ECONOMICS 3150B

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ECONOMICS 3150B

• Fall 2004
• Professor Lazar

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Course Requirements

• Three tests
• October 7 November 9 December
• 30 30 40
• Format 3 questions of 6 short essays
• Open book No cell phones, no wireless
  communication devices
• No excuses for missing first two tests see
  Course Outline

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Other Ground Rules

• No taping of lectures
• No cell phones in class
• Responsible for all chapters in text other than
  those indicated in course outline
• Listen before you write

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Office Hours

• Tuesdays 3-5
• N205J, Schulich
• Phone [phone]
• Email flazar_at_yorku.ca

5
Introduction

• Did David Dodge anticipate the sharp appreciation
  of the Canadian dollar following his interest
  rate increases in 2002? Does he have any target
  value for the Canadian dollar?
• Does anyone know what the equilibrium value is
  for the Canadian dollar? Why did the dollar
  depreciate on poor productivity news?
• Does economic theory have much to tell us about
  trade patterns and capital flows?
• Is the US current account deficit (approximately
  US 600 billion)a problem?
• Can economic theory explain the location of
  companies such as Bombardier, Siemens, Microsoft,
  Google, Apotex, etc.?
• Will the Doha round of the WTO multilateral
  negotiations succeed?

6
Introduction

• Does Canada play fair in international trade?
• Genetically modified foods and free trade EU
  vs. the US
• WTO rules against the Byrd amendment US
  customs authorities required to distribute
  proceeds of anti-dumping and countervailing
  duties to US companies that initiate cases
• Why does this legislation violate the GATT?
• Will the US repeal this legislation?
• Will the EU retaliate against the US by imposing
  sanctions against US companies?
• Does anyone care?

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Objectives

• Globalization what does this mean?
• Determinants of exchange rates capital flows or
  current account balances?
• International capital markets determinants of
  capital flows, stability, risks
• Exchange rate regimes
• Trade in goods and services patterns, volumes,
  winners/losers
• Trade policies liberalized trade, protectionism

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Critique

• Limits of open economy macroeconomics
• Stability of capital flows distinction between
  flows and stocks

• Trade theory cannot explain Airbus, Microsoft,
  Starbucks, Nortel
• Competitive vs. comparative advantages
• Culture
• Role of US

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Balance of Payments

• Transactions resulting in payments to foreigners
  (conversion of C into foreign currencies)
  enters B. of P. as debit (-ve) purchase/import
  of goods, services, assets
• Transactions resulting in receipts from
  foreigners (conversion of foreign currencies into
  C) enters as credit (ve) sale/export of goods,
  services, assets
• Current Account transactions involving
  goods/services
• Merchandise trade
• Services tourism, transportation, financial
  services, business services, investment income
• Sum of all current accounts 0

10

• Capital Account transactions involving assets
• Short-term ( lt 1 year)
• Long-term ( 1 year) direct investment
• Capital inflow credit in capital account
  Cerebus invests 250 M in Air Canada
• Capital outflow debit in capital account TD
  acquires US bank
• Official reserve transactions by central banks
  official settlement balance
• Unilateral transfers repatriation of income
  foreign aid
• Sum of all accounts 0 (equilibrium in foreign
  exchange markets)
• Debits ? supply of Canadian
• Credits ? demand for Canadian