IPE final
According to the Unholy Trinity, if governments have the three following policy goals, they must choose two and sacrifice the third: (check all that applies) a) A fixed exchange rate b) Monetary autonomy c) Capital mobility d) Trade surplus e) Low taxes
a) A fixed exchange rate b) Monetary autonomy c) Capital mobility
According to Krugman (in the Slate article), wherever the new export industries (such as shirt and sneaker factories) have grown in developing countries, there has been a) A measurable improvement in the lives of ordinary people b) A dramatic increase in poverty rates c) An increase in monetary income but a decline in the quality of life for ordinary people d) An increase in GDP per capita but an increase in inequality, such that the upper classes are dramatically better off but the lives of ordinary people are the same or worse off e) No measurable effect on quality of life for ordinary people
a) A measurable improvement in the lives of ordinary people
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) A time inconsistency problem b) A subgame perfect equilibrium in a sequential game c) A Nash Equilibrium in a sequential game d) A commitment mechanism e) A calculation of expected utility
a) A time inconsistency problem
In order for monetary policy to successfully stimulate hiring, a) An increase in inflation must be unexpected in order to reduce the real wage rate b) An increase in inflation must be expected in order to increase the nominal wage rate c) A decrease in inflation must be unexpected in order to reduce the real wage rate d) An increase in inflation must be unexpected in order to reduce the nominal wage rate e) A decrease in inflation must be unexpected in order to increase the real wage rate
a) An increase in inflation must be unexpected in order to reduce the real wage rate
According to Rodrik, some examples of hyperglobalization impinging on democratic choices include the following (check all that apply) a) Argentina's Convertibility Law led to austerity policies that were opposed by many Argentinians b) Extreme liberalization of trade enables outsourcing which can undermine domestic labor laws that are supported by working voters, who may face downward pressure on their wages. c) Extreme liberalization of capital flows can lead to international tax competition, which can undermine voters' ability to raise taxes on capital.
a) Argentina's Convertibility Law led to austerity policies that were opposed by many Argentinians b) Extreme liberalization of trade enables outsourcing which can undermine domestic labor laws that are supported by working voters, who may face downward pressure on their wages.
Which of the following are true, based on the data presented by Oatley?Which of the following are true, based on the data presented by Oatley? (check all that applies) a) Based on the ratio of the richest to poorest country's income, global inequality has increased since 1980 b) Based on the ratio of the richest to poorest country's income, global inequality has decreased since 1980 c) Based on the estimated concentration of global income across all people in the world, global inequality has decreased moderately since 1980 d) Based on the population-weighted growth rates of poor and rich countries, global inequality has decreased since 1980 e) The absolute number of people living in poverty in the world has fallen since 1980
a) Based on the ratio of the richest to poorest country's income, global inequality has increased since 1980 c) Based on the estimated concentration of global income across all people in the world, global inequality has decreased moderately since 1980 d) Based on the population-weighted growth rates of poor and rich countries, global inequality has decreased since 1980 e) The absolute number of people living in poverty in the world has fallen since 1980
Which of the following occurred during the implementation of the Bretton Woods monetary system (check all that applies)? a) 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 b) The Marshall Plan helped European governments acquire a sufficient supply of dollars to enable them to make their currencies fully convertible with the dollar c) The Marshall Plan helped European countries import goods from the US and other countries d) The Bretton Woods system was originally designed to make the German mark the primary reserve asset, because the German Central Bank (the Bundesbank) had a reputation for keeping inflation under control
a) 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 b) The Marshall Plan helped European governments acquire a sufficient supply of dollars to enable them to make their currencies fully convertible with the dollar c) The Marshall Plan helped European countries import goods from the US and other countries
How did the IMF program for Iceland differ from previous programs? (check all that applies) a) Capital controls were accepted b) The government had a great deal of budgetary discretion c) Removal of capital controls was a pre-requisite d) Emigration restrictions were imposed to keep human capital in Iceland e) Fixed exchange rates were devalued to encourage export
a) Capital controls were accepted b) The government had a great deal of budgetary discretion
According to the Economist article, Dealing with Denial, (CHECK ALL THAT APPLY) a) China and the US are the world's biggest greenhouse gas emitters b) In 2009, the Copenhagen climate-change conference failed to deliver a climate change deal because of China's unwillingness to cut emissions c) In 2009, the Copenhagen climate-change conference failed to deliver a climate change deal because of China and the US d) In 2014, the US and China signed a treaty in which they each agreed to cut emissions by a certain amount by 2020 for the US and by 2030 for China e) In 2014, the US and China reached an agreement in which they each committed to make their best effort to reach emissions goals by 2020 for the US and by 2030 for China.
a) China and the US are the world's biggest greenhouse gas emitters c) In 2009, the Copenhagen climate-change conference failed to deliver a climate change deal because of China and the US e) In 2014, the US and China reached an agreement in which they each committed to make their best effort to reach emissions goals by 2020 for the US and by 2030 for China.
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 (check all that applies) a) Argentina's currency was now worth less, which made it more competitive on foreign markets, which promoted exports, which increased its GDP b) Argentina's currency was now considered much safer c) Argentina was perceived as a high-growth economy d) Argentina imposed new capital controls which ensured that it would be able to maintain the peg e) Argentina had monetary autonomy which enabled it to stimulate the economy in the case of downturns
b) Argentina's currency was now considered much safer c) Argentina was perceived as a high-growth economy
Which of the following were conditions of IMF assistance during the Asian financial crisis? (check all that applies) a) Conditionality on macroeconomic stabilization, including tightened monetary policy to restore market confidence and stem capital outflow b) Conditionality on macroeconomic stabilization, including loosened monetary policy to stimulate the economy c) Tightened fiscal policies to generate financial resources to rebuild the financial sector d) Loosened fiscal policies to stimulate the economy e) Structural reforms, such as deregulation and privatization of state-owned enterprises
a) Conditionality on macroeconomic stabilization, including tightened monetary policy to restore market confidence and stem capital outflow c) Tightened fiscal policies to generate financial resources to rebuild the financial sector e) Structural reforms, such as deregulation and privatization of state-owned enterprises
The breakdown of the Bretton Woods international monetary system did not lead to a global depression because (HINT: See Eichengreen) (check all that applies) a) Confidence in the US dollar was maintained, in part because of raised interest rates by the Fed under Volker b) 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 c) Confidence in the US dollar was maintained, in part because of continued low interest rates d) There were many alternatives to the dollar, include yen, German marks, and British pounds, to serve as the main currency used for reserves and international transactions e) The dollar had never really replaced gold as the main "currency" used for reserves and international transactions
a) Confidence in the US dollar was maintained, in part because of raised interest rates by the Fed under Volker b) 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
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)? (check all that apply) a) Country A exports more goods b) Country A imports more goods c) More foreign investors deposit money into Country A's banks d) More citizens of Country A send their money to be deposited in foreign banks e) More foreign firms purchase factories in Country A
a) Country A exports more goods c) More foreign investors deposit money into Country A's banks e) More foreign firms purchase factories in Country A
According to Oatley, the following actors are often opposed to enforceable global labor standards (such as maximum working hours, minimum wages, and safety conditions) because such standards may lead to less investment and higher poverty rates in developing countries: a) Developing country governments and economists b) Advanced industrial economy governments and economists c) The anti-sweatshop movement d) Advanced industrialized country governments and developing country governments e) The WTO and advanced industrialized country governments
a) Developing country governments and economists
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 important similarities: (check all that applies) a) Each country maintained some form of fixed exchange rate (including policies such as a crawling peg) b) Each country maintained some form of floating exchange rate (including policies such as a managed float) c) Each country developed a heavy reliance on short-term foreign capital d) Each country developed a heavy reliance on long-term foreign capital e) Each country used import substitution industrialization (ISI) policies to promote economic development
a) Each country maintained some form of fixed exchange rate (including policies such as a crawling peg) c) Each country developed a heavy reliance on short-term foreign capital
The rapid accumulation of debt in the 1970s contributed to a) Economic growth in Latin America in the 1970s b) Economic decline in Latin America in the 1970s c) Economic growth in East Asia but economic decline in Latin America in the 1970s d) Economic growth in East Asia but economic stagnation in Latin America in the 1970s e) Economic decline in Latin America and sub-Saharan Africa in the 1970s
a) Economic growth in Latin America in the 1970s
Asian banks who borrowed short-term loans from abroad to lend long-term loans in Asia faced two types of risk: (check all that applies) a) Exchange rate risk, which arose from the possibility that the government would devalue the local currency b) Exchange rate risk, which arose from the possibility that the government would revalue the local currency c) The risk of sudden stops: that foreign lenders would stop rolling over their short-term loans d) Balance of payments risk, which arose from the low exports and high imports caused by ISI policies e) Default risk, that the foreign governments providing the loans would default
a) Exchange rate risk, which arose from the possibility that the government would devalue the local currency c) The risk of sudden stops: that foreign lenders would stop rolling over their short-term loans
Which of the following statements are true of the relationship between macroeconomic policy and exchange rates? a) Floating exchange rates make it easier for a government to stimulate the economy by lowering interest rates b) Floating exchange rates make it more difficult for a government to stimulate the economy by lowering interest rates c) Fixed exchange rates make it easier for a government to stimulate the economy by raising interest rates d) Fixed exchange rates make it more difficult for a government to stimulate the economy by raising interest rates e) Exchange rate policy has no effect on the ability of governments to stimulate the economy with monetary policy
a) 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 a) Foreign capital is a way for developing countries to overcome a shortage of domestic savings to increase investment and thereby raise per capita incomes b) Foreign capital is a way for developing countries to avoid overborrowing c) Relying heavily on foreign capital to finance investment is the best way to avoid a debt crisis d) Domestic capitalists tend to be politically powerful in developing countries, and the attraction of foreign capital increases the returns that can be earned by domestic capitalists because developing countries are relatively capital abundant e) Developing countries tend to be authoritarian, and these authoritarian governments benefit from capital inflows even though investment has no positive effect on per capita incomes
a) 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 Keynes, (check all that applies) a) 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 b) 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 c) Governments should increase spending at all times in order to increase consumption, which will increase aggregate demand, which will motivate businesses to invest and increase long-term growth d) 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 e) The economy will automatically and efficiently return to full employment because when unemployment increases, wages will fall, which will motivate businesses to hire more workers
a) 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 b) 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 d) 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
The massive accumulation of debt in Latin American countries in the 1970s made those countries vulnerable to international shocks because a) ISI's focus on capital-intensive projects failed to generate exports, which led to high debt service to export revenue ratios b) The debt did not contribute to economic growth, leading to high debt service to GDP ratios c) The borrowed money was not spent on productivity-enhancing investments such as hydroelectric projects d) The inflow of money weakened Latin American currencies relative to their trading partners, which undermined exports, leading to high debt service to export revenue ratios e) ISI policies failed to generate economic growth, leading to high debt service to GDP ratios
a) ISI's focus on capital-intensive projects failed to generate exports, which led to high debt service to export revenue ratios
Which of the following are true about the history of the dollar? (check all that applies) a) In the 1800s, a dollar wasn't always worth a full dollar b) There was once a currency note in the United States with a picture of Santa Claus. c) Authorization to print the US Dollar was defined by the Constitution d) Before the creation of the Federal Reserve, there was no paper currency in the United States, only gold, silver, and copper coins. e) In the 1800s, there were thousands of different currencies in circulation in the United States
a) In the 1800s, a dollar wasn't always worth a full dollar b) There was once a currency note in the United States with a picture of Santa Claus. e) In the 1800s, there were thousands of different currencies in circulation in the United States
Possible solutions for a government's credible commitment problem resulting from the time-inconsistency problem regarding unemployment and inflation include (check all that applies) a) Independent central banks b) Fixed exchange rates c) Capital controls d) Floating exchange rates e) Legislative oversight
a) Independent central banks b) Fixed exchange rates
According to the evidence cited by Oatley, a) Independent central banks appear to reduce inflation, but may also be associated with lower growth and higher unemployment b) Independent central banks clearly reduce inflation, but also clearly reduce economic growth and increase unemployment c) Independent central banks appear to reduce inflation, but may also be associated with lower growth and higher unemployment d) Independent central banks appear to reduce inflation and improve economic growth, but are also associated with lower unemployment e) Independent central banks appear to have little or no effect on inflation, economic growth, or unemployment
a) Independent central banks appear to reduce inflation, but may also be associated with lower growth and higher unemployment
Cost advantages that provide incentives for horizontal integration often arise when ______ are the most important source of a firm's revenue a) Intangible assets b) Specific assets c) Natural resources d) Liquid assets e) Positive externalities
a) Intangible assets
The following major economic shocks hit Latin America in 1979 and the early 1980s: (check all that applies) a) Interest rates went up in the US, which translated into higher interest rates for Latin America debt with variable interest rates b) Interest rates went down in the US, which attracted foreign investment to the US instead of to Latin America, which forced Latin American governments to raise their interest rates to attract continued flows of capital c) Recession in the advanced industrialized world reduced demand for Latin American goods and reduced their terms of trade d) Oil prices rose again, increasing the cost of imports e) Oil prices fell, reducing the availability of foreign capital to borrow from oil exporting countries such as Saudi Arabia
a) Interest rates went up in the US, which translated into higher interest rates for Latin America debt with variable interest rates c) Recession in the advanced industrialized world reduced demand for Latin American goods and reduced their terms of trade d) Oil prices rose again, increasing the cost of imports
The rise in private lending to developing countries in the 1970s was driven by (check all that applies) a) 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 b) The creation of a UN agency that offered development loans at concessional interest rates c) The Kennedy Administration's "Alliance for Progress," designed to use government aid to prevent the spread of Cuban-style socialist revolutions d) Growing demand for foreign capital in developing countries pursuing ISI strategies e) Washington Consensus-related economic reforms
a) 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 d) Growing demand for foreign capital in developing countries pursuing ISI strategies
The following 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 (check all that applies): a) Key members of the ISI coalition lost the strength to oppose economic reform b) ISI policies enabled manufacturers to become sufficiently large and efficient to compete in world markets, which transformed the majority of manufacturers into proponents of export-oriented policies c) 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 d) Governments recognized that the outward-oriented policies of East Asian governments offered useful lessons for Latin American governments e) The Brady Bond plan converted bonds into commercial loans, when enabled the governments to negotiate for loan forgiveness with a smaller number of banks rather than a large number of portfolio investors
a) Key members of the ISI coalition lost the strength to oppose economic reform c) 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 d) Governments recognized that the outward-oriented policies of East Asian governments offered useful lessons for Latin American governments
A firm's decision about whether to conduct international transactions through the market or to internalize these transactions depends on an interaction between a) Locational advantages and market imperfections b) Locational advantages and profit opportunities c) Natural resource opportunities and market opportunities d) Comparative advantage and transaction costs e) Labor costs and transportation costs
a) Locational advantages and market imperfections
Which of the following are examples of locational advantages (check all that applies)? a) Presence of natural-resource deposits b) Large consumer markets that are expected to grow rapidly c) Lower cost of the factors of production used intensively in the production of a specific product d) Large pools of savings that can be tapped for capital-intensive investments e) Vertical integration so that firms can internalize their transactions for intermediate goods
a) Presence of natural-resource deposits b) Large consumer markets that are expected to grow rapidly
Two disadvantages of a strong currency resulting from rapid currency flows are (check all that applies) a) Producers don't have time to adjust to the new price structure b) It makes imports more expensive c) It makes exports more expensive d) It makes exports more inexpensive e) Dramatically expanding the money supply to weaken the currency could lead to inflation
a) Producers don't have time to adjust to the new price structure c) It makes exports more expensive
According to The Economist article, when central banks approach the "zero lower bound," they are left with unconventional monetary tools such as (check all that applies) a) Quantitative easing, in which central banks print money to buy assets such as government bonds b) Announcing that the central bank is willing to tolerate higher inflation in the future c) Slashing benchmark interest rates d) Issuing more treasury bonds e) Slashing tax rates and increasing unemployment benefits
a) Quantitative easing, in which central banks print money to buy assets such as government bonds c) Slashing benchmark interest rates
Which term fits the following definition? Increase in a currency's value under a fixed exchange rate system a) Revaluation b) Devaluation c) Appreciation d) Depreciation
a) Revaluation
According to the Sectoral Model of Monetary and Exchange Rate Politics, (check all that applies) a) Sectors that intensively use comparatively scarce factors prefer a floating exchange rate because a floating exchange rate enables macroeconomic stimulus b) Sectors that intensively use comparatively abundant factors prefer a floating exchange rate because a floating exchange rate enables macroeconomic stimulus c) Export-oriented producers prefer a fixed exchange rate because a fixed exchange rate enables macroeconomic stimulus d) Export-oriented producers prefer a fixed exchange rate because they are heavily engaged in international trade e) Sectors that intensively use comparatively abundant factors prefer an undervalued exchange rate
a) Sectors that intensively use comparatively scarce factors prefer a floating exchange rate because a floating exchange rate enables macroeconomic stimulus d) Export-oriented producers prefer a fixed exchange rate because they are heavily engaged in international trade e) Sectors that intensively use comparatively abundant factors prefer an undervalued exchange rate
Creditors initially diagnosed the debt crisis of the early 1980s as a 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 b) Short-term liquidity problem that could be solved with new loans in exchange for increased budget deficit spending to stimulate the economy and exchange rate devaluation to improve the balance of trade c) Moral hazard problem that could be solved by withholding future loans until developing country governments could demonstrate a greater commitment to fiscal prudence d) A coordination problem among lenders that could be solved by the IMF refusing to advance credit to a government until commercial banks pledged new loans to the same government e) Structural economic orientation toward domestic markets rather than world markets which could be solved with loans conditioned on structural adjustment policies such as trade liberalization and liberalization of FDI
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
Examples of positive externalities that can be transferred through FDI include (check all that applies) a) Technology b) Managerial expertise c) Marketing networks d) Pollution e) Crowded-out investment
a) Technology b) Managerial expertise c) Marketing networks
Some causes for the real estate bubble in the United States in the 2000s likely include (see Giant Pool of Money podcast or readings) (check all that applies) a) The US government (Fed) was unwilling to raise interest rates b) 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 c) Creditor nations such as China were willing to lend money to the United States in spite of low interest rates d) The United States was increasingly more productive relative to countries such as China, which led to a surge in foreign direct investment e) The US government (Fed) was unwilling to lower interest rates
a) The US government (Fed) was unwilling to raise interest rates b) 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 c) Creditor nations such as China were willing to lend money to the United States in spite of low interest rates
Which of the following occurred during the breakdown of the Bretton Woods monetary system? (check all that applies) a) The US ran large, consistent balance of payment deficits because of the Vietnam War b) The US ran large, consistent balance of payment deficits because of expanded welfare programs at home, including Medicaid, Medicare, and Social Security c) Germans who worried about inflation more than collapse of the exchange rate system sold large volumes of dollars to buy back German marks d) Germans who worried about inflation sold large volumes of German marks to buy dollars, because dollars were considered more stable (because they were fixed to gold) e) The Nixon administration loosened monetary policy (reduced interest rates) to stimulate the US economy
a) The US ran large, consistent balance of payment deficits because of the Vietnam War b) The US ran large, consistent balance of payment deficits because of expanded welfare programs at home, including Medicaid, Medicare, and Social Security c) Germans who worried about inflation more than collapse of the exchange rate system sold large volumes of dollars to buy back German marks e) The Nixon administration loosened monetary policy (reduced interest rates) to stimulate the US economy
According to the Partisan Model of Monetary and Exchange Rate Politics, (check all that applies) a) There is a tradeoff between low unemployment and low inflation b) An increase in interest rates will result in lower unemployment but carries the risk of higher inflation c) A decrease in interest rates will result in lower unemployment but carries the risk of higher inflation d) Left wing parties tend to favor low interest rates and a floating exchange rate more than right wing parties e) Left wing parties tend to favor low interest rates and a fixed exchange rate more than left right wing parties
a) There is a tradeoff between low unemployment and low inflation c) A decrease in interest rates will result in lower unemployment but carries the risk of higher inflation d) Left wing parties tend to favor low interest rates and a floating exchange rate more than right wing parties
Governments of advanced industrial economies increased their role in the government, such as attempting to achieve full employment, after World War 2 because (check all that applies) a) There was a shift in ideas called the Keynesian Revolution b) There was a shift in ideas called neoliberal economics c) There was a shift in political power away from the propertied classes to the working class d) There was a shift in political power away from the landed gentry to the urban industrialists e) The United States used its position as a hegemon to force other governments to change their policies
a) There was a shift in ideas called the Keynesian Revolution c) There was a shift in political power away from the propertied classes to the working class
Debtor governments never threatened collective default because a) 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 b) Each government had an incentive to unilaterally default c) They were caught in a prisoners dilemma - individual default would yield individual benefits, but collective default would carry collective costs d) They were caught in a battle of the sexes - each country would be better off defaulting if the other country also defaulted, but each country would be better off not defaulting if the other country did not default e) Developing country governments were controlled by capitalists whose savings would be destroyed if the government defaulted
a) 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
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 depreciation) (check all that applies) ? a) Use foreign currency reserves to buy back Country B currency from other countries b) Use Country B currency reserves to buy foreign currency c) Impose capital controls to prevent actors from using Country B currency to buy foreign currency d) Use the Country B Central Bank to increase interest rates in Country B e) Use the Country B Central Bank to reduce interest rates in Country B
a) Use foreign currency reserves to buy back Country B currency from other countries c) Impose capital controls to prevent actors from using Country B currency to buy foreign currency d) Use the Country B Central Bank to increase interest rates in Country B
Foreign direct investment includes (check all that applies) a) When a firm in one country builds a new plant or factory in a second country b) When a firm in one country purchases an existing plant or factory in a second country c) When an individual investor buys a mutual fund invested in foreign firms d) When an investment firm lends money to a foreign government e) When an investment firm buys sovereign bonds from a foreign government
a) When a firm in one country builds a new plant or factory in a second country b) When a firm in one country purchases an existing plant or factory in a second country
Moral hazard arises when a) When banks believe that the government will bail them out if they suffer large losses on the loans they have made b) When banks believe that borrowers may decide not to pay back their loans c) When banks believe that borrowers are using borrowed funds for illicit activities such as drug smuggling or human trafficking d) When banks believe that the government may devalue the local currency e) When banks believe that foreign lenders would stop rolling over their short-term loans
a) When banks believe that the government will bail them out if they suffer large losses on the loans they have made
Which of the following are evidence regarding working conditions in MNC affiliates in developing countries, according to Oatley? (check all that applies) a) Workers employed by an MNC in the US or Europe earn, on average, over twice as much as workers employed by an MNC in low-income countries b) In low-income countries, workers employed by an MNC earn, on average, twice as much as workers employed by a domestic firm c) In low-income countries, workers employed by a domestic firm earn, on average, twice as much as workers employed by an MNC d) Many workers employed by MNCs in low income countries are required to work excessively long hours, often without higher compensation for working overtime e) Workers employed by American or European MNCs in low income countries receive the same benefits as workers employed by those MNCs in the US or Europe, such as safe working conditions and overtime pay
a) Workers employed by an MNC in the US or Europe earn, on average, over twice as much as workers employed by an MNC in low-income countries b) In low-income countries, workers employed by an MNC earn, on average, twice as much as workers employed by a domestic firm d) Many workers employed by MNCs in low income countries are required to work excessively long hours, often without higher compensation for working overtime e) Workers employed by American or European MNCs in low income countries receive the same benefits as workers employed by those MNCs in the US or Europe, such as safe working conditions and overtime pay
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 (see Moravcsik) (check all that applies) a) restrictions on capital flows b) reduce private spending (on consumption) c) manipulation of exchange rates. d) unilateral (national) control over interest rates and the money supply e) reduced wages
a) restrictions on capital flows c) manipulation of exchange rates. d) unilateral (national) control over interest rates and the money supply
Which international monetary fits the following description? 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. a) Classic Gold Standard b) Bretton Woods System c) Floating Exchange Rate System
b) Bretton Woods System
Which of the following best describes Rodrik's recommendation regarding WTO rules? a) Countries should be allowed to "violate" WTO rules when those rules threaten to undermine domestic labor and environmental standards or hamper development goals b) 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 c) Countries should not be allowed to "violate" WTO rules when those rules threaten to undermine domestic labor and environmental standards because often labor and environmental standards are a form of protectionism used by advanced industrialized countries to keep out cheap imports from developing countries d) 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 government can demonstrate that the rules violation is applied equally to all trade partners e) Countries should not be allowed to "violate" WTO rules when those rules threaten to undermine domestic labor and environmental standards because allowing such violations would be a slippery slope that could bring the world back to widespread protectionism and even another global depression
b) 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
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. a) True b) False
b) False
Which exchange rate regime is described as follows? 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 a) Fixed exchange rate system b) Floating (or flexible) exchange rate system c) Fixed-but-adjustable exchange rate system d) Managed float exchange rate system
b) Floating (or flexible) exchange rate system
According to Rodrik's Political Trilemma of the World Economy, a nation can have two of the following three attributes, but not all three: (select three) a) Monetary autonomy b) Hyperglobalization (including capital mobility) c) Democratic politics d) Fixed exchange rates e) Golden Straitjacket f) Global governance g) Bretton Woods compromise h) Nation state
b) Hyperglobalization (including capital mobility) c) Democratic politics h) Nation state
Between 1982 and 1986, net capital flows were transferred from the seventeen most heavily indebted countries to banks in advanced industrial countries because a) Structural adjustment policies led to rapid economic growth in those debtor countries, generating surplus savings that were invested to generate low-risk returns b) 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 c) Lenders acted as a united front because they solved the free-rider problem by the IMF refusing to advance credit to a government if commercial banks pledged new loans to the same government d) Borrowers acted as a united front because they solved the free-rider problem by the IMF refusing to advance credit to a commercial bank until commercial banks pledged new loans to the same government e) Private capital holders in developing countries did not have any profitable investment opportunities in developing countries, so they invested all of their savings to bank in advanced industrial countries
b) 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
When firms earn a substantial share of their revenues from ______, they have strong incentives to integrate vertically. (HINT: sometimes the "such as" examples don't fit that category!) (check all that applies) a) Intangible assets, such as railways that have been built from a particular location to a particular port b) Specific assets, such as factories that manufacture component parts c) Intangible assets, such as know-how among a set of employees d) Specific assets, such as know-how among a set of employees e) Specific assets, such as natural resources
b) Specific assets, such as factories that manufacture component parts e) Specific assets, such as natural resources
As a result of the strong dollar in the early 2000s, (HINT: See Oatley) (check all that applies) a) Businesses and the political elite were increasingly supportive of the Bush administration because of its success in make the US economy more competitive b) The Bush Administration blamed the loss of American competitiveness on the polices and practices of foreign governments such as China and Germany to create current account surpluses c) Because American businesses were increasingly competitive in world markets, their policy preferences increasingly favored free trade d) China passed laws to protect its markets from US imports e) Congress proposed laws that protected US markets from Chinese imports
b) The Bush Administration blamed the loss of American competitiveness on the polices and practices of foreign governments such as China and Germany to create current account surpluses e) Congress proposed laws that protected US markets from Chinese imports
According to Eichengreen (2012), some challenges the world economy has faced in recent years, with regard to the international monetary system, include (check all that applies) a) Chinese yuan is becoming the main currency used for international transactions, but currency traders do not trust the Chinese government b) The European Central Bank needs to be more willing to support economic growth, but Germany has been reluctant to allow interest rates to remain low c) The United States needs to strengthen the dollar so that the United States can continue to maintain its current account surplus; reducing government deficit spending will help, but could also reduce the economic growth needed to provide international liquidity d) The US dollar and the Euro are arguably the only instruments capable of supporting current levels of international transactions, but their economies have been weak in recent years e) 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
b) The European Central Bank needs to be more willing to support economic growth, but Germany has been reluctant to allow interest rates to remain low d) The US dollar and the Euro are arguably the only instruments capable of supporting current levels of international transactions, but their economies have been weak in recent years e) 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
According to the Continental Breakup podcast, European Monetary Union was created because (check all that applies) a) France wanted to create a United States of Europe b) The French conditioned support for German unification on German support for monetary union c) Greece and other Mediterranean countries promised to maintain low budget deficits and inflation d) Germany was eager to pursue deeper monetary cooperation e) German policy makers believed it would help keep German inflation rates low
b) The French conditioned support for German unification on German support for monetary union c) Greece and other Mediterranean countries promised to maintain low budget deficits and inflation
One reason the Bretton Woods intermational monetary system came to an end was because a) The Nixon administration signaled to the Federal Reserve that it wanted interest rates to go up b) The Nixon administration signaled to the Federal Reserve that it wanted interest rates to stay low c) The Nixon administration was unwilling to take action to reduce unemployment d) The Nixon administration was unwilling to let the dollar be devalued e) The Nixon administration adopted austerity fiscal policies to reduce the governments budget deficits
b) The Nixon administration signaled to the Federal Reserve that it wanted interest rates to stay low
Switzerland's problem with their currency in 2011 was a) Foreign currency traders are worried about the Swiss economy b) The Swiss Franc is too strong relative to other currencies c) The Swiss Franc is too weak relative to other currencies d) No-one wants to hold onto Swiss Francs
b) The Swiss Franc is too strong relative to other currencies
The United States developed major current account deficits in the late 1990s and 2000s because (check all that applies) a) The United States exported more than it imported b) The United States imported more than it exported c) China exported more than it imported d) Japan and Germany exported more than they were imported e) East Asian countries exported more than they imported
b) The United States imported more than it exported c) China exported more than it imported d) Japan and Germany exported more than they were imported e) East Asian countries exported more than they imported
The most generous bilateral foreign aid donors in the world are a) The World Bank and the b) The United States in terms of absolute dollars, and small Northern European countries in terms of aid as share of national income c) The World Bank and the United States d) The United States in terms of absolute dollars and in terms of aid as share of national income e) The World Bank and small Northern European countries
b) The United States in terms of absolute dollars, and small Northern European countries in terms of aid as share of national income
According to the Podcast, asteroid defense and preventing climate change are difficult problems to solve because a) The technology to solve the problems isn't feasible. b) They are planetary public goods. c) The cost is too high for any one country to afford. For example, the telescope alone would cost over $100 billion.
b) They are planetary public goods.
According to Moravcsik, Germany's "main motivation for a single currency" in Europe was a) to aid its reunification b) to promote its own economic welfare through open markets, a competitive exchange rate, and anti-inflationary monetary policy c) to maintain Germany sovereignty d) to dominate Europe politically. e) to realize an idealistic federalist scheme for European political union.
b) to promote its own economic welfare through open markets, a competitive exchange rate, and anti-inflationary monetary policy
Two differences between the HIPC debt initiative and previous programs include the following (check all that applies): a) There were conditions, such as trade liberalization and state-owned enterprises privatization, in exchange for new loans and rescheduled debts b) Commercial loans were converted into bonds with a lower face value c) Debts owed to multilateral lenders were reduced/forgiven d) 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 e) Middle income countries had the same access to IMF and World Bank funds as low-income countries
c) Debts owed to multilateral lenders were reduced/forgiven d) 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
The current consensus on globalization and the environment is that (according to Oatley) a) Globalization tends to harm the environment b) Globalization tends to benefit the environment c) Globalization does not necessarily harm the environment, but can have positive effects (such as more efficient technology) or negative effects (such as increased income levels that enable more intensive resource use)
c) Globalization does not necessarily harm the environment, but can have positive effects (such as more efficient technology) or negative effects (such as increased income levels that enable more intensive resource use)
According to Matthews, most economists agree that (check all that applies) a) Immigration is good for immigrants, but bad for the economy as a whole b) Immigration is good for the global economy, but bad for the economy of the country's receiving the immigrants c) Immigration is good for the immigrant, good for the economy receiving the immigrants, and good for the global economy d) The typical native-born worker is probably harmed by immigration e) The typical native-born worker probably benefits from immigration
c) Immigration is good for the immigrant, good for the economy receiving the immigrants, and good for the global economy e) The typical native-born worker probably benefits from immigration
According to the podcast, after Argentina defaulted on its debt, (check all that applies) a) Lenders sued Argentina in the World Court for Sovereign Credit, which forced the Argentinian government to pay back the lenders b) Lenders sued Argentina in court in New York, which forced the Argentinian government to pay back the lenders c) Lenders sued Argentina in court in New York and won but were not able to collect d) Lenders sanctioned Argentina by refusing to lend to Argentina at levels anywhere close to the lending before the default e) Argentina's economy was able to recover to a large degree because its exports became cheaper in world markets
c) Lenders sued Argentina in court in New York and won but were not able to collect d) Lenders sanctioned Argentina by refusing to lend to Argentina at levels anywhere close to the lending before the default e) Argentina's economy was able to recover to a large degree because its exports became cheaper in world markets
In Debt, Democracy, and Development, Frieden makes three propositions to explain how governments make economic policy (check all that applies): a) Factors of production are specific to certain industries, and so political coalitions tend to be focused on sectors rather than on classes. b) Governments tend to pursue economic policies that advance the national interest. c) Sectors with more asset specificity tend to have more intense policy preferences, which leads those sectors to exert more political pressure and thereby have more influence on government policy. d) Sectors that are able to solve collective action problems and cooperate tend to exert more political pressure and thereby have more influence on policy. e) Sometimes class conflict is more salient than policy disagreement between sectors; when class conflict is salient it overrides sectoral demands, and policy focuses on the general investment climate.
c) Sectors with more asset specificity tend to have more intense policy preferences, which leads those sectors to exert more political pressure and thereby have more influence on government policy. d) Sectors that are able to solve collective action problems and cooperate tend to exert more political pressure and thereby have more influence on policy. e) Sometimes class conflict is more salient than policy disagreement between sectors; when class conflict is salient it overrides sectoral demands, and policy focuses on the general investment climate.
Monetary policy is insulated from political influence because... a) Central banks control monetary policy and exchange rate policy b) Elected governments control monetary policy and exchange rate policy c) Central banks control monetary policy and fiscal policy d) 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 e) Actually, monetary policy is NOT fully insulated from political influence because although central banks control monetary policy and exchange rate policy, elected governments generally control fiscal policy
d) 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
Which balance of payments term fits the following definition? 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 a) Current account b) Trade account c) Capital account d) Balance of payments position e) Balance of payments adjustment
d) Balance of payments position
Regarding a carbon tax, Mankiw argues that a) A carbon tax would reduce economic growth without having any positive effect on the environment b) The US should not impose a carbon tax, because doing so would reduce American economic growth while China is left to continue polluting and stealing American jobs c) The US should impose a carbon tax and not worry about China, because the US would benefit from reduced carbon pollution no matter what China does d) The US should convince China to start with a small carbon tax together with the US, and then increase the tax rate over time, with a reciprocity strategy such as tit-for-tat to punish cheating, in order to facilitate cooperation e) Carbon tax is an example of a prisoner's dilemma, so an international institution such as the WTO should be empowered to act as a third party enforcer in order to achieve cooperation
d) The US should convince China to start with a small carbon tax together with the US, and then increase the tax rate over time, with a reciprocity strategy such as tit-for-tat to punish cheating, in order to facilitate cooperation
According to Moravscik, the state of democracy in Europe is that, a) There is a Democratic Deficit, because concurrent decision-making by national officials and directly elected European parliamentarians creates many veto players who can block policy changes. b) There is a Democratic Deficit, because of the important role of unelected technocratic insitutions such as the European Central Bank. c) There is a Democracy Deficit, because each country surrenders some unilateral control over its domestic policy d) There is a Democratic Surplus, because no long-term solution to Europe's woes can be imposed on a member state without the consent of its elected government, and elected governments often find it difficult to commit to the types of long-term reforms that both northern and southern Europe require today e) There is a Democratic Surplus, because each country surrenders some unilateral control over its domestic policy
d) There is a Democratic Surplus, because no long-term solution to Europe's woes can be imposed on a member state without the consent of its elected government, and elected governments often find it difficult to commit to the types of long-term reforms that both northern and southern Europe require today
The strong dollar in the United States in the 1990s and 2000s ... (check all that applies) a) Was caused, in part, by the fact that the United States imported more than it exported b) Was caused, in part, by the fact that the United States exported more than it imported c) Was a contributing factor to the fact that the United States exported more than it imported d) 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 e) Was a contributing factor to the fact that the United States imported more than it exported
d) 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 e) Was a contributing factor to the fact that the United States imported more than it exported
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: a) Labor market institutions such as labor unions and labor market laws such as minimum wages can lower the natural rate of unemployment substantially b) Labor market institutions such as labor unions and labor market laws such as minimum wages can raise the demand for labor c) Workers care about their nominal wage but are paid a real wage d) 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 e) Workers will demand a real wage increase equal to or greater than the expected future inflation rate in order to avoid a deterioration in their buying power
d) 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
