Final Exam

Question 1

International Regime

Answer 1

1) international trade regime–collection of institutions/regulations/etc. addressing cooperation in a specific issue area (ex, General agreement on Trade and Tariffs, WTO)
2) International monetary regime–a formal or informal arrangement among governments to govern relations among their currencies; agreement is shared by most countires in world economy.

Question 2

Protectionism

Answer 2

1) policy that implements trade barriers to restrict imports and encourage domestic industry
common tool of governments
populist incentives
2) Tariff barriers (tax placed on imports, raising the price of domestic goods) and NTB’s (government subsidies, quotas, loans)
3) benefits a) specific domestic industry by raising market price of competing imported goods b) Stolper-Samuelson Theory–protectionism benefits owners of scarce factors and harms owners of abundant factors (in line with Heckschler-Ohlin) c) Ricardo-Viner Theory–benefits import-competing sectors, hurts export-oriented sectors

Question 3

Autarky

Answer 3

1) restrictions on nearly all trade in favor domestic production and economic self-sufficiency
2) China before 1979
3) Typically leaves economy in ruins

Question 4

Quota (quantitative restriction)

Answer 4

1) limit placed on the amount of a particular good that is allowed to be imported
2) NTB, Protectionist policy

Question 5

Heckshler-Ohlin Theory and Ricardo-Viner Theory

Answer 5

1) HO–countries export goods that make intensive use of factors of production in which they are most abundant (countries export abundant-factor industries)
2) does not account for external costs
3) RV–protection benefits sectors or industries of the economy that compete with imports and harms exports

Question 6

Factors of production and Abundant/Scarce factors

Answer 6

1) land, labor, capital
2) relevant to HO theory
3) factor endowment–what a county has
4) abundant factors–factors of production that a county has a lot of
5) scarce factors–factors of production a country does not have a lot of

Question 7

Comparative Advantage

Answer 7

1) country’s ability to produce some goods more efficiently than others, such that its resources are best employed in those activities
2) relative to other industries
3) trade nearly always optimal
4) ratio of production of units for different sectors compared across countries

Question 8

Absolute Advantage

Answer 8

1) Country’s ability to produce all goods more efficiently than any other country
2) comparative advantage in every industry
3) still beneficial to trade instead of attempt self-sufficiency

Question 9

Most-Favored-Nation Status (MFN)

Answer 9

1) a status established by most modern trade agreements guaranteeing that the signatories will extend to each other any favorable trade trading terms offered in agreements with third parties (institutions like the WTO)
2) Expanded with international trade regime, GATT, and WTO

Question 10

WTO and GATT

Answer 10

1) parts of international trade regime
2) GATT 1947–reduced trade barriers, expanded MFN status, revisision through “rounds”
3) WTO 1994–reductions in ntb’s like subsidies, more comprehensive than GATT

Question 11

World Bank (International Bank for Reconstruction and Development)

Answer 11

1) part of international monetary regime
2) important international institution that provides loans at below-market interest rates to developing countries, typically to enable them to carry out development projects

Question 12

International Monetary Fund (IMF)

Answer 12

1) a major international economic institution that was established in 1944 to manage international monetary relations and that has gradually reoriented itself to focus on the international financial system, especially debt and financial crises.
2) most important and powerful economic institution because it can mobilize mass amounts of currency in short amounts of time–makes prime institution in cases of debt crises
3) IMF gives relatively inexpensive loans to struggling countries so that they can pay off their debt/ recover from a financial crises, in return the country implements economic policies that meet the IMF standards

Question 13

Foreign Portfolio Investment (FPI)

Answer 13

1) investment in a foreign country via purchasing stocks, bonds, or other instruments without managerial control of the firm/company
2) can be done by most actors (individuals, govts, firms, etc.)
3) investment in private firms through corporate bonds or equities (stocks)
4) pro: easy to invest. Con: unstable, prone to extreme variations, investors can withdraw their funds at any time

Question 14

Sovereign Lending

Answer 14

1) loans from private financial institutions to foreign governments, substantial portion of FPI
2) acquired via securities (bonds)
3) potential source of growth/ revenues
4) key factor in sovereign debt crises

Question 15

Sovereign Debt

Answer 15

1) government’s total borrowing; government debt
2) multiple holders
3) government’s holdings tied to the economy
4) tied to monetary concerns
5) Potential for self-fulfilling prophecy
6) default–inability to pay off debt

Question 16

Foreign Direct Investment (FDI)

Answer 16

1) investing in a foreign country via acquiring or establishing local facilities, of which the investory maintains managerial control.
2) Multinational Corporations (MNCs)
3) benefits to recipient countries: technological resources, managerial and other skills, better utilization of natural resources
4) compared to FPI: more long term and stable
5) cons to recipient countries: political corruption, environmental/external costs.
6) thousands of Bilateral institutions (BITs) no multi national istitutiions

Question 17

Multinational Corporations (MNCs)

Answer 17

1) business enterprises centered in one state with activities and investments in one or more foreign states
2) majority of FDI

Question 18

Recession, Depression, and Austerity

Answer 18

1) recession–a sharp slowdown in the rate of economic growth and activity
2) depression–a severe downturn in the business cycle, typically associated with a major decline in economic activity , production, and investment; a severe contradiction of credit; and sustained high unemployment
3) austerity–the application of policies to reduce consumption, typically by cutting government spending, raising taxes, and cutting wages
a) used in debt crises
b) can result in recession/depression

Question 19

Bilateral Investment Treaty

Answer 19

1) an agreement between two countries about the conditions for private investment across borders. Most of these treaties include provisions to protect an investment from government discrimination or expropriation without compensation as well as establishing mechanisms to solve disputes.
2) regulates FDI between two countries
3) can off-set some costs for FDI

Question 20

Exchange Rates

Answer 20

1) rate at which one currency can be exchanged for another
2) deprecation/appreciation–when exchange rates fall/rise naturally, occurs for floating rates, based off supply and demand
3) devaluation/revaluation–when currency is deliberately increased/decreased relative to foreign currencies, deals with fixed rates
4) types of exchange rates
a) fixed
b) floating
c) adjustable peg (pegging currency to other currency and letting rates fluctuate between certain values
d) dollarization–adoption of the dollar as currency
e) gold standard–fixing currency to price of gold (1870 to WWI)

Question 21

Monetary Policy

Answer 21

1) an important tool of national governments to influence broad macroeconomic conditions such as unemployment, inflation, and economic growth. Typically, governments alter their monetary policies by changing national interest rates or exchange rates
2) high rates lead to more demand and conversion
3) low rates lead to less demand and more money supply

Question 22

Currency strength and trade

Answer 22

1) strong currency makes imports cheaper, but exports less competitive
2) weak currency makes exports more competitive, but domestic consumers have less purchasing power on the global market, and import prices are higher

Question 23

The Incentive to devalue

Answer 23

1) export-oriented industries generally benefit
2) exported goods more competitive in foreign markets, imported goods less competitive in domestic market
3) export-led growth–increases production, increases wages, employment, government revenues

Question 24

The dark side of devaluation

Answer 24

1) negative effects for consumers:
decreases consumer purchasing power, imports more expensive
2) negative effects for investors: foreign denominated debts increase, local investments decrease in value
3) currency crises: eroding confidence in exchange rates and interest rates, logic of speculative attacks, devaluation initiates dramatic downward spiral, high risk of recession/depression

Question 25

Central Bank

Answer 25

1) the institution that regulates monetary conditions in an economy, typically by affecting interest rates and the amount of currency in circulation.

Question 26

International monetary regime

Answer 26

1) agreement across countries to govern currency relations
2) ex. Bretton-Woods System: foreign currencies pegged to USD, USD pegged to Gold. failed in 1973 because US decided it was no longer optimal

Question 27

Global South

Answer 27

1) countries in southern hemisphere
2) former “third world” countries
3) non-aligned movement in cold war
4) Lack infrastructure and public goods that encourage development
5_ significant income gap with the global north

Question 28

Global North

Answer 28

1) former “first world” (western cold war) and “second-world” (eastern communist bloc cold war) states
2) Developed countries, have public goods and infrastructure necessary for economic growth

Question 29

Origins of the North-South Gap

Answer 29

1) lack of public goods (vital for econ development)
2) institutional effects of colonialism—presence of colonists=strong institutions, extraction vs colonization, geography, climate, disease, habitability, etc
3) additional influences–reliance of LDC’s on exports of primary products (raw materials, agricultural products, unfinished products, etc) , disparities in trade, exclusions from IMF/institutions, policies of global north

Question 30

Selectorate Theory

Answer 30

1) Selectorate–people with political influence
2) high selectorate= lots public goods (non excludable and non-rivalrous)
3) small selectorate= few public goods
4) public goods (highways, infrastructure, education, etc.)essential for economic development; therefore, countries with high electorate are more developed

Question 31

Oligopoly

Answer 31

1) a situation in which a market or industry is dominated by a few firms

Question 32

Terms of Trade

Answer 32

1) The relationship between a country’s export prices and its import prices

Question 33

Import-Substituting Industrialization (ISI)

Answer 33

1) A set of policies, pursued by most developing countries from the 1930s through the 1980s, to reduce imports and encourage domestic manufacturing, often through trade barriers, subsidies to manufacturing, and state ownership of basic industries
2) attempt to shrink north-south gap

Question 34

Export-Oriented Industrialization (EOS)

Answer 34

1) a set of policies, originally pursued starting in the late 1960s by several East Asians countries, to spur manufacturing for export, often through subsidies and incentives for export production
2) pursued by China with devaluation of currency
3) replaced ISI

Question 35

Washington Consensus

Answer 35

1) an array of policy recommendations generally advocated by developed-country economists and policymakers starting in the 1980s, including trade liberalization, privatization (selling off government enterprises to private investors), openness to foreign investment, and restrictive monetary and fiscal policies.
2) trend towards globalization

Question 36

Group of 77

Answer 36

1) a coalition of developing countries in the UN, formed in 1964 with 77 members; has grown to over 130 members
2) most success in LDC gaining more control over their resources (ex.OPEC)

Question 37

Commodity Cartels

Answer 37

1) associations of producers of commodities (raw materials and agricultural products) that restrict world supply and thereby cause the price of the goods to rise

Question 38

Collective Security Organizations

Answer 38

1) institutions formed to protect and promote peace amongst member countries
2) example: UN

Question 39

Basics of the UN

Answer 39

1) founded for collective security
2) based on intergovernmentalism–cooperation amongst states, voluntary interaction determined by states.
4) no use of force by the UN unless security council (Russia, France, US, England, China) approves as peacekeeping mission or international security threat

Question 40

Benefits of joining the UN

Answer 40

1) benefits for strong states: reduce threats, balancing,, can “bias” the rules, more easily rally support
2) benefits for small states: less uncertainty about capabilities, lower costs of security, focus on trade, investment

Question 41

The UN and Security

Answer 41

1) exclusive right of security council
2) 2 acceptable uses of force a) threat to the peace/aggression b) self-defense
3) ex. Korean War

Question 42

The UN and Peacekeeping

Answer 42

1) largest portion of UN budget

2) maintaining a ceasefire with UN troops with permission of warring parties, no explicit use of force

Question 43

The EU and Suprantionalism

Answer 43

1) integration–deliberate reduction in economic, political, social boundaries between countries
2) democratic deficits–perceived lack of democracy due to illegitimate institutions and/or lack of mechanisms for political influence
3) Supranationalism–institutional arrangement where key decisions are made by an international organization and are binding on member states
EU bureaucrats represent EU not their original countries

Question 44

EU structure

Answer 44

three political institutions
1) council of the EU-28 ministers 1/2 EU’s legislative branch, little legislative intitiative, overrides national policy
2) European Commission–“executive branch” of EU, proposes, implements policy (leg initiative), interprets/applies treaties 28 non-elected officials
3)European parliament–half legislative branch, directly elected
European Court of Justice (ECJ)
EU law, one judge per country, supercedes national law., protects fundamental rights, interprets/applies treaties

Question 45

EU “competences”

Answer 45

1) Executive competences–EU makes rules, members deal with it (ex. customs union, euro monetary policy)
2) Shared competences–both EU and states, EU trumps (ex. internal market, research and development, foreign security)
3) supporting competences–EU supports and coordinates policies of member states (ex. industry, culture tourism, civil protection)

Question 46

subsidiarity

Answer 46

1) idea that political or economic matter should be handled by the smallest/most local unit of political authority

Question 47

Civil War

Answer 47

1) elements of working definition: armed conflict/violence, government sovereign state, one or more domestic rebels, organized for effective resistance, relatively continuous fighting
2) causes: grievances and oppurtuinity (poverty, income gaps, opportunity for growth) single best predictor of civil war
regime type: political/economic freedoms democratic
anocratic (has characteristics of democratic and autocratic regimes) regimes have most civil wars
ethnicity/difference
demographics
geopolitics
3) irredentist–actor that seeks to detach a region from one country and attach it to another, usually because of shared ethnic or religious ties
4) separatist–actor that seeks to create an independent state on territory carved from an existing state.

Question 48

Civil War and Bargaining

Answer 48

1) necessary for conditions for bargaining: group motivated by greed, political institutions insufficient, credible threat to govt

Question 49

Terrorism

Answer 49

1) key elements: strategy w/ political goals, deliberate planned campaigns, targeting of civilians, fear, rejection of political dialogue
2) asymmetric warfare–war between actors with highly unequal military capabilities (ex. rebels with strong states)

Question 50

terrorism as rational

Answer 50

1) strategy towards achieving goals; overcome asymmetries through costly signals

Question 51

terrorism as failure of bargaining

Answer 51

1) directly implies terrorists are rational
2) terrorist have extreme positions with political goals
3) prevalence of incomplete information (bad intelligence, transparency undermines tactics)
4) difficulty of credible commitments (substantial concessions for terror groups, potential precedent for third parties)
5) indivisible issues

Question 52

state actions to fight and Military vs criminal response to terrorism

Answer 52

1) state has to balance civil liberties v security, public awareness v security, legal status of citizens
2) military responses have more resources than police ones but may give terrorist POW rights.

Question 53

five terrorist strategies

Answer 53

1) attrition–persuade enemies that organization can credibly back up threats
2) intimidation–using fear to gain popular support/ eliminate opposition by portraying government as unable to protect citizenry
3) provocation–attempting to elicit a state response
4) spoiling–attack to ruin bargaining between government and moderate groups
5) out-bidding–using violence to convince public that terrorist group has more resolve and is more deserving of support than the government.

Question 54

insurgency

Answer 54

1) a military strategy in which small, often lightly armed units engage in in hit-and-run attacks against civilian, military, and government targets

Question 55

Proxy Wars

Answer 55

conflicts in which states “fight” by supporting opposing sides in a different conflict