Political Science 2211E Study Guide - Rational Expectations, Public Choice, Economic Equilibrium
21 Feb 2013
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Embedded liberalism originated from keynesian concepts, in particular in its neoclassical form. The changing international context: bretton woods and other unsustainable structures. If us ceased to run a deficit the world"s money supply would contract and cause deflation. Exchange rate was the dollar-gold standard sustainable so long as no country actually tried to change dollars for gold. Permanent deficit = increased world supply of dollars. When supply goes up, price comes down, creating discrepancy between par and market value of the dollar (creating many unintended problems) Euromarkets came into existence after the deposit of russian oil money in london (1958) Surplus dollars flowed into euromarkets where they were lent without regard for iet and other regulations. Booming markets enabled private finance to use these funds for capital mobility investment in foreign sovereignty thus speculation against the dollar worsened. Uncertainty was further generated through the inflationary effects brought by the vietnam.
