PS 124A Roberts
According to the Unholy Trinity, if governments have the three following policy goals, they must choose two and sacrifice the third:
- Capital mobility - A fixed exchange rate - Monetary autonomy
According to the Political Trilemma of the World Economy, if governments have the three following goals, they must choose two and sacrifice the third:
- Democracy - Nation State self-determination - Hyperglobalization
Which two of the following were problems facing Argentina in the 1990s?
- Economic recession - Hyperinflation
Which of the following are "strong states", according to the definition used by Oatley? (check all that apply)
- France - Japan
What four countries are BRICs?
- Russia - India - Brazil - China
As a result of ISI policies, developing countries in the 1960s and 1970s ... (Check all that apply)
- experienced high rates of indusrialization - had rapid economic growth
According to Acemoglu and Robinson, Extractive institutions...
Allocate power to a narrow ruling elite, leading to corruption and poor long-term economic growth
Why might abandoning the current (at the time the article was written) exchange rate policy lead to inflation in Cuba?
Because the current official exchange rate overvalues the Cuban currency.
In the Game of Trust, which strategy tends to win if the game is played just once?
Cheat
The logic of the collective action problem helps us understand why...
Governments rarely liberalize trade unilaterally
Tit-for-tat is an example of...
Reciprocity strategy
According to the Trade Show podcast, one of the first laws passed by the United States Congress was a tariff
True
The IMF was intended to limit two kinds of behavior:
competitive devaluations and abuse of the stabilization fund.
Import substitution industrialization (ISI) was based on the strategy of
substituting previously imported simple consumer goods with newly domestically produced ones
According to Acemoglu and Robinson, Inclusive institutions...
such as rule of law and property rights tend to promote economic growth over time
The Gold Standard is similar to
the Euro (EMU) system - both keep exchange rates stable
Structural adjustment policies included three of the following:
- Deregulation and privatization - Trade liberalization - Higher producer prices in agriculture
Which two of the following were important inhibitors to the creation of the Euro, according to the Continental Breakup podcast?
- The memory of high inflation in the Weimar Republic - The importance of sovereignty to France
Foreign direct investment includes
- When a firm in one country builds a new plant or factory in a second country - When a firm in one country purchases an existing plant or factory in a second country
Revaluation
Increase in a currency's value under a fixed exchange rate system
Dominant strategy
a strategy that is the best reply to all of the other player's strategies
East Asian governments used industrial policies to
create incentives to export
A central bank ...
is responsible for hitting inflation targets
According to The Economist (2020) article, if a country runs a current account deficit of $10 billion per year, it can fund this deficit in the following ways:
- by borrowing $10 billion from abroad - by selling $10 billion in assets (property, stocks, or whole businesses) to foreigners
If Argentina needs 4 workers to make a car and 8 workers to make a boat, and Brazil needs 10 workers to make a car and 10 workers to make a boat, and the countries do NOT trade, then the opportunity cost of a boat is
2 cars in Argentina and 1 car in Brazil
The rapid accumulation of debt in the 1970s contributed to
Economic growth in Latin America in the 1970s
According to the Ted Talk - foreigners, not robots, took our jobs
False
Turkey appears to have successfully implemented central bank independence, which has successfully kept inflation under control.
False
The massive accumulation of debt in Latin American countries in the 1970s made those countries vulnerable to international shocks because
ISI's focus on capital-intensive projects failed to generate exports, which led to high debt service to export revenue ratios
Trade account
Imports and exports of manufactured items and agricultural goods
Complementary demand coordination problem
In an economy in which few people earn a money wage, no single manufacturing firm can sell its products unless other manufacturing activities start simultaneously
Appreciation
Increase in a currency's value under a flexible exchange rate system
A firm's decision about whether to conduct international transactions through the market or to internalize these transactions depends on an interaction between
Locational advantages and market imperfections
China is labor abundant relative to the US and the US is capital abundant relative to China. According to Stolper-Samuelson, when China began to trade more intensively with the United States, this would have the following effects in the US:
Lower relative prices for labor intensive goods and higher relative prices for capital intensive goods, and therefore lower wages for labor and higher profits for capital in the US
According to The Economist article, "The yuan has been one of the world's most stable major currencies," how would you characterize China's exchange rate policy?
Managed float
India developed a manufacturing industry in the 1930s because
Markets for Indian exports constricted, forcing Indians to produce their own manufactures rather than import cheaper manufactures from abroad
According to The Economist (2020) article, "Why does low unemployment no longer lift inflation?", the problem with the flat Phillips curve was that ...
Monetary policy may not be effective in encouraging job creation if inflation is not high enough to reduce real wages
Which two core principles stand at the base of the WTO?
Nondiscrimination Market liberalism
Which Goldman Sachs prediction was achieved by the BRICs?
The BRIC economies would, by 2025, have a combined GDP at least half that of the 6 largest developed economies.
Based on the Jeff Stein article, President Trump's monetary policy preferences appear to follow ...
The Electoral Model
According to the Partisan Model of Monetary and Exchange Rate Politics,
There is a tradeoff between low unemployment and low inflation
Debtor governments never threatened collective default because
They were caught in a prisoners dilemma - collective default could yield collective benefits, but each government had an incentive to defect from collective default in order to seek a better bilateral deal
Bangladesh's economy has averaged close to 6 percent annual growth in the past 20 years.
True
Enforcement problem
a situation in which parties to an agreement cannot be certain that the other parties will comply with the terms of the agreement
Pareto suboptimal
a status quo in which at least one member of society can be made better off without making any other member of society worse off
Pareto optimal
a status quo in which no member of society can be made better off without making some other member of society worse off
Reciprocity strategy
a strategy that enables a player to reward other players for cooperating and punish them for cheating
According to the Yes or No podcast, in Greece's 2015 referendum, a Yes vote was a vote in favor of ...
accepting an EU bailout in exchange for the Greek government raising taxes and cutting spending
The government ...
achieves fiscal stimulus by selling bonds to investors for cash, then distributing the cash to households
Nash equilibrium
an outcome in which none of the players has an incentive to change their strategy unilaterally
The current account imbalances in the United States during the Reagan administration were due to
cutting taxes and raising military spending
The Economist's (2021) "Has the pandemic shown inflation to be a fiscal phenomenon?" concludes that Quantitative Easing (QE) is only inflationary if ...
fiscal policy simultaneously increases debt-financed spending
"rational expectations"
fiscal stimulus leads taxpayers to save income earned as a result of stimulus in order to have it on hand for when taxes are raised so the government can repay its debt
Export-processing zones are industrial areas set aside for MNCs with special rules or subsidies. Foreign firms based in EPZs are primarily allowed to
import components free of taxes, as long as all of their output is exported
The WTO reduces the impact of raw power on international trade relations because
it brings the rule of law to bear in international trade relations
According to The Economist article, "The pandemic has widened the wealth gap," the wealthy have become wealthier because ...
low interest rates made property, stocks, and bonds more valuable
In order to attract capital flows from current account surplus countries in the early 1980s, the United States had to
maintain relatively high interest rates
Because Keynes believed that the cause of persistent high unemployment ultimately lay in inadequate demand for goods, he proposed that governments use fiscal and monetary policies to
manage aggregate demand
According to The Economist article,
many American workers displaced by Chinese imports did not find another job. This supports the Sector Model.
the "fiscal multiplier"
public spending yields both the primary boost from the direct spending, plus "beneficial repercussions"
"Treasury view"
public spending, financed through borrowing, does not boost overall economic activity, because the supply of savings in the economy available for borrowing is fixed
ISI policies increase opportunities for ...
rent seeking - efforts by private actors to achieve higher-than-market returns by corruptly using the political system, for example bribing officials to acquire import licenses
The Bill That United the Senate is best described as an example of ...
strategic trade policy
Obsolescing bargaining power happens when
technology has been significantly transferred to the host country workers
Germany was the center of;
the European Monetary System (EMS)
Which of the following give countries more bargaining power in WTO trade talks? (CHECK ALL THAT APPLY)
- An attractive alternative to a successful trade agreement - patience
Three reasons for the global shift from structuralism to neoliberalism as the guiding philosophy for economic development include:
- An economic crisis in the 1980s forced indebted countries to reform, and the IMF and World Bank pushed neoliberal policies - Many countries that pursued ISI policies experienced economic imbalances such as budget and trade deficits - A handful of East Asian countries outperformed other developing countries
If Argentina needs 4 workers to make a car and 8 workers to make a boat, and Brazil needs 10 workers to make a car and 10 workers to make a boat, then (check all that apply)
- Argentina has an absolute advantage in making boats - Brazil has a comparative advantage in making boats - Argentina has a comparative advantage in making cars
According to the podcast, foreign capital lent a lot of money to Argentina in the years after Argentina pegged its currency to the dollar because (identify the two correct answers)
- Argentina was perceived as a high-growth economy - Argentina's currency was now considered much safer
If Argentina needs 4 workers to make a car and 8 workers to make a boat, and Brazil needs 10 workers to make a car and 10 workers to make a boat, and the countries DO trade, then ... (check all that apply)
- Argentina will export cars to Brazil - Brazil will export boats to Argentina
Which of the following occurred during the implementation of the Bretton Woods monetary system? (Select the three best answers)
- Britain attempted to restore convertibility of the pound shortly after the end of World War 2, but convertibility was quickly suspended because the country was in danger of running out of dollars and gold - The Marshall Plan helped European countries import goods from the US and other countries - The Marshall Plan helped European governments acquire a sufficient supply of dollars to enable them to make their currencies fully convertible with the dollar
According to The Economist article,
- Chinese-owned firms pay American workers less than American-owned firms for similar work, on average. - When Americans move between two American-owned firms, their wages change little. - When American workers move from an American-owned firm to a foreign-owned firm, their wages generally go up
Which of the following are true of US perceptions about trade, according to The Economist article?
- Consumers may not realize how much of what they buy is produced overseas, and may therefore have low support for trade. - Workers may not realize just how much of what they make is shipped overseas, and may therefore have low support for trade. - The costs of trade are highly concentrated - cheap imports have destroyed many American manufacturing companies and jobs - leading to a negative perception of trade. - Trade's benefits are hard to perceive because they are spread across large groups of people, which leads to low support for free trade.
According to Oatley, each crisis in the decade of financial crises (in Asia, Latin America, Turkey, and Russia) was distinctive in some way, yet all shared two important similarities:
- Each country developed a heavy reliance on short-term foreign capital - Each country maintained some form of fixed exchange rate (including policies such as a crawling peg)
The following conditions must be met for cooperation to be achieved in a prisoner's dilemma scenario of trade negotiations (CHECK ALL THAT APPLY):
- Each government must sufficiently value future benefits - The game must be played repeatedly by the same governments - Governments must use reciprocity strategies to enforce the cooperation outcome
There are two reasons why firms might be efficient in the long run but not efficient in the short run:
- Economies of experience - Economies of scale
According to strategic-trade theory, the location of high-technology industries is primarily determined by ... (choose the best two answers)
- Economies of scale and experience - Timing of market entry
If England has a lot of capital relative to labor compared to the United States and the countries do trade, then (check all that apply)
- England will export capital-intensive goods to the US - England will import labor-intensive goods from the US
The winners of ISI policies generally included (check all that apply - pay attention to the reasoning)
- Factory owners in comparative disadvantaged sectors - Urban workers, because they earned more from increased job opportunities in the manufacturing sector
The Group of 77 developing countries used the UN Conference on Trade and Development (UNCTAD) talks and GATT talks to pursue ... (Check all that apply)
- Financial transfers from advanced industrialized nations - Elimination of trade barriers on commodities in industrialized nations - International commodity price stabilization by setting a floor for commodity prices to stop those prices from falling too low - Preferential access for import of manufactured goods from developing countries into industrialized nations
Two possible solutions for a government's credible commitment problem resulting from the time-consistency problem regarding unemployment and inflation include
- Fixed exchange rates - Independent central banks
For most of the past 30 years, most foreign direct investment has
- Flowed from advanced industrialized countries, to advanced industrialized countries
Which of the following occurred during the breakdown of the Bretton Woods monetary system? (Select the 4 best answers)
- Germans who worried about inflation more than collapse of the exchange rate system sold large volumes of dollars to buy back German marks - The US ran large, consistent balance of payment deficits because of the Vietnam War - The Nixon administration loosened monetary policy (reduced interest rates) to stimulate the US economy - The US ran large, consistent balance of payment deficits because of expanded welfare programs at home, including Medicaid, Medicare, and Social Security
Which of the following are often included in Import Substitution Industrialization policies? (Check all that apply)
- Government control of agricultural export boards - Taxation of agricultural exports - Government investment in manufacturing enterprises - Government control of foreign exchange to facilitate import of capital goods - Taxation on manufactured imports
According to Keynes, (select 3 correct answers)
- Governments should cut taxes during times of unemployment in order to increase consumption, which will increase aggregate demand, which will motivate businesses to invest and create jobs to produce enough to meet demand - Governments should increase spending during times of unemployment in order to increase consumption, which will increase aggregate demand, which will motivate businesses to invest and create jobs to produce enough to meet demand - Governments should reduce interest rates during times of unemployment in order to increase borrowing for items such as cars and houses, which will motivate businesses to invest and create jobs to produce enough to meet demand
According to the Continental Breakup podcast, two events that contributed to the European Monetary Union's creation included ... (Select the best 2 answers)
- Greece and other Mediterranean countries promised to maintain low budget deficits and inflation - The French conditioned support for German unification on German support for monetary union
As a result of Argentina's peg to the dollar, the following three economic developments occurred (in the first several years):
- Imports from other countries became cheap - The Argentinian peso became strong - Argentinian exports to other countries became expensive
Two differences between the HIPC debt initiative and previous programs include the following:
- In a two-stage process, the debtor government must first work use a participatory process to design a plan, and must then satisfactorily implement the plan in order to complete the program - Debts owed to multilateral lenders were reduced/forgiven
Which of the following are true statements about the Bangladesh T-Shirt Economy podcast?
- Jobs in t-shirt factories made the lives of women better off in many ways - Most workers in the t-shirt factories are women - By getting into the T-shirt business, Bangladesh has brought a huge amount of people out of poverty
According to the factor model,
- Land-owners are likely to benefit economically from and to support free trade in countries with low population density - Business owners are likely to benefit economically from and to support free trade in advanced economy countries - Workers are likely to benefit economically from and to support free trade in backward economy countries
According to the podcast, after Argentina defaulted on its debt,
- Lenders sanctioned Argentina by refusing to lend to Argentina at levels anywhere close to the lending before the default - Argentina's economy was able to recover to a large degree because its exports became cheaper in world markets - Lenders sued Argentina in court in New York and won but were not able to collect
Three problems associated with ISI policies, particularly in Africa, included:
- Low levels of exports - Persistent budget deficits from government investments in productive capacity and subsidies for public services such as electricity, water, and transportation - High levels of imports
Examples of positive externalities that can be transferred through FDI include
- Managerial expertise - Marketing networks - Technology
Three major economic shocks that hit Latin America in 1979 and the early 1980s included:
- Oil prices rose again, increasing the cost of imports - Interest rates went up in the US, which translated into higher interest rates for Latin America debt with variable interest rates - Recession in the advanced industrialized world reduced demand for Latin American goods and reduced their terms of trade
Which of the following are examples of locational advantages?
- Presence of natural-resource deposits - Lower cost of the factors of production used intensively in the production of a specific product - Large consumer markets that are expected to grow rapidly
Landowners dominated politics prior to World War II in Latin America, Asia, and Africa ... (Check all that apply)
- Primarily through colonial structures in Africa - Primarily through colonial structures in Asia - Because the countries are land abundant (especially relative to capital), so they primarily export agricultural goods, which enriches the landowners
China's economic reform was based on the following three pillars:
- Sale of agricultural crops to the government at state-set prices and the remainder on private markets at market prices - Gradual withdrawal of state financial support for manufacturing enterprises - Liberalizing foreign direct and investment, including special economic zones, where taxes and tariffs were reduced and labor market restrictions were relaxed
According to the Sectoral Model of Monetary and Exchange Rate Politics, ... (select the best 3 amswers)
- Sectors that intensively use comparatively abundant factors prefer an undervalued exchange rate - Sectors that intensively use comparatively scarce factors prefer a floating exchange rate because a floating exchange rate enables macroeconomic stimulus - Export-oriented producers prefer a fixed exchange rate because they are heavily engaged in international trade
According to Rodrik, two lessons from East Asian countries including China include:
- Selectively applying tariffs, import quotas, and price controls can be compatible with or even facilitate long-term economic growth - Successful long-term economic growth is generally promoted when markets and private incentives play a large role in the economy
When firms earn a substantial share of their revenues from ______, they have strong incentives to integrate vertically
- Specific assets, such as natural resources - Specific assets, such as factories that manufacture component parts
The rise in private lending to developing countries in the 1970s was driven by two events:
- The 1973 oil shock, which generated large current account surpluses in oil-exporting countries that enabled those countries to lend petrodollars to commercial banks, who then lent to developing countries - Growing demand for foreign capital in developing countries pursuing ISI strategies
Nationalization of foreign-owned private property became widespread following WORLD WAR ONE because: (Check all that apply)
- The Marxist-Leninist government in the Soviet Union rejected the idea of private property - Some Latin American countries began to expropriate foreign owned investments, especially in the extractive industries and public utilities - Developing countries began to broaden the notion of "pubic purpose" to include the state's role in the process of economic development
After the WTO appellate body made its decision between Indonesia and the US,... (CHECK ALL THAT APPLY)
- The US and Indonesia reached a secret settlement - Indonesia began exporting cigarette-looking clove cigars to the US
The following three factors motivated indebted Latin American governments to reduce their role in their countries' domestic financial systems and to liberalize their capital accounts in the late 1980s and 1990s:
- The US and other bilateral and multilateral donors advanced funds to guarantee the principal of "Brady bonds," which were commercial bank debt converted into bonds with lower face value, thus enabling debtor governments to capture a larger share of the benefit of reform - Governments recognized that the outward-oriented policies of East Asian governments offered useful lessons for Latin American governments - Key members of the ISI coalition lost the strength to oppose economic reform
In a country where the textile firm owners and textile industry labor unions cooperate to oppose free trade in the textile sector and apparel sector, one can assume that
- The country is likely to be scarce in low-skilled labor relative to its trade partners - It is likely difficult to re-purpose textile production machines to other purposes - It is likely difficult for workers to train for new industries
What are some obstacles to robust growth in the 2020s mentioned in The Economist article?
- The economic costs of climate change are likely to rise - The costs of political instability are likely to rise - A rise in American interest rates could trigger crisis for overstretched governments such as Brazil and Indonesia - The Delta variant undermined investment in education
Which two of the following statements are true?
- The factor model predicts that political conflict will be between economic classes - The sector model predicts that political conflict will be between export-oriented and import-substituting industries
Private capital markets are unlikely to finance infant industries if ... (check all that apply)
- The private capital market is inefficient - The firm is expected to become efficient in the future due primarily to economies of experience - The firm is not expected to become efficient in the future
Asian banks who borrowed short-term loans from abroad to lend long-term loans in Asia faced two types of risk
- The risk of sudden stops: that foreign lenders would stop rolling over their short-term loans - Exchange rate risk, which arose from the possibility that the government would devalue the local currency
According to strategic-trade theory, ... (check all that apply)
- There are cases in which newly-created firms will not be efficient initially but could be efficient when they become mature - Firms operating in oligopolistic markets can earn profits greater than could be earned in equally risk investments in other sectors of the economy - Some industries are characterized by oligopolistic competition
The infant industry protection argument assumes that: (check all that apply)
- There are cases in which newly-created firms will not be efficient initially but could be efficient when they become mature - Tariffs can help firms in new industries by providing them with a guaranteed domestic market
Governments of advanced industrial economies increased their role in the government, such as attempting to achieve full employment, after World War 2 because ... (Select the best 2 answers)
- There was a shift in ideas called the Keynesian Revolution - There was a shift in political power away from the propertied classes to the working class
Which of the following are true of overvalued exchange rates?
- They make exports more expensive for foreign buyers - They make imports less expensive for domestic buyers - They were frequently used as part of import substitution industrialization policy
Which three of the following policies were conditions of IMF assistance during the Asian financial crisis?
- Tightened fiscal policies to generate financial resources to rebuild the financial sector - Conditionality on macroeconomic stabilization, including tightened monetary policy to restore market confidence and stem capital outflow - Structural reforms, such as deregulation and privatization of state-owned enterprises
According to the basic Ricardian model, which of the following are true (Check all that apply)
- Trade leads to increased consumption opportunities in each country because of specialization - Trade leads to increased consumption opportunities in each country because of comparative advantage
According to The Economist article about Unilever, the company is "one of the world's biggest consumer-goods firms, it sells food, hygiene products and other more or less essential staples to 2.5bn customers in 190 countries" and "Almost all its products are made from ingredients sourced in the country of production." This suggests that ...
- Unilever has intangible assets. - Unilever is horizontally integrated - Unilever FDI is market-oriented investment
If Country B has a fixed exchange rate and it faces a balance of payments deficit, what are some actions the government could take to maintain the peg (prevent Country B currency from losing value)? (Check all that apply)
- Use the Country B Central Bank to increase interest rates in Country B - Use foreign currency reserves to buy back Country B currency from other countries - Impose capital controls to prevent actors from using Country B currency to buy foreign currency
What are four improvements global capitalism has achieved in recent decades, according to Oatley?
- Where as worldwide per capita income only doubled in the 12,000 years leading to 1800, it tripled from 1800-1900, and increased tenfold from 1900-2000 - The average person lives twice as long today as in 1913 and 50% longer than in 1950. - Whereas 1/3 of the world population lived under colonial rule in 1900, no-one lived under colonial rule in 2000. - Whereas 3/4 of the global population lived in extreme poverty in 1950, only 1/10 lived in global poverty in 2013.
Which of the following statements are true of the winners and losers from the US sugar policy?
- Workers in sugar farms in Florida are protected from foreign competition - Sugar beet farmers in Minnesota are protected from competition
While ISI was creating imbalances in most developing countries by the early 1980s, several East Asian economies experienced dramatic economic success by implementing policies including three of the following:
- easy import substitution industrialization - Stable macroeconomic environments - Export-oriented industrialization
Some features of Bangladesh's economic performance in the past 20 years include ...
- exports as a share of GDP has declined in the past ten years - continued reliance on production of low-value garments such as T-shirts, trousers, sweaters, and shirts - Bangladesh is less attractive to multinational corporations than Vietnam - a relatively closed economy, with higher tariff barriers than the South Asian average
Current account
A broad category that includes imports and exports of both goods and services, as well as payments such as interest and profits, and foreign aid and remittances
Capital account
A broad category that includes purchases of stock and bonds in a foreign country and foreign direct investment
What was Cuba's exchange rate policy in 2020, according to The Economist article?
A dual-currency system with different exchange rates for different purposes
Professors have an incentive to tell students that there will be a final exam during the course of the semester in order to encourage them to study, but at the end of the semester, professors have an incentive to cancel the final exam in order to avoid grading. This is an example of
A time consistency problem
Autarky means
Absence of trade
Monetary policy is insulated from political influence in countries with an independent central bank because...
Actually, monetary policy is NOT fully insulated from political influence because although central banks control monetary policy, elected governments generally play an active role in exchange rate policy, a backdoor to influence monetary policy
Bretton Woods System
All national currencies are fixed to gold (and the dollar, which is fixed to gold) but can change the exchange rate if they face a fundamental disequilibrium, with approval from the IMF. Governments are allowed to restrict currency exchange to prevent foreign currency, resulting in exchange rate stability, but declining confidence in the dollar led to a liquidity problem
Classic Gold Standard
All national currencies are fixed to gold. Governments do not restrict currency exchange; central banks respond to surpluses or deficits of gold by lowering or raising interest rates, resulting in exchange rate stability but price instability
The typical advanced industrialized country has been less inclined to try to restrict the activities of foreign firms than has the typical developing country for the following reasons:
All of the above: - Developing countries have been more vulnerable to foreign domination than have larger and more diversified economies - When countries both host foreign firms and are home base to MNC parents, they are unlikely to adopt policies that reflect purely host-country concerns - Advanced industrialized countries are generally more willing to allow the market to drive economic activity, whereas developing country are more likely to intervene in the economy
In the Game of Trust tournament, which strategy tends to win if the game is played repeatedly few times (e.g., 3 times)?
Always cheat
In order for monetary policy to successfully stimulate hiring,
An increase in inflation must be unexpected in order to reduce the real wage rate
Brazil was able to get the United States to compensate them for unfair cotton subsidies by
Appealing to the WTO, and threatening to raise tariffs on US products such as software and pharmaceuticals
According to the prisoner's dilemma view of trade bargaining, the Group of 20's preference ordering is as follows:
Best option is Group 20 protects and EU liberalizes, then both sides liberalize, then both sides protect, then Group 20 liberalizes and EU protects
In "Why does low unemployment no longer lift inflation?", Jim Bullard asked "Who killed the Phillips curve?" and offered the answer, "The suspects are in this room." What he meant was ...
Central bankers brought an end to the Phillips curve by raising interest rates when inflation is about to rise, and lowering interest rates when inflation is about to fall
In the past decade, the country with which the United States has had its largest bilateral trade deficit was
China
In the Game of Trust, which strategy tends to win if the game is played repeatedly many times (e.g., 10 times)?
Copycat
If there is no chance of miscommunication...
Copycat is the best strategy
If Country A has a floating exchange rate system, which of the following would lead to a stronger Country A currency (if no other changes happen in the economy)?
Country A exports more goods
Devaluation
Decrease in a currency's value under a fixed exchange rate system
Depreciation
Decrease in a currency's value under a floating exchange rate system
According to the structuralist Singer-Prebisch theory,
Developing countries' terms of trade deteriorate over time, as primary commodity prices fall relative to manufactured goods prices
If England has a lot of capital relative to labor compared to the United States, and computers are capital intensive and clothes are labor-intensive, then
England will have a comparative advantage in producing computers and the United States will have a comparative advantage in producing clothes
Enclave agriculture
Export-oriented agricultural sectors that have few linkages to other parts of the local economy
Monoexporter
Exports are almost fully accounted for by one product
According to Rodrik, the average rich person (top 10% of income distribution) in a poor country (bottom 10% of countries) earns more money than the average poor person (bottom 10% of income distribution) in a rich country (top 10% of countries).
False
Although income inequality within countries has fallen in recent decades, global inequality has increased.
False
China-based multinational corporations systematically replace local top leadership in corporations they purchase abroad with Chinese executives.
False
FDI is more problematic for recipient countries than other types of capital flows, according to The Economist article, "The good, the bad, and the ugly."
False
In the first century of US history, the North was pro-free trade and the South was protectionist
False
In the new deal signed between the US and the EU, it was agreed that governments on each side would no longer be allowed to subsidize Boeing and Airbus.
False
The CEO of Unilever said that COVID-19 has made it difficult for him to manage his international business because he can't fly around to communicate with his underlings around the world.
False
The cost of floating exchange rates is so small that European governments have had no problem in sacrificing domestic autonomy to stabilize exchange rates.
False
The fact that Cuba's economy began to expand soon after the Soviet Union collapsed is mentioned in the Ted Talk as evidence that trade is good for economic growth
False (Cuban economy declined after Soviet Union collapsed)
What did Argentina's Convertibility Law do?
Fixed the Argentinian peso to the dollar
Which of the following statements are true of the relationship between macroeconomic policy and exchange rates?
Floating exchange rates make it easier for a government to stimulate the economy by lowering interest rates
According to Oatley, developing countries draw heavily on foreign capital because
Foreign capital is a way for developing countries to overcome a shortage of domestic savings to increase investment and thereby raise per capita incomes
According to the "chicken tax" in the podcast ...
Germany put a tariffs on imported chickens, and the US responded with a tax on imported trucks
Managed float exchange rate system
Governments do not commit themselves to a set price for their currencies, but they do intervene in the foreign exchange market to influence their currency's value against other currencies
Fixed-but-adjustable exchange rate system
Governments establish a set price for their currencies in terms of an external standard, but governments can change that price in certain circumstances
Fixed exchange rate system
Governments establish a set price for their currencies in terms of an external standard, such as gold or another country's currency
In theory, countries with a majoritarian electoral system, compared to countries with PR electoral systems, are predicted to
Have higher tariffs, because interest groups such as sugar growers or textile workers will capture legislators and press for protection
When Francois Mitterand became president of France,
He pursued policies to reduce unemployment, reflecting his party's support by workers, devalued the Franc in response to foreign speculators, and ultimately abandoned the peg
According to the evidence cited by Oatley
Independent central banks appear to reduce inflation, but may also be associated with lower growth and higher unemployment
Policies to promote the development of infant industries are known as
Industrial policy
The puzzle that The Economist (2020) article, "Why does low unemployment no longer lift inflation?" explores is ...
Inflation remains low, at both high and low unemployment rates
Cost advantages that provide incentives for horizontal integration often arise when ______ are the most important source of a firm's revenue
Intangible assets
If the level of miscommunication is Low...
It pays to be more forgiving
If the level of miscommunication is High...
It's best to always cheat
Between 1982 and 1986, net capital flows were transferred from the seventeen most heavily indebted countries to banks in advanced industrial countries because
Lenders acted as a united front because they solved the free-rider problem by the IMF refusing to advance credit to a government until commercial banks pledged new loans to the same government
A public good is defined by which two characteristics?
Non-rivalry Non-excludability
Pecuniary externality
Owners of manufacturing firms in one industry will not invest to increase production unless they are certain owners of manufacturing firms in interdependent industries will also increase production
A country with many veto players in the political system is likely to have more
Policy stability
Backward linkages
Production of one good increases demand in industries that support components for that industry
Creditors initially diagnosed the debt crisis of the early 1980s as a
Short-term liquidity problem that could be solved with new loans in exchange for reduced budget deficits and exchange rate devaluation to improve the balance of trade
Which of the following statements are true of the collective action problem?
Smaller groups may be more successful in achieving their policy aims because of per-person transaction costs
One reason the Bretton Woods intermational monetary system came to an end was because
The Nixon administration signaled to the Federal Reserve that it wanted interest rates to stay low
The most generous bilateral foreign aid donors in the world are
The United States in terms of absolute dollars, and small Northern European countries in terms of aid as share of national income
In a country where farm workers and textile and apparel factory workers cooperate to oppose free trade, we can assume that:
The country is likely to be scarce in low-skilled labor relative to its trade partners
Floating Exchange Rate System
The exchange rate for most national currencies, as well as gold prices, are determined by transactions in foreign exchange markets and gold markets rather than set by governments
Venezuela is unable to import essentials such as medical supplies because ...
The government overvalued the exchange rate, so there is a shortage of dollars to buy foreign medicine
Balance of payments adjustment
The process by which a country brings its payments into balance when money flowing out due to imports, direct investment abroad, and so on does not equal the money flowing in due to exports, foreign direct investment inflows, and so on
Does the coalition in support of tire tariffs comply with the factor model or the sector model?
The sector model, which argues that factors are immobile across sectors
Which of the following is true, according to Oatley?
The society-based approach assumes that protectionism reduces social welfare and that national policy reflects the balance of power between competing interest groups
Balance of payments position
The sum of inflows and outflows of import spending, export revenues, payments and receipts such as interest and profits, and net inflows and outflows of foreign direct investment and other financial transactions
Floating (or flexible) exchange rate system
The value of one currency in terms of another is determined entirely by the activities of private actors as they purchase and sell currencies in the foreign exchange market
Who was in the coalition supporting tariffs on tires in the Grizz podcast?
Tire company owners and tire company workers
According to "The pandemic has widened the wealth gap," the Fed's willingness to keep interest rates low longer helped reduce income inequality.
True
According to Rodrik, at the start of the Industrial Revolution, the income gap between the richest and poorest regions in the world was 2:1; today the difference is 20:1, and the gap between the richest and poorest country is 80:1.
True
As reported in the Economist, as of December 2019, the WTO's appellate body can no longer resolve disputes because the United States has been blocking the appointment of judges
True
Cordell Hull argued that World War 2 was caused, in part, by the United States abandoning global economic leadership and free trade after World War 1
True
Governments, under WTO rules, cannot ban imports of a product on health or safety grounds unless a preponderance of scientific evidence indicates that the product is, in fact, harmful
True
In the 1990s, Krugman estimated that trade had little effect on reducing workers wages - instead, his research indicated that almost all of the decline in unskilled labor wages was caused by technology. But by 2013, his research indicated that the sheer volume of trade with China had significantly increased the negative effect of trade on unskilled labor earnings.
True
It is unclear whether inclusive institutions, such as democracy, leads to economic development or if economic development causes democratization.
True
President Biden has continued with policies restricting Chinese FDI in the US, including banning Huawei.
True
Thanks to foreign direct investment (FDI) such as pharmaceuticals, medical devices, and computer chips, Ireland went from the poorest of the rich to among the richest, according to the Economist article, "The good, the bad, and the ugly."
True
The WTO appellate judges ruled that the US is violating WTO rules by banning clove-flavored cigarettes because US law still allows the sale of mint-flavored cigarettes.
True
With the failure of fascism in the 1940s and Marxism-Leninism in the 1980s, Francis Fukuyama declared that Western liberalism (i.e., capitalist democracy) had defeated all alternatives.
True
According to The Economist's Big Mac Index article,
Vietnam appears to have either a fixed exchange rate or a managed float that undervalues the Dong.
According to Oatley, moral hazard was an issue with respect to the Asian crisis ...
When banks believed that the government will bail them out if they suffer large losses on the loans they have made
Governments cannot move the unemployment rate below the natural rate of unemployment for more than a short time because of the following dynamics of wage bargaining:
When negotiating multiyear contracts, workers will demand a nominal wage increase equal to or greater greater than the expected future inflation rate in order to avoid a deterioration in their buying power
According to The Economist article about Exxon, the Guyanese government's response to the discovery of offshore oil was to
allow Exxon to drill as effectively as possible, and to debate on what government programs the royalties will be spent on
The ability to borrow large volumes at low interest rates creates conditions that typically generate
asset bubbles
The Hecksher-Ohlin trade model argues that
comparative advantage arises from differences in factor endowments
When a central banks does QE, it ...
distributes cash in exchange for bonds, thus increasing cash in circulation
"Non-discrimination" ensures that
each WTO member faces identical opportunities to trade with other WTO members
Nationalization was common during the late 1960s and the first half of the 1970s. Nationalizations occurred most often in
extractive industries and public utilities
According to The Economist's article on India, the reason many foreign firms are investing FDI into partnerships with local firms rather than establishing independent subsidiaries is because ...
foreign-owned firms face regulatory and tax law disadvantages relative to native Indian firms.
Sovereign wealth funds are
government-owned funds that purchase private assets in foreign markets
The claim that developing countries face a continuous decline in their terms of trade
has been disputed by most recent research according to Oatley.
The United States can handle a single currency because it has
high labor mobility and a federal system of taxes and transfers
The status quo tariff policies before the Doha Round of trade bargaining, according to Oatley, is:
high tariffs in the advanced industrialized countries on agricultural products and high tariffs in developing countries on manufactured goods
MNCs usually enjoy more bargaining power than host countries in low-skilled labor-intensive manufacturing industries because
investments in low-skilled manufacturing entail a relatively low amount of fixed capital
a country's trade policy ideal point usually follow the rule of:
liberalizing comparatively advantaged sectors and protecting comparatively disadvantaged sectors
comparative advantage means
one country can produce a product at a lower opportunity cost (in terms of other products foregone) than another country
"liquidity preference"
people like to have some cash on hand if possible, in case of emergency
Some American and European policymakers fear that governments intend to use their SWFs to achieve
political rather than economic objectives
A hegemon is a country that
produces a disproportionately large share of the world's output and leads in the development of new technologies
The marginal rate of substitution is a consumption indifference curve that
tells us how much of one good the consumer is willing to give up to acquire an additional unit of the second good
In 2015, the Greek government only allowed people to withdraw 60 Euros per day from the ATM because
the Greek banks were about to run out of money
World trade has grown so rapidly over the last 60 years because
the WTO and GATT supported and encouraged such growth
According to Oatley, governments' reluctance to alter macroeconomic policies in order to reduce current-account imbalances in the early 2000s ultimately sparked
the great financial crisis of 2007-2009
In secondary ISI, emphasis shifts from
the manufacture of simple consumer goods to consumer durable goods and intermediate inputs
According to Peter Temin (cited in Oatley), the US economy has evolved into a dual economy in which ...
there are two distinct groups - insiders, who benefit from globalization (including college graduates in major cities) and outsiders who have not benefitted from globalization (including those without a college degree and living in small towns or rural areas).
If a country that isn't trading is offered the option to start trading, then equilibrium production and consumption will be changed by a country's decision
to specialize in the production of one good in which it has a comparative advantage in order to obtain more of another good in which it has a comparative disadvantage
The history of hegemonic transitions provides some support that
world trade has flourished during periods of hegemonic leadership and floundered during periods without it
