International Economic Policy

Question 1

How can globalisation affect national economies?

Answer 1

interdep countries affected by : economic health + policies of other countries

Question 2

How can an increase in tax rates affect the economy of a trading partner?

Answer 2

↑ taxes => ↓ purchasing power + ↓ consumption of domestically produces goods + ↓ consumption of imported good
=> ↓ exports + ↓ output + ↓ unemployment in the other country

Question 3

What does the international trade multiplier refer to?

Answer 3

Changes in imports into one country A
-> Impact on country B national income
= International trade multiplier

Question 4

What is the G7?

Answer 4

Intergovernmental organisation, created in 1975
Deals with :
 Macroeconomic management
 International trade
 Relations w/ the developing countries

Question 5

What are the G7 countries?

Answer 5

France, West Germany, Italy, Japan, UK, US, Canada

Question 6

Which country joined the G7 in 1998?

Answer 6

Russia at the Birmingham Summit (G8)

Question 7

Why has Russia’s G8 membership been suspended?

Answer 7

A joint statement “the Russian Federation’s clear violation of the sovereignty and territorial integrity of Ukraine”

Question 8

How often do G7/G8 summits take place?

Answer 8

Annual meeting to foster consensus/cooperation on global issues :
o Economic growth
o Crisis management A

Question 9

What is the G20?

Answer 9

It was Created in 1999 in Berlin, 20 members

Question 10

What are the G20 countries?

Answer 10

G7 + EU, Argentina, Australia, Indonesia, Mexico, Saudi Arabia, South Korea, Turkey, The BRICS

Question 11

What is the G20’s mission?

Answer 11

Promotes : Growth and Economic development at a global level

Question 12

What does the international harmonisation of economic policies imply?

Answer 12

coordinate macroeconomic policies in order to achieve common goals

Question 13

What does the convergence of economies imply?

Answer 13

countries reach similar levels of :
o Growth
o Inflation
o Interest rates
o Budget deficits
o Balance of payments (exports - imports)

Question 14

What does EMU stand for?

Answer 14

European economic and Monetary Union

Question 15

What does EMU imply?

Answer 15

Implies complete economic and financial interdependence of the EU countries

Question 16

What is the ERM? What is its objective?

Answer 16

Exchange Rate Mechanism.
o Stabilise exchange rates
o Help Europe become an area of monetary stability, before euro

Question 17

Which countries were not ERM members when the Euro was introduced in 1999?

Answer 17

Only UK and Sweden weren’t members

Question 18

What organisation was the predecessor of the European Central Bank?

Answer 18

European Monetary Institute (EMI)

Question 19

What are the five convergence criteria that a country has to fulfil to join the EU?

Answer 19

o Inflation : not exceed the average inflation rate of the 3 members w/ the lowest rates by more than 1.5%
o Interest rates : should not exceed the average of the 3 members w/ the lowest rates by more than 2%
o General government debt <60% GDP
o Budget deficit <3% GDP
o Exchange rates within ERM bands

Question 20

What countries did not join the currency union in 1999? Why?

Answer 20

o Denmark and UK : “opt-out” : they are in the criteria but decided not to join
o Sweden and Greece : didn’t fulfil the criteria.

Question 21

According to its supporters, what are the advantages of the single currency?

Answer 21

 Elimination of costs of converting currencies
 Increased competition + efficiency
 Elimination of exchange rate uncertainty
 Lower inflation and rates

Question 22

What is a Eurosceptic?

Answer 22

Loss of national economy and political sovereignty

Question 23

According to its opponents, what are the disadvantages of the single currency?

Answer 23

• Lack of national currencies
• Limited adjustments in government spending
• Asymmetric shocks

Question 24

What does the verb depreciate mean?

Answer 24

Diminish in value over a period of time.

Question 25

What does the Stability and Growth Pact prevent?

Answer 25

Prevents countries in the EU from spending beyond their means.

Question 26

What is an asymmetric shock?