Final Review Flashcards
(134 cards)
1
Q
What does Adam Smith’s The Wealth of Nations discuss?
A
Specialization, each actor focusing on what they do well to increase productivity and potential wealth
2
Q
What is absolute advantage?
A
The ability of a country/firm to produce more of a good or service compared to other countries/firms with the same effort or resources; the ability to produce a good using fewer inputs than another producer
3
Q
What is comparative advantage?
A
The ability of a country/firm to produce a particular good or service more efficiently than other goods or services that it could produce; the ability to produce a good at a lower opportunity cost than another producer
4
Q
What are opportunity costs?
A
What is given up by pursuing one activity instead of another
5
Q
What are factors of production?
A
Inputs used to produce goods/services
6
Q
What are some examples of factors of production and their significance?
A
Land (agriculture, natural resources), labor (“unskilled”), capital for investment (machines and money), human capital (“skilled,” trained, educated labor)
7
Q
What is the Heckscher-Ohlin trade theory?
A
A country will export goods that make intensive use of the factors of production in which it’s well endowed (and import goods that make intensive use of factors in which it’s poorly endowed); explains what things are traded
8
Q
Besides absolute/comparative advantage, what are some other things that impact trade?
A
Brand names, shared currency, economic shocks, friendly or hostile relationships, domestic policies catered to specific constituencies
9
Q
What is protectionism?
A
The imposition of barrier to restrict imports
10
Q
What are trade barriers?
A
Government limitations on international exchange of goods (particularly high during era of mercantilism)
11
Q
What is a tariff?
A
A tax imposed on imports, which raises the domestic prices of the good
12
Q
What is a quantitative restriction (quota)?
A
A limit placed on the amount of a particular good allowed to be imported
13
Q
What are nontariff barriers to trade?
A
Obstacles to trade other than tariffs, like quotas, regulations, discriminatory policies
14
Q
What are some ways trade is influenced by domestic aspects?
A
Costs and benefits are not evenly distributed; imports lower costs for consumers but can cut into a producer’s profits and jobs, while barriers like tariffs raise the cost of products for consumers but can lift a producer’s profits and jobs
15
Q
What is the Stolper-Samuelson theorem?
A
An implication of Heckscher-Ohlin, where protection benefits the scarce factor of production
16
Q
What is the Ricardo-Viner (specific-factors) model?
A
Protection benefits the sectors that the scarce factors of production are used in (factors of production may be specific to an industry, immobile)
17
Q
What is firm-based theory?
A
Protection benefits specific firms
18
Q
How do states try to get what they want from the global economy?
A
Each state must make policies based on what they think other states will do in response (anarchic world issue, tough to know if others will exploit openness to trade)
19
Q
What is reciprocity in international trade institutions?
A
Mutual agreement to lower tariffs and other barriers to trade
20
Q
What is most-favored nation (MFN) status in international trade institutions?
A
Status guaranteeing that signatories will extend to each other any favorable trading terms offered in agreements with third parties
21
Q
What is GATT?
A
General Agreement on Tariffs and Trade, an institution created in 1947 where member states committed to reduce barriers to trade and provide similar trading conditions to all members (part of post-WWII order)
22
Q
What is the WTO?
A
World Trade Organization, an institution created in 1955 to succeed the GATT, each state gets one vote but biggest traders are clearly more influential (increasing strain between developing nations and developed nations)
23
Q
What are regional trade agreements?
A
Agreements among three or more countries in a region to reduce trade barriers amongst themselves (Ex. EU, NAFTA)
24
Q
What has been a recent trend in terms of public opinion of trade?
A
Rising tide against free trade, increasing momentum for “anti-globalization” movements
25
What are the two main investment tools?
Portfolio investment and foreign direct investment
26
What is portfolio investment?
Investment in a foreign country via the purchase of stocks, bonds, or other financial instruments (investors don't maintain managerial control); a key form is sovereign lending
27
What is sovereign lending?
Loans from private financial institutions in one country to sovereign governments in other countries
28
What is foreign direct investment (FDI)?
Investment in a foreign country via the acquisition of a local facility or the establishment of a new facility (investors maintain managerial control)
29
What is an interest rate?
Extra payment due to a lender for their loan, typically set at a particular rate of the amount borrowed
30
How do interest rates vary in capital-rich vs. capital-poor states?
Capital-rich states have lower interest rates (profits for borrowers), capital-poor states have higher interest rates (profits for lenders)
31
What are some troubles with borrowing?
Governments borrow abroad to speed growth and production and want to do so at a minimal cost so many in the state may not see direct benefits, and paying back loans can be economically painful (may use austerity)
32
What is austerity?
Application of policies to reduce consumption, typically by cutting government spending, raising taxes, restricting wages
33
What is a recession?
A sharp downturn in the rate of economic growth and economic activity
34
What is a depression?
A severe downturn in the business cycle
35
What does it mean when a country has to default?
It means they fail to make payments on debt
36
What are some troubles with lending?
Lenders want to be paid in full and profit as much as possible (increased resentment about "bailing out" irresponsible parties)
37
What happens if a debtor runs into trouble?
There is a bargaining situation; a debtor can threaten to default to suspend payments OR the creditor can threaten to cut off future loans, freeze assets, seize government-owned property, cease aid, or use military force
38
What are some international finance institutions?
The World Bank, the Bank for International Settlements, and the International Monetary Fund
39
What is the World Bank?
An international institution that provides loans at below-market interest rates to developing countries, typically to enable them to carry out development projects (meant to help poor nations with essentials and often "free" loans)
40
What is the Bank for International Settlements?
Created in 1930, included the world's principal central banks attempting to cooperate in the financial realm
41
What is the International Monetary Fund (IMF)?
An international economic institution established in 1944 to manage international monetary relations but shifted to focus on debt and currency crises
42
What is the structure of the IMF?
Includes both borrowing and lending countries with voting power proportional to quotas (leading to some criticism that the IMF is biased toward the rich and powerful)
43
What happened in the 1997 Asian Financial Crisis?
Indonesia, Philippines, Thailand, South Korea were developing rapidly when the Thai baht collapses causing investors to withdraw money; now countries can no longer pay their debts so the IMF intervenes and makes them adopt "restructuring packages" with high interest rates
44
What are the IMF's functions as an institution?
Provides a set of financial and economic standards, supplies information to assess debtor nations, increases likelihood of repeated interactions (iteration), helps creditor nations coordinate
45
What happened in the 2008 global Financial Crisis?
US borrowed abroad heavily to finance its deficit (a lot went into soaring housing market), housing bubble busts and many loans go bad spreading panic across banks; international loans can't be paid (hurting creditors abroad), anger about using taxpayer money to bail out wealthy, global tension between rich vs. developing nations
46
What is a multinational corporation?
An enterprise that operates in a number of countries, with production or service facilities outside its country of origin
47
What are pros of investing abroad?
Accessing local resources, reducing transportation costs, getting around trade barriers by establishing local affiliates, doing different parts of production in places that have better resources
48
What are cons of investing abroad in the home country context?
Opposition in home country over outsourcing and "not investing at home," questions of human rights and environmental safety
49
What are cons of investing abroad in the host country context?
Oppositions in host country about foreign competition, changing attitudes towards the MNC as the host develops its own businesses, resentment about tax breaks and other incentives for the MNC, tying the host country's economic fate to an MNC (especially developing countries)
50
How are the profits split in FDI between a host country and an MNC?
They must bargain, often there are major power imbalances between developing countries and MNCs; host countries can regulate, tax, or nationalize the MNC, while MNCs can withhold things or pull out of the host country
51
What exists to manage relations between host countries and MNCs?
Not institutions, but bilaterial investment treaties
52
What are bilaterial investment treaties?
Agreements between two countries about private investment terms
53
What are the politics of international migration?
Countries' economies benefit from the immigration of both skilled and unskilled labor, but the distributional effects of immigration are uneven
54
What are some effects of immigration?
Employers benefit, but local employees may suffer, anti-immigrant sentiment, immigration restrictions linked to the power of labor movements & shortage of domestic labor
55
What two sets of actors does sovereign lending involve?
Creditors/lenders and debtors/borrowers
56
What two sets of actors does FDI involve?
Investors vs. recipients of investment
57
What is an exchange rate?
The price at which one currency is exchanged for another
58
What does it mean for a currency to appreciate?
To increase in value relative to other currencies
59
What does it mean for a currency to depreciate?
To decrease in value relative to other currencies
60
What does it mean for a currency to be devalued?
To (intentionally) reduce the value of one currency relative to other currencies
61
What happens when demand for a currency is high?
It appreciates
62
What happens when demand for a currency a currency is low?
It depreciates
63
What is monetary policy?
A tool of national governments to attempt to affect macroeconomic conditions
64
What is a central bank?
An institution that regulates monetary conditions in an economy
65
What is the main tool that central banks have to implement monetary policy?
The interest rate (the rate at which banks borrow money)
66
How will high interest rates affect investment?
It will be more attractive or investors to invest/put/leave money in the country
67
How will lower interest rates affect investment?
It will be less attractive for investors to invest/put/leave money in the country
68
How will higher interest rates affect currencies?
There will be more demand relative to supply, so currencies will appreciate
69
How will lower interest rates affect currencies?
There will be more supply relative to demand, so currencies will depreciate
70
How will higher interest rates affect exports & imports?
Exports will decrease (since they're more expensive) and imports will increase (since they're cheaper)
71
How will lower interest rates affect exports & imports?
Exports will increase (since they're cheaper) and imports will decrease (since they're more expensive)
72
What is a fixed exchange rate?
A policy where a government commits to keep its currency at/around a specific value relative to another currency or commodity (like gold)
73
What is the gold standard?
A monetary system where countries tie their currencies to gold at a legally fixed price
74
What is a floating exchange rate?
A policy where a government permits its currency to be traded on the open market without direct government control or intervention
75
With fixed currency, how does the exchange rate remain stable?
The central bank must use monetary policy
76
With floating currency, how does the exchange rate remain stable?
A currency's value is determined by forces of supply and demand
77
What is fiat money?
Money that's value comes from the government saying it has value and will be accepted as a means of payment ("Because we say so")
78
What is an adjustable peg?
A monetary system of fixed but adjustable rates. Keep currency fixed for extended periods but adjust occasionally as economic conditions change (Used between 1944-71)
79
What are some benefits of fixed rates?
Stability and predictability (trade, investment, finance, and ravel are much smoother/easier)
80
What are some issues with fixed rates?
Unable to pursue own monetary policy; central banks must rigidly keep currency's values constant, clashes with strategies that may help during recessions
81
What are conditions like if there are strong exchange rates in a state?
Consumers can buy more goods/services from others, producers are unhappy because others buy less from the state
82
What are conditions like if there are weak exchange rates in a state?
Producers are happy because they export more from others, consumer are unhappy because they can't afford to buy as many goods/services from others
83
What is the international monetary regime?
An arrangement among governments to govern relations among their currencies, typically shared by most countries in the world economy; how values of currencies will be consistently measured
84
What is the commodity standard?
Use a good with its own value, like gold, as the basic monetary unit
85
What is the commodity-backed paper standard?
Use a paper currency with a fixed value in terms of another good. Governments must be ready/able to redeem this for that good
86
What is the national paper currency standard (fiat money)?
Use a paper currency that's backed by issuing government's promise to support it
87
What are the three international monetary regimes we've experienced?
The gold standard, the Bretton Woods System, the world after 1973
88
What was the gold standard international monetary regime?
Fixed exchange rates, commodity standard and commodity-backed paper standard
89
What was the Bretton Woods System international monetary regime?
Adjustable peg, commodity-backed paper standard
90
What was the world after 1973 international monetary regime?
Generally floating exchange rates, national paper currency standard
91
What is a currency crisis?
A sharp depreciation of a country's currency
92
What are the two options that governments on fixed currencies on have when they face economic troubles
Keeping the currency stable and devaluing the currency
93
What are pros of keeping currency stable (in economic trouble?)
Help maintain investors' confidence
94
What are cons of keeping currency stable (in economic trouble)?
Can be extremely costly, both economically and politically
95
What are pros of devaluing currency (in economic trouble?)
National producers can compete with foreigners
96
What are cons of devaluing currency (in economic trouble?)
Consumers have to pay more for stuff, undermines investors' confidence which leads to currency sell-off, debts based on foreign currencies can suddenly become worse, many debtors go bankrupt and banks fail, recession occur, effects ripple abroad.
97
What is a less developed country?
A country at a relatively low level of economic development
98
What are some factors that make it hard for some states to develop?
Geography, domestic dimensions, and domestic institutions
99
How can geography impact development?
Access to rivers/oceans, weather & rain may impact urbanization & agriculture, natural resources (oil, minerals)
100
How can domestic dimensions impact development?
Providing public goods that promote growth (infrastructure) and ensuring the protection of private property
101
What is infrastructure?
Basic structures necessary for social activity, like transportation, telecommunication networks, water supply, and power supply
102
Why is it sometimes difficult to provide things for domestic development?
Lack of technology/resources to even get started, powerful domestic actors that may have incentives to extract resources from and exploit rural populations, powerful domestic actors in traditional sectors may oppose newer ideas & industries
103
What do domestic institutions look like in countries with lots of natural resources?
Resources are easy to exploit so there's no reason to promote other development, powerful elites will oppose development, development suffers over the long term, some LDCs suffer from the "resource curse" where initial resource wealth leads to poverty
104
What do domestic institutions look like in countries without many natural resources?
They will be forced to take measures that spur development
105
What are the three main interactions between rich and poor countries?
Colonialism, trade, and international institutions
106
Describe colonialism as an interaction between rich and poor countries
Mercantilism, colonial legacies create divides and conflict that damper cooperation and development; settlement easier when a rule of law is established and investment pushed spurring development over the long run, settlement harder when predatory policies are adopted and resources extracted undermining development over the long run
107
Describe trade as an interaction between rich and poor countries
LDCs tend to produce primary products (markets for primary products are competitive so prices tend to be cheap & unstable) while rich countries tend to produce manufactured goods (markets for manufactured goods tend to be oligopolies); countries focused on primary products get less than what they sell, while countries focused on manufactured goods get more
108
What are primary products?
Raw materials and agricultural products, typically unprocessed or slightly processed
109
What are primary products?
Raw materials and agricultural products, typically unprocessed or slightly processed
110
What are oligopolies?
A situation in which a market or industry is dominated by a few firms
111
Describe international institutions as an interaction between rich and poor countries
Richer nations already have more bargaining power than poor nations and these imbalances are reflected in international organizations (ex. voting power in IMF)
112
What policies have LDCs adopted to encourage further development?
Import-substitution industrialization (ISI) and export-oriented industrialization (EOI)
113
What is Import-substituting industrialization (ISI)?
A set of policies to reduce imports and encourage domestic manufacturing, often through trade barriers, subsidies, and state ownership of basic industries (popular from 1930s-80s); concerns about bad terms of trade justified in this logic
114
What are some downsides to Import-substituting industrialization (ISI)?
Primary product industries suffer severely, protected domestic industries aren't competitive abroad, selling to a poor domestic market isn't so profitable
115
What is Export-oriented industrialization (EOI)?
A set of policies to spur manufacturing for export, often through subsidies and incentives for export production (started in East Asian economies in 1960s); increased risk from trying to sell an international market
116
What is the Washington Census?
An array of policy recommendations advocated by developed countries starting in the 1980s
117
What are characteristics of the Washington Census?
Trade liberalization by removing trade barriers which increased domestic industries' competitiveness abroad, privatization by selling off government to private investors, fiscal and monetary policies that avoid large deficits and high inflation, openness to foreign investment & capital
118
What is the Group of 77 (G-77)?
A coalition of developing countries in the UN that seeks changes to the international economic order to favor the developing world
119
What are commodity cartels?
Association of producers of commodities (raw materials and agricultural products) that restrict world supply and thus cause the price of the goods to rise (Ex. OPEC)
120
Why is foreign aid an impractical solution?
Aid levels are very low and probably won't go up, people support giving aid to LDCs but not paying for it; aid is often exploited by both sides, recipient governments and elites in LDCs pocket the money & developed countries often give based on strategic and political reasons instead of humanitarian ones
121
What are some cons of globalization?
There are winners and losers, debt and currency crises are driven by what other countries do, promises of growth have fallen short, rising levels of inequality within developing nations (and most nations around the world)
122
What are the main international factors that make it so hard for some states to develop?
Splitting costs and benefits between rich and poor countries, historical impacts of rich nations' exploitation of the poor, institutions and interactions favoring wealthy interests
123
What are the main domestic factors that make it so hard for some states to develop?
Some actors within countries may oppose investments supporting infrastructure or other modernizations, cooperation to provide public goods is critical, democratic institutions may help, but not entirely clear
124
What falls under international law?
Treaties and customary international law
125
What falls under notions of what's "right" and "wrong"?
Customary international law and international norms
126
What is international law?
A body of rules that binds states and other agents in world politics and is considered to have the status of law
127
What is the rule of law?
Setting and enforcing primary rules through secondary rules
128
What are primary rules?
Negative and positive rules of behavior
129
What are secondary rules?
Rules about how rules are made
130
What are the main differences between domestic and international law?
Domestic law is made by legislatures, enforced/executed by police and military forces, and is interpreted by courts; international law is made by pairs of states, groups of states, UN, etc., enforced/executed by the UNSC (but no standing forces), individual state, etc., and interpreted by the International Court of Justice and others
131
What are the two main ways international law is made?
Treaties and through custom or accepted practice
132
What are treaties?
International agreements concluded between states in written form and government by international law
133
Why aren't international treaties a violation of sovereignty?
States must consent then ratify and volunteer to be constrained by the proposed law
134
What are some examples of treaties?
