will be randomly
assigned into two groups and debate about a hot topic on international economics. The students
are expected to use sophisticated arguments, based on the material covered during the course. If
a student misses the debate and has a VALID EXCUSE, as defined by the University, the debate
will be the average between the three exams.
Remark: Your letter grade is NOT based on a curve, its based on attainment.
90s: A range (A-, A, A+)
80s: B range (B-, B, B+)
70s: C range (C-, C, C+)
60s and below: D and F

Department Course Policies

Courses taught in the Department of Economics are covered by a common set of course management policies. Registering for this course means that you will follow these policies. See,
Departmental Policies for Undergraduate Economics Courses, in particular valid reasons for requesting make-up exams:
https://economics.sas.upenn.edu/undergraduate-program/course-information/guidelines/policies

Tentative plan for semester

Date of Class
Jan 17th
Jan 24th
Jan 31st
Feb 7th
Feb 14th
Feb 21st
Feb 28th
March 7th
March 14th
March 21st
March 28th
April 4th
April 11th
April 18th
April 25th

Topic
Introduction. The Ricardian Model.
The Specific Factors Model
The Heckscher-Ohlin Model
The Heckscher-Ohlin Model
Exam 1; Topics on Trade Policy
External Economies of Scale
National Income Accounting and the BoP
Spring Break
The Foreign Exchange Market
Money, Interest Rates, and Exchange Rates
Price Levels and the L.R. Exchange Rate
Exam 2; Topics on Macroeconomic Policy
Output and the Exchange Rate in the Short Run
Fixed Exchange Rates
Debate; Review

Submissions, Tests

PS 1

PS 2

PS 3

PS 4

Other Important Dates

Drop period ends: Friday February 17th.
Last day to withdraw from a course: Friday March 24th.

Topic Details
The Ricardian Model: Trade flows and terms of trade depend on comparative advantage in
production between trading partners. Discuss empirical evidence supporting the Ricardian
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model.
The Specific Factors Model: The specific factors model allows trade to affect income distribution. Since factors of productions cannot move costlessly and quickly from one industry to
another, so changes in the economys output mix have welfare consequences. Factors specific
to export sectors in each country gain from trade, while factors specific to import-competing
sectors lose.
The Heckscher-Ohlin Model: An economy exports goods that are relatively intensive in its
relatively abundant factors of production and imports goods that are relatively intensive in
its relatively scarce factors of production. Owners of abundant factors gain, while owners of
scarce factors lose with trade. A country as a whole is predicted to be better off with trade,
so winners could in theory compensate the losers within each country.
External Economies of Scale and the International Location of Production: Trade need not
be the result of comparative advantage. Instead, it can result from increasing returns or
economies of scale, that is, from a tendency of unit costs to be lower with larger output.
National Income Accounting and the Balance of Payments: How to compute the balance of
payments: Current account, capital account and financial account. The U.S. is the largest
debtor nation, and its foreign debt continues to grow because its current account continues
to be negative.
Exchange Rates and the Foreign Exchange Market: Commercial and investment banks that
invest in deposits of different currencies dominate the foreign exchange market. Rates of
return on currency deposits in the foreign exchange market are influenced by interest rates
and expected exchange rates. Equilibrium in forex markets : interest rate parity, covered
interest parity.
Money, Interest Rates, and Exchange Rates: Effect of changes in the money supply on
domestic interest rates, as well as the exchange rate in the short as well as long run.
Price Levels and the Exchange Rate in the Long Run: Purchasing power parity, monetary
approach to exchange rates using PPP and the supply and demand of real monetary assets,
real exchange rate approach, Real interest parity.
Output and the Exchange Rate in the Short Run: Aggregate demand, a short-run model
for both output markets and asset markets, effects of temporary and permanent changes in
monetary and fiscal policies and adjustment of the current account over time.
Fixed Exchange Rates and Foreign Exchange Intervention: Balance sheets of central banks,
intervention in the foreign exchange markets and the money supply, how the central bank
fixes the exchange rate, monetary and fiscal policies under fixed exchange rates, types of
fixed exchange rates: reserve currency and gold standard systems.
After each of the exams, a policy topic will be discussed. Students will be allowed to vote
an the most preferred topic will be covered. Topics in trade policy are (i) the instruments
of trade policy, (ii) The political economy of trade policy or (iii) Trade policy in developing
countries. Topics in international macroeconomic policy include (i) international monetary
systems: an historical overview, (ii) Financial globalization: opportunity and crisis, (iii)
Optimum currency areas and the euro and (iv) Developing countries: growth, crisis and
reform.