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Chicago Exam Questions Suggested Reading Syllabus

Chicago. Syllabus and Final Exam, International Monetary Economics. Metzler, 1971

The two items below (syllabus and final exam) were incorrectly filed in Lloyd A. Metzler’s papers at Duke. I accidentally stumbled upon both today and thought that rather than trusting my memory of the locations of the syllabus and final exam for Economics 370 in 1971, I’d just transcribe and post the two artifacts today. According to the biographical note below, Lloyd Metzler retired from the University of Chicago in 1971 so this must have indeed been the last time that he taught international monetary economics at Chicago.

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Biographical Note

Lloyd Appleton Metzler was born on April 3, 1913 in Lost Springs, Kansas. He attended the University of Kansas, where he studied economics under John Ise and earned a Bachelor’s degree in 1935 and an MBA in 1938. Metzler then entered Harvard University. He served as an instructor and tutor at Harvard and completed a Ph.D. in economics in 1942. His dissertation, “Interregional Income Generation,” earned him the Wells Prize. That same year, Metzler was the recipient of a Guggenheim fellowship.

From Harvard, Metzler went on to Washington, D.C., where worked for the Office of Strategic Services and several economic policy and planning commissions between 1943 and 1946. Metzler joined the research staff of the Board of Governors of the Federal Reserve System in 1944. In 1946 he returned to academia when he accepted a teaching position at Yale University. He soon left Yale for the University of Chicago in 1947, where he remained for the rest of his career.

Dr. Metzler survived surgery for a brain tumor in 1952, and with the help of his wife Edith, managed to continue teaching and writing for the next twenty years. He served as Editor of the Journal of Political Economy from 1966 until his retirement in 1971. Metzler made numerous contributions to business cycle literature, macro-monetary theory, tariff theory, mathematical economics, and the field of international trade. The Metzler paradox, Laursen-Metzler effect, and Metzler matrix, all bear his name. He died on October 26, 1980.

Source: University of Chicago Library. Guide to the Lloyd A. Metzler Papers 1941-1948.

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For Intertemporal Comparison

Syllabus and readings for Economics 370 in 1950.

Exam for Economics 370 in 1953.

Syllabus, readings and final exam for Economics 370 from Winter Quarter 1967.

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ECONOMICS 370

Monetary Aspects of International Trade
Major Topics and Reading List
Winter, 1971

  1. Mechanism of the Foreign Exchange Market
    1. Alan R. Holmes and Francis Schott, The New York Foreign Exchange Market. New York: The Federal Reserve Bank of New York, 1965, Chapters 1-6.
    2. Frank A. Southard, Jr., Foreign Exchange Practice and Policy. New York: The McGraw-Hill Book Company, 1940.
    3. Norman Crump, The ABC of the Foreign Exchange. London: MacMillan and Company, Ltd., 1951.
    4. James E. Meade, The Theory of International Economic Policy: Vol. I. The Balance of Payments. London: Oxford University Press, 1951, Chapter 1.
  2. The Quantity of Money, the Rate of Interest, and the Price Level
    1. James Tobin, “The Monetary Policy and the Management of the Public Debt: The Patman Inquiry,” Review of Economics and Statistics, Vol. XXXV, No. 2, May 1953, pp. 118-27.
    2. Subcommittee on General Credit Control and Debt Management of the Joint Committee on the Economic Report, Hearings on the Question, What Should our Monetary and Debt Management Policy Be? 82nd Congress of the United States 1952, pp. 688-711, 691-98. (These pages include the testimony of Milton Friedman and Paul Samuelson).
    3. Robert V. Roosa, “Interest Rates and the Central Bank,” In Money, Trade, and Economic Growth, in honor of John Henry Williams, New York: The Macmillan Company, 1951.
    4. Lloyd A. Metzler, “Wealth, Saving, and the Rate of Interest,” Journal of Political Economy, Vol. LIX, No. 2, April 1951, pp. 93-116.
    5. Robert A. Mundell, “The Public Debt, Corporate Income Taxes, and the Rate of Interest,” Journal of Political Economy, Vol. LXVIII, No. 6, December 1960, pp. 622-26.
    6. George Horwich, “Real Assets and the Theory of Interest,” Journal of Political Economy, Vol. LXX, No.2, April 1962, pp. 158-69.
    7. Don Patinkin, Money, Interest, and Prices, 1st edition, Evanston: Row, Peterson and Company, 1956, Part II.
  3. The Role of Money in International Adjustment: Full Employment and Under-Employment
    1. J. M. Keynes, Treatise on Money: Vol. 1. The Pure Theory of Money. London: Macmillan and Company, 1935, Chapter 21.
    2. Lloyd A. Metzler, “The Theory of International Trade,” from A Survey of Contemporary Economics, Howard S. Ellis, Editor, Homewood, Ill.: R.D. Irwin, Inc., 1948.
    3. Lloyd A. Metzler, “The Process of International Adjustment Under Conditions of Full Employment: A Keynesian View,” first delivered before the Econometric Society, 1960, republished in AEA, Readings in International Economics, Vol. XI, Richard Caves and Harry Johnson, editors, Homewood, Ill.: R. D. Irwin, Inc., 1968, Chapter 28.
  4. Free-Market Exchange Rates
    1. A. J. Brown, “The Foreign Exchanges,” in Oxford Studies in the Price Mechanism, T. Wilson and P.W.S. Andrews, editors, Oxford at the Clarendon Press, 1951, Part II.
    2. Sidney Alexander, “Effects of a Devaluation on a Trade Balance,” International Monetary Fund Staff Papers, Vol. Il, No. 2, April 1952.
    3. Milton Friedman, “The Case for Flexible Exchange Rates,” in Essays in Positive Economics, Chicago: The University of Chicago Press, 1953, pp. 157-203.
    4. Joan Robinson, “The Foreign Exchanges,” in Essays in the Theory of Employment. Oxford: Basil Blackwell, 1947, Part III.
    5. Lloyd A. Metzler, “Exchange Rates and the International Monetary Fund,” in International Monetary Policies, Postwar Economic Studies, No. 7, Washington, D.C.: The Board of Governors of the Federal Reserve System, September 1947.
    6. Rudolph R. Rhomberg. “A Model of the Canadian Economy under Fixed and Fluctuating Exchange Rates,” Journal of Political Economy, Vol. LXXII, No. 1, February 1964, pp. 1-31.
  5. Forward Exchange Rates
    1. Paul Einzig, The Theory of Forward Exchange. London: Macmillan and Company, Ltd., 1937.
    2. Paul Einzig, A Dynamic Theory of Forward Exchang. London: Macmillan and Company, New York: St. Martin’s Press, 1961.
    3. Alan R. Holmes and Francis Schott, The New York Foreign Exchange Market. New York: The Federal Reserve Bank of New York, 1965, Chapters 7-8.
    4. Paul Einzig, “Some Recent Development in Official Forward Exchange Operations,” Economic Journal, Vol. LXXIII, No. 290, June 1963, pp. 241-53.
    5. Paul Einzig, “Some Recent Changes in Forward Exchange Practices,” Economic Journal, Vol. LXX, No. 279, September 1960, pp. 485-95.
  6. The Balance of Payments and the Concepts of Income
    1. R. F. Bennett, “Significance of International Transactions in National Income,” in Studies in Income and Wealth, Vol. VI. New York: The National Bureau of Economic Research, 1943.
    2. U. S. Department of Commerce, Income and Output, 1958 Supplement to the Survey of Current Business.
  7. The Theory of Income Transfers
    1. J. M. Keynes, “The Transfer Problem,” Economic Journal, Vol. XXXIX, No. 153, March 1929, pp. 1-7.
    2. B. Ohlin, “The Reparation Problem: A Discussion. I. Transfer Difficulties, Real and Imagined,” Economic Journal, Vol. XXXIX, No. 154, June 1929, pp. 172-78.
    3. J. M. Keynes. “The Reparation Problem: A Discussion. II. A Rejoinder,” Economic Journal, Vol. XXXIX, No. 154, June 1929, 179-82.
    4. J. Rueff, “Mr. Keynes’ Views on the Transfer Problem,” Economic Journal, Vol. XXXIX, No. 155, September 1929, pp. 388-99.
    5. B. Ohlin, “Rejoinder to J. Rueff,” Economic Journal, Vol. XXXIX, No. 155, September 1929, pp. 400-04.
    6. J. M. Keynes, “Reply to J. Rueff,” Economic Journal, Vol. XXXIX, No. 155, September 1929, pp. 404-08.
    7. L. A. Metzler, “The Transfer Problem Reconsidered,” Journal of Political Economy, Vol. L, No. 3, June 1942, pp. 397-414.
    8. H. G. Johnson, “The Transfer Problem and Exchange Stability,” Journal of Political Economy, LXIV, No. 3, June 1956, pp. 212-25, Republished in International Trade and Economic Growth. London: George Allen and Unwin, Ltd., 1958, Chapter VII.
    9. L. A. Metzler, “Flexible Exchange Rates, The Transfer Problem, and the Balanced-Budget Theorem,” Rivista Internazionale di Scienze Economiche e Commerciale, Anno XIII, No. 4, April 1966, pp. 301-18. Republished in Essays in Honor of Marco Fanno, Vol. II, Tullio Bagiotti, editor, edizioni cedam, Padova, 1966, pp. 449-76.
  8. Evolution of the International Monetary System
    1. Randall Hinshaw. Toward Currency Convertibility. Princeton University, Essays in International Finance, No. 31, 1958.
    2. Robert Triffin, Europe and the Money Muddle, New Haven: Yale University Press, 1957.
    3. Charles P. Kindleberger. The Dollar Shortage, Cambridge, Mass.: The Technology Press, New York: John Wiley and Sons, Inc., 1950.
    4. Robert Triffin, “The International Monetary Position of the United States,” in The Dollar in Crisis, Seymour E. Harris, editor, New York: Harcourt, Brace and World, Inc., 1961.
    5. Hal B. Lary, Problems of the United States as World Trader and Banker, Princeton: Princeton University Press for the National Bureau of Economic Research, 1963.
    6. Robert Triffin, The Evolution of the International Monetary System: Historical Reappraisal and Future Perspectives. Princeton Studies in International Finance Section. Princeton University, 1964.

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Lloyd Appleton Metzler Papers, Box 9, Folder “The Dust Proof File”.

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L. A. Metzler

ECONOMICS 370
FINAL EXAMINATION
WINTER, 1971

Answer all questions

  1. It is frequently said that forward purchases and sales have a two-fold effect upon the assets and liabilities of the bank making the forward transactions. When a bank makes a forward purchase, for example, it is entitled to receive a given amount of foreign currency some time in the future and this right to receive foreign currency constitutes an asset. On the other hand, when the bank receives the foreign currency, it is obligated to pay a given amount of its own currency, and exchange, and this obligation constitutes a liability. Conversely, when the bank makes a forward sale, it is obligated to deliver a given amount of foreign currency some time in the future and such an obligation constitutes a liability. But when the bank delivers the foreign currency, it is entitled to receive a given quantity of domestic currency to complete the transaction, and this receipt constitutes an asset.
    1. In view of the two-fold effect of both forward sales and purchases, how can you justify the inclusion of forward sales as liabilities and the inclusion of forward purchases as assets in an account of the bank’s foreign currency position?
    2. If it is actually true that both sales and purchases increase assets and liabilities by the same amount, what does this imply with respect to the bank’s ability to put itself in a closed position by means of operations on the forward exchange market?
  2. The table, below, presents the yield on 90-day Canadian treasury bills (rc), the yield on 90-day U.S. treasury bills (rus), the 90-day forward exchange rate (FR), and the spot exchange rate (SR) for Canadian currency. The yields for both Canadian and United States bills are stated on an annual basis and the exchange rates represent the price, in United States dollars, of one unit of Canadian dollars. The table covers various periods of time, from A to I.
Period of time Yield on
90-day Canadian treasury bills (rc)		 Yield on
90-day
U.S.
treasury bills (rus)		 90-day forward exchange rate (FR) Spot exchange rate (SR)
A .05 .06 1.0100 1.000
B .06 .05 1.0050 1.000
C .06 .04 1.0025 1.000
D .07 .03 0.9975 1.000
E .05 .04 0.9900 1.000
F .04 .05 0.9950 1.000
G .02 .04 0.9975 1.000
H .02 .06 1.0025 1.000
I .01 .05 2.0050 2.000

On the basis of the information given in the table above, you are asked to:

    1. Indicate which periods are periods of short-term potential capital outflow (O), and which periods are periods of short-term capital inflow (I) from the point of view of U.S. banks.
    2. Prepare a table showing the profits or losses on security transactions, the profits or losses on currency transactions, and the net outflow or inflow margin for all time intervals from A to I.
    3. Show what transactions a U.S. bank would make in carrying out a short term covered capital outflow and what transactions the bank would make in carrying out a short term capital inflow. From this information, show that arbitrage activities of the U.S. bank always influence rc, rus, FR, and SR in such a way as to put the market values back on the interest parity line.
    4. Comment on the stabilizing effects of interest arbitrage.
  1. Professor Alexander maintains that devaluation will be ineffective unless fiscal measures are taken to control spending.
    1. Discuss Alexander’s argument.
    2. Is it also applicable against a system of flexible exchange rates? Explain.
  2. Country A and Country B are trading with each other under a system of flexible exchange rates. Country A makes a unilateral transfer of t currency units, payable in the currency of B. On the assumption that both countries balance their budgets, prove that factor income remains unchanged in both countries while net output rises in A and falls in B. Give both an algebraic and a commonsense explanation of these results. What bearing do these results have on the controversy between Keynes and Ohlin concerning German reparations?
  3. The success of the Canadian experiment with flexible exchange rates is frequently given as an argument for the introduction of flexible exchange rates as a means of eliminating the deficit in the U.S. Balance of Payments.
    1. Would Alexander’s absorption principle apply to this situation?
    2. Can you see any reason why the comparison between Canada and the United States might be inappropriate?

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Lloyd Appleton Metzler Papers, Box 9, Folder “Econ 371 [sic] Reading List.”

Source Image: Posting by Margie Metzler on the Metzler Family Tree at the genealogical website, ancestry.com.