Deck 18: Globalization

Question 1

Which of the following statements is true?

A) World trade as a fraction of world GDP is much less than it was at the end of the 19th century.
B) War decreases the pace of globalization.
C) Large countries such as the U.S., Russia, and Japan have high scores in economic integration when measured against the criteria of Foreign Policy magazine.
D) Poor countries tend to have high scores in the personal contact area when measured against the criteria of Foreign Policy magazine.
E) The U.S. increased its international investments after the September 11, 2001 terrorist attacks to revive their economy.

Answer 1

War decreases the pace of globalization.

Question 2

Which of the following measures of globalization was not affected during the aftermath of the terrorist attacks in the United States on September 11, 2001?

A) World trade
B) Global foreign direct investment
C) International travel and tourism
D) International telephone calls
E) Political engagement

Answer 2

International telephone calls

Question 3

Which of the following multinational agreements allows the international movement of workers?

A) NATO
B) The European Union
C) The group of G-8
D) NAFTA
E) The United Nations Accords

Answer 3

The European Union

Question 4

Which of the following is a direct consequence of the development of faster and cheaper computers?

A) The development of double-entry bookkeeping
B) The enhanced ability of managers of business operations to deal with complex transactions in far-flung locations
C) The creation of money
D) The decrease in workers' productivity, because more computers need fewer people to operate them
E) A decline in the rate of inflation

Question 5

Which of the following is not considered a criticism of globalization?

A) International corporations serve only the interests of the corporations.
B) Globalization promotes "free" but not "fair" trade.
C) Globalization encourages harmful labor practices.
D) Globalization promotes only trade based on comparative, and not absolute advantage.
E) Globalization occurs at the cost of environmental quality.

Question 6

Which of the following is a measure of political globalization (one of the three categories used by the KOF Swiss Economic Institute)?

A) Participation in U.N. peace missions
B) Spread of ideas
C) Flow of information
D) Limits on externalities
E) Progressive taxation

Question 7

Which of the following is entrusted with the responsibility of settling trade disputes between countries?

A) The European Union
B) The International Monetary Fund
C) The World Trade Organization
D) The International Labor Organization
E) The United Nations Organization

Question 8

Which of the following international organizations do globalization critics claim is serving the interests of large multinational corporations?

A) NATO
B) The World Bank
C) The Fed
D) The United Nations
E) The International Labor Organization

Question 9

Countries in which one would see a spread of ideas, information, images, and people would be categorized under _____ globalization.

A) economic
B) social
C) ethical
D) cultural
E) political

Question 10

Which of the following statements accurately expresses evidence that globalization does not encourage a "race to the bottom" in labor standards?

A) The wages paid by multinational firms to their poor countries' subsidiaries are higher than the wages paid in rich countries.
B) Poor countries that participate in globalization have quickly become rich.
C) Multinational firms tend to pay higher wages than local firms, but they tend to provide lower benefits than existed in the country prior to globalization.
D) Multinational firms must sign contracts with the IMF stating that they will offer exceptional worker benefits.
E) Multinational firms tend to pay higher wages than local firms and tend to provide greater benefits for workers than existed in the country prior to globalization.

Question 11

Which of the following is not a defining characteristic of globalization?

A) Increased cross-border flow of trade in goods
B) Increased cross-border flow of trade in services
C) Increased international mobility of information
D) Increased frequency of wars
E) Increased mobility of individuals across borders

Question 12

Which of the following arguments is not used by promoters of globalization as one of the reasons why free trade and international investment result in higher standards of living?

A) Free trade helps developing countries.
B) International organizations represent governments and people, not the interests of corporations.
C) There is no convincing evidence that globalization occurs at the expense of the environment.
D) There is no convincing evidence that globalization occurs by encouraging harmful labor practices.
E) Globalization brings better cultural practices to countries that have obsolete cultural traditions.

Question 13

In this era of globalization, one of the main reasons why some countries have remained closed to the rest of the world is:

A) the fact that their governments follow policies that explicitly work against economic integration.
B) racial discrimination.
C) the fact that their governments impose extremely high mortgage taxes.
D) the establishment of minimum wages.
E) the fact that they are too poor to trade anything with the rest of the world.

Question 14

Countries that have a large number of embassies, have memberships to international organizations, and participate in UN peace missions would be categorized under _____ globalization.

A) cultural
B) social
C) political
D) economic
E) ethical

Question 15

In its most basic form, globalization has existed ever since:

A) the creation of the Internet, which enables people to sell their products overseas.
B) the end of World War II.
C) the creation of the International Monetary Fund (IMF), which establishes the rules for all countries to follow as they trade.
D) the fall of the Berlin wall which marked the end of communism and thus, the beginning of truly "global" times.
E) primitive societies began to engage in trade.

Question 16

Countries that enjoy long distance flows of goods, capital, and services as well as information and perceptions that accompany market exchanges would be categorized under _____ globalization.

A) ethical
B) cultural
C) social
D) economic
E) political

Question 17

_____ is the argument that with globalization, countries compete for international investment by offering low or no environmental regulations or labor standards.

A) "Free rider problem"
B) "Tragedy of the commons"
C) "Race to the bottom"
D) "Flag of convenience"
E) "Enlightened self-interest"

Question 18

What has been one of the results of globalization experienced by Eastern European nations after the fall of their socialist regimes?

A) All traces of their traditional culture have disappeared.
B) These countries have attracted foreign investment from industrialized countries, which have transferred cleaner technologies and thus, improved environmental quality.
C) These countries have not yet adapted to capitalism, and a majority support a new movement to return to communism.
D) Most national forests have been destroyed by multinational companies.
E) Many new diseases have been introduced because of increased contact with the West.

Question 19

Globalization can be defined as:

A) the attitude or policy of placing the interests of the entire world above those of individual nations.
B) viewing the entire world as a proper sphere for one nation to project political influence.
C) a period in history that has witnessed a dramatic change in world political thought and the balance of power.
D) an increased cross-border flow of trade in goods, services, and financial assets, along with an increased international mobility of technology, information, and individuals.
E) a social movement that supports global cooperation and interaction, but which opposes the negative effects of economic development across nations.

Question 20

Supporters of globalization argue that increased globalization will lead to:

A) increased living standards.
B) decreased budget deficits.
C) decreased trade deficits.
D) currency appreciation.
E) monetary stability.

Question 21

Which of the following is true of the crises experienced in the 1990s?

A) Most of the economic crises occurred in Mexico.
B) Each of the countries affected by the crisis in Southeast Asia owed substantial long-term debt to foreigners.
C) During this time, bank loans were a sizable fraction of GDP in all the crisis countries except Mexico.
D) Stock prices dropped by an amount ranging from 21 percent in Malaysia to 35 percent in Korea.
E) Exchange rate against the U.S. dollar dropped substantially in the Philippines.

Question 22

Which of the following would be part of the Thai demand for U.S. dollars?

A) A Thai street seller trying to sell a shirt to an American tourist
B) A Thai bank selling dollars it possesses in exchange for euros
C) An American exchanging dollars for Thai bahts that she will spend on her next vacation to Bangkok
D) A Thai export company selling its products in the American markets
E) A Thai importer who wants to buy a Caterpillar tractor

Question 23

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.1

Refer to Figure 18.1. The original equilibrium exchange rate is _____.

A) E
B) G
C) A
D) D
E) B

Question 24

What has happened to countries that did not participate in the globalization of the world economy?

A) The fraction of the population living below the poverty line in these countries has decreased.
B) These countries have been mired in a low-growth path and are experiencing high poverty rates.
C) The socialist policies in these countries have caused a big change in the income distribution, something that globalization could not have achieved.
D) The growth rate of these countries is stronger than the First World countries.
E) The domestic industries in these countries have experienced robust growth.

Question 25

Which of the following countries had a major financial crisis in 1994?

A) Malaysia
B) Russia
C) Mexico
D) The United States
E) Singapore

Question 26

It is a known fact that the same multinational company may pay lower wages to its workers in a developing country than to those in an industrialized country. Why is this not considered an evidence of worker exploitation?

A) Rich people deserve higher pay.
B) The workers in developing countries have lower consumption levels than those in developed countries, thus they get lower wages.
C) Local wages in developing countries are generally lower than in industrialized countries, with or without globalization.
D) Workers in developing countries have higher benefits, making the overall wages about the same in both kinds of countries.
E) Most workers in developing countries are comparatively younger, and they get lower wages because of their lack of experience.

Question 27

Which of the following stands true for income inequality?

A) The benefits of increased economic growth are widely shared in the First World countries.
B) As a result of globalization, income inequality in China has decreased.
C) The decrease in income inequality in China is an effect of socialist policies in that country.
D) The gap between rich countries and globalized developing countries has shrunk.
E) Internal migration has played a big role in reducing the income inequality in China.

Question 28

Which of the following is an argument for globalization?

A) Poor countries compete for multinational firms by allowing lax environmental standards.
B) Multinational firms tend to pay lower wages than local firms.
C) The benefits of globalization to all consumers greatly outweigh the loss of jobs to international competition.
D) Removal of restrictions against agricultural products would cause workers in rich countries to lose their jobs.
E) The increased integration of the world's economies has been associated with lax environmental and labor standards in most countries.

Question 29

What happened to the so-called Asian tigers in the 1960s and 1970s?

A) They underwent a period in which their economies turned into mild communism.
B) The literacy rates of these countries declined in this time period (that is, a smaller percentage of the people could read).
C) They all became part of the First World.
D) They became the most technologically advanced countries in the world.
E) They underwent the process of opening their economies and experienced rapid economic growth.

Question 30

Which of the following is one of the main reasons why China has recently received large amounts of foreign direct investment?

A) The prospect that multinational firms have of selling to the massive Chinese market
B) The lack of environmental standards under the communist government of China
C) The prospect of using forced child labor for cheaper production in this country
D) The relative strength of the Chinese currency, which makes any investment there worthwhile
E) The advanced southeast Asian highway system, which makes transportation extremely efficient

Question 31

The primary international reserve asset is foreign currency, mainly _____.

A) Japanese yen
B) eurobonds
C) ringgit
D) U.S. dollars
E) Chinese yuan

Question 32

According to evidence from around the world, the real losers in globalization of the world economy are:

A) non-government organizations.
B) environmental activists.
C) skilled laborers in the globalizing nations.
D) countries that have not participated in the globalization process.
E) the poorest people in the globalized developing countries.

Question 33

Which of the following is true of the crises witnessed by the southeast Asian countries in the 1990s?

A) The crises were sparked by the conversion from a fixed exchange rate regime to a flexible exchange rate regime.
B) The crises occurred because among all countries, Malaysia owed the maximum short-term debt to foreigners.
C) The consumption of petroleum products grew at an uncontrolled rate in Indonesia.
D) Indonesia was the only country that owed a substantial long-term debt to the US.
E) The stock prices dropped by 26 percent in Korea and by 57 percent in Malaysia.

Question 34

Which of the following countries went through a financial crisis in 1997?

A) Russia
B) Canada
C) Italy
D) India
E) Korea

Question 35

Identify the correct statement.

A) Between the 1960s and the 1990s, per capita GDPs grew faster in nonglobalizing countries.
B) Between the 1960s and the 1990s, per capita GDPs grew faster in globalizing countries than in industrialized countries.
C) Between the 1960s and the 1990s, per capita GDP growth rates in the industrialized world increased.
D) Between the 1960s and the 1990s, per capita GDP in the industrialized world decreased.
E) Between the 1960s and the 1990s, per capita GDP in all developing countries increased.

Question 36

Which of the following is one of the most important causes for the recent increase in income inequality in China?

A) The introduction of free markets while imposing restrictions on internal migration
B) The introduction of regulations that do not allow families to have more than one child
C) Globalization
D) The increase in pollution as a result of industrialization
E) Tougher government controls on the banking system

Question 37

The financial crises of the 1990s pointed out that small developing countries have a vulnerability to globalization in terms of _____.

A) environment
B) labor standards
C) international capital flows
D) the judicial system
E) child labor

Question 38

The World Bank tracked the performance of countries that had undergone varying degrees of globalization since the 1960s. Which of the following was a conclusion of the study?

A) The process of globalization widened the gap between rich countries and poor countries.
B) The growth rates of globalizing countries were higher than the growth rates of nonglobalizers.
C) The fraction of the very poor increased in newly globalized economies.
D) Globalization increased income inequality.
E) Unemployment increased in newly globalized countries.

Question 39

Average growth of per capita GDP of the post-1980 globalizers increased from 1.4 percent per year in the 1960s to _____ percent in the 1990s.

A) 6.4
B) 5.0
C) 3.5
D) 7.8
E) 2.9

Question 40

The Asian tigers have experienced rapid economic growth in recent times. Hence, these countries are sometimes referred to as:

A) first-world countries.
B) newly industrialized countries.
C) the globalization limelight.
D) second-world countries.
E) the G-8 nations.

Question 41

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.1

Refer to Figure 18.1. If there were a perception that the value of Thai assets would decrease, the equilibrium exchange rate would move to _____.

A) A
B) B
C) F
D) E
E) G

Question 42

Suppose, before the Asian financial crisis, the Thai baht was fixed against the dollar at a rate of 26 bahts for one U.S. dollar. If the exchange rate were allowed to float freely, the market would then set the rate at 35 bahts for one dollar. Under these circumstances, we say that the baht was:

A) about to appreciate.
B) fixed below its par value.
C) overvalued.
D) undervalued.
E) revalued.

Question 43

There are certain variables that are so obviously related to past crises that they may serve as warning indicators of potential future crises. Identify one such variable from the following.

A) Barriers to trade
B) Short-term international investment
C) Flexible exchange rates
D) Rising international reserves
E) Fluctuating share prices

Question 44

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.2

Refer to Figure 18.2. Suppose investors predict that the value of Thai assets will decrease in the near future. This affects the current equilibrium exchange rate. To restore the original equilibrium, the Thai government intervenes in the foreign exchange market. How will this government action appear on the graph?

A) As a shift in the demand curve from D₂ to D₁
B) As a shift in the demand curve from D₁ to D₃
C) As a shift in the supply curve from S₁ to S₃
D) As a shift in the supply curve from S₁ to S₂
E) As a shift in the demand curve from D₂ to D₃

Question 45

After a speculative attack has been successful, and a country is forced to devalue its currency, it is common to see many local business firms driven to bankruptcy. This most commonly occurs because _____.

A) nobody ever wants to invest in a country that just suffered a devaluation
B) many local firms took foreign loans (denominated in, say, dollars), and they cannot repay them at the new exchange rate
C) the WTO forces troubled firms to show profits or make way for new, more efficient firms
D) local firms cannot compete with their foreign competitors at the new prices after the devaluation
E) many local firms do not know how to deal with the complicated financial operations involved in a speculative attack

Question 46

The deleveraging of financial institutions led to the financial crisis of 2007-2008 sometimes also referred to as the _____.

A) stock crisis
B) debt crisis
C) stock market bubble
D) bank run
E) credit crisis

Question 47

Generally, which of the following is the most common reason why countries that experienced a financial crisis could not maintain their fixed exchange rate?

A) They were exporting too many commodities.
B) The rates they had established were not in accordance with directives from the IMF.
C) The exchange rate parities established were inconsistent with their corresponding macroeconomic policies.
D) The general public refused to participate.
E) The parities established made their currencies undervalued.

Question 48

Which of the following resulted in the financial crisis in 2007-08?

A) Falling international reserves
B) Short-term investments made by China in the US
C) Lack of transparency
D) Bad loans on U.S. mortgages
E) Fixed rates of interest

Question 49

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.2

Refer to Figure 18.2. Assume that the foreign exchange market is initially at equilibrium when the demand and supply curves are D₁ and S₁ respectively. When the demand curve shifts from D₁ to D₂, the Thai government intervenes to restore the original equilibrium. If Figure 18.2 describes these changes, which of the following will be true?

A) The baht depreciates slightly, as the equilibrium exchange rate goes down from E to F.
B) The baht depreciates, as the equilibrium exchange rate goes up from E to G.
C) The baht appreciates, as the equilibrium exchange rate goes down from E to D.
D) The equilibrium exchange rate goes up from D to G.
E) The baht appreciates slightly, as the equilibrium exchange rate goes up from E to F.

Question 50

Globalization is an economic issue and does not involve political and social dimensions.

Question 51

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.1

Refer to Figure 18.1. Assume that there is a market perception that the value of Thai assets will decrease in the near future. This affects the current equilibrium exchange rate. What can the Thai central bank do to restore the previous value of the baht?

A) Increase the demand for U.S. dollars
B) Sell Thai bahts in the foreign exchange market
C) Sell dollars in the foreign exchange market
D) Appeal to the WTO for help
E) Buy back outstanding Thai bonds in open market operations

Question 52

The financial crisis of 2007-2008 illustrated how important the integration of international financial markets could be in contributing to the spread of financial problems from one country to another. What solution is cited to curb the spread of financial problems from one country to another?

A) Better regulation of financial institutions to ensure prudent risk taking
B) Lowering the fiscal budget
C) Reducing international investment
D) Paying off debts from the Federal Reserve
E) Mitigating lack of government transparency

Question 53

Globalization benefits all the participating nations equally.

Question 54

Which of the following is a probable consequence of the presence of accounting rules that allow firms to hide the financial impact of actions that would harm investors?

A) Investors may be able to enforce market efficiency.
B) The WTO will disenfranchise the country that allows this to happen.
C) Investors will immediately organize a speculative attack and the price of stocks will inflate.
D) The balance-of-payments deficit will increase, leading the economy into a debt trap.
E) Investors may not be able to adequately judge when the risk of investing in a firm rises.

Question 55

As the Asian financial crisis of 1997 began to spread, it became obvious to investors that Korean investments would provide lower returns than expected. What was the impact of such a realization on the foreign exchange market?

A) The supply of Korean won decreased as people tried to withdraw their Korean investments.
B) The price of dollar in terms of Korean currency decreased as people invested more in U.S. assets.
C) The demand for dollars decreased as investors realized that there is a worldwide crisis going on.
D) The demand for dollars increased as investors put their money in U.S. and other foreign assets.
E) The demand for Korean won increased as investors decided to invest in Korean assets.

Question 56

Which of the following is an example of a speculative attack on a currency?

A) National governments decide to engage in competitive devaluations against a given country.
B) International organizations such as the WTO and the IMF attempt to reorder the currency's system.
C) Private investors sell domestic currency and buy foreign currency, betting that the domestic currency will soon be devaluated.
D) Casinos in Las Vegas allow the proliferation of bets for and against a given currency.
E) A country is at war, and the enemy country "freezes" all the accounts denominated in the local currency.

Question 57

Which of the following increases the possibility of depreciation of the domestic currency in the foreign exchange market?

A) An increase in the demand for domestic goods in the foreign market
B) A decrease in total imports made by the domestic country
C) A decrease in the interest rates in the domestic country
D) An increase in the short-term foreign investments
E) An increase in domestic production of import substitutes

Question 58

To counteract the depreciation of the national currency against the U.S. dollar, the central bank of a country can intervene in the foreign exchange market. Which of the following imposes a restriction on this ability of the central banks to maintain a fixed exchange rate?

A) The central banks have a limited amount of international reserve.
B) The central banks have a limited amount of domestic currency.
C) Unrestricted sale of foreign currency will cause inflation in the domestic economy.
D) The supply of dollars is perfectly elastic in the foreign exchange market.
E) The central banks need to maintain a certain amount of its assets in the form of gold.

Question 59

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D₁ and S₁ are the original demand and supply curves.?Figure 18.1

Refer to Figure 18.1. What would happen to the value of the U.S. dollar if there were a perception that the value of Thai assets would decrease?

A) The dollar would depreciate against the baht.
B) The dollar would appreciate against the baht.
C) The dollar would remain at the same value against the baht.
D) The dollar would appreciate depending on the elasticity of demand for bahts.
E) The dollar would depreciate depending on the elasticity of demand for bahts.

Question 60

International trade constantly increased throughout the twentieth century.

Question 61

It has been proved empirically that globalization increases economic growth without increasing income inequality within nations.

Question 62

Globalization had to be put into effect to revive developed economies after the financial crises of the 1990s.

Question 63

Critics of globalization argue that international trade agreements represent roadblocks to democratic decision making, because power is decentralized from large international institutions to the local communities in the process.

Question 64

Family, language, and customs tie people to particular areas, so that the fact that people have the right to migrate does not mean that large numbers of them will actually do so.

Question 65

Any movement to reduce the globalization of the world's economies will make workers in the poorest countries worse off than they would otherwise be.

Question 66

An increase in the supply of U.S. dollars in the foreign exchange market would cause the dollar to appreciate with respect to other currencies.

Question 67

In the financial crises of the 1990s, countries lost international reserves trying to maintain the parity of their currencies.

Question 68

In the financial crises of the 1990s, investors lost huge amounts of wealth as a consequence of the rapid drop in values of local firms in each country.

Question 69

Supporters of globalization argue that multinational firms pay higher wages than local firms, and provide greater benefits for workers than existed in the country prior to globalization.

Question 70

An overall decline in communication and transportation costs have facilitated global interactions in the twentieth and the twenty first century.

Question 71

The phrase "race to the bottom" refers to the situation in which globalization results in countries competing for international investment by imposing low or no environmental regulations or labor standards.

Question 72

In the last two decades, income inequality has increased in China.

Question 73

Globalization does not reward countries that follow good economic policies with greater access to the savings of the rest of the world to help finance growth and development.

Question 74

Poor and developing countries are ranked on the top of the list of globalized countries by the KOF Swiss Economic Institute.

Question 75

Without the presence of international organizations such as the World Bank, the United Nations, and the WTO, transfers of funds from rich to poor countries would not exist in an ongoing manner.

Question 76

Evidence exists that countries with the most open economies tend to have more stringent environmental regulations.

Question 77

Larger countries tend to be more globalized, because their large internal markets allow them to export a wide range of products.

Question 78

India is one of the countries that did not participate in the process of globalization.

Question 79

Barriers to immigration are much higher in most countries today, than it was in the twentieth century.

Question 80

Supporters of globalization believe that free trade and international investment result in all countries raising their living standards.