Global Keynesianism and Exchange Rates

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Questions and Answers

What was a primary strategy advocated by supporters of the Washington Consensus?

Increased government intervention in business

Privatization of government-controlled services (correct)

Expansion of tariffs to protect local industries

Increase in public service funding

Which aspect of neoliberalism faced criticism during the global financial crises of 2007-2008?

Expansion of public services

Minimal government spending policies (correct)

Reduction of tariffs on imports

Increased government regulation of the financial sector

What were banks doing to mitigate the risks associated with bad investments in housing during the financial crisis?

Offering loans with lower down payments

Limiting the number of housing loans offered

Pooling mortgage payments into mortgage-backed securities (correct)

Increasing interest rates on new loans

How did the US government influence the financial services sector leading up to the financial crisis?

By systematically removing banking and investment restrictions Signup and view all the answers

What does neoliberalism primarily emphasize in economic policy?

Free trade and deregulation Signup and view all the answers

During the rise of neoliberalism, which of the following was a major effect on developing countries?

Pressure to reduce tariffs on imported goods Signup and view all the answers

What was a significant consequence of removing banking regulations in the 1980s?

A surge in risky investments leading to the crisis Signup and view all the answers

Which of the following actions exemplified the notion of minimal government spending promoted by neoliberalism?

Cutting budgets for social welfare programs Signup and view all the answers

What is the primary role of the International Monetary Fund (IMF)?

To prevent individual countries from falling into credit crises Signup and view all the answers

What key feature characterized the Bretton Woods System?

Fixed exchange rates within 1% of gold values Signup and view all the answers

In what year was the General Agreement on Tariffs and Trade (GATT) established?

1947 Signup and view all the answers

Which institution was responsible for funding postwar reconstruction projects?

World Bank Signup and view all the answers

What significant event led to the collapse of the Bretton Woods System?

The temporary suspension of the dollar’s convertibility to gold Signup and view all the answers

What was a primary objective of GATT?

To foster global economic integration by reducing trade barriers Signup and view all the answers

Which of the following statements correctly describes the role of governments during economic slowdowns?

Governments need to reinvigorate markets with capital infusions Signup and view all the answers

What organization replaced GATT in 1995?

World Trade Organization Signup and view all the answers

What is the primary driver of national economies growing in today's world?

Exports to other countries Signup and view all the answers

Which organization is primarily associated with promoting trade liberalization?

World Trade Organization (WTO) Signup and view all the answers

What was the total global trade in goods reached post-COVID-19?

$9.6 trillion Signup and view all the answers

Which country substantially increased its share in world exports from 4% in 2000 to 15% in 2021?

China Signup and view all the answers

As of 2021, what percentage of global exports did the United States contribute?

8% Signup and view all the answers

What percentage of total imports of goods did China account for in 2021?

12% Signup and view all the answers

What trend was noted for trade in services after the pandemic compared to global trade in goods?

Trade in services fell short of pre-pandemic levels. Signup and view all the answers

What is a characteristic of economic globalization as noted in the content?

It remains an uneven process. Signup and view all the answers

What was a primary legal issue with the Rana Plaza building?

It violated several building codes. Signup and view all the answers

What aspect of globalization do many writers mistakenly view as its entirety?

International economic integration Signup and view all the answers

How does globalization facilitate awareness of global cultures?

Via trade that allows access to foreign media. Signup and view all the answers

What is one suggested way to make economic globalization more just?

Ensuring that trade is fair and just. Signup and view all the answers

What role do governments play in addressing the impacts of economic globalization?

They should cushion the effects while ensuring benefits are shared. Signup and view all the answers

What assumption did financial experts wrongly make regarding the likelihood of loan defaults?

Majority of borrowers would not default. Signup and view all the answers

What was one key factor that contributed to the collapse of MBSs during the financial crisis?

The assumption that housing prices would continue to rise. Signup and view all the answers

Which impact did the crisis have on Iceland's banking system?

Iceland's commercial banks defaulted due to inability to refinance. Signup and view all the answers

What was a political consequence of the economic crises in Europe?

Political upheaval sparked across several nations. Signup and view all the answers

How did the U.S. economy recover from the financial crisis compared to other countries?

Through an extensive Keynesian-style stimulus package. Signup and view all the answers

What happened to home prices during the crisis that affected borrowers?

Home prices stopped increasing. Signup and view all the answers

Which of these characteristics defined sub-prime mortgages?

Offered to individuals with questionable credit histories. Signup and view all the answers

What was the reaction of banks and investors to the surge of bad investments in MBSs?

They rapidly resold the MBSs to cut losses. Signup and view all the answers

Study Notes

Global Keynesianism and Economic Management

Economies often require government intervention during downturns through capital injections to stimulate growth.
Global Keynesianism emphasizes active government roles in managing economic spending.

Global Exchange Rate System

The first system for controlling currency values between nations, maintaining exchange rates within a fixed range related to gold.
Established the Bretton Woods System, creating two pivotal institutions:
- International Bank for Reconstruction and Development (IBRD), now the World Bank, focused on funding postwar reconstruction and long-term development assistance.
- International Monetary Fund (IMF) acts as a global safety net to avert debt crises.
The Bretton Woods System collapsed between 1968 and 1973, following Nixon's suspension of the dollar's gold convertibility.

General Agreement on Tariffs and Trade (GATT)

Established in 1947 to promote global economic integration by reducing tariffs and trade barriers.
Transformed into the World Trade Organization (WTO) in 1995.

Neoliberalism and Economic Policies

Emerged between the 1940s and 1970s advocating for deregulation, reduced government spending, and minimal interventions.
Washington Consensus represents a neoliberal strategy pushed by major global financial institutions during the 1980s to early 2000s, emphasizing:
- Significant cuts in government spending to curb debt.
- Privatization of essential services.
- Encouragement for developing nations to lower tariffs.

Global Financial Crisis of 2007-2008

Resulted from deregulation and poor investment practices following neoliberal policies.
Banks increasingly issued sub-prime mortgages to borrowers with questionable credit.
Unsustainable mortgage practices created a bubble that burst when housing prices plateaued in 2007.
The collapse of Lehman Brothers in September 2008 marked a significant financial crisis, leading to a worldwide economic downturn.

Impact on Global Economies

Iceland's banking system collapsed due to reliance on foreign capital.
Countries like Spain and Greece faced severe debt crises, prompting austerity measures dictated by Germany and the IMF.
The US economy recovered partially through a significant Keynesian-style stimulus package implemented by President Obama.

Current State of Economic Globalization

Modern economic integration is predominantly driven by exports, with global trade volumes significantly increasing post-COVID-19.
In 2021, global trade reached USD 9.6 trillion, with trade in goods exceeding pre-pandemic levels, while services lagged.
China emerged as a critical player in global trade, increasing its export share significantly from 4% in 2000 to 15% in 2021.

Challenges of Economic Globalization

Economic globalization creates disparities; enforcement of labor and building regulations may be inconsistent, as highlighted by the Rana Plaza disaster in Bangladesh.
International economic integration is a crucial aspect of globalization, influencing culture and politics across borders.

Concluding Thoughts

Trade relations not only fuel economic globalization but also facilitate cultural and political exchanges.
Creating a fair trade system is vital to mitigate the adverse effects of globalization, ensuring equitable distribution of its benefits.

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Description

This quiz explores the principles of Global Keynesianism and the mechanisms of the global exchange rate system. It discusses how governments manage spending and control monetary values to stabilize economies. Understand the interplay between government intervention and market dynamics in economic policies.