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Exam Test Bank Answers - 2009 (This was given to us by the professor before the test)

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ECN 220
Michael Jolly

P a g e 1 Evolution of the Global Economy Exam Short Answer Questions 1. Briefly indicate the two institutions established as a result of the Bretton Woods Agreement and indicate the major problems with which each of these institutions were originally intended to deal. a. The Bretton Woods Agreement was finalized at a conference in Bretton Woods, New Hampshire in 1944. The two institutions that were created as a result of this agreement were the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD or the World Bank). The General Agreement on Tariffs and Trade (GATT) is sometimes also included as it embodies the planners of the Bretton Woods Agreement goal of reducing trade barriers. The two other goals that hoped to be achieved by these institutions were to help stabilize exchange rates and to assist nations that are unable to pay their international debts (the IMF), and to provide relief to war-torn nations and assist with reconstruction (IBRD). b. @Z,[Z original goal, which has not changed, was to provide loans to its members under different programs for short term assistance. The most visible role is that of a last-resort creditor to countries who experience crises with their international payments. 2. Describe the original mission of the World Bank and indicate its current major role. a. @ZJ}o Ll[Z}]2]Lo2}oZ}}]ZZ]ZL } }L]Z]LZ reconstruction of war-torn areas hence the name IRBD. However today the IRBD makes up one of the five organizations under the World Bank with its original role slightly changed to provide funds for specific development projects like bridges and schools. 3. Briefly describe the main differences between the W.T.O. and its predecessor, the G.A.T.T. a. The General Agreement on Tariffs and Trade (GATT) was originally just an agreement formed in 1946 that hoped to be implemented into an International Trade Organization (ITO), but when that failed the agreement remained intact as a stand-alone pact. Several trade rounds took place after that time and the GATT evolved to include several other trade rules eventually culminating in the formation of the World Trade Organization (WTO) in 1995 that became a fully fledged international organization. b. The main differences between the GATT and the WTO are that while the GATT focused narrowly on manufactured goods, the WTO is much more comprehensive, looking to new issues beyond the scope of the GATT in the new round of negotiations called the Doha Development Agenda. 4. What were the three principal objectives of the IMF when it was first established? a. The original principal objectives of the IMF were to provide loans of foreign currency to member countries experiencing crises in its international debt obligations, under the terms of these loans it applies strict conditions that must be met in order for access to P a g e 2 the foreign capital and finally it also policed the system of fixed exchange rates until 1971. 5. Briefly describe shallow integration and deep integration and give an example of each. a. Shallow integration is the elimination of tariffs (taxes on imports) and quotas (quantitative restrictions on imports) as shallow integration because it occurs at the }L}ZL}LZ }L[Z}KZ] }o] : b. Deep integration is the elimination or reduction of trade barriers caused by non-trade- related domestic policies. In other words, it is domestic policies enacted that do not entirely have to do with trade, for example the European Union. c. Degrees of economic integration can be categorized in six stages: i. Preferential trading area J reduced tariffs, shallow ii. Free trade area J no tariffs, shallow iii. Customs Union J common external tariff, shallow iv. Common market J free movement of factors of prod., shallowdeep v. Economic and monetary union J shared market and currency, deep vi. Complete economic integration J very deep 6. Indicate (with brief explanations) two criticisms directed by the less developed countries (LDCs) at the industrialized countries when they seek to impose common labour standards throughout the world. a. In LDCs, children may be providing the income for the family in many instances so applying children labour laws can push these families deeper into poverty. b. It is only until recently that industrialized countries themselves implemented strict labour laws, so it is unfair to expect LDCs to follow suit so soon. c. United States labour code exempts agriculture from many of its standards, so even in the U.S. there are estimates that as low as 300,000 to as high as 800,000 children work in the agriculture industry. 7. In the context of environmental standards define: a. Trans-boundary J Low environmental standards in one country can degrade the environment in another country or countries. Polluted rivers and acid rain clouds are not limited to national boundaries and travel between countries, impacting them negatively. b. Non-trans-boundary J These are environmental impacts that do not cross borders and such only affect the country in which they are produced. These are impacts like soil degradation and drinking water contamination in larger countries. c. Industrialized countries often have much stricter environmental standards then LDCs and because of this, rich countries are often accused of exporting their pollution by o} ]L2Z]]]LZ]Z]L> Z:@Z]ZoZ} }L]Z}^ }Z}}K_ by countries to become more and more lax with standards in order to attract investment and jobs and in order to stay competitive. 8. Briefly indicate the immediate causes of the Mexican peso crisis of 1994 and 1995. a. Revolts in the Mexican state of Chiapas of farmers as well as the leading presidential candidate being assassinated before an upcoming election caused investors to become
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