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38 Cards in this Set

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International Monetary Regimes (IMR)
Informal or formal arrangements among governments to govern relations among currencies, which is shared by most countries in the world economy.
What are the two principles of International Monetary Regimes (IMR)
1) What type of exchange rates a country has such as fixed or floating
2) Agreements about a mutually accepted standard or common base.
What are the 3 types of currency standards?
1) Commodity Standard- tying currency with a value.

2) Paper Backed Commodity Standard- issue currency with a fixed value

3) National Paper Commodity Standard- backed by commitments of government
Describe the currency collapse in Europe.
1991 German rises interest rates quickly and steeply to prevent prices from rising after unification of eastern and western parts of Europe. This raised other countries interest rates, resulting in a recession.
What was the Washington Consensus?
In 1980's-1990's economist of developed country created guidelines on a transformation towards a general acceptance of market oriented policies.
1) Trade Liberalization
2) Privatization of government enterprises
3) Openness- to foreign investment and international capital for
4) Fiscal and Monetary Policies
What is Concessional Finance
When rich countries lend/give poor countries money at below market interest rates. More like foreign aid than finance. Think of World Bank
Chapter 7
What is the Difference between Recession and Depression?
Recession: A sharp slowdown in the rate of economic growth and activity

Depression: Severe downturn in business cycle, associated with major decline in economic activity, productivity, investment, and high unemployment rate.
What are Multinational Corporations (MNC)?
Multinational Corporations are enterprises which originate from one country and operates service facilities outside of its country of origin.

ex: Volkwagen factory in Brazil
What is Bank for International Settlements (BIS)?
One of the oldest institutions created in 1930's. created to regulate debtor-creditor relations
What is the International Monetary Fund (IMF)?
A major institution established in 1944 to manage international monetary relations and has gradually reoriented itself to focus on the international financial system.

What they do includes facilitate international agreements, provide financial and economic standards, verify debtors compliance.

Opponents say that IMF acts more as creditor nations, and sees it more as a debt collector.
What are Bilateral Investment Treaties (BIT)?
Agreements between two countries about condition for private investment across borders, most include provisions to protect investment from government discrimination or expropriation without compensation.
What is Import-Substitution Industrialization?
After WWII and the decolonization of man countries, the ISI were policies that reduced imports and encouraged domestic manufacturing. Encouraged tariffs, subsidies, and state ownership of industries.

Cost of ISI: small, poor market, low quality products, few export to world markets, hurt many farmers.
What is Export Oriented Industrialization (EOI)?
It was the next major trend following ISI, where country focused on manufacturing exports. Included weak currency, tax incentives for exporters, and cheap loans.
What are the differences between Jefferey Sachs and Bill Easterly arguments on foreign aid?
Sachs:
a) Not enough money
b) Moral Responsibility
c) International Institutions
d) Millennium Development Goals

Easterly:
a) Bad spending decision
b) Market based solutions
c) NGOs and venture capital
d) How much does it cost to build a road?
What are the 4 Major Criticism of the International Monetary Fund according to Rogoff?
1) Impose harsh conditions on countries going to tough times.

2) Moral Hazard

3) Economy often gets worse under the IMF

4) Opening economies to foreign capital can increase volatility.
What are some conditions which the IMF requires?
a) Make free market "reforms" to limit demand

b) Require privitization

c) Deregulation

d) Cuts to social welfare programs
What is the Ricardian Theory (Comparative Advantage in Technology)?
A country has a comparative advantage at producing a good than another country because its opportunity costs are lower compared to that other country.

From this theory we learn that specialization benefits both countries, and that countries should produce goods which they have a comparative advantage.
What are the four aspects of a Currency Crisis?
1) Pressure to devalue a currency

2) Doubts about the future

3) Self-fulfilling prophecy

4) Contagion effects.
What are the cost and benefits for Less Developed Countries on Foreign Direct Investments?
• Benefits:
o Capital
o Skilled workforce
o Infrastructure : building roads, etc.
• Costs:
o Low taxes
o Insensitivity to local norm
o Dominance of domestic markets
What is the difference between Protectionism and Trade Barriers?
Protectionism: The imposition of barriers to restrict imports

Trade Barriers- Government limitation on the international exchange of goods.
How do you overcome problems of strategic interactions?
1) Small Numbers- easier to facilitate

2) Repeated Interactions- less likely to cheat, and cements alliances

3) Information- Making information transparent

4) Linking - tying one thing to another.

5) Institutions
What are the Roles of Institution?
1) Set Standards of Behavior

2) Facilitate Cooperation

3) Monitor and Enforce Compliance

4) Mitigate Problems

5) Reduce Cost of Joint-Decision Making

6) Resolve Disputes
What is Reciprocity?
In international trade relations, a mutual agreement to lower tariffs and other barriers to trade. Reciprocity involves an implicit or explicit arrangement for one government to exchange trance policy concessions with another.
What is the Balance of Power Theory? What are the 3 Limitations?
Balance of power refers to a situation which 2 states have military capabilities equal to each other, and can counter threat to their security.

3 Limitation

1) Not all alliances are intended to balance a stronger state.

2) Many potential partners to balance a stronger state.

3)Not all strong powers provoke a balancing response.
What are the four factors of Alliances?
1) Limit the Risk Entrapment

2) Strength of common interest.

3) Ability to alter members preference, fight where its preferable over abandonment

4) Convincing the adversary the effectiveness of alliances.
What are Collective Security Organizations?
They are institutions which facilitate cooperation, such as the UN. Common interest include preventing war and aggression, forbid military force, provide mechanisms such as mediators and arbitrators.
What are 3 methods Collective Security Organizations use to foster Peaceful Outcomes?
1) Outside involvement, make war less attractive.

2) Promise to enforce an unbelievable commitments

3) Serve a neutral observers and peacekeepers.
What is the difference between Peacekeeping and Peace Enforcement?
Peace Keeping Operations--- Occurs at conclusion of a war, where countries invite peacekeepers making sure war does not restart.

Peace Enforcement---
Make peace among warring parties that have not yet agreed to end fighting.
What is Democratic Peace?
It is the observation that mature democratic countries had few if any cases of warfare.

No real explanations but there are reasons and beliefs such as common interest, incentives for keeping peace, no wars during that period, reduced opportunities for conflict.

2 Caveats/Warnings
a) Democracies have broken down and waged war. Ex. Hitler

b) The interest to be represented by democracy.
What are 3 things States fight over?
1) Regime Types

2) Policies

3) Land/Territory

a. Valuable Resources

b. Historical, Cultural, & Ethnic Reasons

c. Military Value
What is Bargaining? What are the Types of Bargaining?
Bargaining- Class of interactions to resolve disputes over allocation of goods

1) Coercive Bargaining-- Using force when an agreement is not reached

a. Crisis Bargaining- Using threats with force when demands are not met.

Coercive Diplomacy- Use threats to influence the outcome of bargaining
What is Resolve? 2 Types
Resolve is the cost a country is willing to bear for fighting.

1) Total- mobilize entire military and economic power

2) Limited War- Fight with less than full potential
What is Risk-Return Tradeoff?
The Tradeoff between trying to get a good deal and minimize outbreak of war.
What are 3 Commitment Problems?
1) Bargaining over goods that are a source of future bargaining power

2) Prevention: War is response to change in power

3)Preemption- War in response to first strike advantage.
What are 4 Methods to Diffuse Warfare?
1) Divide an indivisible good.

2) Raise the cost of war.

3) Assistance or 3rd Party Intervention

4) Increase Transparency
When can actors cooperate?
1) Small Numbers and Relative Size

2) Iteration- Repeated Interactions

3) Linkage

4) Information
What are 3 Methods of Exercising Power?
1) Coercion- threat or imposition of cost on others

2) Outside Options- Alternatives to bargaining

3) Agenda Setting Power- first mover advantage
What are the Roles of Institutions?
1) Set Standards of Behavior

2) Verify Compliance

3) Reduce Cost of Joint Decision-Making

4) Resolving Disputes