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Post WWII Global Economics
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Post WWII Global Economics
Post WWII Global Economics
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1
Question
What was the cumulative deficit experienced by the US reserve from 1958 to 1971, and what did the ratio of US gold reserves to foreign liabilities fall to by 1970?
Answer
The US reserve experienced a cumulative deficit of $56 billion from 1958 to 1971, and the ratio of US gold reserves to foreign liabilities fell to 55% by 1970.
2
Question
How did fixed exchange rates encourage the rise of Multinational Corporations (MNCs) during the post-war period?
Answer
Fixed exchange rates gave companies assurance that currency values would not suddenly depreciate, providing confidence to expand abroad and invest in other countries, thus facilitating the rise of MNCs.
3
Question
What role did fixed exchange rates play in the success of the General Agreement on Tariffs and Trade (GATT)?
Answer
Fixed exchange rates ensured price stability, which gave countries confidence to engage in international trade, allowing for the success of GATT in encouraging global trade.
4
Question
What economic measures did countries take in response to the inflation and balance of trade deficits following the end of the fixed exchange rate system?
Answer
Countries tightened monetary policy and created austerity measures such as increasing interest rates, leading to reduced consumption, fewer imports, and lower levels of trade.
5
Question
What was the 1961 London Gold Pool, and why did it collapse in 1971?
Answer
The 1961 London Gold Pool was an agreement by the US, Western Europe, and Japan to pool gold resources to keep the price of gold at $35 an ounce. It collapsed in 1971 due to further runs on gold, notably of USD and the pound sterling.
6
Question
Describe the impact and outcome of the 1971 Smithsonian Agreement.
Answer
The Smithsonian Agreement attempted to mitigate damages caused by the Nixon Shocks by revaluing currencies to continue the adjustable peg. However, it failed rapidly as it could not control the devaluation of USD, which remained unconvertible to gold.
7
Question
What was the initial role of the International Monetary Fund (IMF) after World War II regarding exchange rates and economic stability?
Answer
The IMF prevented competitive devaluation by fixing exchange rates of all currencies from the start, approved any exchange rate changes, advised countries on monetary policies, and advanced credits to members facing payment deficits.
8
Question
What limitations did the IMF face during the 1973 Oil Crisis?
Answer
The IMF’s credit facilities ($8.8 billion) were insufficient to meet Europe’s $20.2 billion import needs, and the IMF could only loan to countries with current-account deficits, not for necessary capital and reconstruction work.
9
Question
What was the purpose of the World Bank after World War II, and how effective was it in its early years?
Answer
The World Bank provided long-term loans to facilitate speedy post-war recovery, promote economic development, and reduce poverty. Early loans mainly went to war-devastated European countries, but available funds were insufficient for urgent reconstruction needs.
10
Question
How did the General Agreement on Tariffs and Trade (GATT) promote trade liberalization after 1950?
Answer
GATT aimed to reduce tariff barriers and trade protectionism, leading to a 73% reduction in non-agricultural tariffs mostly from the US, making imports cheaper, encouraging trade, and facilitating a rapid growth in exports and world trade volume.
11
Question
Why did protectionism persist despite the success of GATT in reducing tariffs?
Answer
GATT lacked enforcement power and relied on members' integrity; countries tolerated protectionism, especially in agriculture and key industries, used non-tariff barriers, and allowed exceptions for developing countries, undermining full liberalization.
12
Question
What was the 1974 Multifibre Arrangement (MFA), and how did it affect global textile trade?
Answer
The MFA was a set of bilateral agreements between importing and exporting countries to limit textile and apparel trade to protect domestic industries. It slowed global trade growth in textiles and violated the spirit of GATT's trade liberalization.
13
Question
How did the US respond to increased protectionism and unfair trade practices in the late 20th century?
Answer
The US implemented the 1974 Trade Act (section 301), allowing the president to act unilaterally against unfair trade barriers, and later the 1988 Trade Act, requiring identification and retaliation against unfair trade practices.
14
Question
What were some non-tariff barriers extensively used by the US, EU, and Japan in the 1980s and 1990s?
Answer
They used import quotas, voluntary export restraints (VERs), antidumping duties, countervailing duties, and other restrictive business practices, covering 12-15% of imports in major sectors like steel, electronics, and agriculture.
15
Question
Why was dumping difficult to regulate effectively under GATT?
Answer
Dumping involves selling below normal market price to drive out competitors, but it was difficult to identify predatory dumping, limiting the effectiveness of GATT's prohibition against it as a protectionist measure.
16
Question
What role did subsidies play in international trade during this period?
Answer
Countries subsidized exports indirectly (low interest rates, tax breaks, output subsidies) to encourage adaptation or modernization in industries, particularly steel in the EU, leading to controversial and persistent trade distortions.
17
Question
How did the World Trade Organization (WTO) improve upon the GATT system?
Answer
The WTO had stricter enforcement, new dispute settlement procedures, oversight on services, intellectual property and investment, and member decisions were more authoritative and feared, improving compliance compared to GATT.
18
Question
How did the US, Western Europe, and Japan aid the post-war recovery of the global economy?
Answer
Through aid programs like the Marshall Plan, military expenditures, and maintaining stable currencies, these regions helped reconstruct their economies, facilitated export growth, and created foundations for rapid economic recovery and growth.
19
Question
What was the impact of currency devaluations in the late 1940s and early 1950s on global trade?
Answer
Devaluation of currencies such as the British pound by 30% increased the ability of struggling countries to export goods, accounting for two-thirds of world trade, leading to growth in exports and recovery.
20
Question
What role did the US dollar play in international liquidity during the post-war period?
Answer
The USD was the only currency strong enough to meet international liquidity demand, serving as the dominant reserve currency under the Bretton Woods System and supporting global economic activities.
21
Question
Describe the economic integration efforts within Western Europe after WWII.
Answer
Countries like France, Germany, Italy, Belgium, Netherlands, and Luxembourg formed the European Coal and Steel Community and later the European Economic Community to facilitate labor flow, technological transfer, and promote regional trade and growth.
22
Question
What is the 'flying geese' model in relation to Japan and newly industrializing economies (NIEs)?
Answer
The 'flying geese' model describes industrial development transmitted from Japan (the lead goose) to follower NIEs, which in turn helped the next group of developing economies, contributing to regional economic transformation.
23
Question
What roles did Multinational Corporations (MNCs) play in the post-war global economy?
Answer
MNCs extended marketing and production beyond their countries, contributed to US balance of payments positively, invested heavily in Europe and Japan, brought capital, technology, managerial skills to host countries, and facilitated global economic integration.
24
Question
What limitations did MNCs impose on developing countries despite their benefits?
Answer
MNCs often refused to transfer technology, had limited impact on job creation as they sometimes left before long-term benefits, and in developing countries, FDIs were often concentrated in extractive industries, limiting broader economic development.
25
Question
How did cheap raw materials, especially oil, contribute to the Golden Age of Capitalism?
Answer
Cheap oil kept production costs low, facilitating growth in manufacturing industries in Western advanced economies and developing countries, enabling competitive pricing and sustained economic expansion.
26
Question
What economic challenges did the 1973 Oil Crisis create for oil-importing and oil-exporting countries?
Answer
For oil-importing countries, it caused current-account deficits, inflation, stagflation, and recession; for OPEC oil exporters, it resulted in large trade surpluses but also contributed to debt crises in developing countries due to fluctuating commodity prices and lending practices.