Commerical English 4

The article suggests that banks had a misaligned incentive: It was not in their best interest to investigate the security of sovereign debt because they were making money helping to sell that debt.

TRUE

European banks did not bother to investigate the risks involved in investing in less economically sound countries (e.g. Greece, Portugal) because they were confident that the US government would bail them out if they ran into trouble.

FALSE

European regulators falsely assumed that the risk involved in investing in sovereign bonds was the same for all countries within the OECD (Organization for Economic Cooperation and Development).

TRUE

Basel 2 was designed to force banks to regulate themselves by doing their own assessment of the risk of investing in sovereign debt. 

TRUE

When the sub-prime crisis hit in America, the market for sovereign bonds quickly adjusted, with safer countries offering lower yields and riskier countries offering higher yields.

FALSE

Marc Flandreau of Lehman Brothers was criticized by the French Treasury because he was not doing a good job of evaluating the risk of French government bonds. 

FALSE

Today, the market is doing a much better job of signalling the different levels of risk involved in government bonds from different countries.

TRUE

More people work part-time in southern Europe than in northern Europe.

FALSE

More women work in northern Europe than in southern Europe.

TRUE

The shortage of farmers in southern European countries leads to a lower average number of hours worked per week in these countries.

FALSE

Dutch and German workers are more than twice as productive as Greek workers.

TRUE

The reason Greek workers are so less productive is that, even though Greek people work more hours per week than northern Europeans, Greek people simply do not work as hard as people from northern Europe because they are rather lazy and take lots of breaks.

FALSE

Cutting corporate taxes to encourage multinational firms to bring technological know-how to Greece and make new investments would substantially increase tax revenues for the Greek government and help solve its debt problem.

FALSE

Greek workers would benefit from moving to northern European countries where superior technology and infrastructure means more jobs that pay better.

TRUE

According to the author, French and German banks made bad decisions about lending money to various parties in Europe, which led to the economic crisis.

TRUE

The German government, along with the European Commission and the European Central Bank, have forced the banks to pay for their mistakes.

FALSE

Europe's leaders eventually admitted that their austerity policies were a bad idea once the ECB acted to stabilize the economy.

FALSE

According to the terms by which the Euro currency was originally created, European governments were required to help any government in the Union that was in danger of going bankrupt.

FALSE

As a condition for saving Greece from bankruptcy, European Union leaders demanded more control over fiscal policy in the country.

TRUE

The author argues that countries in economic trouble should be given more freedom to spend money in order to get themselves out of trouble.

TRUE

The Federal Reserve (aka the Fed) is required to make price stability their top priority.

FALSE

Mario Draghi argued that the ECB cannot maintain price stability without looking at other factors in the economy, such as unemployment.

TRUE

Critics have argued that the European Union is not so popular in some places, so some people in Europe might not take too kindly to systemic changes that are forced by the ECB

TRUE

In order to get more money into the European economy, the instrument the ECB is using is to print more Euros and distribute them to companies and banks.

FALSE

Mario Draghi has been more aggressive than his predecessor in urging political leaders throughout Europe to reform their economies to make them more business friendly.

TRUE

The central government in Europe is stronger than the central government in the USA.

FALSE

What were the goals of the anti-globalism movement of the 90s?

The word used in the article is alter-globalisation not anti-globalism. And their goal is a globalization that is more attentive to labor and minority rights, the environment and economic equality.

Which aspects of globalization are Trump and other conservative politicians against, and which are they in favor of?

They are against people migrating. They are in favor of goods and money wandering around. “Free trade without barriers” is their goal.

How would the focus of British trade policy shift if the Brexiteers got their way?

The aspect of migration would be excuded. The four freedoms of the EU are free movement of goods, capital, people and the freedom to establish and provide services. The Brexiteers would like to uphold the first two, but limit the third one. It is not mentoined what their stand is like on the last one, but I would infer that this freedom should only apply to their citizen in their country.

How do nationalist parties in Austria and Germany want to alter their countries’ relations with the rest of the world?

The Alternative for Germany is a political party that believes that governments should spend as little money as possible. They are even suggesting that government officials who exceed budget limits should be punished with criminal charges. → They want to enforce strict financial discipline in government spending? Free market but rooted in conservative structures.

What do the institutions rejected by right-wing globalists represent?

The right-wing alter-globalizers reject institutions like the W.T.O., the EU, and Nafta. It seems these institutions represent the joining democracy and capitalism and that is bad in the eyes of the right-wing globalists.

What is “self-reliance”?

The term "self-reliance" refers to the ability to rely on oneself and one's own resources, rather than depending on others.

How does the American value “self-reliance” affect the conversation about moral hazard?

self-reliance → should be encouraged, since it can reduce the risk of people taking overly risky actions if they know they will not be bailed out by others. Some argue that a culture of self-reliance can help prevent moral hazard in the economy, while others contend that it can lead to a lack of support and safety nets for those who need them.

Why did insurance companies want to distinguish between natural hazards and moral hazards?

Insurance companies distinguish between natural hazards and moral hazards in order to appropriately price insurance policies. Natural hazards are unavoidable risks, such as natural disasters, while moral hazards are risks that are influenced by human behavior, such as fraud. By distinguishing between the two types of hazards, insurance companies can assess the likelihood of a claim being made and adjust their premiums accordingly.

What do economists prefer to call moral hazard? Why?

misaligned incentives - Moral hazard is a term used in economics to describe the risk that a party will act in a way that is not in the best interest of another party because the party engaging in the behavior does not bear the full costs of that behavior. → refers to the idea that a person may act in a morally questionable way when they are not held fully responsible for the consequences of their actions.

How does the example of healthcare reveal a flaw in the logic of moral hazard?

“Moral Hazard”-thinking oversimplifies the complex factors that influence healthcare decisions and outcomes. People's healthcare decisions are influenced by a variety of factors (access to healthcare services, socioeconomic status, cultural backgrounds, personal beliefs and values). It is not accurate to assume that people will always make risky or excessive healthcare decisions simply because they have insurance.

What policy decisions (i.e. decisions the government makes on rules for taxation, social benefits, etc) have been justified using the concept of moral hazard?

justify policy decisions related to taxation, social benefits and other government regulations that discourage excessive risk-taking or behavior that could lead to negative consequences for society as a whole. For example, policies that require individuals to bear some of the costs of their own risky behavior can be seen as attempts to mitigate moral hazard.

What are implicit biases and where do they come from?

Implicit biases are attitudes and beliefs → skewed in a particular direction → outside of our awareness

They come from the messages we've been getting since we were old enough to absorb them — our families, society, our social networks (both in person and online), and the media → reinforced by our experiences in life

What is the “noble” or practical purpose of implicit biases?

The "noble" or practical purpose of implicit biases → helps us to better navigate the world, keep ourselves and those we love safe.

What is intellectual humility? How can it help us?

the recognition that we do not know everything and that our beliefs and opinions may be incomplete or incorrect. It can help us by allowing us to be open to new information and perspectives, leading to a more accurate understanding of the world around us.

What is naïve realism? Why is it dangerous?

Naïve realism is the belief that our perceptions of reality are objective and unbiased, and that those who disagree with us must be uninformed, irrational, or biased. This is dangerous because it can lead to a lack of understanding and empathy for those who hold different perspectives, as well as a failure to recognize our own biases and limitations.

How do many people misinterpret Dunning’s work?

Dunning's work is often misinterpreted as suggesting that incompetent people are unaware of their incompetence and therefore overestimate their abilities. In reality, Dunning's research has shown that people who are incompetent in a particular area often lack the knowledge to recognize their own incompetence, and thus are unable to accurately assess their abilities.

What does Dunning say we as humans are actually quite good at?

Dunning says that humans are actually quite good at creating stories and explanations to explain the world around us, even when those stories are not supported by evidence.

According to Dunning, when should you take a “time out” and what does that even mean?

Dunning suggests taking a "time out" when faced with a difficult decision or problem. This means taking a break from the situation and focusing on something else for a little while. This can help to clear your mind and allow you to approach the problem with a fresh perspective.

What has Dunning’s research revealed about the difference between Democrats and Republicans?

Democrats and Republicans differ wildly in terms of what they think is factually true about the world -

What is the one thing Dunning has had trouble getting people to say for 30 years? Why is this so hard?

“I don’t know”



because people seem to be uncomfortable about saying, “I don’t know”



People often have trouble saying "I don't know" because it can be uncomfortable to admit a lack of knowledge or expertise. → be all like to think we are smart

confirmation bias

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses. This can lead to ignoring or dismissing information that contradicts those beliefs.

trough

In economics, a trough refers to a period of economic decline or contraction. It is the low point of a business cycle, marked by high unemployment rates, low consumer spending, and decreased business activity.

New Deal

The New Deal was a series of programs, policies, and regulations implemented by President Franklin D. Roosevelt and the U.S. Congress during the 1930s in response to the Great Depression. The New Deal aimed to provide relief to the unemployed and poor, stimulate economic recovery, and reform the financial system to prevent future economic crises.

What is the difference between GDP and GNP?

GDP (Gross Domestic Product) measures the total value of goods and services (output) produced within a country's borders in a given period of time, while GNP (Gross National Product) measures the total income people from this country make.

Who fought against the introduction of “green GDP”?

The coal industry fought against the introduction of "green GDP" because they knew it would negatively impact their profits and harm their business

What is the purpose of “green GDP”?

The purpose of "green GDP" is to take into account the environmental costs of economic growth.

How is inequality related to GDP?

Stieglitz argues that focusing solely on increasing GDP can actually increase inequality. This is because policies that prioritize GDP growth may not take into account the distribution of that growth.

What does Stieglitz mean when he says that “information affects behavior”?

Stieglitz means that the availability of information can influence people's decisions and actions. In the context of GDP, he argues that if people are only focused on increasing GDP, they may not consider the negative environmental or social impacts that this growth may have.

According to Keynes, what might provoke a high unemployment equilibrium?

if people start saving more money and consuming less, leading to a fall in demand, production, and employment

According to classical theory, what will happen if people save a lot of money?

excess savings will cause interest rates to fall and investment to increase again in the long run.

Keynesian policy is often described as ‘demand management.’ What does this mean?

using government policies to counter the business cycle by either increasing expenditure, reducing taxation, or increasing the money supply and reducing interest rates during a recession.

According to Keynes, what is the economic effect of even a small increase in government spending? How does the multiplier effect affect this?

According to Keynes, even a small increase in government spending or private investment causes demand to expand by an amount greater than itself due to the multiplier effect. This leads to increased output, investment, consumption, and employment.

What do monetarists mean by the ‘neutrality of money?’

Monetarists (Neoliberals - right wing) mean that, in the long run, changes in the money supply will only change the price level and have no effect on output and employment.

According to classical theory, what will bring about the end of a recession?

alling interest rates (people saving up), companies cutting prices and wages

According to neo-Keynesians, why do prices and wages not adapt as classical theory says they will?

prices and wages are inflexible or 'sticky' due to factors such as labour union contracts, government regulation, and the costs involved in changing prices. Therefore, even a small deviation from full employment can cause economies to get locked into disequilibriums for long periods → menu cost

What is it that Kate Barker says “leads us into downturns?”

bad decisions, seeing the future incorrectly, not adapting quickly, external factors we ignore

What does she mean by a “self-fulfilling downturn?”

the economy runs itself down - because people believe it will go down forever - they feed into it

What did the economist John Maynard Keynes mean by “In the long run, we’re all dead?”

government (changing expectations → working towards an upturn) could help in getting back to an equilibrium

What did Keynes say governments could do when there was a low level of demand and an economic slowdown?

making the natural processes more quickly (cut taxes or let them build something (invest))

Fiscal policy

→ government (decides how much money they get in taxes etc)

In what four ways does the government support the bank-based money system?

1. Legal currency
2. Banks can create legal currency
3. Governments enforce that (not the bank will come, but government)
4. regulations

What gives debt money its value?

trust and faith

What happens if everyone pays back their debts?

whole system collapses

What happened during the great depression?

faith lost, bank run

What is the problem with exponential growth and limited resources?

The problem with exponential growth and limited resources is that at some point, the resources will become depleted and the growth will become unsustainable. This can lead to environmental degradation, social unrest, and economic collapse.

argument

a statement, a fact or opinion supported by reasons

2 parts to an argument:

premise: the reasons I give you



conclusion

Alan Greenspan→ Why didn’t he see what was happening?

his belief in free markets and deregulation

Jump on the bandwagon

belief or argument is deemed true or acceptable simply because many other people believe it or accept it as true

ad hominem attacks

attacking the person making the argument instead of the argument itself

straw man argument

an opponent's argument is misrepresented in order to make it easier to attack or refute → not addressing the argument directly but rather in general

Red Herring

→ avoiding the main question, deflecting (talking about something else),

non sequitur

the conclusion does not flow logically from the evidence or facts presented.

short selling

Short selling is a financial transaction where an investor borrows shares of a stock or other asset and immediately sells them, hoping to buy them back later at a lower price to make a profit. It is a way to make money on the decline of a stock's value.

how to create new money?

→ lend more money to people, interest rates lower



→ raise interest rates - people cannot make more money

What is the real factor that makes the northern economies stronger than the southern economies?

technology from international firms

How can the problem of the less competitive southern economies be solved?

get multinational companies with technology

What is wrong with the Irish approach?

they are not getting a lot of the money these companies make

From a European perspective, what is the problem with the proposed solution that helped the USA in the past?

not everyone can just move to the northern countries

Euro-Zone Fiscal Colonialsim


1. What was the main cause of the current crisis, according to the author?

That German and French banks gave out loans even though they shouldn’t have

What was the German diagnosis of the problem?

fiscal profligacy in southern countries



Fiscal profligacy refers to a government's excessive spending and borrowing, which can lead to financial instability and economic problems.

What mistake was made in 2010?

lending to an insolvent person

What do Merkel and other EU politicians want?

more control over budget decisions

Why are centralized fiscal policies bad politics and economics?

voters can’t really influence anything → politically poisonous, government no control over its budget

What are his prescriptions for fixing the problem and preventing further problems?

European spring - no-bailout rule again, policy changes and more investment

How is the ECB different from the Fed?

ECB is responsible for implementing monetary policy for the Eurozone and maintaining price stability, while the Fed is responsible for implementing monetary policy for the United States and promoting maximum employment, stable prices, and moderate long-term interest rates.

What is Draghi’s argument for looking at employment, the banking system, etc?

price stability could not be guaranteed unless other factors such as joblessness are considered

Why do people fear a “backlash” from the ECB’s actions?

because it is top-down, the ECB tells what to do → countries have no Mitspracherecht, forced against public

Why was the ECB’s bond buying program necessary?

raise inflation closer to 2 percent to stimulate the eurozone economy

What does Draghi want to pressure politicians to do?

to stimulate their economies (in the respective countries) - making it friendlier for businesses

Why are central bankers usually less vocal about criticizing governments?

because they do not want to offend politicians too much - that would result in backlash

What is the difference between the US and the EU in terms of government programs?

US has unemployment insurance, more power

What were the goals of the anti-globalism movement of the 90s?

The word used in the article is alter-globalisation not anti-globalism. And their goal is a globalization that is more attentive to labor and minority rights, the environment and economic equality.

Which aspects of globalization are Trump and other conservative politicians against, and which are they in favor of?

They are against people migrating. They are in favor of goods and money wandering around. “Free trade without barriers” is their goal.