Final Exam Study guide ( International
Political Economy)
How does the theory of comparative advantage help us understand the politics of
international trade? correct answers logically explains how and why trade is beneficial
to both partners. The basic point is that by specializing and trading, states and
individuals can increase overall consumption and efficiency. This theory is used to
justify increased international trade, decreased barriers to trade, and economic
integration. The growing integration of the EU, development of NAFTA, and lowering
tariffs through WTO all make sense in terms of comparative advantage. They make
trade easier and allow states to specialize in the areas they are most efficient in, leading
to greater overall production/consumption.
Explain fiscal and monetary policy. correct answers 2 major ways governments can
influence their economies. Fiscal is when a government uses a budget deficit or surplus
to stimulate or slow economic growth, an example is seen through the New Deal as
FDR cut taxes and put money into the economy.
In Monetary policy: a central bank raises or lowers interest rates to stimulate or slow
economic growth
How are fiscal and monetary policies limited in a globalized economy? correct answers
Political leaders now face the challenge of trying to govern economies that are
increasingly out of their control.
How do exchange rates interact with the balance of trade? correct answers Both should
balance each other out, in theory, where a new equilibrium is reached with the balance
of trade at a different exchange rate. This hasn't exactly been the case as other factors
influence, like the falling US dollar accompanied by raising rather than falling U.S.
imports.
If states put a high priority on achieving a trade surplus, they can manipulate their
current price to boost trade. Imports than become more expensive while exports get
cheaper. ( comparative devaluation)
What were the sources of the Bretton Woods system? correct answers The leading
economic powers broadly agreed on the purpose of improving trade cooperation, and
the US had the power to push toward that end, rebuilding free trade was critical.
Economic power was now shifted towards the US Economic power played an important
role in the formation of this system.
Explain the similarities and differences between liberalism and neomercantilism in
international political
Political Economy)
How does the theory of comparative advantage help us understand the politics of
international trade? correct answers logically explains how and why trade is beneficial
to both partners. The basic point is that by specializing and trading, states and
individuals can increase overall consumption and efficiency. This theory is used to
justify increased international trade, decreased barriers to trade, and economic
integration. The growing integration of the EU, development of NAFTA, and lowering
tariffs through WTO all make sense in terms of comparative advantage. They make
trade easier and allow states to specialize in the areas they are most efficient in, leading
to greater overall production/consumption.
Explain fiscal and monetary policy. correct answers 2 major ways governments can
influence their economies. Fiscal is when a government uses a budget deficit or surplus
to stimulate or slow economic growth, an example is seen through the New Deal as
FDR cut taxes and put money into the economy.
In Monetary policy: a central bank raises or lowers interest rates to stimulate or slow
economic growth
How are fiscal and monetary policies limited in a globalized economy? correct answers
Political leaders now face the challenge of trying to govern economies that are
increasingly out of their control.
How do exchange rates interact with the balance of trade? correct answers Both should
balance each other out, in theory, where a new equilibrium is reached with the balance
of trade at a different exchange rate. This hasn't exactly been the case as other factors
influence, like the falling US dollar accompanied by raising rather than falling U.S.
imports.
If states put a high priority on achieving a trade surplus, they can manipulate their
current price to boost trade. Imports than become more expensive while exports get
cheaper. ( comparative devaluation)
What were the sources of the Bretton Woods system? correct answers The leading
economic powers broadly agreed on the purpose of improving trade cooperation, and
the US had the power to push toward that end, rebuilding free trade was critical.
Economic power was now shifted towards the US Economic power played an important
role in the formation of this system.
Explain the similarities and differences between liberalism and neomercantilism in
international political
