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What is a key feature of hyper-globalization policies in relation to national sovereignty?
What is a key feature of hyper-globalization policies in relation to national sovereignty?
Federal legislation can prevent a race to the bottom in sensitive topics.
Federal legislation can prevent a race to the bottom in sensitive topics.
True
What challenge does globalization pose regarding institutional support?
What challenge does globalization pose regarding institutional support?
The challenge is determining who will provide the necessary institutional underpinnings for a global market.
In Europe, political integration among governments allows for free trade and free movement of capital and labor, while retaining some ability at the supranational _____ level to regulate profit-making.
In Europe, political integration among governments allows for free trade and free movement of capital and labor, while retaining some ability at the supranational _____ level to regulate profit-making.
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Match the following concepts with their descriptions:
Match the following concepts with their descriptions:
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What is a characteristic that differentiates a true public good from a common good?
What is a characteristic that differentiates a true public good from a common good?
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The degree of publicness of a good is solely based on its availability to the general population.
The degree of publicness of a good is solely based on its availability to the general population.
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What are the two main functions of money as a monetary instrument?
What are the two main functions of money as a monetary instrument?
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Without money, societies are forced to revert to ______, which complicates trade due to search costs.
Without money, societies are forced to revert to ______, which complicates trade due to search costs.
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Match the following terms related to public and common goods:
Match the following terms related to public and common goods:
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What are the components of the Balance of Payments (BoP) identity?
What are the components of the Balance of Payments (BoP) identity?
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The Balance of Payments identity indicates that everything created is accounted for in the system.
The Balance of Payments identity indicates that everything created is accounted for in the system.
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What is the difference between GDP and GNP?
What is the difference between GDP and GNP?
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The current account includes imports, exports, and __________ income from outside workers.
The current account includes imports, exports, and __________ income from outside workers.
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What condition signifies external equilibrium in the Balance of Payments?
What condition signifies external equilibrium in the Balance of Payments?
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Debtors generally hold more power than creditors in financial relationships.
Debtors generally hold more power than creditors in financial relationships.
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What are unilateral transfers?
What are unilateral transfers?
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Match the following terms with their definitions:
Match the following terms with their definitions:
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What is convertibility in relation to currency?
What is convertibility in relation to currency?
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Economies of scale can lead to monopoly because larger firms can reduce their average costs.
Economies of scale can lead to monopoly because larger firms can reduce their average costs.
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What is the primary source of profit for a bank as a money issuer?
What is the primary source of profit for a bank as a money issuer?
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Under the gold standard, convertibility was guaranteed by ______.
Under the gold standard, convertibility was guaranteed by ______.
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What can diminish the credibility of a money issuer?
What can diminish the credibility of a money issuer?
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In a country with two different currencies, the utility of each currency increases for residents.
In a country with two different currencies, the utility of each currency increases for residents.
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What happens to borrowing needs if businesses face financial difficulties?
What happens to borrowing needs if businesses face financial difficulties?
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When different currency issuers follow varied policies, the price of one currency into another may ______.
When different currency issuers follow varied policies, the price of one currency into another may ______.
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Match the following concepts with their implications:
Match the following concepts with their implications:
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What happens when the costs of maintaining convertibility exceed the benefits for a country?
What happens when the costs of maintaining convertibility exceed the benefits for a country?
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In a closed global economy, the sum of world exports is equal to the sum of world imports.
In a closed global economy, the sum of world exports is equal to the sum of world imports.
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What is the implication of the N-1 issue for current account targets among countries?
What is the implication of the N-1 issue for current account targets among countries?
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In a world with N currencies, there are only __ independent exchange rates.
In a world with N currencies, there are only __ independent exchange rates.
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Match the following terms with their correct implications:
Match the following terms with their correct implications:
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What are the practical arrangements needed due to the N-1 issue?
What are the practical arrangements needed due to the N-1 issue?
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Every country can experience a surplus at the same time in a global economy.
Every country can experience a surplus at the same time in a global economy.
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What trade practices may not be accurately reflected in financial accountings?
What trade practices may not be accurately reflected in financial accountings?
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What is one consequence of banks taking more risks in their lending practices?
What is one consequence of banks taking more risks in their lending practices?
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The government has no role in the money supply process once banks are nationalized.
The government has no role in the money supply process once banks are nationalized.
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What typically occurs during a banking crisis that affects customer confidence?
What typically occurs during a banking crisis that affects customer confidence?
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The state has a monopoly power to issue _____ and deposits.
The state has a monopoly power to issue _____ and deposits.
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What happens to banks that successfully increase their market share?
What happens to banks that successfully increase their market share?
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An increase in the supply of currency by the state will always lead to inflation.
An increase in the supply of currency by the state will always lead to inflation.
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What role does the government play during a banking crisis?
What role does the government play during a banking crisis?
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The currency of an over-issuing bank becomes riskier than _____ currencies in circulation.
The currency of an over-issuing bank becomes riskier than _____ currencies in circulation.
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Match the following banking outcomes to their effects:
Match the following banking outcomes to their effects:
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What is a significant function of national money?
What is a significant function of national money?
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All currencies are good for international reserves.
All currencies are good for international reserves.
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What happens if a government declares its currency inconvertible?
What happens if a government declares its currency inconvertible?
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Countries that experience a banking crisis often see a call for _____ action to regain public confidence.
Countries that experience a banking crisis often see a call for _____ action to regain public confidence.
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Study Notes
Global Economic Policies and Institutions
- Industrial revolution and Pax Britannica: Trade, money, and finance interconnected during this period.
- World War I and its aftermath: Disintegration of economic systems
- World War II and its aftermath: Bretton Woods era, shift after US dominance as an economic power in post war.
- Financial globalization, a game-changer: significant change in how trade, money, and finance interact.
- New things in money and finance: Blockchain, cryptocurrencies, CBDC's, and decentralized finance.
- Are financial "crises" accidents?: Examination of whether financial crises are predictable or random events.
- Economic interdependence: Mutual reliance of nations on each other in their economic activity, actions of one country impact other countries.
- Dependence vs Interdependence: Distinction between self-sufficient nation's independence and nations' dependency on each other due to globalized systems, outcomes of one nation depend on the other's.
- The two world wars period: Pre-WWI world was interconnected in trade and economic activity. Afterwards, the world became disconnected due to autarky and high tariffs.
- Bretton Woods Conference in 1944: Agreement to establish a new global financial order during WWII.
- Mexico crisis 1985; South-East Asian tigers crisis 1997/98: Examples of events impacting national and international finances.
- Global recession from 1980-1982: Similarities with modern-day economic situations.
Globalization and Rodrik's Policy Trilemma
- Globalization can produce winners and losers: the expansion of trade and services can benefit all countries but some countries can experience negative consequences due to capital flowing to nations with lax environmental and low tax regulations or weak worker rights.
- The political trilemma of the world economy: There are three values to be considered simultaneously: hyperglobalization, democracy and national autonomy.
- The trilemma refers to the inability to simultaneously achieve all three goals.
The Globalization Paradox
- Legitimacy and efficacy all require an effective regulatory state: The ability to effectively enforce laws and regulations can be undermined by globalization.
- Harmonizing rules across countries: The costs of imposing rules applicable to all countries rather than being specific to each country.
- Restricting the scope of globalization: The cost of giving up on some of the gains from trade in order to maintain political stability in a democracy.
- The globalization paradox in advanced countries: Globalization can disrupt domestic policy making and cause problems like unemployment increase and environmental protection problems.
- Responding to the globalization paradox: The solutions to the disruption caused by globalization: Ignoring the problem, Harmonizing rules, and Restrictions of the scope of globalization.
Trade, Money, and Finance for Interdependent Countries
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Trade, money, and finance: international arrangements, cyclical changes in the way trade, money, and finance are arranged between countries
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Trade • Multilateral and bilateral trade arrangements • Deep integration (MNEs, global value chains) • Regional preferences, fading multilateralism and unilateral protectionist policies • Informal international monetary arrangements using precious metals
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Money • Paper money (fiat money) and convertible • Fixed versus flexible exchange rates • Evolution of international monetary regimes (Gold Standard, Bretton Woods)
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Finance • Intertemporal promise, which is dependent on time • Bonds and Equities • Derivates • Crises (2008, 1995 Mexico, etc)
The Balance of Payments Identity
- Balance of payments (BoP) identity: The sum of a country's current account (CA), financial/capital account (F), and official reserve flows must equal zero.
- Current account: Imports and exports of goods and services, factor payments (income from outside workers), and net transfers to other countries (e.g., debt repayments, gifts, remittances).
- Financial account: Measures the flow of capital and financial assets between countries
- Official reserves increase or decrease when a country is a net debtor or net creditor abroad
A Longer Run Intertemporal Perspective
- The BoP constraint: Satisfying the intertemporal budget constraint requires a balanced current account.
- The debtor-creditor relationship: There is a fundamental symmetry between debtor and creditor countries.
- How long a country can borrow: A country's ability to borrow from another is ultimately limited by its ability to repay the debt.
The Globalisation Paradox in Advanced Countries
- Legitimacy and efficacy all require an effective regulatory state • Regulations (ex. Financial regulations, product safety rules) • Tax regime (ex. income and capital taxes) • Institutional practices (ex. employer—employee bargaining)
- The disruption of policy making
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Description
Test your knowledge on the key features of hyper-globalization, the challenges it poses to institutional support, and the characteristics that define public and common goods. This quiz also covers the functions of money and the components of the Balance of Payments identity.
