Globalization and Governance Quiz
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Questions and Answers

What is a consequence of hyper-globalization policies combined with supranational institutions?

  • National sovereignty is diminished (correct)
  • Supranational institutions have no effect on national policies
  • Countries can choose their national policies freely
  • There is an increase in race to the bottom

The European Union allows full delegation of all domestic policies to supranational governance without retaining any national control.

False (B)

What is a challenge posed by globalization regarding governance?

Providing institutional underpinnings that are both democratic and technocratic.

In federal systems like the US or Germany, the free flow of goods, investments, and people is balanced with _____ to prevent a race to the bottom.

<p>federal legislation</p> Signup and view all the answers

Match each type of integration with its corresponding feature:

<p>Hyper-globalization = Free trade and movement of capital Democracy = Democratic elections at the federal level Supranational governance = Regulation of profit making for fairness Race to the bottom = Deterioration of labor and environmental standards</p> Signup and view all the answers

Which of the following best describes a true public good?

<p>It is available to everyone without competition (B)</p> Signup and view all the answers

Fiscal correctness is considered to be the same for all countries.

<p>False (B)</p> Signup and view all the answers

What is one function of money mentioned in the content?

<p>Means of payment or unit of account</p> Signup and view all the answers

Austerity measures are implemented by a country after a _____ period of time.

<p>while</p> Signup and view all the answers

Match the following terms related to money with their definitions:

<p>Public Good = A good available to everyone without exclusion Common Good = A good that is enjoyed by an individual as well as by others Money = A monetary instrument acceptable as means of payment Barter = A method of trade that requires a double coincidence of wants</p> Signup and view all the answers

What is one potential consequence of pushing for deeper globalization?

<p>Aggravating the undermining of domestic rules (D)</p> Signup and view all the answers

What is the main difference between money and finance?

<p>Money is related to the present, while finance is dependent on time and the future. (B)</p> Signup and view all the answers

Harmonizing trade rules across countries is always beneficial for all involved.

<p>False (B)</p> Signup and view all the answers

Bonds are considered a promise between two agents concerning the present.

<p>False (B)</p> Signup and view all the answers

What does the freer movement of goods and capital limit regarding national policies?

<p>The effectiveness of policies to stabilize aggregate demand and employment.</p> Signup and view all the answers

Hyper-globalization is ruled out if national __________ and democracy endure.

<p>sovereignty</p> Signup and view all the answers

What do equities represent in finance?

<p>Stocks or shares.</p> Signup and view all the answers

The ______ of payments is a statement of all transactions made between entities in one country and the rest of the world.

<p>balance</p> Signup and view all the answers

Match the aspects of globalization with their corresponding impacts:

<p>Movement of labor = Gains for some, losses for others Freer movement of capital = Seeking lower regulations Deeper globalization = Weakening domestic rules Harmonizing trade rules = Imposing uniform regulations</p> Signup and view all the answers

Match the following financial instruments with their descriptions:

<p>Bonds = Inter-temporal promises about future transactions Equities = Ownership in a company through stocks Derivatives = Contracts based on the future price of an asset Loans = Capital provided by a lender to a borrower</p> Signup and view all the answers

What is a trilemma mentioned in relation to globalization?

<p>Balancing gains from trade with domestic stability (B)</p> Signup and view all the answers

Hyper-globalization can be implemented without any opposition from citizens.

<p>False (B)</p> Signup and view all the answers

What is suggested as a risk associated with the financial sector?

<p>The financial sector's continuous growth makes it inherently insecure. (C)</p> Signup and view all the answers

What can happen if the losers from globalization are ignored?

<p>Globalization may become politically unsustainable in a democracy.</p> Signup and view all the answers

The Young Plan aimed to increase international financing to Germany after World War I.

<p>True (A)</p> Signup and view all the answers

What crisis is anticipated following the COVID crisis according to the content?

<p>A financial crisis due to accumulated debt.</p> Signup and view all the answers

What is the consequence when a country assesses that the costs of maintaining currency convertibility exceed the benefits?

<p>The country will abandon its promise of convertibility. (B)</p> Signup and view all the answers

In a closed global economy, the sum of world current accounts equals zero.

<p>True (A)</p> Signup and view all the answers

What does the N-1 issue imply about the ability of countries to independently pursue national exchange rate targets?

<p>Only N-1 out of N countries can independently pursue a national exchange rate target.</p> Signup and view all the answers

The issuing country must compare the benefits of holding its commitment towards convertibility with the ______ of doing so.

<p>costs</p> Signup and view all the answers

Match the following terms with their corresponding descriptions:

<p>N-1 Problem = Only N-1 out of N countries can experience a surplus. Convertibility = The ability to exchange currency at a fixed price. Independent Exchange Rates = There are only N-1 independent exchange rates among N currencies. Balance of Payments = The sum of world exports equals the sum of world imports.</p> Signup and view all the answers

Which of the following is a necessary arrangement due to the N-1 issue?

<p>Informal arrangements to support sovereign targets. (B)</p> Signup and view all the answers

Firms with surpluses can lead to all countries experiencing a surplus simultaneously.

<p>False (B)</p> Signup and view all the answers

What is one implication of the N-1 issue for the international monetary system?

<p>There must be practical arrangements for making sovereign targets reciprocally consistent.</p> Signup and view all the answers

What is the primary purpose of a store of value?

<p>To retain value over time (B)</p> Signup and view all the answers

The Gold Standard allowed currencies to be converted into gold at varying prices across different countries.

<p>False (B)</p> Signup and view all the answers

What are Special Drawing Rights created by the IMF?

<p>Flat money distributed among member countries.</p> Signup and view all the answers

The Gold Standard was established in the _____ century and lasted until 1914.

<p>19th</p> Signup and view all the answers

Match the following countries with their roles in the Gold Standard system:

<p>Britain = Led the world economy during Pax Britannica Germany = Adopted the Gold Standard following British precedents United States = Later became a major player in the Gold Standard France = Participated but had different monetary strategies</p> Signup and view all the answers

What did the repeal of export restrictions on gold coins signify in 1819?

<p>The establishment of the Gold Standard (A)</p> Signup and view all the answers

All major currencies during the Gold Standard period were convertible into each other at fixed prices.

<p>True (A)</p> Signup and view all the answers

What was the relationship between gold reserves and paper currency during the Gold Standard?

<p>Paper money supply was issued in proportion to gold reserves.</p> Signup and view all the answers

Under the Gold Standard, economic agents could convert one unit of currency A into _____ units of currency B directly.

<p>two</p> Signup and view all the answers

What characterizes the adjustment burden of imbalances in a symmetrical economic system?

<p>All countries adjust equally (D)</p> Signup and view all the answers

Flashcards

Policy Space

The ability of a country's government to make and implement policies effectively without undue external constraints.

Globalization

The increasingly interconnected world where goods, services, capital, and people move freely across borders.

Hyper-globalization

The idea that excessive globalization can undermine the ability of national governments to effectively manage their economies, environment, and social policies.

Balanced Globalization

The idea that globalization can be beneficial, but only if it is balanced with domestic policy measures, like trade protection and environmental regulations.

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The Globalization Trilemma

The unavoidable tension between globalization, democracy, and national sovereignty. If you want all three, something must give.

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Race to the Bottom

When businesses move to countries with weaker environmental regulations and lower labor costs, leading to potential harm to the environment and workers.

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Trade Restrictions

Policies designed to limit the free movement of goods, capital, and people, in order to protect national sovereignty and autonomy.

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National Sovereignty

The ability of national governments to regulate and manage their economies within their own borders.

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Supranational Institutions

A system where countries work together to set rules and policies that apply to all member countries, reducing individual country's freedom to make their own decisions.

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Hyper-Globalization and National Sovereignty

The idea that if countries open up their borders to trade and investment and also allow supranational institutions to set rules, then individual countries lose some of their power to make their own laws.

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Democratic Global Governance

The challenge of balancing the need for global cooperation with the need for democratic control. How to make sure that international rules are acceptable to the people who are affected by them.

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What is the difference between money and finance?

Finance, unlike money, involves transactions that are projected into the future and depend on time.

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What is a bond?

A bond represents a promise between two parties regarding future payments. These payments carry uncertainty and can be short-term or long-term.

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What are equities (stocks)?

Equities, or stocks, represent ownership in a company. You can buy and sell these shares in the stock market.

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What are derivatives?

Derivatives are financial instruments that allow investors to bet on the future direction of an asset's price.

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What was the Young Plan?

The Young Plan was a post-WWI financial plan that aimed to stabilize Germany's economy by providing US investment.

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What is the balance of payments?

The balance of payments is a record of all financial transactions between a country and the rest of the world over a period of time.

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Why is a large financial sector risky?

The financial sector is inherently risky. As it grows larger, the overall risk increases and creates a potential for crisis.

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When does a loan exist?

A loan only exists when there is a clear connection between the lender and the borrower.

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Austerity

A situation where governments are forced to reduce spending and increase taxes to control debt and balance the budget.

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Monetary Instrument

The use of money as a medium of exchange, a unit of account, and a store of value.

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Barter

The direct exchange of goods or services for other goods or services without the use of money.

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Search Costs

Costs associated with searching for a trading partner who has the exact reverse desire in exchanging two products.

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Liquidity

The ability of an asset to be easily converted into money. This is a key characteristic of any asset that can be used as a store of value.

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Gold Standard: Fixed Price

A fixed price at which participating countries agreed to exchange their currencies for gold. This ensured that currency exchange rates were stable.

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Gold Standard: Symmetrical System

The concept that each participating country in the Gold Standard was free to set its own exchange rate, as long as they adhered to the fixed conversion price with gold.

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Gold Exchange Standard

A financial arrangement in which gold plays a central role as a reserve asset, but not every currency is directly convertible into gold. Instead, some countries hold their reserves in other currencies that are linked to gold.

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Special Drawing Rights (SDRs)

A reserve instrument created by the International Monetary Fund (IMF) and distributed among member countries. It serves as a form of international money but is not directly backed by gold.

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XIX Century Gold Standard: Domination

A period in history (1870-1914) where the Gold Standard dominated the international monetary system, bringing stability and promoting trade.

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Gold Standard: British Influence

The British were the primary driving force behind the Gold Standard, setting the rules of the game and promoting its adoption by other countries.

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Gold Standard: Rules of the Game

The acceptance of a set of rules and principles by participating countries in the Gold Standard to maintain stability and ensure the system's functionality.

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Pax Britannica

A period of relative peace and economic prosperity marked by the use of the Gold Standard and British leadership.

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N-1 Issue for Exchange Rates

The idea that in a world with multiple currencies, only N-1 countries can independently set their exchange rate targets. This is because each country can only define its exchange rate relative to one other country, and these are interdependent.

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Sum of World Current Accounts = 0

The principle that the sum of all countries' current account balances must equal zero. This means that if one country runs a surplus, another country must run a deficit.

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Convertibility Dilemma

The dilemma faced by countries when they try to maintain a fixed exchange rate. Essentially, they must choose between maintaining their commitment to a fixed exchange rate and controlling their own monetary policy.

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N-1 Problem for Current Accounts

The ability of a country to achieve its national current account goals. The N-1 issue applies here, meaning that not all countries can simultaneously achieve a current account surplus.

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Bumby Road of International Money Supply

The difficulty arising from the fact that the world's money supply is inherently unstable, due to differences in national monetary policies and the lack of a global authority managing global money supply.

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Evaluating Credibility of Commitments

The process of evaluating the credibility of promises made by countries, especially concerning their commitment to fixed exchange rates or open economies. Countries might make promises, but economic agents need to assess their likelihood of keeping them.

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Practical Arrangements for Consistency

The need for formal or informal arrangements to ensure consistency among sovereign goals. These arrangements can be symmetric (equal rules for everyone) or asymmetric (different rules for different countries).

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Practical Arrangements in International Monetary System

The practical aspects of international monetary systems. These include the specific mechanisms for payments, accounting, and exchange rates.

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Study Notes

Global Economic Policies and Institutions

  • Industrial Revolution and Pax Britannica
    • Discussion of trade, money, and finance interconnections
  • World War I and Aftermath
    • Disintegration and consequences for global economic systems
  • World War II and Aftermath
    • Bretton Woods era and its post-war economic arrangements
  • Financial Globalization
    • A game-changing event in global trade, money, and finance
  • New Developments in Finance
    • Blockchain technology, cryptocurrencies, CBDCs, and decentralized finance
  • Economic Interdependence
    • Mutual dependence of economic actors; national reliance on others' actions; structural transformation in the global economy; success of Britain.
  • Dependence vs Interdependence
    • Relationships between actors require considering dependencies on each others' actions; perfect competition vs. conditions of oligopoly.
  • Historical Perspective Between Two Wars
    • Disconnected world concerning trade, impacted by tariffs; financial considerations and autarky; flexible exchange rates were present.
  • Bretton Woods Conference
    • Significance of this meeting during WWII; Agreement on fixed exchange rates in 1971; Economic crises like Mexico crisis 1985; South-East Asian tigers crisis 1997/98; resemblance to current global recession

Globalization and Rodrik's Policy Trilemma

  • Globalization's impact on winner-loser dynamic
  • Consumption gains alongside sustainability concerns and economic justice issues
  • Environmental and economic justice issues in the globalization context
  • Political trilemma, trade, money, finance in interconnected context
    • Hyperglobalization vs. democracy vs. national sovereignty (trade-off);
    • Need to choose two of the three given global economic context.

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GLOBAL ECONOMIC POLICIES AND INSTITUTIONS PDF

Description

Test your knowledge on the impact of hyper-globalization policies and the role of supranational institutions. This quiz covers concepts like public goods, fiscal correctness, and the implications of deeper globalization. Expand your understanding of how globalization influences governance structures.

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