Untitled Deck

Question 1

What is the principle of absolute advantage?

Answer 1

The ability of a country or firm to produce more of a particular good or service than other countries or firms can produce with the same amount of effort and resources

A country has an absolute advantage if it can produce a good more efficiently than any other country can.

Question 2

Explain the principle of comparative advantage.

Answer 2

The ability of the country or firm to produce a particular good or service more efficiently than it can produce other goods or services

A country might not be the most efficient in the world at producing coffee, but it still has a comparative advantage in coffee if it can produce coffee more efficiently than it can make steel, airplanes, or any other good.

Question 3

What are opportunity costs?

Answer 3

The value that a country refuses in order to make one product rather than another

It helps to understand why countries choose certain products to produce.

Question 4

What does the Heckscher-Ohlin theory predict about trade?

Answer 4

A country will export goods that make intensive use of the factors of production in which it is well endowed

For example, a labor-rich country will export goods that make intensive use of labor while a labor-poor country will export goods that make intensive use of capital.

Question 5

What kind of trade restrictions do we have?

Answer 5

• Tariff
• Quota
• Nontariff barriers to trade

Tariffs raise the domestic price of the imported good and may be applied for the purpose of protecting domestic producers from foreign competition.

Question 6

What are the two alternative approaches to explaining trade preference formation?

Answer 6

• Stolper Samuelson theorem (factor)
• Ricardo-Viner model (sector)

Stolper Samuelson theorem states that trade protection benefits the scarce factor of production, while Ricardo-Viner model emphasizes the sector in which factors of production are employed.

Question 7

How does the factor model explain trade preference?

Answer 7

It benefits the factor of production that is in lack

Owners of capital prefer protection and labor will be hurt by it in the labor-rich country.

Question 8

How does the sector model explain trade preference?

Answer 8

• Import-competing industries: capital and workers want protectionism
• Export-competing industries: workers and owners want trade liberalization

Example: Steel production vs. aircraft manufacturing.

Question 9

How do domestic institutions influence trade policies?

Answer 9

• Regime type => democracies believe policy is compromise between competing interests. Autocracies: policy is set by ruling elite.
• Electoral rules => majoritarian favors protectionism since politicians depend on key industries in their LOCAL districts. Proportional representation favors liberalization since parties appeal to NATIONAL interests
• Partisan influences => fractionalization & left-right division.
  Left for protectionism as they defend jobs but right are for exporters and businesses so they support trade liberalization.

Democracies create a battlefield for interests; autocracies enact policy for the elite.

Question 10

What is the WTO?

Answer 10

An institution created in 1995 which succeeded the GATT and governs international trade relations

The WTO encourages and polices the multilateral reduction of barriers to trade and oversees the resolution of trade disputes.

Question 11

What is the GATT?

Answer 11

An international institution created in 1947 to reduce barriers to trade and provide similar trading conditions to all members

The GATT was replaced by the WTO in 1995.

Question 12

What is most favored nation status?

Answer 12

A status guaranteeing that signatories will extend any favorable trading terms offered in agreements with third parties to each other

Under an MFN clause, you can’t give a better deal to one trading partner without giving it to all others who have MFN status.

Question 13

What are regional trade agreements?

Answer 13

Agreements among three or more countries in a region to reduce barriers to trade among themselves

These agreements facilitate trade and economic integration.

Question 14

What kind of investments do we have?

Answer 14

• Portfolio investment
• Foreign direct investment (FDI)

Portfolio investment involves claims on income without management control, while FDI involves capital moving across borders with management control.

Question 15

What is the difference between portfolio and foreign direct investments?

Answer 15

• Portfolio investment: no say in management
• FDI: management control present

FDI often leads to political tensions, especially when MNCs are perceived to exploit local resources.

Question 16

What is sovereign lending?

Answer 16

Loans from private financial institutions to sovereign governments

Sovereign lending can involve loans from international financial institutions like the IMF or World Bank.

Question 17

What is the problem with foreign investment?

Answer 17

Risk of losing control over capital and mixed results in relationships

Lenders want debt repaid fully, while borrowers want to pay less.

Question 18

What role do international organizations perform in resolving information asymmetry problems in finance?

Answer 18

• Monitor compliance (BIS)
• Manage international monetary system (IMF)
• Provide information and certify (WB)

These organizations help ensure transparency and stability in financial systems.

Question 19

What are the key interests and conflicts between foreign direct investors and host states?

Answer 19

• Interests: access to local markets, cheaper transport costs
• Conflicts: inequality, reduced funding for local needs

MNCs may create jobs but can also lead to economic crises when they leave.

Question 20

What is the international investment regime?

Answer 20

The system of rules and principles that governs and protects Foreign Direct Investment (FDI) across borders

It is built primarily on bilateral investment treaties signed between pairs of countries.

Question 21

What are bilateral investment treaties?

Answer 21

Agreements between two countries that set the terms for private investment across borders

They regulate expropriation and ensure fair treatment of foreign investors.

Question 22

What are the economic effects of international migration?

Answer 22

Allows labor to move from surplus to shortage countries, leading to greater global economic integration

Example: Immigrants from Mexico fill labor shortages in the U.S.

Question 23

What is the purpose of the international monetary system?

Answer 23

To facilitate exchanges among countries and maintain global economic stability

It provides rules and structures for managing international trade, capital flows, and exchange rates.

Question 24

What are the types of international monetary standards?

Answer 24

• Commodity standard
• Commodity-backed paper standard - currencies are backed by commodities but exist in paper form (like gold certificates)
• Fiat currency

These standards determine how currencies are valued and exchanged.

Question 25

What is the **balance of payments**?

Answer 25

An accounting system that tracks a country’s economic transactions with the rest of the world ## Footnote It includes current and capital accounts.

Question 26

What are **exchange rates**?

Answer 26

The price at which one currency is exchanged for another ## Footnote Exchange rates fluctuate based on supply and demand.

Question 27

When does a currency **appreciate** and when does it **depreciate**?

Answer 27

* Appreciate: increases in value relative to other currencies * Depreciate: decreases in value relative to other currencies ## Footnote Example: When the U.S. dollar goes up compared to other currencies, it appreciates.

Question 28

How are **currencies' values** determined?

Answer 28

By supply and demand, influenced by interest rates and investment flows ## Footnote These factors play a crucial role in the foreign exchange market.

Question 29

What does it mean for a currency to **appreciate**?

Answer 29

To increase in value relative to other currencies ## Footnote Occurs when the U.S. dollar goes up compared to other currencies, allowing more purchasing power.

Question 30

What does it mean for a currency to **depreciate**?

Answer 30

To decrease in value relative to other currencies ## Footnote Happens when the U.S. dollar goes down compared to other currencies, resulting in less purchasing power.

Question 31

How is a currency's value **determined**?

Answer 31

* Supply and demand * Interest rates * Investment flows ## Footnote These factors influence how much people are willing to buy or sell a currency.

Question 32

What happens to currency demand when **interest rates** are higher?

Answer 32

Demand rises, leading to currency appreciation ## Footnote Higher domestic interest rates attract foreign investors seeking better returns.

Question 33

What is **monetary policy**?

Answer 33

An important tool of national governments to influence macroeconomic conditions ## Footnote It involves changing national interest rates and the quantity of money in circulation.

Question 34

What is the role of **central banks** in monetary policy?

Answer 34

* Raise or lower interest rates * Stimulate or restrain the economy ## Footnote Central banks adjust interest rates to manage economic growth and inflation.

Question 35

What is the difference between **fixed** and **floating exchange rates**?

Answer 35

* Fixed: government commits to a specific value * Floating: currency traded on the open market without direct control ## Footnote Floating rates allow for more monetary policy freedom.

Question 36

What is an **international monetary regime**?

Answer 36

A formal or informal arrangement governing currency relations among countries ## Footnote Examples include fixed-exchange rate systems and floating exchange rates.

Question 37

What are the core features of the **Gold Standard**?

Answer 37

* Currency tied to gold * Legally fixed price * Flexible wages and prices ## Footnote It allowed countries to maintain currency stability without pressure from other objectives.

Question 38

What are the core features of the **Bretton Woods System**?

Answer 38

* Fixed but adjustable exchange rates * Capital controls ## Footnote It was based on a U.S. dollar tied to gold, allowing other currencies to adjust.

Question 39

What are the core features of the **post-Bretton Woods System**?

Answer 39

* Floating exchange rates * Capital mobility * Central banks manage more ## Footnote The IMF's role evolved to include a credit mechanism with a pool of currencies.

Question 40

What is a **currency crisis**?

Answer 40

Occurs when government exchange-rate commitments are not credible ## Footnote Investors may convert currency into more reliable foreign currency, leading to devaluation.

Question 41

What are the three explanations for the **variance in the level of development** among nations?

Answer 41

* Geographic location * Domestic factors * International factors ## Footnote These factors shape economic possibilities and governance choices.

Question 42

What are the **domestic factors** that explain underdevelopment?

Answer 42

* Quality of institutions * Government policies * Political stability ## Footnote Weak institutions and unaccountable governance hinder investment and growth.

Question 43

What international factor explains the variation in developmental outcomes among nations?

Answer 43

* Colonialism * Terms of trade * Price volatility ## Footnote Former colonies often face disadvantages in the global economy.

Question 44

What are the **unintended consequences** of advanced economies' agricultural policies?

Answer 44

* Depressed world prices * Blocking market access * Encouraging dependence ## Footnote Subsidies in rich countries harm developing nations' agricultural sectors.

Question 45

What are the **constitutive features** of import-substitution industrialization?

Answer 45

* Reduce imports * Encourage domestic manufacturing * Trade barriers and subsidies ## Footnote Often leads to uncompetitive industries without innovation incentives.

Question 46

What are the **constitutive features** of export-led development?

Answer 46

* Support export production * Subsidies and incentives ## Footnote Successful in East Asian countries from the 1960s to 1980s.

Question 47

What is **foreign aid**?

Answer 47

Assistance given by one country or IO to another ## Footnote Aimed at supporting economic development, humanitarian needs, or political stability.

Question 48

What are the **sources of international law**?

Answer 48

* Conventions/Treaties * International customs * General principles of law * Legal scholarship ## Footnote These sources shape the obligations and standards of international relations.

Question 49

How is **international law enforced**?

Answer 49

Through sanctions and cooperation of states ## Footnote International courts can hear disputes, but enforcement relies on state compliance.

Question 50

What is the **International Court of Justice**?

Answer 50

Principal judicial organ of the UN ## Footnote It settles disputes between states and provides advisory opinions.

Question 51

What does the **law of diplomacy** stipulate?

Answer 51

Rules and protections for diplomatic relations ## Footnote Governed by the Vienna Convention on Diplomatic Relations.

Question 52

What do the **Geneva Conventions** regulate?

Answer 52

Laws of war focusing on protection during armed conflicts ## Footnote They ensure respect for human rights and protection of non-combatants.

Question 53

What are **crimes against humanity**?

Answer 53

Acts committed as part of a systematic attack against civilians ## Footnote Includes murder, torture, and persecution based on identifiable group characteristics.

Question 54

What is the **International Criminal Court**?

Answer 54

A permanent tribunal prosecuting serious international crimes ## Footnote Independent of the UN but can cooperate with it.

Question 55

What is the difference between **international law** and **norms**?

Answer 55

* Norms are standards of behavior * International law is binding ## Footnote Norms can conflict with laws and change over time based on societal consensus.

Question 56

What is the **responsibility to protect**?

Answer 56

The international community's duty to protect at-risk populations ## Footnote May involve military means if necessary to prevent crimes against humanity.

Question 57

What are **transnational advocacy groups**?

Answer 57

Individuals and NGOs pursuing normative objectives ## Footnote They promote values like human rights and social justice rather than seeking political power.

Question 58

Explain the **boomerang model**.

Answer 58

NGOs activate transnational linkages to pressure their governments ## Footnote It involves a three-stage model of norm diffusion.

Question 59

What are **norms entrepreneurs** responsible for?

Answer 59

Convincing a critical mass of individuals in other states to embrace their beliefs ## Footnote They play a key role in establishing new norms within the international community.

Question 60

What occurs during a **norms cascade**?

Answer 60

The number of adherents to the norm passes a tipping point, gaining sufficient support to become a nearly universal standard of behavior ## Footnote Conformity can occur through coercion or socialization.

Question 61

What does it mean for norms to be **internalized**?

Answer 61

They become widely accepted, acquiring a taken-for-granted quality that makes conforming to them almost automatic ## Footnote This reflects a deep integration of norms into societal behavior.

Question 62

Define **human rights**.

Answer 62

Universal rights of human beings that you possess by virtue of being a human ## Footnote These rights are inherent and not granted by any authority.

Question 63

What is the **Universal Declaration of Human Rights**?

Answer 63

A declaration adopted by the UN General Assembly in 1948, serving as a common standard of achievement for all peoples ## Footnote It forms the foundation of modern human rights law.

Question 64

What constitutes the **International Bill of Rights**?

Answer 64

* Universal Declaration of Human Rights * International Covenant on Civil and Political Rights * International Covenant on Economic, Social, and Cultural Rights ## Footnote These three agreements form the core of the international human rights regime.

Question 65

What are **civil and political rights**?

Answer 65

* Rights of life, liberty, and freedom of movement * Equal standing before the law * Legal recourse when rights are violated * Privacy * Freedom to choose whom to marry ## Footnote These rights are affirmed by the ICCPR.

Question 66

What are **economic and social rights**?

Answer 66

* Right to earn wages sufficient for a minimum standard of living * Right to form unions * Equal pay and opportunity for advancement * Paid maternity leave * Free primary education ## Footnote These rights are codified in the ICESCR.

Question 67

What is a controversy regarding **international human rights law**?

Answer 67

* Lack of internalization by all nations * Perception of reflecting Western values * Cold War divisions in focus on rights ## Footnote These issues lead to uneven compliance and differing interpretations of human rights.

Question 68

Who are **prisoners of conscience**?

Answer 68

Individuals imprisoned solely for the peaceful expression of their beliefs ## Footnote The term was coined by Amnesty International.

Question 69

Define **non-derogable rights**.

Answer 69

Rights that cannot be suspended for any reason, including in cases of social or public emergency ## Footnote Examples include freedom from torture and the right to be recognized as a person before the law.

Question 70

What is the **International Criminal Court** (ICC)?

Answer 70

A permanent international tribunal that prosecutes individuals for serious crimes under international law ## Footnote Crimes include genocide, crimes against humanity, war crimes, and aggression.

Question 71

What does the **European Court of Human Rights** allow?

Answer 71

Individuals can bring cases against countries alleged to have violated the European Convention on Human Rights ## Footnote This includes filing complaints if domestic courts fail to protect rights.

Question 72

Why do states promote and sign **human rights treaties**?

Answer 72

* Domestic pressure from citizens * Geopolitical interests * International legitimacy and reputation ## Footnote These factors influence states' actions and policies regarding human rights.

Question 73

What are **positive externalities**?

Answer 73

Actions that benefit others in society beyond the decision maker ## Footnote They represent unintended benefits resulting from an actor's decision.

Question 74

What are **negative externalities**?

Answer 74

Actions that hurt others in society beyond the decision maker ## Footnote They represent unintended costs resulting from an actor's decision.

Question 75

Define **public goods**.

Answer 75

Products that are nonexcludable and nonrival in consumption ## Footnote Examples include national defense and clean air.

Question 76

What are **common pool resources**?

Answer 76

Goods available to everyone, but consumption reduces the amount available for others ## Footnote Examples include fish in oceans and forests.

Question 77

What is the **tragedy of the commons**?

Answer 77

A problem occurring when a resource is open to all without limit, leading to overuse ## Footnote Individuals lack incentive to conserve resources.

Question 78

How can **iteration** help resolve common pool resource issues?

Answer 78

Repeated interactions increase the value of future cooperation and allow punishment of defectors ## Footnote This makes cooperation more stable and rational.

Question 79

What are the international agreements that govern **ozone layer protection**?

Answer 79

* Vienna Convention for the Protection of the Ozone Layer (1985) * Montreal Protocol on Substances that Deplete the Ozone Layer (1987) ## Footnote These agreements aim to protect the ozone layer from harmful substances.

Question 80

What are the international agreements that govern **climate change**?

Answer 80

* UNFCCC (1992) * Paris Agreement (2015) * Kyoto Protocol (1997) ## Footnote These agreements provide frameworks for international cooperation to address climate change.