Chapter 10 questions Flashcards
(25 cards)
What events led to the development of economic globalization as we know it today?
- Establishment of new international monetary system
- Creation - World Bank and IMF
- Expansion of the free market economy into former Soviet-bloc countries at the end of the Cold War
- Impact of new technologies on the movement of money worldwide
What was required of countries on the gold standard?
Any money printed by their governments had to be backed by gold reserves. They could not print more money than they had gold available
Why did the gold standard give people confidence in paper money?
It allowed them to exchange their money for gold, which had real value. Gold was a real commodity, not legal tender.
Why did the gold standard never work properly in modern economies?
It restricted them from printing more money than they had in gold reserves. They could print only the value they
had in gold.
What is the difference between a person going into debt and a country going into debt?
When a person is too far in debt, they can declare bankruptcy and may go to jail if the case warrants it. When a country is too far in debt, its currency drops in value and it can suffer from the effects of inflation.
Give two reasons for the high inflation experienced by the United States in the 1960s
fighting the Vietnam War
new social programs being implemented
What did Richard Nixon do on August 15, 1971? What did this mean for the US government?
He “closed the gold window” by making the dollar inconvertible to gold directly, except on the open market. This meant the US government could no longer redeem gold for its dollars.
What was created by the Bretton Woods Agreement and what did it later become?
The International Bank for Reconstruction and Development. It later was divided into the World Bank Group and the Bank for International Settlements.
Explain how the World Bank helps less developed countries in financial difficulty? How do they qualify for help?
The organization offers loans to financially troubled less developed countries, requiring them to meet specific political and economic conditions, including reduced corruption, increased democracy, and Western-style free market adoption.
Explain the role of the IMF. Of what are the IMF and World Bank agencies?
The United Nations collaborated with the World Bank to maintain international monetary stability, expand trade, monitor exchange rates, and offer short-term financial assistance.
Explain how the IMF is funded by the quota system.
The IMF’s annual expenses are funded by interest payments on loans and deposits, based on a country’s size in the world economy.
When did the Cold War begin and end? Explain how it divided the world. What economic system was embraced
by the former Soviet countries after the end of the Cold War?
- The Cold War began in 1946 and ended in 1989.
- divided by the Soviet Union from the Western capitalist democracies led by the United States.
- economic struggle between these two sides.
- former soviet countries embraced free market economy after the Cold War ended.
Explain the effects that China’s joining the World Trade Organization had on China and the rest of the world.
- added one billion+ people to the world markets.
- had to follow international rules and regulations for foreign investment
- growth in international trade and investment.
What did China offer in the new global economy? What did India offer in the new global economy?
China became the foremost country in manufacturing goods for the western world. India offered cheap and efficient outsourcing through the use of telephone and computer technology.
Prior to the global economy, what were the three major trading blocks in the world?
North America, Western Europe and Japan.
Explain how technology decentralized money markets.
People could use their personal computers to invest in companies and governments around the world instead of going to investment dealers. If you had access to a computer, you could buy stocks and bonds from anywhere.
Who coined the phrase “electronic herd” and where was it coined? Explain how it works.
Thomas Friedman’s book, The Lexus and the Olive Tree, highlights the potential for electronic investors to be easily spooked by rumours, impacting a country’s currency.
Explain John Maynard Keynes’s position on the role of government in the economy. What do his arguments form
the basis of today?
Emphasized the need for government intervention in the economy to stabilize it, arguing that falling wages lead to decreased spending and inflation.
Explain Friedrich Hayek’s position on the role of government in the economy. What became of his ideas?
He argued that human societies are too complex for planned economies, and that limited government roles in the Western world are generally accepted due to their inherent complexity.
Which economic theory was most popular after World War 2? Why? What happened to these beliefs by the 1960s?
Why?
Keynesian theory promoted high employment and welfare-oriented capitalism post-WWII, but was questioned in the 1960s due to inflation and weak productivity.
What factor has helped to grow economic globalization?
Free trade.
What are the four principles of GATT?
GATT Membership Guidelines
* Non-discriminatory trade conduct.
* Imported goods treated similarly to domestic goods.
* Protection of domestic industries through tariffs.
* Requirement for countries to present tariff and trade restrictions.
* Reductions to trade restrictions only allowed after GATT membership.
What were the benefits Canada was looking for when it signed the Free Trade Agreement with the United States? What benefits was the United States looking for?
It wanted access to the large US market to export its goods and services to. The US wanted access to Canada’s vast natural resources such as oil, gas, minerals and lumber.
What did opponents to the Free Trade Agreement argue would happen if it were signed?
They felt the deal would undermine Canada’s sovereignty and that Canada would gradually lose its political independence to the United States.
