CH.11 - THE BRETTON WOODS SYSTEM (REBUILDING OF GLOBALIZATION)

Question 1

capital mobility

Answer 1

The ease or difficulty of moving capital across national borders or of transforming one financial asset into another

Question 2

conditionality

Answer 2

The imposition of restrictions upon the extension of financing pending some change, as when the IMF asks a government to address specific national economic problems that the IMF thinks are contributing to the state’s persistent balance-of-payments problems

Question 3

countercyclical fiscal policy

Answer 3

p.423

Question 4

countervailing duties

Answer 4

Legitimate tariffs, sanctioned by WTO rules, that are imposed to penalize foreign producers who have received unfair government subsidies and as a consequence are damaging domestic producers who would otherwise be legitimately competitive

Question 5

dead-weight loss

Answer 5

A pure social inefficiency even though some individuals may benefit, as in a government intervention, such as a quota, that allows domestic producers to keep the consumers’ cost from the obstruction of trade

Question 6

debt forgiveness

Answer 6

A development strategy involving cancellation of the debt burden of developing states, in order to relieve them of the need to send capital abroad to pay off their loans instead of investing in domestic economic activity

Question 7

dumping

Answer 7

A foreign producer’s practice of selling its products below their production costs; a predatory behavior designed to drive competitors out of business and grab mar­ket share

Question 8

escape clauses

Answer 8

Special provisions included in the GATT (and now the WTO) organizing treaties that allow governments to temporarily protect their domestic industries—allowing them to escape from the discipline of the market—under special circumstances in order to provide time for adjustment and to ease dislocations

Question 9

euro markets

Answer 9

Markets trading financial instruments that are denominated in a nation’s currency outside the boundaries of that nation

Question 10

financing gap

Answer 10

The difference between the level of domestic investment considered necessary to promote economic growth and the level of domestic savings

Question 11

fiscal policy

Answer 11

Government tax and expenditure strategy designed to influence investment through the use of fiscal stimulus; countercyclical fiscal policy involves expanding government expenditures and/or reducing taxes during a downturn and reducing government expenditures and/or increasing taxes during an expansion

Question 12

free trade areas

Answer 12

p.432

Question 13

fundamental disequilibrium

Answer 13

A situation in which a nation’s balance-of-payments mechanism fails to adjust in response to economic disturbances—such as inflation, chronic unemployment, stagnation, and so on—that can adversely affect its balance-of-payments position and persist over time

Question 14

leading currency problem

Answer 14

A dilemma created when the leading currency country, the dominant reserve currency state, encounters a fundamental disequilibrium and contemplates adjusting its exchange rate, which would thereby affect prices throughout the system and potentially unsettle international economic transactions

Question 15

Marshall Plan

Answer 15

An economic policy initiative of the Truman administration, designed to promote postwar reconstruction and to provide a bulwark against the rise of domestic communist movements in the Western European states

Question 16

monetary policy

Answer 16

Government strategy to manage economic activity in a society by manipulating the supply of money, either expanding it to promote growth during an economic downturn or contracting it to restrain inflation during rapid economic expansion

Question 17

nondiscriminatory trading arrangements & institutions

Answer 17

Strategy that seeks to inhibit governments from using trade policy to extend privilege to one country but not to others and to prevent political manipulations that could translate into structural inefficiencies that detract from the economic gains from trade

Question 18

par value

Answer 18

The stated value of a currency with a fixed exchange rate

Question 19

regional trading agreements

Answer 19

Blocs of states that agree to lower or eliminate barriers to trade between members; such agreements combine multiple smaller markets into larger unified markets

Question 20

subsidies

Answer 20

Government financial assistance to relatively uncompetitive sectors or industries

Question 21

tariffs

Answer 21

Government taxes on imports or exports, increasing the price of goods

Question 22

Triffin Dilemma

Answer 22

A long-term inconsistency between persistent U.S. balance-of-payment deficits in the Bretton Woods system, which created liquidity for the system and led to a grow­ing number of dollars held outside the United States, and the size of U.S. gold reserves, con­vertibility, and the value of the dollar

Question 23

Truman Doctrine

Answer 23

A foreign policy, in which the United States was committed to a strategy of active engagement—“supporting free peoples who are resisting subjugation by armed minorities or by outside pressures”

Question 24

Washington Consensus

Answer 24

A policy agenda that places great emphasis upon the corrective pressures of market discipline and seeks to reduce government regulation and intervention in the economy by promoting economic openness in trade and capital movements, liberalization of financial markets, fiscal policies that lead to balanced budgets, anti-inflationary monetary policies, stability in exchange-rate relations, expansion of private enterprise, and a reduction in state-owned enterprises