International Political Economy Final Exam with correct answers 2024
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Course
International Political Economy Fin
Institution
International Political Economy Fin
Balance of Payments (BOP) correct answers Definition: a summary record of a nation's international economic transactions.
Primary goal: to achieve a BOP surplus. The hegemon (US/UK) usually runs a BOP deficit.
Current Account: all transactions related to a nation's expenditures/income.
- Mer...
Balance of Payments (BOP) correct answers Definition: a summary record of a nation's
international economic transactions.
Primary goal: to achieve a BOP surplus. The hegemon (US/UK) usually runs a BOP
deficit.
Current Account: all transactions related to a nation's expenditures/income.
- Merchandise imports/exports
- Service imports/exports
- Investment income: interest and dividends earned on investment
- Remittances: income that migrant workers or foreign companies send out of the
country
- Official transactions: military and foreign aid; salaries and pensions paid to
government employees abroad
Capital Account: all movements of financial capital in/out of a country.
Forms of Government Intervention: Monetary Policy correct answers Changes in the
money supply
Primary goal: to remedy BOP disequilibrium by controlling spending
Method: central bank controls access to money.
- print more/less money
- raise/lower tariffs
- require banks to increase/decrease reserves
- buy/sell government bonds
Forms of Government Intervention: Fiscal Policy correct answers Changes in taxes and
government spending
Primary goal: to remedy BOP disequilibrium by controlling spending
Method: government controls the money supply
- Raise/lower taxes to reduce/increase consumer spending
- increase/decrease government spending on programs
Forms of Government Intervention: Commercial/Trade Policy correct answers Changes
in trade flows.
Primary goal: to remedy BOP disequilibrium by regulating trade flows.
Government controls imports and exports
, - raise/lower tariffs and non-tariff barriers
- tax incentives/disincentives to attract/repel foreign investment
- currency devaluation/revaluation
Remedying a BOP Deficit
1. Finance the disequilibrium correct answers Borrow from external credit sources
(IMF, regional or private banks)
Decrease foreign exchange reserves (sell off gold)
Problem: increased debt --> difficulty in luring foreign investment/capital inflows
Remedying a BOP Deficit
2. Adjustment Measures correct answers Monetary Policy: limit public access to funds
- print less money
- raise interest rates
- sell government bonds
Fiscal Policy: cut public's purchasing power
- raise taxes
- reduce government spending
Problem: slows business activity, increases unemployment and cuts social programs
Commercial Policy: expand exports and cut imports (Mercantilism)
- raise tariffs
- currency devaluation
- tax incentives
Problem: triggers retaliation from other countries
International Monetary Fund (IMF)
Purpose correct answers An organization of 188 countries to promote international
economic cooperation, international trade, employment, and exchange rate stability
Conditionality principle: members agree to adopt strict economic reforms in return for
IMF funding
International Monetary Fund (IMF)
Articles of Agreement correct answers 1. Members required to contribute to a pool of
reserve currencies made available for loans
2. Size contribution: members assigned quotas based on economic influence.
Total quotas (August 2008): $341 billion
US quota: $58.2 billion
Members' economies reviewed every 5 years
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