Chapter 23: Globalization

Question 1

Globalization

Answer 1

A phenomenon by which economic agents in any given part of the world are more affected by events elsewhere in the world than before;
The growing integration of the national economies of the world to the degree that we may be witnessing the emergence and operation of a single worldwide economy.

Question 2

Tariff

Answer 2

A tax on imports

Question 3

Offshoring

Answer 3

Work done for a company by persons other than the original company’s employees in a country other than the company’s home country.

Question 4

6 Pieces of Evidence to Globalization

Answer 4

• International trade
• Foreign Exchange trading
• Foreign Direct investment
• Personal investments
• The World Trade Organization
• Business practices

Question 5

International trade as evidence of globalization

Answer 5

• The average tariff rate in the US has decreased from 40% to about 1.6%. This mirrors similar declines in many other countries.
• Exports became a larger percentage of a country’s total output.

Question 6

Foreign exchange trading as evidence of globalization

Answer 6

When people of one country want to trade with another, or invest in foreign companies, they have to buy the currency used in the other country.
In 1995, foreign exchange trading was 60 times higher than 1977.

Question 7

World Trade Organization

Answer 7

An international organization whose mission is to promote international free trade.
Member countries have risen from 23 in 1948 to 153 in 2010.

Question 8

Business practices as evidence of globalization

Answer 8

More Americans are working for foreign companies with offices in the US.

Question 9

4 Benefitial aspects of globalization

Answer 9

• Trade
• Income per person
• Prices
• Productivity and innovation

Question 10

Trade as a benefit of globalization

Answer 10

Expanding trade extends the benefits of trading to people you might not have traded with earlier.

Question 11

Income per person as a benefit of globalization

Answer 11

As both India and China opened up their economies to globalization in recent decades, they experienced increases in income per person.
According to the IMF, these increases accompanied the expansion of free international trade.

Question 12

Prices as a benefit of globalization

Answer 12

Numerous studies have established a link between lower prices and the degree of international trade and globalization.

Question 13

Productivity and innovation as a benefit of globalization

Answer 13

Firms that face global competition are often pushed to increase their productivity and innovate more.

Question 14

3 Costs of globalization

Answer 14

• Increased income inequality
• Losing domestic jobs
• More power to big corporations

Question 15

Increase income inequality as a cost of globalization

Answer 15

Globalization and income inequality are strongly correlated.

Economic systems that do not get on the globalization train, get further and farther behind.

Question 16

Loss of domestic jobs as a cost of globalization

Answer 16

Offshoring causes our citizens to lose certain jobs. Suppose a domestic company hires foreign engineers to do jobs once done by our citizens.

Question 17

More power to big corporations as a cost of globalization

Answer 17

Many critics of globalization argue the process will hand over the world to large Western corporations.
Many consider it to be the process of corporatizing the world.

Question 18

3 Inhibitors to globalization

Answer 18

• Increased political tension
• Terrorism
• Government policies

Question 19

Terrorism inhibiting globalization

Answer 19

Global terrorism tends to motivate certain countries into closing borders and into being much more carful about the people and goods crossing their borders.

Question 20

Two factors affecting net exports

Answer 20

• Foreign Real GDP

- The exchange rate

Question 21

Foreign Real GDP affecting net exports

Answer 21

As Japan’s Real GDP rises, the Japanese buy more foreign goods. Thus foreign economic expansions/contractions are felt locally.

Question 22

J-Curve

Answer 22

The curve that shows a short-run worsening in net exports after a currency depreciation, followed by an improvement.

Question 23

Closed Economy

Answer 23

An economy that does not trade goods and services with other countries.

Question 24

Open Economy

Answer 24

An economy that trades goods and services.