Inquisitive Exam POLS INTL ECON
T or F Among developing countries, a backlash has been growing against the Washington Consensus and globalization.
True
T or F A stable international monetary regime is an example of a public good requiring collective action.
True
T or F BMW, a German car manufacturer, opens a factory in the United States, in South Carolina. This is an example of BMW operating as a multinational corporation.
True
Secondary Sectors
industry
A sharp slowdown in the rate of economic growth and activity is known as [BLANK]. A particularly severe version of this, when there is high unemployment, a major decline in economic activity, and a contraction of credit, is known as [BLANK]
- A recession -A Depression
Put the steps of a typical currency crisis in order from first to last.
- The government commits itself to a fixed exchange rate. -The Government faces difficultly in sticking to its promised exchange rate -People, especially investors, lose faith in the government's ability to keep its exchange rate. -Investors sell off the nations currency, exchanging it for a more reliable foreign currencies -The government devalues its currency
Even at low interest rates, the cost of paying back concessional loans from the World Bank can be very costly for [BLANK]. This has led to a call for the World Bank to engage in [BLANK]
-Developing countries -Debt forgiveness
Imagine that on January 1 a person could exchange one dollar for one euro. Later that year, on December 1, the person could exchange one dollar for two euros. We would therefore say that the dollar had [BLANK] relative to the euro, whereas the euro had [BLANK] relative to the dollar.
Appriciated, Been devalued
Which of the following best captures the relationship, if any, between different patterns of colonial settlement and long-term economic development outcomes?
Areas where European colonists could settle have had better long-term economic outcomes.
Which of the following are examples of austerity policy, and which are not?
Austerity Policy -reducing government spending -increasing taxes NOT austerity policy -increasing consumption -raising wages
T or F The United States is currently on a fixed exchange rate with the dollar pegged to the value of gold.
False
The agricultural sector illustrates which of the following about the economic relationships between developed and developing countries?
Developed countries use their greater economic power to refuse to fully open their agricultural sector to international competition
Match the type of exchange rate with the corresponding example(s).
Fixed- Panama pegs its currency to the value of the U.S dollar Gold standard- The U.S allows individuals to trade their currency for a set amount of gold per dollar Floating- The U.S allows the value of its currency to change based on supply and demand
Which of the following is an argument for why former colonies in North America have achieved more economic development than former colonies in South America have?
Early patterns of economic development in North America were more egalitarian than in South America
Export-oriented industrialization (EOI) was most popular in which area of the world?
East Asia
Match each currency crisis with the events or circumstances that helped cause it.
Europe 2011/2015- Caused in part by states borrowing heavily after the creating of the euro Europe 92- Caused by Germany raising interest rates while other European national had tied their currencies to the Deutschmark East Asia 97- Spread rapidly form country to country, cause in part by lagging export and rising inflation Mexico 94- Caused in part by political unrest and uncertainty tied to an assassination
Which groups or individuals would benefit more from a floating currency, and which would benefit more from a fixed currency?
Floating Currency central banks businesses that are entirely domestic in nature Fixed Currency businesses that conduct international trade
Which of the following is an example of a bilateral investment treaty?
France and Germany agree on terms for how companies and businesses can invest across their borders
This country was at the heart of the eurozone's currency crisis in the early 2010s and was nearly forced to leave the euro currency union on account of their sizable national debt.
Greece
What do we mean when we say that a country might have a "resource curse"?
Having abundant access to a valuable natural resource often leads to less economic development over time
Which of the following was one of the most important lessons of the late 1990s currency crisis in East Asia?
How quickly currency crises can spread from country to country
This major international institution acts as the lender of last resort for the international financial system, helping stabilize debtor nations during economic crises.
IMF
Basic structures necessary for a nation's social and economic activity, such as roads, bridges, telecommunications networks, and power and water supply, are known more generally as what?
Infrastructure
Which of the following statements about the history of labor migration is correct?
Labor Migration was proportionally larger percentage of the population in the 1800s than today
What does LDC stand for?
Less Developed Country
A business enterprise that operates in a number of countries, with production or service facilities outside its country of origin, is known as which of the following?
MNC
Which of the following best explains the creation of the euro?
Many European countries wanted a stable exchange rate between their countries
Which of the following is an example of a commodity cartel?
OPEC
When investors purchase stocks or bonds in another country, it is known as [BLANK]. This is different from [BLANK] which is when investors purchase or start a local facility in another country—a local facility they nevertheless maintain control over.
Portfolio Investment Foreign Direct Investment
You decide to buy some stock in a foreign company in the hopes that you will earn a higher rate of return than you would by keeping your money under your mattress. What is this is an example of?
Portfolio investment
According to some analysts, such as Raúl Prebisch, one reason LDCs remain disadvantaged economically is that they specialize in [BLANK] products, which are subject to market competition, whereas goods produced by developed nations tend to be controlled by [BLANK]
Primary Oligopolies
In sovereign lending, money from [BLANK] is lent [BLANK]
Private Financial institutions Governments
Primary Products
Raw materials and agricultural products, typically unprocessed or only slightly processed.
Tertiary Sector
Services
The fictional state of Atlantis contains many groups within it. Some of these groups would prefer that Atlantis have a strong currency while others would prefer a weak currency. Indicate which type of currency the following groups would prefer.
Strong Currency -Domestic Consumers -Tourists who travel overseas Weak Currency -Domestic manufacturers who sell overseas -Farmers
Study the map and determine which area of the world has the largest number of LDCs.
Sub-Saharan Africa
The relative movement of a country's import and export prices is known as what?
Terms of Trade
When was the U.S Dollar the strongest
mid 1980s
Suppose Portugal has borrowed large amounts of money from banks operating in the United States. Unfortunately, economic conditions have worsened in Portugal and it is going to be unable to meet its debt obligations to the banks in the United States. Portugal is threatening to [BLANK]. To avoid this outcome, Portugal works with banks in the United States and with the [BLANK] to negotiate a compromise.
-Default -IMF
This kind of finance entails wealthy countries or organizations either giving money or lending it at a very low interest rate to poorer nations.
Concessional
Choose all of the following that are reasons a country might want a weak currency relative to other currencies.
Correct Answers -A weaker currency allows groups such as domestic farmers to be more competitive on the international market. -A weaker currency encourages foreigners to buy its goods. Incorrect Answers -A weaker currency allows a country's citizens to purchase more with their currency when abroad. -A weaker currency increases the purchasing power of domestic consumers and importers.
Choose all of the following that are arguments in favor of foreign aid as a tool for alleviating global poverty.
Correct Answers: -Foreign aid can improve the lives of the poor in meaningful ways. -Foreign aid can provide policy makers with incentives to help the poor Incorrect Answers -Foreign aid tends to go to leaders of the current government in developing countries. -Foreign aid currently makes up a large portion of developed countries' budgets.
Choose all of the following that are key elements of import-substitution industrialization.
Correct Answers: -The government provides incentives to domestic industries. -Basic industrial services such as power and water are provided by public enterprises. -Trade barriers are erected to protect domestic manufacturers. Incorrect Answers Manufacturers are encouraged to produce goods for foreign markets.
There are several prominent approaches that help explain why it is difficult for some countries to improve their economic development. They include which of the following?
Correct Answers: Geographic Location Domestic Factors Domestic Institutions Incorrect Answers: Currency Regimes
Which of the following do some scholars believe are geographic reasons a country might struggle to develop?
Correct Answers: -being located in a tropical environment -being landlocked Incorrect answers -having a large natural harbor -having access to natural resources
Why is foreign aid unlikely to play a major role in overcoming underdevelopment?
Correct Answers: The amount of foreign aid currently given is relatively small. Foreign aid does not always get spent in a way that promotes development. There is not much political will in developed countries for substantially increasing foreign aid. Incorrect Answers: Developing countries are incapable of achieving sustainable economic growth.
What reasons did supporters give for wanting to move the United States from the gold standard to the silver standard in the late 1800s and early 1900s?
Correct answer -It would make American exports more competitive by devaluing the dollar. -It would have helped debtors. Incorrect Answers It would have lowered domestic prices for goods. It would have helped creditors.
Why did many European countries face difficult currency decisions in 1991 and 1992?
Correct answer They had pegged their currency to Germany's, and Germany was engaging in rapid interest rate increases. Incorrect answer -They wanted to remove their currency from its ties to the gold standard, but the United States would not allow them to. -They were suffering from internal political strife that made investors hesitant to invest in their currencies. -They had large government debts they could no longer afford to pay off.
Choose all of the following that are principal features of an international monetary regime.
Correct answers -an understanding of whether currencies are fixed, floating, or a combination thereof -agreement on what benchmark or standard currency value will be based on Incorrect Answers -rules about allowable trade barriers between states -funding for international organizations to help set exchange rates
How does the Heckscher-Ohlin theory help us explain labor migration?
Countries with large numbers of unskilled labor will export that labor to the rest of the world
T or F The 2008 global financial crisis started in Greece.
False
This major international organization was created as part of the Bretton Woods System and was originally responsible for monitoring interstate exchange rates and overseeing currency relations.
IMF
A serious currency crisis broke out in [BLANK] in 1994. The government tried to keep the peso pegged to the value of [BLANK] but domestic political instability, narrow election results, and currency-trader skittishness prevented them from being able to do so. This currency crisis later spread throughout Latin America
Mexico The U.S. Dollar
Match the currency standard with the era in which it was commonly used.
Modern Era- National Paper Currency Standard Bretton Woods era- Commidity-backed paper standard Classical gold standard era- Commidity standard
This kind of policy is used by national governments to influence macroeconomic conditions such as unemployment and economic growth. It is based on changes to the interest rate and money supply of an economy.
Monetary Policy
Identify the following as either groups who want their government to devalue during a currency crisis or groups who want their government to stay on a fixed exchange rate.
Stay fixed -Companies and individuals who have borrowed in a foreign currency -Consumers Devalue -Farmers and Manufacturers
In the modern international monetary order, currencies are backed by which of the following?
The commitment of issuing governments to maintain their values
Which of the following is an example of an oligopoly?
Three companies control most of the worlds diamond supply
Why are predictable exchange rates necessary for transnational trade?
Traders would be reluctant to do business across borders if currencies fluctuated wildly
T or F Because colonial powers often drew national boundaries without consideration for ethnic or religious divisions, many LDCs today struggle with internal divisions that complicate economic policy making.
True
T or F Currency crises that start in one country often spread to others.
True
T or F The eurozone crisis in the early 2010s primarily took place in countries such as Greece, Ireland, Portugal, and Spain.
True
T or F There is no major international institution specifically related to foreign direct investment.
True
True or False Countries that pursued export-oriented industrialization fared better during the debt crisis that hit the developing world in the early 1980s.
True
Sort the following into reasons a host country might want, or not want, a multinational corporation (MNC) to set up within its borders.
Want to Host an MNC -MNCs sometimes generate significant tax revenue. -MNCs bring talent and knowledge to a local economy. Do not want to host an MNC -MNCs may leave a hole in the economy if they depart. -MNCs spur protests by local competitors.
This major international institution lends out money at low interest rates to developing countries for the purposes of building infrastructure and other such projects.
World Bank
Suppose India encourages domestic producers to manufacture everything the state and its citizens might need. India would be following [Blank]. Suppose South Korea, on the other hand, primarily manufactures goods to sell to other, wealthier nations. South Korea would be pursuing [Blank]
1. Import-Substituting Industrialization 2. Export-oriented industrialization
The Group of [BLANK] is a coalition of developing countries within the United Nations, whereas the Group of [BLANK] is composed of finance ministers and central bank leaders from the world largest economies
77 20
What does it most commonly mean for a country to manipulate its currency?
A country keeps the value of its currency artificially low
Which of the following best captures the relationship between interest rates and exchange rates?
A country with higher interest rates will have a stronger currency.
What commonalities do debtor nations share with their creditors, and where do the interests of debtor nations and creditors diverge?
Common Interests -Debtors want to maintain access to international credit markets. -Debtors want to be seen as trustworthy nations to lend money to and do business in. Diverging Interests -Debtors want to pay back as little of their debts as they can negotiate. -Debtors want to avoid austerity measures if possible.
Choose all of the following statements about import-substituting industrialization that are true.
Correct Answer Import-substituting industrialization was very popular after the end of the Great Depression and World War II Import-substituting industrialization focused on reducing reliance on imports from developed countries. Incorrect Answers Developed countries were more likely than developing countries to use import-substituting industrialization. Plantation owners and those who controlled natural resources in developing countries were in favor of import-substituting industrialization
Choose all of the following that are reasons a country might want a weak currency relative to other currencies.
Correct Answer -A weaker currency encourages foreigners to buy its goods. -A weaker currency allows groups such as domestic farmers to be more competitive on the international market. Incorrect Answers -A weaker currency allows a country's citizens to purchase more with their currency when abroad. -A weaker currency increases the purchasing power of domestic consumers and importers.
Choose all of the following that are ways the Heckscher-Ohlin theory helps explain trends in foreign investment in emerging markets.
Correct Answer -Investors can get larger returns in developing countries because of the scarcity of capital. -Developed countries pay little interest on loans because of the abundance of capital. Incorrect Answer -Very few companies are comfortable operating in foreign countries. -The abundance of land in developed countries leads to higher interest rates for capital there.
Which of the following were features of the gold-standard international monetary regime? Choose all that are correct.
Correct Answer -It proved contentious in places like the United States. -The system relied on major financial powers being willing to stabilize each other through emergency loans. Incorrect Answer -The system ended in the 1970s. -Currency was backed by national government commitments rather than being tied to the value of a precious metal.
Choose all of the following that are reasons a corporation might want to become multinational.
Correct Answer -MNCs have access to resources that they otherwise could not get. -MNCs avoid trade barriers by producing in a local market. -MNCs send different parts of the production chain to the places where they are cheapest. Incorrect Answers -MNCs are less complex because they work with multiple governments.
Choose all of the following that are part of the Washington Consensus.
Correct Answers -trade liberalization -fiscal and monetary policies designed to avoid deficits -privatization of government-run enterprises Incorrect Answers subsidies to domestic industries
Choose all of the following statements that are supported by the figure. World FDI
Correct Answers -Even in 2015, the majority of the world's FDI takes place in developed countries. -Most of the growth in FDI in Europe happened in the first decade of the 2000s. Incorrect Answers -Since 2010 overall FDI has decreased on account of the recession. -Africa has seen no growth in FDI since 2000.
Why might a government want a fixed exchange rate? Choose all that apply.
Correct Answers -Fixed exchange rates facilitate international trade. -Fixed exchange rates keep prices stable. Incorrect -Governments have more flexibility in monetary policy with fixed exchange rates. -Currency manipulation is easier with a fixed exchange rate.
Choose all of the following that are reasons a government might want a floating exchange rate.
Correct Answers -Floating exchange rates allow economic policies to have greater flexibility. -Central banks have more authority with floating exchange rates. Incorrect Answer -A floating exchange rate ties a currency's value to the value of gold or other precious metals. -Trade is simplified with a floating exchange rate.
Many people in developed countries where multinational corporations are headquartered have criticized MNCs for their practices. Choose all of the following that are reasons why people in developed countries have criticized MNCs.
Correct Answers -MNCs use the threat of moving jobs overseas to extract concessions from workers. -MNCs outsource some jobs to other countries, thereby hurting labor in their home country. -MNCs avoid environmental regulations by moving production to states with less intense environmental standards. Incorrect Answers -MNCs pay taxes in both their home countries and host countries.
Which of the following countries have been bailed out by the International Monetary Fund (IMF)? Choose all that apply.
Correct Answers -Mexico -Russia -Greece -Indonesia
Why might people in receiving countries be opposed to immigration? Choose all that apply.
Correct Answers -Migrant labor can displace local employees from jobs. -Migrant labor may use more in social services than it pays in taxes. Incorrect Answer -Migrant labor pays local taxes. -Migrant labor may do jobs that native labor is unwilling to take.
Choose all of the following that are criticisms of the International Monetary Fund (IMF).
Correct Answers -The conditions the IMF attaches to loans harm the poorest citizens of a country. -The IMF violates the sovereignty of nations. -The IMF is a tool of international financiers. Incorrect The IMF only assists developing countries
How can incomplete information complicate bargaining between debtor and creditor nations?
Correct Answers -The creditor may not know whether the debtor state can really repay its debts. -Debtors may not know how willing creditors really are to retaliate on defaults. Incorrect -Creditors may not know how much debtors owe them. -Debtors may not know whether they can afford to pay back their debts.
Choose all of the following that accurately characterize China's monetary policy over the past few decades.
Correct Answers -The government has purchased and kept large reserves of U.S. dollars. -The government has kept its currency artificially weak. -One of China's main monetary goals has been to encourage the growth of domestic manufacturers. Incorrect The government has raised interest rates to attract foreign investment.
Choose all of the following that are domestic factors that can encourage economic growth.
Correct Answers -a strong infrastructure -a commitment to private property rights -public confidence in the government Incorrect Answers a tropical environment
Choose all of the following that are reasons why oil-producing countries have been unusually successful in forming a strong commodity cartel.
Correct Answers: -A relatively small number of states control a large percentage of the supply. -There are not many substitutes for oil in the industrial process. -Many oil-producing states share religious and cultural ties. Incorrect Answer -States that defect from OPEC agreements can be punished by military means.
Choose all of the following that are principal features of an international monetary regime
Correct answers -agreement on what benchmark or standard currency value will be based on -an understanding of whether currencies are fixed, floating, or a combination thereof Incorrect -funding for international organizations to help set exchange rates -rules about allowable trade barriers between states
State A decides it wants to support its domestic manufacturers. To do so, it acquires large amounts of the currency of state B so that its own currency remains artificially weakened relative to state B's. This encourages people living in state B to buy goods manufactured in state A. State B could accuse state A of which of the following?
Currency Manipulation
The price at which one can trade dollars for euros is known as which of the following?
Exchange rate
Match each term with the corresponding example(s).
FDI -Toyota, a Japanese-based car maker, builds a new factory in Mexico -Aramco, a Saudi Arabian petroleum and natural gas company, owns and operates an oil refinery in China. Sovereign Lending -Goldman Sachs, an American-based investment bank, lends money to the government of Indonesia for an infrastructure project Portfolio investment -Chase Bank, based out of the United States, purchases stock in a Japanese telecommunications company.portfolio investment
T or F Having a strong currency is always better for a country.
False
T or F International organizations tend to favor developing countries.
False
T or F Most individuals and corporations in developed countries invest in developing countries because they believe these investments are less risky than what they can find in their own country.
False
T or F The United States has the largest percentage of foreign-born residents among developed countries.
False
When debtor nations are going through a recession, they are [BLANK] likely to default on their debts. The International Monetary Fund is [BLANK] likely to be involved with a debtor nation during a recession than during good economic times.
More More
In what areas do developed and developing countries share common interests? In what areas do their interests diverge?
Shared interest -Economic growth creating opportunities for profit and technical expertise -Reliable international economic systems creating stability Diverging Interest -Division of profits from slaes of primary products -Paying back debts to foreign banks
Why do some people criticize global attempts to contain currency crises?
Some people believe that bailing out such currencies only rewards undeserving banks and governments
The [BLANK] came into effect after the end of World War II. Under this regime, most currencies were pegged to [BLANK] although countries were periodically allowed to adjust their exchange rates.
The Bretton Woods System The U.S Dollar