Global Economic Policies and Institutions

Fiscal correctness refers to the appropriate management of a country's finances. It differs between Italy and Germany due to each country's reputation and relative power in fiscal matters.

A public good is a resource that is non-rivalrous and non-excludable, meaning it is available for everyone to use without diminishing its availability. An example is a park bench.

The degree of private/public depends on how much an item can be consumed by one person without affecting others' consumption and whether access can be restricted. More non-rivalry and non-excludability means a good is more public.

<p>Money serves primarily as a means of payment and a unit of account, which are essential for overcoming the limitations of barter in facilitating international trade.</p> Signup and view all the answers

<p>There is no single money universally accepted because different nations have varying monetary systems, currencies, and economic conditions that influence their acceptance.</p> Signup and view all the answers

<p>Supranational institutions limit national sovereignty by enforcing policies that prevent a race to the bottom on sensitive issues, restricting countries' ability to independently select their national policies.</p> Signup and view all the answers

<p>Federations manage hyper-globalization by allowing free flow of goods, investments, and people while using federal legislation to prevent a race to the bottom through democratic elections.</p> Signup and view all the answers

<p>The EU achieves this by facilitating free trade and movement while maintaining the capacity for supranational regulation to ensure fairness and economic stability.</p> Signup and view all the answers

<p>A primary challenge is determining who will establish the necessary institutional frameworks for global governance and ensuring these frameworks are both democratic and technocratic.</p> Signup and view all the answers

<p>Voters can influence supranational governance by participating in democratic processes that allow them to change or reshape the institutional frameworks governing international systems.</p> Signup and view all the answers

<p>Money functions as a collective good because its utility derives from widespread use by others, as it holds no utility when used by only one individual.</p> Signup and view all the answers

<p>The state risks creating instability within the financial system due to profit generation from money supply.</p> Signup and view all the answers

<p>The utility of money increases with the size of the group using it, similar to how the value of language escalates with its communicative reach.</p> Signup and view all the answers

<p>The free rider problem occurs when individuals benefit from a collective good without contributing to its provision, leading to undersupply.</p> Signup and view all the answers

<p>Users of money can be made to pay easily due to the nature of money balances, which hold no interest, incentivizing the supply of money services.</p> Signup and view all the answers

<p>Confidence is crucial, as individuals are only willing to hold money if they believe its value will not diminish.</p> Signup and view all the answers

<p>Confidence building schemes, such as investing in sunk capital, help assure holders that suppliers will not reduce the money's value.</p> Signup and view all the answers

<p>Individuals might be reluctant to hold money balances because they forgo potential higher interest rates from other assets.</p> Signup and view all the answers

<p>The main challenge is weighing the benefits of maintaining fixed currency prices against the costs of compromising monetary policy.</p> Signup and view all the answers

<p>The 'N-1 problem' states that only 'N-1' out of 'N' countries can independently achieve a surplus in their current accounts, as not all can pursue positive balances at the same time.</p> Signup and view all the answers

<p>The N-1 issue implies that only 'N-1' independent exchange rates can be set among 'N' currencies, constraining a country's flexibility in managing its exchange rate targets.</p> Signup and view all the answers

<p>This equality signifies that for every surplus there must be a corresponding deficit, limiting the ability of all countries to simultaneously run surpluses.</p> Signup and view all the answers

<p>Convertibility practices refer to the conditions under which national currencies can be exchanged, impacting decisions on fixed or flexible exchange rates.</p> Signup and view all the answers

<p>The N-1 issue implies that if multiple countries have their own currencies, only 'N-1' can independently pursue specific exchange rate targets, limiting their monetary policies.</p> Signup and view all the answers

<p>Distrust among economic agents leads to reluctance in accepting currency, making the international supply of money more challenging and contingent on perceived credibility.</p> Signup and view all the answers

<p>Practical arrangements such as informal or formal agreements on payments and accounting practices to ensure consistency among sovereign targets are necessary.</p> Signup and view all the answers

<p>The establishment of the Gold Standard resulted from national independent decisions influenced by increasing financial integration among countries.</p> Signup and view all the answers

<p>Internal equilibrium refers to a state of full employment and stable prices within an economy.</p> Signup and view all the answers

<p>The government prevents price level instability by avoiding substantial fluctuations in aggregate demand relative to full employment levels.</p> Signup and view all the answers

<p>The equation P<em>Y = M</em>v represents the quantity theory of money, linking price, income, money supply, and velocity of circulation.</p> Signup and view all the answers

<p>'Neutrality' of money suggests that changes in money supply do not affect income growth but only influence inflation rates.</p> Signup and view all the answers

<p>The formula for external equilibrium is Y = C + I + G + (EX - IM), where external factors affect the economy's output.</p> Signup and view all the answers

<p>Central banks were responsible for fixing the exchange rate between currency and gold to maintain external balance.</p> Signup and view all the answers

<p>Policymakers adopt balanced current account targets to manage external balances while accounting for the gains from trade over time.</p> Signup and view all the answers

<p>The role of monetary gold became more significant than its role as a metal, leading to instability in the relative prices of gold and silver.</p> Signup and view all the answers

<p>According to the content, an increase in money supply leads to a proportional increase in price levels.</p> Signup and view all the answers

<p>Liquidity is defined as an asset's ability to be easily transformed into money.</p> Signup and view all the answers

<p>Special Drawing Rights are flat money created by the IMF and distributed among its member countries.</p> Signup and view all the answers

<p>The primary goal was to ensure the free convertibility of currency into gold at a fixed price.</p> Signup and view all the answers

<p>The Gold Standard linked currencies to gold, ensuring that each currency was convertible to fixed amounts of gold.</p> Signup and view all the answers

<p>Professional arbitrage enabled the direct conversion of currencies based on their gold value without needing to convert to gold first.</p> Signup and view all the answers

<p>The 'rules of the game' required participating countries to follow specific monetary practices to maintain the system's integrity.</p> Signup and view all the answers

<p>Pax Britannica refers to the relatively calm economic situation from 1815 to 1914 when Britain emerged as a global economic power.</p> Signup and view all the answers

<p>Britain's Gold Standard served as a model, leading many countries to adopt similar monetary systems.</p> Signup and view all the answers

<p>There was a proportional relationship where the amount of paper money issued was backed by gold reserves.</p> Signup and view all the answers

<p>Many countries switched from bimetallism, which used both gold and silver, to adopting only the Gold Standard.</p> Signup and view all the answers