international affairs #3

comparative advantage

The ability of a country or firm to produce a particular good or service more efficiently than it can produce other goods or services, such that its resources are most efficiently employed in this activity. The comparison is to the efficiency of other economic activities that the actor might undertake given all the products it can produce—not to the efficiency of other countries or firms.

absolute advantage

The ability of a country or firm to produce more of a particular good or service than other countries or firms can produce with the same amount of effort and resources.

neo-mercantilism

A belief that national economic policy should encourage exports and discourage imports, and that the country should aim to run a trade surplus. So called in relationship to the classical mercantilism of the colonial powers, which aimed at running trade surpluses with their colonies.

heckscher-ohlin trade theory

The theory that a country will export goods that make intensive use of the factors of production in which it is well endowed. For example, a labor-rich country will export goods that make intensive use of labor.

protectionism

The imposition of barriers to restrict imports.

trade barriers

Government limitations on the international exchange of goods. Examples include tariffs, quantitative restrictions (quotas), import licenses, requirements that governments buy only domestically produced goods, and health and safety standards that discriminate against foreign goods.

tariff

A tax imposed on imports. _____ raise the domestic price of the imported good and may be applied for the purpose of protecting domestic producers from foreign competition.

quantitative restriction

A limit placed on the amount of a particular good that is allowed to be imported and sold domestically.

nontariff barriers to trade

Obstacles to imports other than tariffs (trade taxes). Examples include restrictions on the number of products that can be imported (quantitative restrictions, or quotas); regulations that favor domestic over imported products; and other measures that discriminate against foreign goods or services. “Buy American” laws that govern what state and local governments can buy, for example, are an implicit—but nontariff—obstacle to the purchase of imports.

stolper-samuelson theorem

The theorem that trade protection benefits the scarce factor of production. This view flows from the Heckscher-Ohlin theory: if a country imports goods that make intensive use of its scarce factor, then limiting imports will help that factor. So in a labor-scarce country, labor benefits from protection and loses from trade liberalization.

ricardo-viner model

A model of trade relations that emphasizes the sector in which factors of production are employed rather than the nature of the factor itself. This differentiates it from the Heckscher-Ohlin theory, in which the nature of the factor—labor, land, capital—is the principal consideration.

reciprocity

In international trade relations, a mutual agreement to lower tariffs and other barriers to trade. _____ involves an implicit or explicit arrangement for one government to exchange trade-policy concessions with another.

world trade organization (WTO)

An institution created in 1995 to succeed the GATT and to govern international trade relations. The WTO encourages and polices the multilateral reduction of barriers to trade, and it oversees the resolution of trade disputes.

general agreement on tariffs and trade (GATT)

An international institution created in 1947 in which member countries committed to reducing barriers to trade and providing similar trading conditions to all other members. In 1995, the ____ was replaced by the WTO.

regional trade agreements (RTAs)

Agreements among three or more countries in a region to reduce barriers to trade among themselves.

most-favored nation (MFN) status

A status established by most modern trade agreements guaranteeing that the signatories will extend to each other any favorable trading terms offered in agreements with third parties.

portfolio investment

Investment in a foreign country via the purchase of stocks (equities), bonds, or other financial instruments. _____ _____ do not exercise managerial control of the foreign operation.

sovereign lending

Loans from private financial institutions in one country to sovereign governments of other countries.

foreign direct investment

Investment in a foreign country via the acquisition of a local facility or the establishment of a new facility. Direct investors maintain managerial control of the foreign operation.

world bank

an important international institution that provides loans at below-market interest rates to developing countries, typically to enable them to carry out development projects

world bank

An important international institution that provides loans at below-market interest rates to developing countries, typically to enable them to carry out development projects.

recession

A sharp slowdown in the rate of economic growth and economic activity.

depression

A severe downturn in the business cycle, typically associated with major declines in economic activity, production, and investment; a severe contraction of credit; and sustained high unemployment.

default

to fail to make payments on debt

austerity

The application of policies to reduce consumption, typically by cutting government spending, raising taxes, and restricting wages.

bank for international settlements

One of the oldest international financial organizations, created in 1930. Its members include the world’s principal central banks, and under its auspices they attempt to cooperate in the financial realm.

International Monetary Fund (IMF)

A major international economic institution established in 1944 to manage international monetary relations. It has gradually reoriented itself to focus on the international financial system, especially debt and currency crises.

multinational corporation (MNC)

An enterprise that operates in a number of countries, with production or service facilities outside its country of origin.

global supply chains

A network of customers and suppliers involved in the production and distribution of a product. Parts of it may be inside a multinational corporation; parts may also involve links between corporations.

bilateral investment treaty

An agreement between two countries about the conditions for private investment across borders. Most of these treaties include provisions to protect an investment from government discrimination or expropriation without compensation as well as mechanisms to resolve disputes.

less developed countries (LDCs)

Countries at a relatively low level of economic development.

infrastructure

Basic structures necessary for social activity, such as transportation and telecommunications networks, and power and water supply.

primary products

Raw materials and agricultural products, typically unprocessed or only slightly processed. The primary sectors are distinguished from secondary sectors (industry) and tertiary sectors (services).

oligopoly

A situation in which a market or industry is dominated by a few firms.

commodity cartels

Associations of producers of commodities (raw materials and agricultural products) that restrict world supply of their products and thereby cause the price of their goods to rise.

Group of 77

A coalition of developing countries in the UN, formed in 1964 with 77 members, that seeks changes to the economic order to favor the developing world. It has grown to over 130 members but retains the original name.

export-oriented industrialization (EOI)

A set of policies, originally pursued in the mid-1960s by several East Asian countries, to spur manufacturing for export, often through subsidies and incentives for export production. Compare import-substituting industrialization.

import-substituting industrialization (ISI)

A set of policies, pursued by most developing countries from the 1930s through the 1980s, to reduce imports and encourage domestic manufacturing, often through trade barriers, subsidies to manufacturing, and state ownership of basic industries. Compare export-oriented industrialization.

terms of trade

The relationship between a country’s export prices and its import prices.

boomerang model

A process through which NGOs in one state are able to activate transnational linkages to bring pressure from other states on their own governments.

private authority

An expression of legitimate rulemaking by nonstate actors in international affairs, including the establishment of norms governing the behavior of private global actors such as multinational corporations and international NGOs.

norms life cycle

A three-stage model of how norms diffuse within a population and achieve a taken-for-granted status.

transnational advocacy network (TAN)

A set of individuals and nongovernmental organizations acting in pursuit of a normative objective.

norms entrepreneurs

Individuals or groups that seek to advance principled standards of behavior for states and other actors.

norms

Standards of behavior for actors with a given identity; norms define what actions are “right” or appropriate under particular circumstances.

delegation

The degree to which third parties, such as courts, arbitrators, or mediators, are given authority to implement, interpret, and apply international legal rules; to resolve disputes over the rules; and to make additional rules.

precision

The degree to which international legal obligations are fully specified. More precise rules narrow the scope for reasonable interpretation.

obligation

The degree to which states are legally bound by an international rule. High-obligation rules must be performed in good faith and, if breached, require reparations to the injured party.

customary international law

International law that usually develops slowly, over time, as states come to recognize practices as appropriate and correct.

international humanitarian law (laws of war)

A body of rules that seeks to limit the effects of armed conflict, protect noncombatants, and restrict means and methods of warfare for humanitarian reasons.

international law

A body of rules that binds states and other agents in world politics and is considered to have the status of law.

That has operations in multiple countries.

A multinational corporation is any company

Option A That has operations in multiple countries.

Option B That employs people from different countries.

Option C Dominates the domestic market in its economic sector.

Option D Is listed on the international stock exchange.

The conditionality agreements they require of states require substantial austerity policies, which hit the average person the hardest.

The IMF is a controversial institution because

Option A The conditionality agreements they require of states require substantial austerity policies, which hit the average person the hardest.

Option B It only lends money to developed states.

Option C It lends money at extremely high interest rates for countries with good economic conditions.

Option D It only gives loans to countries that the Security Council approves.

Defaulted on a loan.

When a country fails to make payments on its international debt they have

Option A Defaulted on a loan.

Option B Arranged for a new austerity policy to generate funds to make future payments.

Option C Secured private financing for loan servicing.

Option D Signed a bilateral investment treaty to manage the payment process.

Sovereign lending.

When a loan goes from a private financial institution in one country to the government of a different country, it is considered

Option A Sovereign lending.

Option B Loan default.

Option C IMF conditionality.

Option D Concessional investment.

Foreign Direct Investment.

When Porsche builds a manufacturing plant in Kentucky, it is engaging in

Option A Foreign Direct Investment.

Option B World Bank loan servicing.

Option C Deficit spending.

Option D A stock buyback program.

Investing in developing states is generally considered to be riskier than investing in developed states.

The reason why all foreign investment doesn't move from capital-rich states to capital-poor countries is

Option A Investing in developing states is generally considered to be riskier than investing in developed states.

Option B The IMF constrains the flow of capital in all directions.

Option C Developed states do not want too much investment because it throws off their national accounts.

Option D States prefer to invest in their domestic economies only.

All of the above

Which of the following is a type of portfolio investment?

Option A Bonds.

Option B Stocks.

Option C Loans.

Option D All of the above.

Both sides want to get as much benefit from the transaction as possible, so they have to bargain over the distribution of the benefits.

Although both sides in a financial transaction benefit from the open flow of capital, there is always the potential for conflict because

Option A Both sides want to get as much benefit from the transaction as possible, so they have to bargain over the distribution of the benefits.

Option B Because the World Bank has a weighted voting system, so those that pay the most in to the institution have the most say in what goes out of the institution.

Option C States want to devalue their currencies when they successfully receive FDI.

Option D Economic transactions have no sovereignty costs.

Which of the following is an important international institution that works in the area of international finance?

Option A The World Bank.

Option B The Bank for International Settlements.

Option C The International Monetary Fund.

Option D All of the above.

All of the above.

Countries often seek out MNCs and try to lure them into their economices because MNCs bring which of the following benefits to the host country?

Option A New technologies.

Option B Managerial expertise.

Option C Foreign capital.

Option D All of the above.

Exports decrease.

When a country's currency appreciates (gets stronger), the effect on EXPORTS from that country is

Option A Exports decrease.

Option B Exports increase.

Option C There is no effect on exports.

Option D Exports rise, but only in specific economic sectors.

Imports increase.

When the value of a country's currency appreciates (gets stronger), the effect on IMPORTS to that country is

Option A Imports increase.

Option B Imports decrease.

Option C There is no effect on imports.

Option D Exports and imports balance each other out.

Adjusting the interest rate, which affects the quantity of money in the system.

A central banks regulates monetary conditions in a country by

Option A Adjusting the interest rate, which affects the quantity of money in the system.

Option B Arranging for the IMF to institute a conditionality agreement.

Option C Printing more money.

Option D Coordinating exchange rates with the country's biggest trade partners.

A floating exchange rate system among the major economic states.

Since 1973, the global monetary system has been structred as

Option A A floating exchange rate system among the major economic states.

Option B A fixed exchange rate.

Option C An IMF-based value system.

Option D An adjustable peg system.

All of the above.

Which of the following standards has been used as a benchmark against which currencies can be measured?

Option A Commodity-backed paper standard.

Option B National paper currency standard.

Option C Commodity standard.

Option D All of the above.

Central Bank.

Monetary policy within a country is usually handled by which institution?

Option A Central Bank.

Option B State Department.

Option C World Economic Forum.

Option D The Treasury.

It stimulates a country's exports.

Some countries keep the value of currency artificially low relative to other currencies because a low currency value has what benefit?

Option A It stimulates a country's exports.

Option B It gives greater access to loans from the IMF.

Option C It produces a greater number of bilateral investment treaties.

Option D None of the above.

An international monetary regime.

When countries come together to coordinate relations among their currencies, they are participating in

Option A An international monetary regime.

Option B The UN General Assembly.

Option C The World Trade Organization.

Option D The Bretton Woods system.

The market.

Currency values in a floating exchange rate system are determined by

Option A The market.

Option B The value of whatever the currency has been pegged to.

Option C The UN General Assembly.

Option D The World Bank policy board.

The UN program takes a regional approach to development.

One difference between the United Nations Development Program and the World Bank is:

Option A The UN program takes a regional approach to development.

Option B The UN program offers loans to only former states of the Soviet sphere of influence.

Option C The UN program is only about exchange rates.

Option D The UN program offers no technical assistance.

All of the above.

Which of the following are institutions within the World Bank Group?

Option A The International Court for the Settlement of Investment Disputes.

Option B The International Bank for Reconstruction and Development.

Option C The Multilageral Investment Guarantee Agency. Option

D All of the above.

The global south.

Modernization theory argues that which set of states is "responsible" for the North-South gap?

Option A The global south.

Option B The global north.

Option C European social welfare states.

Option D The G7.

All of the above.

Geography matters in development how?

Option A Isolated states have fewer chances for development than countries with lots of neighbors.

Option B States in tropical climates have different challenges than countries in temperate climates.

Option C Landlocked states have a harder time getting goods to markets than states with sea ports.

Option D All of the above.

Successful development requires interest groups forego their self-interest in favor of the general interest.

Particularist interests matter for development because:

Option A Successful development requires interest groups forego their self-interest in favor of the general interest.

Option B There are no common interests between developed and developing states.

Option C Some actors have no interest in taking loans from the World Bank Group.

Option D Interests on the political economy are determined by competing pressures from the international political economic system.

The major institutions are biased against LDCs because the powerful states shape the rules in their favor.

A common perspective on international development institutions in the Global South is

Option A The major institutions are biased against LDCs because the powerful states shape the rules in their favor.

Option B The institutions don't pay attention to interest rates.

Option C The IMF and World Bank only target countries that already have a lot of foreign direct investment.

Option D The institutions are unresponsive to systemic shocks in the world economy.

Export-oriented industrialization.

The strategy for development that relies on exporting goods according to the theory of comparative advantage is known as

Option A Export-oriented industrialization.

Option B Voluntary import quotas

Option C Infant industries.

Option D Import-substitution industrialization.

The lack of development in countries that have control over vital natural resources.

The resource curse is defined as

Option A The lack of development in countries that have control over vital natural resources.

Option B The lack of development in some countries along the equator.

Option C The lack of development in Eastern Europe despite having geographical proximity to Western Europe.

Option D The lack of development in authoritarian states.

They led efforts in the 1960s and 1970s to create a new political economic system that was much more advantageous to developing states.

The G77 and the Non-aligned Movement were important actors in the international political economy because

Option A They led efforts in the 1960s and 1970s to create a new political economic system that was much more advantageous to developing states.

Option B They provided most of the funding for the World Bank in the 1970s.

Option C They created their own development bank.

Option D Most IMF conditionality agreements are based on recommendations from these groups.

A Liberalizing trade and opening up to foreign direct investment.

The Washington Consensus believes that development is best achieved by which policies?

Option A Liberalizing trade and opening up to foreign direct investment.

Option B Putting tariffs on foreign goods that could be produced at home.

Option C Pegging a nation's currency to gold.

Option D All policies that would push a state toward autarky.

When a country gives its lowest tariff rate on a good to every country.

What is most-favored nation status?

Option A When a country gives its lowest tariff rate on a good to every country.

Option B When a country gives special trade concessions to its political allies.

Option C When a country has the wealthiest and most-developed economy.

Option D The fees that a country pays when it decides to join the WTO.

Whether two states are close to each other geographically.

One of the most important factors for understanding the amount of trade between two countries is

Option A Whether two states are close to each other geographically.

Option B Whether both trading partners are under-developed economies.

Option C If one country is in the Security Council.

Option D If two countries are members of the World Bank.

All states use at least some protectionism.

When it comes to trade protectionism in the real world, we that

Option A All states use at least some protectionism.

Option B Only developing states use protectionist policies.

Option C The WTO ensures that no states use protectionism. '

Option D Only developed states use protectionist policies.

An improved dispute adjudication body for settling trade disputes.

One of the most important contributions of the WTO is that it has

Option A An improved dispute adjudication body for settling trade disputes.

Option B A limited set of goods that need to be considered in free trade policy.

Option C The World Bank.

Option D A forum for debate on trade policy that reinforces the power of the G20.

A tax on imports that come in to a domestic market.

Which of the following is a tariff?

Option A A tax on imports that come in to a domestic market.

Option B A regulation that restricts the types of goods that can be imported.

Option C A limit to the amount of foreign products that that ca

Option D A total ban on imports from a specific country.

Trade barriers are bad for economic growth and well-being.

Which of the following statements best describes the opinion of most economists about trade policy?

Option A Trade barriers are bad for economic growth and well-being.

Option B Trade barriers have no discernable effect on domestic production.

Option C Trade barriers are a rising tide that lifts all boats.

Option D Trade barriers have a long-term positive increase on exports.

Domestic producers can sell more at a higher price because foreign goods are more expensive.

What is the effect of trade barriers on the overall amount of trade?

Option A Domestic producers can sell more at a higher price because foreign goods are more expensive.

Option B A glut of imported products develops.

Option C Imports become less expensive in the domestic market.

Option D Workers in the importing country have to take pay cuts to account for price differences.

Autarky

A state that tries to produce everything it needs and avoids trading for things is said to be seeking

Option A Autarky.

Option B Comparative advantage.

Option C Economic nationalism.

Option D Anarchy.

Specialization leads to efficiency and so more products can be produced and traded.

Free trade is promoted by specialization because

Option A Specialization leads to efficiency and so more products can be produced and traded.

Option B Institutional development have focused on streamlining technology in the production process.

Option C Capital and labor flows will break from traditional patterns.

Option D The market is based on competition.

The theory of protection benefits the scarce factor of production.

What is the Stolper-Samuelson theorem of protection from free trade?

Option A The theory of protection benefits the scarce factor of production.

Option B The theory that protection hurts the scarce factor of production.

Option C The theory that free trade benefits the scarce economic sector.

Option D The theory that says protection hurts the scarce economic sector.