International Policies Flashcards
How do changes in interest rates affect international economies? (Give 2 changes and 2 examples)
• Higher interest rates → Attract foreign investment, causing currency appreciation.
• Lower interest rates → Stimulate borrowing/spending but weaken the currency.
• UK 2007-08: Interest rates cut from 5% to 0.5% to boost spending during the financial crisis.
• Venezuela 2018: Money supply expansion led to 1 million % inflation.
What are competitiveness policies, and how do they improve trade? (Give 3 and 1 example)
• Tariffs & quotas – Protect domestic industries (e.g. USA’s historical tariffs on steel).
• Technological advancements – Boost productivity (e.g. US shale gas extraction).
• Labour market flexibility – Less red tape, easier hiring/firing makes firms more competitive.
USA used tariffs and deregulation to improve its trade position.
What are Structural Adjustment Programs (SAPs), and why are they controversial? (Give 2 requirements, 1 risk & 1 example)
SAPs are IMF and World Bank-led reforms imposed on borrowing nations, often requiring:
✅ Privatisation – Encourages market efficiency.
✅ Reduced government spending – Limits debt accumulation.
❌ Austerity cuts – Can worsen poverty and economic instability.
Example: Ghana’s SAP (1983) is considered a success, but critics argue it increased inequality.
What are Heavily Indebted Poor Countries (HIPC) schemes? (List 2 facts and 1 example)
HIPC programs help reduce unmanageable debt burdens for developing countries.
• To qualify, nations must reduce poverty and meet economic criteria.
• If successful, external debt may be cancelled.
Example: Chad’s external debt was cancelled under HIPC in 2015.
What 3 things happened during the Greek Eurozone crisis? (Also mention 1 analysis)
• Greece’s budget deficit rose from 4.1% (2000) to 10.2% (2008).
• EU forced spending cuts (€41bn reduction) and tax hikes (VAT rose to 21%).
• Tax evasion crackdown – Greek shadow economy was 25% of GDP.
❌ Austerity led to unemployment, protests, and slower economic recovery.
How can governments reduce fiscal deficits? (Give 3 ways and 1 example)
- Increase tax revenues – Higher VAT, corporate tax, and property tax.
- Reduce government spending – Cut public sector wages and benefits.
- Crack down on tax evasion – More enforcement to prevent losses.
Example: Greece used all three measures to meet EU bailout conditions.
How do governments intervene in food markets, and what is 1 risk? (Give 2 interventions and 1 example)
• Minimum prices for farmers – Ensures they can survive price volatility.
• Price controls for consumers – Keeps essential food affordable.
❌ Risk: Distorts market signals, reduces farmer incentives, and may lead to food shortages.
Example: India’s food price controls benefit consumers but hurt farmers.
How do housing policies impact wealth inequality? (Give 2 impacts and 1 example)
• Rising house prices make homeownership unaffordable for locals.
• Foreign investors drive up prices in global cities (e.g. 82% of London property deals in 2013 involved foreign buyers).
Example: New Zealand (2018) banned foreign property purchases to control housing inflation.
What are the 2 pros and a con of international debt relief? (Give 1 example)
✅ Frees up government funds for health, education, and infrastructure.
✅ Encourages economic stability in developing countries.
❌ Moral hazard risk – Countries may borrow recklessly, expecting future debt relief.
Example: HIPC program helped several African nations escape unsustainable debt.
What are the 2 impact of trade protectionism on international policies? (Mention what protectionism includes and 1 example)
• Tariffs and quotas protect domestic industries but reduce global trade efficiency.
• Retaliation risk – Countries impose counter-tariffs, leading to trade wars.
• Less innovation – Firms face less competition, reducing incentives to improve.
Example: US tariffs on steel led to retaliation from China and the EU.
