Poli Sci 124A

country A has floating xc rate, what would lead to a stronger country A currency

1. more foreign firms purchase factories in country A 2.country A exports more goods 3.more foreign investors deposit money into country A's banks

When firms earn a substantial share of their revenues from ______ they have strong incentives to integrate vertically.

1. natural resources. 2.factories that manufacture opponent parts

The state of democracy in Europe is that

there is democratic surplus, because no long-term solution to Europe's woes can be imposed on a member state without the consent of its elected gov, and elected gov often find it difficult to commit to the types of long term reforms that both northern and southern Europe require today

The United States developed major current account deficits in the late 1990s and 2000s because

japan, germany, china and east asian countries exported more than they imported. US imported more than it exported.

Two differences between the HIPC debt initiative and previous programs

1. Debts owed to multilateral lenders were reduced/forgiven 2. 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

Rise in private lending to developing countries in the 1970s was driven by

1. 1973 oil shock which generated large current account surpluses in oil exporting countries that enabled those countries to lend petrodollars 2. grow gin demand for foreign capital in developing countries pursuing ISI strategies

As a result of the strong dollar in the early 2000s

1. Bush admin blamed the loss of american competitiveness not he policies and practices of foreign governments such as China and Germany 2. congress proposed laws that protected US markets from Chinese imports

each crisis in the decade of financial crises (in Asia, Latin America, Turkey, and Russia) was distinctive in some way, yet all shared important similarities:

1. Each country developed a heavy reliance on short-term foreign capital 2.Each country maintained some form of fixed exchange rate (including policies such as a crawling peg)

European Monetary Union was created because

1. Greece and other Mediterranean countries promised to maintain low budget deficits and inflation 2. The French conditioned support for German unification on German support for monetary union

response to what she calls the world's triple crisis

1. Increase tax revenues and target spending to the people who need it most, which will address the social crisis 2. Fiscal policies such as a carbon tax or emissions trading in order to reduce environmental damage while generating income for governments 3. To address the economic crisis, recommended actions include expansionary monetary policy, increased spending in areas such as infrastructure by countries able to afford it, and labor market reforms to help workers find jobs

after Argentina defaulted on its debt,

1. Lenders sued Argentina in court in New York and won but were not able to collect 2.Argentina's economy was able to recover to a large degree because its exports became cheaper in world markets 3. Lenders sanctioned Argentina by refusing to lend to Argentina at levels anywhere close to the lending before the default

Examples of bargaining power between multinational corporations and host countries (Oately)

1. MNSc more than host in low skilled labor intensive manufacturing investments - no host country has monopoly on low skilled labor 2. MNC when it has monopolistic control over technology and other assets that can't be acquired elsewhere and are important to the host country. 3.Host country when monopolistic control over natural resources and other assets vitally important to MNCs.

during implementation of BW

1. marshall plan helped european gov acquire a sufficient supply of dollars to enable them to make their currencies fully convertible with the dollar 2.Britain attempted to restore convertibility of the pound after WWII but convertibility was quickly suspended because the country was in danger of running out of dollars and gold

challenges world economy faces with regard to the IM system include

1. The US dollar and the euro are arguably the only instruments capable of supporting current levels of international transactions, but their economies are weak 2.The European Central Bank needs to be more willing to support economic growth, but Germany is reluctant to allow interest rates to remain low 3. The United States needs to allow the dollar to weaken so that the United States can reduce its current account deficit; reducing government deficit spending will help, but could also reduce the economic growth needed to provide international liquidity

Asian banks who borrowed short-term loans from abroad to lend long-term loans in Asia faced two types of risk

1. The risk of sudden stops: that foreign lenders would stop rolling over their short-term loans 2.Exchange rate risk, which arose from the possibility that the government would devalue the local currency

during the breakdown of bretton woods

1. Us ran large consistence BOP deficits because of vietnam war, expanded welfare programs at home (medicaid, medicare and social security. 2.Nixon admin loosened monetary policy(reduced interest rates) to stimulate the US economy 3. germans who worried about inflation more than collapse of the xc rate system sold large volumes of dollars to buy back german mark

The strong dollar in the United States in the 1990s and 2000s ...

1. Was a contributing factor to the fact that the United States imported more than it exported 2.Was caused, in part, by the fact that China and other East Asian countries purchased a large volume of US government debt and corporate debt

FDIs include

1. firm in one country builds a new plant or factory in a second country 2. firm in 1 purchases and existing plant or factory.

unholy trinity

1. fixed xc rate 2. monetary autonomy 3. capital mobility

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

1. governments recognized that the outward oriented policies of east asian governments offered useful lessons for latin american governments 2.key members of the ISI coalition lost the strength to oppose economic reform 3.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 shard of the benefit of reform

MNC _______ & gov regulations ______ (bainbridge)

1. help protect individual freedoms from actions by the government 2. Reducing government regulations on the pursuit of wealth not only increase the size of the economic pie, it also has the effect of destroying arbitrary economic classes, such as a capitalist class and a working class.

B has fixed xc and faces a BOP deficit. how to maintain peg?

1. imposed capital controls to prevent actors from using B currency to buy foreign currency 2. B central bank to increase interest rates in B 3. use foreign currency reserves to buy back B currency from other countries

history of the dollar

1. in the 1800s, a dollar wasn't always worth a full dollar 2. in 1800, were thousand of different currencies in circulation 3. was once a currency with santa

locational advantages

1. large consumer markets that are expected to grow rapidly 2. lower cost of the factors of production used intensively in the production of a specific product 3. Presence of natural-resource deposits

according to the partisan model of monetary and xc rate politics

1. left wing parties tend to favor low interest rates and a floating xc rate mar then the right 2. tradeoff b/t low unemployment an flow inflation 3. decrease in interest rates will result in lower unemployment but carries the risk of higher inflation

following major economic shocks hit Latin America in 1979 and early 1980s

1. oil prices rose again, increasing the costs of imports 2.interest rates wen tup in the US which translated into higher interest rates for Latin america debt with variable interest rates 3.recession in the advanced industrialized work reduced demand for Latin American goods and reduced their terms of trade

disadvantage of a strong currency resulting from rapid currency flows

1. producers don't have time to adjust to new price structure 2. dramatically expanding the money supply to weaken the currency could lead to inflation 3. it makes exports more expensive

What did Argentina's Convertibility Law do

1. prohibited restrictions on foreign payments 2. fixed the argentinian peso to the dollar

Before the introduction of the common currency in Europe, non-Germany European countries (such as France, Italy, and Spain) traditionally offset their inability to match Germany (with regard to low wages, low government debts, and high international competitiveness, which led to debt or competitiveness crises in non-German countries) by pursuing the following strategies

1. restrictions on capital flows 2.unilateral(national) control over interest rates and the money supply 3.manipulation of xc rates

sectoral modern of monetary and xc rate politics

1. sectors that intensively use comparatively scarce factors prefer a floating xc rate because a floating xc rate enables macroeconomic stimulus 2. export oriented producers prefer a fixed xc rate because the are heavily engaged in international trade 3. sectors that intensively use comparatively abundant factors prefer and undervalued xc rate

governments of advanced industrial economies increased their role in the government, such as attempting to achieve full employment, after WWII

1. shift in ideas called keynesian rev 2. shift in political power away front he propertied classes to the working class

Positive externalities transferred through FDI

1. technology 2. managerial expertise 3. marketing networks

Foxconn plants that work for Apple in China

1. underage workers 2. Apple is aggressive about ID-ing and dealing with cases of underage workers at Foxconn

The breakdown of the Bretton Woods international monetary system did not lead to a global depression because

1.Confidence in the US dollar was maintained, in part because of raised interest rates 2.Confidence in the US dollar was maintained, in part because there were few alternatives to the dollar, so the dollar remained the main currency used for reserves and international transactions

Some causes for the real estate bubble in the United States in the 2000s likely include

1.Financial institutions used complex instruments such as mortgage backed securities and collateralized debt instruments to sell large volumes of real estate mortgages at low interest rates 2.Creditor nations such as China were willing to lend money to the United States in spite of low interest rates 3.The US government (Fed) was unwilling to raise interest rates

Nationalization of foreign-owned private property becomes widespread following WWI

1.developing countries began to broaden the notion of "public purpose" to include the state's role in the process of economic development 2. some latin american countries began to expropriate foreign owned investments, especially int he extractive industries and public utilities. 3. Marxist-leninist government in the Soviet union rejected the idea of private property

foreign capital lent a lot of money to Argentina in the years after Argentina pegged its currency to the dollar because

Argentina was perceived as a high-growth economy and currency was now considered much safer

The absolute number of people living in poverty in the world has fallen since 1980 Based on the population-weighted growth rates of poor and rich countries, global inequality has decreased since 1980

Based on the estimated concentration of global income across all people in the world, global inequality has decreased moderately since 1980 Based on the ratio of the richest to poorest country's income, global inequality has increased since 1980

WTO rule recommendations

Countries should be allowed to "violate" WTO rules when those rules threaten to undermine domestic labor and environmental standards or hamper development goals, but only if the decision to violate those rules was made using democratic procedures such as transparency, accountability, inclusiveness, and evidence-based deliberation

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

accumulation of debt in Latin american countries int eh 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

BW came to an end because

Nixon administration signaled to the federal reserve that it wanted interest rates to stay low

conditions of IMF assistance during the Asian financial

Structural reforms, such as deregulation and privatization of state-owned enterprises

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

Governments should ______ spending during times of unemployment in order to _____ consumption, which will ______ aggregate demand, which will ________ businesses to invest and _______ jobs to produce enough to meet demand.

increase, increase, motivate, create

most generous bilateral foreign aid donors are

US in terms of absolute dollars and small N European countries in terms of aid as share of national income

moral hazard was an issue with the 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

alesina and ardagna said

austerity policies during a recession can help prevent the recession from getting even worse if the gov is deeply in debt

Reinhard and Rogoff suggest that

austerity policies during a recession can help prevent the recession from getting even worse if the gov is deeply in debt.

the fed responded _______ to recent financial crisis by drastically _______ interest rates because it wants to avoid a repeats of the unemployment in 1930s

aggressively, lowering

bretton woods

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 form the IMP. gov are allowed to restrict currency exchange to prevent foreign currency, resulting in exchange rate stability, but declining confidence int he dollar led to a liquidity problem,

classic gold standard

all national currencies are fixed to gold. gov do not restrict currency exchange; central banks respond to surpluses or deficits of fold by lowering or raising interest rates, resulting in exchange rate stability but price instability.

Cost advantages that provide incentives for horizontal integration often arise when _______ are the most important source of a firm's revenue

intangible assets

balance of payment adjustment

country brings its payments into balance when money flowing out due to imports, direct investment word and so on does not equal the money flowing in due to exports, FDI inflows etc.

capital account

category includes purchases of stock and bongs in a foreign country and FDI

debtor governments never threatened collective default because

caught in 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

When the goal is relative consumption,_________ replacing the progressive income tax with a progressive consumption tax would _______ invisible hand is... (Frank)

common good is more likely to be served by taxing consumption than by relying on unbridled market forces lead to less consumption on luxury goods, thus promoting greater investment and economic growth. unbridled market forces generally harness self interest to serve the common good -Adam smith

ECB responded ____ to the recent financial crisis by moderately ____ ingest rates because sit wants to avoid a repeats of the hyperinflation in Germany in the 1920.

conservatively, lowering

government regulations and technology in financial trading is that (Peterffy's)

decades ago, deregulation of technology in financial trading improved social welfare by increasing efficiency and leveling the playing field by lowering the cost of transactions, but today, more regulation of technology may improve society welfare by reducing the risk of market crashes and by reducing incentives for actors to over-invest in tech to take advantage of other actors without that tech

devalutaion and revaluations is under fixed xc rate

depreciation and appreciation in under floating

following actor are often opposed to enforceable global labor standards (such as max working hours, min wages, and safety conditions) becuase such standards may lead to less investment and higher poverty rates in developing countries

developing country gov and economists

floating xc rates make it _____ for a government to _______ the economy by _____ interest rates

easier, stimulate, lowering

rapid accumulation od debt in the 1970s contributed to

economic growth in latin american int he 1970s

Requiring work conditions in developing countries to conform to our labor standards is like to result in... (krugman)

either a privileged labor aristocracy, and the poor majority no better off, or no change, or even decline in income levels.

floating exchange rate system

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 gov

WTO rules generally allow government to take process and production methods (PPMs) into account when determining if two products are like products, in order to reduce the negative environmental impact of trade.

false

solutions to credible problems resulting from time-inconsitency problem regarding unemployment and inflation

fixed xc rate and independent central banks

for past 30 years, FDI has

flowed from advanced industrialized countries to other advanced industrialized countries

consensus on globalization and the environment is that

globalization does not necessarily harm he environment, but can have positive effects such as more efficient technology or negate effects such as increased income levels that enable more intensive resource use.

managed float exchange rate

gov do not commit themselves to a set price for their currencies but they do intervene int he foreign exchange market to influence their currency's value against other currencies

fixed XC

gov establish a set price for their currencies in terms of a external standard such as gold or another country's currency

fixed but adjustable XC

gov establish a set price for their currencies in terms of an external standard, but can change that price in certain circumstances.

current account

imports and exports of both manufactured goods and services as well as payments such as interest an profits and foreign aid and remittances

trade accounts

imports and exports of manufactured items and agricultural goods

for monetary policy to successfully stimulate hiring

increase in inflation must be unexpected in order to reduce the real wage rate

gov should cut taxes during times of unemployment in order to__________ consumption, which will __________ aggregate demand, which will _________ businesses to invest and create job to produce enough to meet demand.

increase, increase, motivate

b/t 1982 and 1986 net capital flows were transferred form the seventeen most heavily indebted countries to banks in advanced industrial countries because

lenders acted as a united from 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

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

When new export industries (shirt and sneaker factories) have grown in developing countries, there has been... (Krugman)

measurable improvement int he lives of ordinary people.

monetary policy is insulated from political influence in countries with an independent central bank because...

monetary policy is NOT fully insulated from political influence because although central banks control monetary policy elected governments generally play an active role in xc rate policy, a backdoor to influence monetary policy.

Germany's main motivation for a single currency in Europe was

promo its own economic welfare through open markets, a competitive xc rate, and anti inflationary monetary policy.

American based multi nations corps do not have major interest in _________ reduction american taxes on MNCs will ________ (riech)

promoting eduction and productivity among American workers because they can move jobs and research and development efforts into other countries. will not create jobs in America because other concerns, such as worker productivity and the availability of scientists and other necessary resources for research and development, are more important for investment location decisions.

French prez, mitterand

pursued policies to reduce unemployment, reflecting his party's sport by workers, then was obliged to devalue the Franc in response to foreign speculators

independent central banks appear to ____ inflation but may also be associated with _____ growth and _______ employment

reduce lower higher

Governments should ______ interest rates during times of unemployment in order to ______ for items such as cares and houses , which will _____ businesses to invest and crest jobs to produce enough tot meet demand.

reduce, borrowing, motivate

global labor flow recommendation

rich nations should commit to a temporary work visa scheme to expand their total labor force by 3 percent and when on cohort of temporary migrants return home, a new wave of workers would replace them. This would provide benefits for both advanced nations and poor nations without major disruption.

ECB has printed over a trillion euros to purchases financial assets which has the effect of

saving the euro system by providing funds for private banks to lend to private firms, thus preventing banks and firms from going bankrupt, and funds for private banks to lend to governments, thus preventing sovereign defaults

balance of payments position

sum of inflows and outlaw of import spending, export rev, payments and receipts such as interest and profits, and net inflows and outflows of FDI and other financial transactions

global finance regulation recommendation

there should be a minimal set of international guidelines and limited international coordination including an improved IMF and a small global tax on financial transactions but the responsibility for regulating leverage, setting capital standards and supervision financial markets should rest at the national level

swiss problem with currency in 2011

too strong relative to other currenices

High levels of debt per GDP are a strong indicator of poor economic growth in the past, but not a strong predictor of poor economic growth in the future. t/f

true

international institutions can enhance democracy by improving deliberation and ensuring minority representation, but can clash with democracy by accomodating commercial and financial interests by constraining the ability of national governments to pass certain laws.

true

floating/flexible xc

value of one currency in terms of another is determined entirely by the actives of private actors as they purchase and sell currencies in the foreign xc market.

gov can't move the unemployment rate below the natural rate of unemployment for more than a short time because

workers will demand a nominal wage increase equal to or greater than the expected future inflation rate in order to avoid a deterioration in their buying power