INTERNATIONAL ECONOMICS

1. Some economists argue that the rising U.S. budget deficit in the 2000-2015 period explains the
growing U.S. current account balance deficit during this time period. They refer to this as the “twin
deficits’ problem. Conceptually and analytically: why would a rising U.S. budget deficit be associated
with a growing current account balance deficit? Do you believe that the U.S. budget deficit explains the
current account balance deficit? Why or why not?
2. The economist Jacob Viner was skeptical that bilateral or regional trade agreements are beneficial to
world trade. He thought that multilateral trade agreements represent the best way to promote global trade.
A. What is the difference between regional/bilateral trade agreements and multilateral trade agreements?
Give an example of a multilateral trade agreement, describing how it came about and when it started to
operate.
B. Also, give an example of three regional/bilateral trade agreements, one in Asia, one in Africa, and one
in Central America, stating which countries form part of the agreement and when it started to function.
C. Why did Professor Viner think that bilateral/regional trade agreements are not necessarily good for
world trade? Please explain and provide any research or evidence supporting his claim.
3. The World Bank has studied the so-called East Asian miracle economies (China, Malaysia, Singapore,
South Korea, etc.), concluding that the export-oriented and trade-oriented policies of these countries
explain the remarkable economic growth these economies have sustained over time. But Harvard
economist Dani Rodrik disagrees. He believes that international trade and the growth of exports were
NOT the key factors causing these economies to grow fast. He points out that there were other forces that
lie behind the economic success of these countries. What are those forces and do you agree with Rodrik or
with the World Bank about the role of international trade and exports in the economic growth of the East
Asian miracle economies? Please provide any research or evidence on these issues.
4. When studying financial crises in the world, the East Asian crisis of 1997 stands out because it was so
unexpected, given the sustained economic growth of these countries for a long time before the crises
occurred.
A. What was the East Asian crisis of 1997? Which countries were involved and what were the
consequences of the crisis (on various economic indicators, such as income growth, exchange rates, etc.).
B. What were the main factors that caused the financial crisis to develop? Please state at least four key
factors that were associated with the crisis, providing any studies or data supporting your explanations.
C. What policies would you recommend developing countries adopt to avoid future financial crises?

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