International Political Economy UPDATED
ACTUAL Exam Questions and CORRECT
Answers
IPE (International Political Economy) - CORRECT ANSWER - the interdisciplinary
science that examines the dynamic interactions between markets, states and societies, and how
the tensions and conflicts between these arenas both affect and reflect conditions outside the
nation-state and society
State / Nation - CORRECT ANSWER - Nation, state and nation-state are three different
concepts. A nation defines a group of people with a shared sense of cultural identity and
territoriality. A state is a legal concept describing a a social group that occupies a territory and is
organized under common political institutions and an effective government. A nation-state,
synonymous with the term country -- since the 1648 Peace of Westphalia, this has been the
major political (sovereign) unit of the international system.
Peace of Westphalia - CORRECT ANSWER - the nation-state was born out of this 1648
________________diplomatic summit -- emphasized the ideas of sovereignty and self-
determination as basic principles of the state and thus the global system
factor endowments - CORRECT ANSWER - the amount of land, labor, capital, and
entrepreneurship that a country possesses and can exploit for manufacturing -- commonly
referenced as part of the Heckscher-Ohlin model
division of labor - CORRECT ANSWER - The main focus of Adam Smith's The Wealth
of Nations lies in the concept of economic growth. ____________, or specialization is essentially
the breaking down of large jobs into many tiny components. Under this regime each worker
becomes an expert in one isolated area of production, thus increasing his efficiency. Also also
implies assigning each worker to the job that suits him best (different attributes and knowledge)
Specialization - CORRECT ANSWER - essentially the breaking down of large jobs into
many tiny components. Under this regime each worker becomes an expert in one isolated area of
production, thus increasing his efficiency. This saves time and enhances overall gains from
,exchange and trade. Ultimately, this resulted from uneven distribution and attributes but led to
greater abundance of the necessities and conveniences of life (similar to division of labor)
absolute advantage - CORRECT ANSWER - this is the idea that ability of a party (an
individual, or firm, or country) to produce more of a good or service than competitors, using the
same amount of resources (Adam Smith "The tailor does not make his own shoes, but buys them
from the shoemaker")
comparative advantage - CORRECT ANSWER - producer can do both areas efficiently
but specializes anyways b/c not enough resources and can make more money (**Ricardo built
this idea off of Smith's idea of absolute advantage) included in this is the idea of an inherent
opportunity cost
opportunity cost - CORRECT ANSWER - cost of any activity measured in terms of the
value of the best alternative that is not chosen (that is foregone). It is the sacrifice related to the
second best choice available to someone, or group, who has picked among several mutually
exclusive choices
Free market - CORRECT ANSWER - This is the core of Adam Smith's thesis: giving
everyone freedom to produce and exchange goods as they pleased (free trade) and opening all
markets to competition (international as well as domestic). This became known as the invisible
hand
zero-sum game - CORRECT ANSWER - gains by one party equal the losses for the
others. Plays a major role in the realist-mercantilist perspective (not liberal thought)
Positive sum game - CORRECT ANSWER - any interaction between actors that makes all
participants simultaneously better off -- this is the liberalist argument of the benefits of a free
marker
stag hunt - CORRECT ANSWER - basically we must decide whether to act in our own
interest or cooperate to save the group (referring to giving up sovereignty in exchange for the
regulation and benefits of IOs) : Jean Jaques Rousseau's analogy of the five hunters trying to
catch a stag (deer) by cooperating with one another. The analogy forces us to consider whether it
,is rational to cooperate to solve problems with one another, or not to--given that someone else
may choose not to cooperate and ruin things for everyone. The analogy is often applied to
security situations that require cooperation to move forward on a problem like arms control.
trade - CORRECT ANSWER - the commercial exchange (buying and selling on domestic
or international markets) of goods and services
hazards of specialization - CORRECT ANSWER - ...
exports vs imports - CORRECT ANSWER - goods sent to other countries to sell vs goods
sold in our country from other countries
stocks / equities - CORRECT ANSWER - stocks are ownership shares in companies called
equities / equities may be reserved for private ownership (family business) or may be sold to the
public and traded
bonds / securities - CORRECT ANSWER - notes of debt - also commonly called "paper" -
paid out at an established rate of return or interest over a specified period of time (are effectively
tradable loans to governments and private firms)
balance of payments - CORRECT ANSWER - registers an accounting of all of the
international monetary transactions between the residents of one nation and those of other
nations in a given year -- much like a personal check book
statistical discrepancies - CORRECT ANSWER - the idea that in measuring balance of
payment, measures are inexact so we must keep track of the margin of ___________________
foreign debt (govt or private) - CORRECT ANSWER - debt we owe to other countries;
2/3 of debt comes from other countries, people, companies and the rest comes from government
owing itself
, foreign assets - CORRECT ANSWER - Represents the total fixed and current assets
outside the home country
current account - CORRECT ANSWER - that part of the balance of payments recording a
nation's exports and imports of goods and services and transfer payments
capital account - CORRECT ANSWER - Includes all payments related to the purchase and
sale of assets and to borrowing and lending activities. Components include outflow of U.S.
capital and inflow of foreign capital (simply put, international investment)
official reserves - CORRECT ANSWER - The quantities consisting of foreign currencies
that the central banks of nations hold with the IMF, and stocks of gold
macroeconomic policy - CORRECT ANSWER - Utilizes government spending and tax
policy to influence economic growth.
• Government spending is a direct source of demand for specific goods and services.
• Increased govt. spending leads to GDP growth.
• Decreased govt. spending leads to GDP declines.
Tax policy affects how much money people and firms have to spend in the economy.
• Tax increases reduce the amount of money available to spend in the economy by citizens.
fiscal policy - CORRECT ANSWER - all economic activity by the government, a
government policy for dealing with the budget (especially with taxation and borrowing)
taxation / tax cuts - CORRECT ANSWER - designed to equitabley distribute wealth, to
protect new industries, or to uplift social conditions / may result in too few dollars chasing too
few goods and therefore cause inflation
government spending - CORRECT ANSWER - Government expenditures, both chosen
and required for a variety of programs and entitlements.
ACTUAL Exam Questions and CORRECT
Answers
IPE (International Political Economy) - CORRECT ANSWER - the interdisciplinary
science that examines the dynamic interactions between markets, states and societies, and how
the tensions and conflicts between these arenas both affect and reflect conditions outside the
nation-state and society
State / Nation - CORRECT ANSWER - Nation, state and nation-state are three different
concepts. A nation defines a group of people with a shared sense of cultural identity and
territoriality. A state is a legal concept describing a a social group that occupies a territory and is
organized under common political institutions and an effective government. A nation-state,
synonymous with the term country -- since the 1648 Peace of Westphalia, this has been the
major political (sovereign) unit of the international system.
Peace of Westphalia - CORRECT ANSWER - the nation-state was born out of this 1648
________________diplomatic summit -- emphasized the ideas of sovereignty and self-
determination as basic principles of the state and thus the global system
factor endowments - CORRECT ANSWER - the amount of land, labor, capital, and
entrepreneurship that a country possesses and can exploit for manufacturing -- commonly
referenced as part of the Heckscher-Ohlin model
division of labor - CORRECT ANSWER - The main focus of Adam Smith's The Wealth
of Nations lies in the concept of economic growth. ____________, or specialization is essentially
the breaking down of large jobs into many tiny components. Under this regime each worker
becomes an expert in one isolated area of production, thus increasing his efficiency. Also also
implies assigning each worker to the job that suits him best (different attributes and knowledge)
Specialization - CORRECT ANSWER - essentially the breaking down of large jobs into
many tiny components. Under this regime each worker becomes an expert in one isolated area of
production, thus increasing his efficiency. This saves time and enhances overall gains from
,exchange and trade. Ultimately, this resulted from uneven distribution and attributes but led to
greater abundance of the necessities and conveniences of life (similar to division of labor)
absolute advantage - CORRECT ANSWER - this is the idea that ability of a party (an
individual, or firm, or country) to produce more of a good or service than competitors, using the
same amount of resources (Adam Smith "The tailor does not make his own shoes, but buys them
from the shoemaker")
comparative advantage - CORRECT ANSWER - producer can do both areas efficiently
but specializes anyways b/c not enough resources and can make more money (**Ricardo built
this idea off of Smith's idea of absolute advantage) included in this is the idea of an inherent
opportunity cost
opportunity cost - CORRECT ANSWER - cost of any activity measured in terms of the
value of the best alternative that is not chosen (that is foregone). It is the sacrifice related to the
second best choice available to someone, or group, who has picked among several mutually
exclusive choices
Free market - CORRECT ANSWER - This is the core of Adam Smith's thesis: giving
everyone freedom to produce and exchange goods as they pleased (free trade) and opening all
markets to competition (international as well as domestic). This became known as the invisible
hand
zero-sum game - CORRECT ANSWER - gains by one party equal the losses for the
others. Plays a major role in the realist-mercantilist perspective (not liberal thought)
Positive sum game - CORRECT ANSWER - any interaction between actors that makes all
participants simultaneously better off -- this is the liberalist argument of the benefits of a free
marker
stag hunt - CORRECT ANSWER - basically we must decide whether to act in our own
interest or cooperate to save the group (referring to giving up sovereignty in exchange for the
regulation and benefits of IOs) : Jean Jaques Rousseau's analogy of the five hunters trying to
catch a stag (deer) by cooperating with one another. The analogy forces us to consider whether it
,is rational to cooperate to solve problems with one another, or not to--given that someone else
may choose not to cooperate and ruin things for everyone. The analogy is often applied to
security situations that require cooperation to move forward on a problem like arms control.
trade - CORRECT ANSWER - the commercial exchange (buying and selling on domestic
or international markets) of goods and services
hazards of specialization - CORRECT ANSWER - ...
exports vs imports - CORRECT ANSWER - goods sent to other countries to sell vs goods
sold in our country from other countries
stocks / equities - CORRECT ANSWER - stocks are ownership shares in companies called
equities / equities may be reserved for private ownership (family business) or may be sold to the
public and traded
bonds / securities - CORRECT ANSWER - notes of debt - also commonly called "paper" -
paid out at an established rate of return or interest over a specified period of time (are effectively
tradable loans to governments and private firms)
balance of payments - CORRECT ANSWER - registers an accounting of all of the
international monetary transactions between the residents of one nation and those of other
nations in a given year -- much like a personal check book
statistical discrepancies - CORRECT ANSWER - the idea that in measuring balance of
payment, measures are inexact so we must keep track of the margin of ___________________
foreign debt (govt or private) - CORRECT ANSWER - debt we owe to other countries;
2/3 of debt comes from other countries, people, companies and the rest comes from government
owing itself
, foreign assets - CORRECT ANSWER - Represents the total fixed and current assets
outside the home country
current account - CORRECT ANSWER - that part of the balance of payments recording a
nation's exports and imports of goods and services and transfer payments
capital account - CORRECT ANSWER - Includes all payments related to the purchase and
sale of assets and to borrowing and lending activities. Components include outflow of U.S.
capital and inflow of foreign capital (simply put, international investment)
official reserves - CORRECT ANSWER - The quantities consisting of foreign currencies
that the central banks of nations hold with the IMF, and stocks of gold
macroeconomic policy - CORRECT ANSWER - Utilizes government spending and tax
policy to influence economic growth.
• Government spending is a direct source of demand for specific goods and services.
• Increased govt. spending leads to GDP growth.
• Decreased govt. spending leads to GDP declines.
Tax policy affects how much money people and firms have to spend in the economy.
• Tax increases reduce the amount of money available to spend in the economy by citizens.
fiscal policy - CORRECT ANSWER - all economic activity by the government, a
government policy for dealing with the budget (especially with taxation and borrowing)
taxation / tax cuts - CORRECT ANSWER - designed to equitabley distribute wealth, to
protect new industries, or to uplift social conditions / may result in too few dollars chasing too
few goods and therefore cause inflation
government spending - CORRECT ANSWER - Government expenditures, both chosen
and required for a variety of programs and entitlements.
