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20 Cards in this Set

  • Front
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- The ability to exchange money for gold or other
currencies.
- Governments which did not have large reserves of
hard currency foreign reserves ($US) tended to
restrict currency convertibility. Loss of foreign
exchange reserves could lead to a balance-ofpayments
crisis.
- Under the EEC, currencies were made convertible
for current accounts (foreign trade in goods and
services, including the remittance of earnings).
- Consequent increase in intra-European trade and
U.S. FDI in Europe
Currency Convertibility
Signing the treaty of Rome
1957
– U.S. FDI expanded 10
percent/year, faster than the growth of
the U.S. economy
1958-1969 (U.S. FDI)
U.S. MNCs produced $140
billion worth of goods, more than any national economy except the United States and the Soviet Union
1969 (U.S. FDI)
Gross World Product – grew 5 percent annually,
1945-1968 (U.S. FDI)
Kennedy Round, Geneva, 1964-1967. 66 nations involved in this round, each round further reduced trade barriers
GATT to WTO
It is possible to view trade
liberalization under GATT as:

- Driver of worldwide economic expansion
- Spreading benefits worldwide

Not about establishing free
trade, but regulating international trade based on negotiated rules that mainly benefited developed nations

Expansion of trade was an effect, not a cause, of
economic growth and expanding employment
GATT
Neil Armstrong, Apollo II moonwalk,
1969
Big investments in raw materials made in late 1940s - early 1950s; infrastructure financed by international institutions, not private capital

- Negative effects of FDI in developing countries:
* Declining “Terms of Trade”
* MNC “transfer pricing”

Barriers to Investment in Third World:
- Nationalism/Political Instability
- Import-Substitution Industrialization (ISI)
- Capital Controls
Shift in FDI away from developing nations
(Third World) to developed nations:
U.S.: borrowed and printed money to finance the
Vietnam War during 1960s; mounting inflation
(also a result of rising wages and government
social spending)

“Dollar Glut” in world economy -> overvalued
dollar -> gold crisis of 1968; central banks made
a run on U.S. gold

Business and financial interests moved in
opposition to Vietnam War; undermined presidency of LBJ

1971 – President Richard Nixon imposed 10%
import surcharge and terminated the Bretton
Woods monetary arrangements; currencies allowed to “float”
Removal of capital controls by developed nations
End of the Long Boom and Bretton Woods System
1973 OPEC oil embargo – stopped oil shipments to United States as
punishment of U.S. support for Israel in Yom Kippur War

OPEC nations wrested control over international pricing of oil

Embargo pushed price of crude oil from $3/barrel to $13/barrel in 1974
First Oil Shock
Foreign competition from Japan, Germany, and “NICs” (Newly Industrializing Countries) in heavy industries such as steel and autos, and beginning of competition in electronics and advanced technologies

Early 1970s – world economy moves from growth to
stagnation; the “long downturn”

World GDP growth rate (U.S. dollars at current exchange rates) fell steadily:
1950-1973 – 5%
1973-2002 – 2.7%
Growth to Stagnation
In effect, oil shock resulted in a large transfer of money from U.S. consumers to oil states, oil companies, international banks, and U.S. arms
merchants
Recycling of Petrodollars
1979 – Iranian Revolution – second shock; crude oil soared to $40/barrel

- Soaring oil prices
- high inflation
- election of Ronald Reagan over incumbent Jimmy Carter as U.S. president
Second Oil Shock
- Cutting taxes and social spending
- Deregulation
Reaganomics
Shift from monetary to fiscal
policy to stimulate eonomies; growth of international financial
markets made deficit financing easier for nations not in serious debt
"Volcker Shock”
- Third World debt crisis and structual adjustment
- Neo-liberal reform opened highly regulated economies
New Era of Globalization, 1980-present
Process 1
- Called for reduced trade
barriers
- Greater openness to foreign
investment
- Elimination of capital controls,
- Privatization, lower taxes, reduced government
regulation
Structual Adjustment
Oil price collapse, 1985-1986 (Third Oil Shock), undermined Soviet economy,
increasingly dependent on oil exports to pay for imported goods

- 1989: End of the Cold War
- Elimination of alternative development models
New Era of Globalization, 1980-present
Process 2
Collapse of communism eliminated alternative
development model and alternative aid source for
Third World nations

China accelerated market-oriented policies begun in
1978

Margaret Thatcher – “There is no alternative” (TINA)
to Western capitalist model
Francis Fukuyama – “The End of History” (neoconservative
celebration of liberal market triumph,
1990)

Howard Beale – “I have seen the face of God”
New Era of Globalization, 1980-present
Process 2 cont., or “We’re all capitalists
now”