"The international debt problem of developing nations in the 1980s threatened the stability of the international banking system". Explain how increased oil prices affected the economy at that time.
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Question 1 What factors determine the demand for British pounds in foreign exchange markets? How are exchange rates determined under a flexible exchange rate system?
Question 2 Why can't all the balance of payments accounts be in surplus?
Question 3 How can tariffs protect U.S. jobs? Do tariffs lead to a net increase in jobs? Explain. Who are the winners and losers from trade restrictions? Given that trade restrictions impose losses on an economy, why are trade restrictions so common?
Question 4 Describe developing countries and how they differ from industrial market economies. How can international trade aid development? In what ways does the international economy impose problems on developing countries?
Question 5 How can two countries both be better off as a result of trade?
In the 1970s, the Organization of Petroleum-Exporting Countries (OPEC) became a powerful economic force and whenever OPEC oil ministers met to decide to raise oil prices, the U.S. stock market tumbled and gas lines began to form at gas stations in the USA. Presidents Richard Nixon, Gerald Ford, and Jimmy Carter all declared that in order to counter OPEC, the USA needed to become "self-sufficient" in oil and other fuel products. Under Carter, the government began a synthetic fuels program (called SynFuels) that sought to derive crude oil from coal and tar sands as a replacement to importing oil from OPEC nations. The SynFuels program, however, was discontinued during the Ronald Reagan presidency, as world oil prices fell and the cost of creating crude oil from coal and tar sands would be substantially higher than what oil extraction cost in the USA and whatever it cost to purchase it from OPEC. In 1990, Iraq, and OPEC nation, invaded neighboring Kuwait, also an OPEC member. Shortly thereafter, the USA led a military buildup that ultimately broke into the Gulf War of 1991. When the buildup began, a columnist for the Atlanta Constitution wrote that had Ronald Reagan not dismantled Carter's proposed "energy independence" programs, that the USA would be self-sufficient in fuels and would not have its economy threatened by OPEC or Middle East turmoil. Thus, he argued, there would have been "no need" for a military option to Iraq's invasion of Kuwait.
Economically speaking, was the columnist correct? Would a policy of "energy self-sufficiency" have saved the USA from oil price spikes and other oil-related dislocations? Why or why not?
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2. Throughout the 1990s, the amount of foreign direct investment directed at both developed and developing nations increased dramatically. This trend reflects:
