POLI 442: Quiz 2 --> Final

Question 1

financial crisis common denominator

Answer 1

loss of trust and confidence in the international financial system

Question 2

Frieden 1991 findings

Answer 2

political conflict can arise within a country by sector, with preferences differing over two key dimensions: currency volatility and currency strength

Question 3

importance of the exchange rate

Answer 3

the more undervalued a currency is, the more competitive its goods are on the international market, stronger the currency is the harder it is to sell goods on the international market

countries aim to keep currency undervalued to enjoy exporting with stronger currencies but markets sometimes doubt continued ability of governments to maintain promised currency values

Question 4

government currency intervention

Answer 4

government protects the values of its currency through the foreign exchange market: if market believes currency is going to be devalued, more will sell the currency which potentially floods the market and drives down the real values, but the government can soak up the extra currency by buying domestic currency and selling foreign reserves

Question 5

currency crises

Answer 5

when there is. a difference between the market’s perceived value of currency and its official rate– can be caused by inflation or central bank intervention

Question 6

Asian financial crisis (1997)

Answer 6

major contributor: massive borrowing by Thai banks on the international market which required roll-over debt which they couldn’t immediately pay back, let to massive bankruptcies

Question 7

topic of explanation for rising income inequality

Answer 7

scholars have pointed out that period of rising inequality in the US has coincided with period of substantial expansion of globalization

Question 8

explanation for rising inequality: trade

Answer 8

according to HO model, if in the US low skilled labor is the scarce factor, we should observe increasing returns to human capital and loss of real earnings for low skilled labor

Question 9

trade argument

Answer 9

highly educated workers in the US benefit from trade, whereas less-educated workers are exactly the individuals we expect to work in low-skill jobs

Question 10

alternate explanation for rising inequality: skill-based technological change

Answer 10

standard account by economists is that trade has only been responsible for 10-20% of the growth in inequality over the past 30 years, SBTC argued to be much more important

Question 11

skill based technology change

Answer 11

a shift in the production technology that favors skilled labor over unskilled labor by increasing its relative productivity and, therefore, its relative demand

Question 12

Rodrik on skill biased technological change

Answer 12

• changes in technology have often been driven by economic integration: transfer of technology easier in globalized economy
• previous analyses had only considered effect of globalization on total demand for labor: this ignores that globalization increases the elasticity of labor demand

Question 13

elasticity of labor demand

Answer 13

the responsiveness of labor demand to change the wage OR the effect of higher wages on firms’ demand for labor

Question 14

Increased labor demand elasticity

Answer 14

Rodrick notes two major ramifications of increased labor demand elasticity: more market instability (more job losses) and weakened bargaining for labor power (less ability to secure higher benefits for low-skill workers)

Question 15

high elasticity

Answer 15

if wages go up even a little, business quickly hire fewer workers because they can easily get the work done for cheaper in other countries

Question 16

low elasticity

Answer 16

if wages go up, businesses still need the same number of workers because the aren’t going to get a better rate in another country

Question 17

in a world of mobile capital and immobile labor…

Answer 17

increasing profits for capital owners and decreasing earnings for laborers

Question 18

Rodrik & Globalization Paradox

Answer 18

economic openness is actually negatively related to welfare spending as capital mobility may limit the ability of governments to supply them

Question 19

climate change two level game

Answer 19

if several countries are able to sign an agreement, but then one subsequently loses political support, this will undermine the effectiveness – two level game!

Question 20

Betchel & Scheme conjoint experiment on support for international environmental cooperation

Answer 20

As the cost of the program increases the public supports it less, support increases I f costs are distributed more “fairly”, participation in a plan increases public support, and when reasonable sanctions are applied public support increases

Question 21

the resource curse

Answer 21

there is a negative correlation between exports of natural resources and economic growth

Question 22

dependency theory

Answer 22

core or developed countries took advantage of cheap products from the periphery or undeveloped countries and sold them high value-added products, because peripheral countries would never need to develop their own manufacturing industries this would leave them perennially underdeveloped

Question 23

dependency theory: commodity volatility

Answer 23

sale of commodities on the international market was subject to a great deal of volatility that would make long-run planning difficult and could introduce instability into the domestic economy generated by swings in the international market

Question 24

Dutch Disease

Answer 24

- In the late 1950s Holland discovered a large natural gas field - it heavily exported fuel, but as exports increase the Dutch economy fell into a recession - As the currency began to appreciate, Dutch exports began to falter (more expensive for foreign buyers)

Question 25

politics of the resource curse

Answer 25

- Norway stands out as a success story on the list of countries who are large oil exporters and non-democracies - successful because there was a political response to resource discovery

Question 26

rentier state

Answer 26

- much of the development of European representative government was based on the need to raise tax - in exchange for taxes, propertied traders usually demanded some control over how the money was spent (political representation) - This limited the ability of the ruler to arbitrarily expropriate resources which led to higher rates of economic grown because investments were safer

Question 27

technology and international economy

Answer 27

historical technological innovation has played in important role in economic development through productivity and labor demand

Question 28

Wu (2022): Misattributed blame? Attitudes toward globalization in the age of automation

Answer 28

Individuals understand the impact of automation on their job security and often misattribute blame to other pre politicized issues such as immigration or trade

Question 29

Wu experiment finding

Answer 29

Individuals whose jobs are in high risk of automation are likely to be against open border policy and free trade