Unit 7 Lesson 6 A Global Economy

Question 1

Benfits of globalization in terms of trade?

Answer 1

Trade agreements with countries in the Americas and Asia strengthened U.S. relations and opened trade in new areas. American businesses benefited from lower production costs and the opening of new markets for trade. American consumers benefited from lower prices for goods and services.

Question 2

Globalization, or the spread of a global economy, also posed potential problems, though. Give a few examples.

Answer 2

Some American workers suffered when companies moved work overseas. Also, when one country suffered an economic crisis, the entire global community was at risk.

Answer 3

In the 1990s, the American economy grew strongly. This growth was partly due to the creation of new businesses and jobs in the technology industry.

Question 4

Many Internet start-up companies, known as dot-coms, were founded during the decade. What pratices did owners and managers use?

Answer 4

In some of these, owners and managers used risky business practices. They thought that if the number of customers increased, then profits would increase, too. This worked for some companies but not for all of them.

Question 5

What created a stock-market bubble?

Answer 5

Investors saw the potential to make profits from dot-coms, so they bought stock in the companies. High demand for these stocks created a stock-market bubble.

Question 6

What is a bubble in the stock market?

Answer 6

A bubble is an unstable condition of prices driven above the real value of an asset by buyers hoping that prices will rise further.

Question 7

what happened when many dot-coms failed to yield a profit?

Answer 7

When many dot-coms failed to yield a profit, the bubble burst and stock prices plunged. Investment in these companies dried up. Between 1999 and 2001, many dot-com businesses had to close.

Question 8

In 2001 the American economy entered a..

Answer 8

In 2001, the American economy entered a recession, partly as a result of the dotcom bubble bursting.

Question 9

What is a recession?

Answer 9

A recession occurs when the economy shrinks instead of growing.

Question 10

Reasons for the recession?

Answer 10

In 2001, the American economy entered a recession, partly as a result of the dotcom bubble bursting.The September 11 attacks also hurt the stock market, and the transfer of American manufacturing jobs to other countries deepened the recession.

Question 11

Hoe did the federal government respond to the economic crisis?

Answer 11

The federal government responded to the economic crisis by lowering taxes, while the Federal Reserve System lowered interest rates to encourage people and businesses to borrow. The economy gradually recovered in 2003 and 2004.

Question 12

When the stock market crashed in 2000, Americans realized what?

Answer 12

When the stock market crashed in 2000, Americans realized that fraud had helped trigger the 1990s boom. Accounting firms and banks had increased stock prices by hiding the companies’ real financial situation.

Question 13

What was the NAFTA or North American Free Trade Agreement?

Answer 13

The North American Free Trade Agreement (NAFTA), established in 1993, linked the United States, Canada, and Mexico in a free trade zone.

Question 14

How did Enron a Houstan energy company commit fraud how did is make Americnas feel?

Answer 14

Enron, a Houston energy company, exemplified this trend. Enron bought and sold electricity instead of producing it on its own. The company falsely reported billions of dollars in profits. A Texas jury convicted Enron executives of fraud, but it was too late to help investors. Fraud at Enron damaged Americans’ trust of corporations in gener

Question 15

What is the World Trade Organization?

Answer 15

In 1995, the United States became a member of the World Trade Organization (WTO). The WTO works to remove barriers to and encourage trade and investment among countries.

Question 16

America promtes free trade. What was the Central America Free Trade Agreement?

Answer 16

In 2005, the Central America Free Trade Agreement (CAFTA-DR) created a free-trade zone between the United States and several Latin American countries. The United States also negotiated a free-trade agreement with South Korea in 2007

Question 17

One of the world’s main trading and investment alliances is the European Union (EU). What is the EU?

Answer 17

The EU includes most European countries. In 2004, the EU expanded to include countries from Central and Eastern Europe and the Mediterranean.

Question 18

Benfits of the EU

Answer 18

Membership in the EU created new opportunities for these countries. It also attracted American investment. Many American banks and other firms opened branches within the EU to have access to its large market. In this way, what happened in the EU could affect the U.S. economy.

Question 19

Each of these agreements allowed U.S. businesses to sell more goods and services overseas. Meanwhile, foreign businesses were able to increase sales in the United States. But how were they controvwerisal at times

Answer 19

These free-trade agreements increased global trade, but they were controversial. These agreements led some American businesses to move operations to other countries, where worker pay was lower and environmental regulations were weaker.

Question 20

What was the Euro zone

Answer 20

In 1999, most countries in the European Union adopted a shared currency, known as the euro. The countries using the euro were known as the euro zone. The euro was the second most widely used currency in the world, behind the American dollar, by the 2010s. Euro-zone companies held large investments in the United States, and U.S. firms had large investments in the euro zone.

Question 21

Describe the close connection of Europe and America in terms of trading?

Answer 21

The EU was one of America’s most important trade partners in the early 2000s. As a result, economic problems in Europe could hurt the United States. If euro-zone countries had less money to invest, Americans would have less money to grow new or existing businesses. If people and businesses in the euro zone had less money to spend, they would buy fewer products from American exporters.

Question 22

the Federal Reserve System lowered interest rates. What did the do?

Answer 22

This enabled people to pay less to borrow money. Low interest rates encouraged Americans to increase the amount of money that they borrowed and spent.

Question 23

The Federal Reserve System lowered interest rates, how did this affect the housing industry?

Answer 23

It also allowed more Americans to buy homes, and low interest rates made larger mortgages affordable. As the demand for homes and mortgages increased, home prices also increased. This created a housing bubble much like the dot-com bubble that the stock market had experienced.

Question 24

What is mortgages?

Answer 24

Mortgages are loans to buy a piece of property that allow the lender to claim the property if the mortgage is not paid.

Question 25

What are subprime mortgages?

Answer 25

Banks and mortgage companies thought that home prices would keep increasing. As a result, they offered mortgages to people who were considered lending risks because they could not easily afford the payments. These loans were known as subprime mortgages.

Question 26

What lead the the burtsing of the housing bubble?

Answer 26

In the beginning, subprime mortgages had low interest rates, but the rates were often adjustable so that they could increase with market rates. When that happened, borrowers risked defaulting, or not being able to pay their mortgages. In 2006 and 2007, overbuilding and a flood of sellers seeking to cash in on high prices for their homes caused American home prices to drop, which burst the housing bubble.

Question 27

What happened when homes prices dropped?

Answer 27

When prices dropped, many homeowners owed more on their mortgages than their homes were worth. When interest rates increased, some could not pay their mortgages. They also could not sell and recover their investment because their homes had lost value.

Question 28

How did Foreclosuers affect Americans?

Answer 28

Many of these borrowers defaulted on their mortgages, and banks repossessed, or foreclosed on the homes. Foreclosures left Americans without homes and left banks with massive financial losses. This triggered an economic crisis in which banks stopped making loans, businesses stopped expanding, and the stock market crashed. The United States entered another recession in 2007.

Question 29

Effects of the stock market crash and the mortage crisis in 2007?

Answer 29

The stock market crash and the mortgage crisis in 2007 led Americans to cut back on their spending. Reduced spending caused American businesses to fail, which increased unemployment. Consumers lost their jobs, their homes, their retirement savings, and their confidence in America

Question 30

How did the stock market crash and the mortage crisis affect people globally?

Answer 30

Globalization, however, meant that the economic problems extended to the world. Decreases in American spending caused job losses for America’s trade partners, such as China and Mexico.

Because Europe’s banks had bought subprime mortgages from American banks, the bursting of the housing bubble hurt European banks, too. It also made investors more aware of risk. They began to demand higher interest rates for loans to governments with poor finances. Governments across Europe were forced to cut back, European banks stopped lending, and Europe went into recession, too. Europe’s recession hurt American businesses because they lost sales in Europe.

Question 31

How was the government involved with the stock market crash and mortage crsis?

Answer 31

For decades, the United States government had cut regulations, believing that government interference would damage banks. When the financial crisis resulted from what many saw as weak regulation, the government reversed its policy.

Question 32

In 2008 how did congress try to help struggling companies?

Answer 32

In 2008, Congress provided money to bail out, or save, struggling insurance companies, banks, and financial institutions. Administration officials believed that the connectedness of these companies to other businesses put the United States at risk of financial collapse and an economic depression. The bailout helped ensure the survival of these companies, but the economy remained weak.

Question 33

In 2009, President Obama signed into law the American Recovery and Reinvestment Act. What did this act do?

Answer 33

The act aimed to stimulate the economy and reduce unemployment. Through it, Congress supplied funds to create jobs, increase unemployment and food stamp benefits, and reduce taxes. Funds from the act also provided unemployment assistance. Improvement projects at schools and airports and on highways created jobs and helped communities.

Question 34

How did Critics feel about the American Recovery and Reinvestment Act?

Answer 34

Critics, however, found problems with the act. Many felt that it had been ineffective, was too expensive, and had increased the federal deficit for no purpose. Some claimed that it increased unemployment.

Question 35

How did the American Recovery and Reinvestment Act created a divide in politics?

Answer 35

The act also created sharp political divides between the Democratic and Republican parties. All Republicans in the House of Representatives voted against the act. Only three Republican senators voted in favor of it.

Question 36

Trouble rasing the debt celling?

Answer 36

When President Obama asked Congress to raise the debt ceiling in 2011 and 2013, Republicans refused unless the President agreed to a compromise.

Question 37

What does the debt celling do?

Answer 37

The debt ceiling limits the amount of debt that the United States can owe.

Question 38

What happens when a country nears is debt celling?

Answer 38

When the country nears the debt ceiling, Congress must vote to raise the limit, or the country risks default, or failure to repay a debt, and a possible financial crisis.