International Trade and Economic Policies

These flashcards cover key concepts related to international trade, governance, economic policies, and their implications for conflict and inequality.

How does international trade affect the probability of conflict?

International trade reduces the probability of conflict because countries do not want to lose economic benefits from trade.

What is the opportunity cost of war?

War creates additional costs by disrupting economic exchange like trade, making conflict less likely among trade partners.

What were the economic conditions surrounding WWI for Germany and the UK?

Germany believed the UK would stay neutral due to strong ties; if the UK were guaranteed to join France, Germany might not have risked war.

What are key differences between liberal and coordinated market economies?

Liberal economies (like the US and UK) are decentralized with general education; coordinated economies (like Germany and Japan) are centralized with specialized education.

How do powerful states pursue international governance?

Powerful states promote uniform standards and rules through international organizations or by imposing sanctions.

What strategies can governments use to address financial crises?

Governments can reduce credit access, issue warnings, and act as lenders of last resort.

How do institutional differences affect comparative advantage?

Liberal economies have advantages in innovation; coordinated economies excel in incremental development.

What is the role of credit rating agencies in governance?

Credit rating agencies can influence policies by adjusting ratings which affect borrowing abilities, thus creating global economic standards.

What does the Piketty model explain about inequality?

The model states that inequality increases when returns on capital grow faster than wages.

What is the moral hazard problem?

The moral hazard problem occurs when individuals take greater risks because they believe they will not have to bear the full consequences.

What is the paradox of monetary power?

The paradox suggests that using monetary power can diminish a country's influence as it may drive others away from using their currency.

Why do firms engage in international investment?

Firms engage in international investment to reduce reliance on local suppliers and avoid tariffs, leveraging resource differences.

What are relative gains in trade?

Relative gains refer to the concern that a country’s adversaries become stronger through trade, making it essential to consider advantages over enemies.

How does inflation affect inequality?

Inflation can reduce inequalities by eroding the real value of accumulated wealth.

Why is the dollar's reserve currency status important?

It allows the US to borrow easily, sustain trade deficits, and apply secondary sanctions effectively, enhancing political power.

What is the credible commitment problem in international investment?

This problem arises when firms become overly reliant on suppliers or countries that can change terms, leading to potential expropriation.

Why do governments participate in Bilateral Investment Treaties (BITs)?

Governments use BITs to minimize risks associated with expropriation and to provide compensation agreements.

What is 'Commercial Liberalism'?

A) The idea that governments should run like businesses

B) A theory suggesting that economic interdependence through trade reduces the likelihood of war

C) A policy of restricting trade to build military power

D) The belief that trade only benefits the wealthiest nations

B) A theory suggesting that economic interdependence through trade reduces the likelihood of war

What occurs in the 'obsolescing bargain' model of investment?

A) The firm's bargaining power increases over time

B) The host government's bargaining power increases once the firm's capital is physically installed and 'sunk'

C) Both parties lose interest in the contract simultaneously

D) The bargain remains perfectly stable throughout the life of the investment

B) The host government's bargaining power increases once the firm's capital is physically installed and 'sunk'

How do 'secondary sanctions' leverage the prominence of the US dollar?

A) By giving coupons to countries that follow US laws

B) By prohibiting third-party actors from using the US financial system if they trade with a sanctioned country

C) By physically seizing all foreign currency in \text{non-US} banks

D) By taxing only the citizens of the sanctioned country

B) By prohibiting third-party actors from using the US financial system if they trade with a sanctioned country

In terms of business finance, where do firms in Coordinated Market Economies (CMEs) typically get their capital?

A) From public stock market offerings

B) From long-term bank-mediated credit and cross-shareholding

C) From unregulated private cryptocurrency markets

D) Solely from government grants

B) From long-term bank-mediated credit and cross-shareholding

What is the primary purpose of a 'Border Carbon Adjustment' (BCA)?

A) To prevent 'carbon leakage' by taxing imports from countries with lower environmental standards

B) To make international shipping faster and more efficient

C) To subsidize the use of coal in developing nations

D) To eliminate all trade between neighboring countries

A) To prevent 'carbon leakage' by taxing imports from countries with lower environmental standards

What is 'financial contagion'?

A) A biological virus spread by handling physical paper money

B) The rapid spread of a financial crisis from one country to others due to linked markets and investor panic

C) The process of printing money until it loses its value

D) A law that prevents banks from lending across borders

B) The rapid spread of a financial crisis from one country to others due to linked markets and investor panic

What is 'seigniorage' in the context of a global reserve currency?

A) The fee paid to enter an international organization

B) The profit a government makes by issuing currency that costs less to produce than its face value

C) A form of tax levied only on hereditary royalty

D) The process of devaluing a currency to pay off debt

B) The profit a government makes by issuing currency that costs less to produce than its face value