midterm terms

Question 1

GNP

Answer 1

Gross national Income, is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product, plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents.

Question 2

purchase power parity

Answer 2

: measures the price in different areas related to a specific good to contrast the absolute purchasing power in different states

Question 3

Balance of payment

Answer 3

it’s the transactions that a country makes with the rest of the world showing the balance between how much they import and how much the export

Question 4

Current balance of account

Answer 4

It is part of the countries balance of trade measurements and show the differnce between the value of imports Vs. exoports

Question 5

Foreign exchange reserves

Answer 5

the holdings of a counties banks of foreign currency assets

Question 6

foreign direct investment

Answer 6

: acquisition of significant management interest in a country operating in a foreign company

Question 7

Exchange rates

Answer 7

that rate at which currencies can be exchange for one another

Question 8

Laisse-faire

Answer 8

• : concept of free markets and that goverments should leave people to pursue their own economic interests.

Question 9

comparative advantage

Answer 9

David Ricardo said that comparative advantage implies that countries should do what they do best – not in comparison with other countries but in comparison with the other things they do

Question 10

Division of labour and specialization

Answer 10

This was adams smiths main agrument against self-suffieciency saying that a division of labour would make societies wealthier. He said by specializing people in different divisions of labout we would be increasing their productuvity per person

Question 11

Gold standard

Answer 11

When a country accepted themselevs with the gold standard they promised to exchange their currency for gold at a fixed rate. You could at anytime bring in a bill or receipt in exchange for gold which made trade easier. This helped the industrial world basically share one currency and a stable one at that.
o In 1873-1896 there was a great despression and this left people dissatsfied with free trade and the gold standard, some goods prices fell while others stayed stable but this caused massive protested and people wanting to leave gold int 1890.
 The supply of gold increased though and so did the price

Question 12

Nationalism

Answer 12

nationalism helps mobalize populations for different kinds of economic projects. It is when developing country closed themselves to forgein aid and pursued rapid industrialization

Question 13

Infant industry protection

Answer 13

You need to protect your industry before you go out into the world just so your industries could flourish
 Protectionism
 Tariffs
 Trade Quotas
 Subsides
 Destructions of Forgein business on the homeland
 Public ownership of industry
 Build infustrtucture within the country to facilitate trade

Question 14

Bretton woods Monatary order

Answer 14

Required the restriction of the short-term movement of capital across borders. It allows countries to run monatary policies that were in line with their own conditions, even if they differed from the policies of others.
o Example, Intrest rates
 They didn’t want to make it hard for companies to invest in other markets, they just wanted to make it hard or impossible for investors to move money constantly between different countries based on their intrest rates
 This helped keep currency values stable which encourages trade and long-term investment.

Question 15

Import substitute industrialization

Answer 15

Latin american countries and a handful of other countries were isolated in the world economy in the 1930’s and 1950’s since no one was buying their exports because they were too expensive so they moved to the import-substituting Industrialization which aimed to subsitute domestic industrial production for goods that had previously been imported by making domestic manufacturing more profitable
o Goverments provided subsidies and incentives for industries
o Manipulated currency to provide cheap dollars to manufactures so they could buy forgein equipment and inputs
o Many industries had crown corparations
 It industrialized latin america

Question 16

Floating exchange rates

Answer 16

This is a system where a the government did not peg their currency is not pegged against anything else,
o The exchange rates were set by supply and demand but also a little bit influenced by government intervention

Question 17

Oil Shocks

Answer 17

The first shock was when the Arab oil producers only sold oil to countries that were aligned with Islam. The second shock was due to the Iranian revolution

Question 18

Neoliberalism

Answer 18

: Was very much against the management of government regulation. Neoliberals ctritised monetary policy which are policies to managed the amount of money within the economy
o Much more restricted role for the government compared the canssians. Brettons woods wanted autonomy for governments but neoliberalist said it was something they shouldn’t have. Neoliberalist also attacked on regulation, government spending and monetary policy, state owned companies and unions.
o This is not a return to laise-affair, they still wanted some of government intervention but it had to be market friendly

Question 19

Structural adjustment policies/loans

Answer 19

International monetary fund IMF and World bank
o They end up playing two roles in response to the debt crisis
 The provide some loans to the countries involved, not enough to fully cover it but just some money
 They gave a seal of approval in the types of policies that governments were trying to implement in the countries to help them rearrange their economy to be able to pay back their debts
• If they gave a seal of approval, it would encourage the bog banks to continue to loan money to those countries - 1. Reduce their budget deficits
o Mainly by reducing government spending
 Firing teacher and doctors
- 2. Privatization
o Many of these countries had a lot of state owned companies so they said that those countries should be sold, the government should get out of the business of being in business
- 3. Devalue their currency
o With a cheaper currency, imports will go down but exports will go up and the countries will be recieveing more forgein currency that they could put towards their loans
- 4. Trade liberalization
o Countries shoud remove trade barriers so that they could focus on what they do best
- 5. Deregulation, and getting rid of government subsidies
o Many states in the south subsidies food, agriculture, oil, so they had to cute those
o The idea is that these are difficult reforms to implement and they would be disorienting for the national economy but that ultimately they would be beneficial, it would lead to more sustainable economic situations
o Over the course of the 1970’s there was a huge inflow of money into developing countries where as the 80’s is a huge outflow of money as countries pay their loans

Question 20

World trade organization

Answer 20

Creation of the World trade Organization (WTO) in 1995;

Question 21

sovregin debt

Answer 21

The amount of money that a countrt’s government has borrowed, typically issued as bonds denominated in a reserve currency

Question 22

Moral Hazard

Answer 22

situation in which someone or some person some institution takes on risk that they wouldn’t have otherwise have taken on bc they have insurance of some kind or another and that someonne else will bare some or all of the burden

Question 23

Reserve Currency

Answer 23

as we’ve discussed before, central banks around the world hold foreign exchange reserves that are denominated in a number of currencies. Currencies that play a significant role in global reserve holdings are called “reserve currencies”.

Question 24

lending of last resort

Answer 24

: a financial institution (within countries, usually the central bank) that will provide loans to troubled banks, companies etc. when no one else is willing to lend to them. This is a very important activity during financial crises. Roos discusses an “international lender of last resort” role, that is, the willingness of some financial institution(s) to play this role with respect to financial institutions and/or governments in other countries.