Question

1. Briefly explain how globalization encourages worldwide economic growth through trade and labor markets. Also, explain how globalization and technological advancement encourage each other. (4 points)
2. Rapid inflation or deflation can have a domino effect on the global economy. One dramatic example occurred in the first half of the 20th century, when the world faced both the Great Depression and World War II. Briefly explain how rapid inflation and deflation affected the global economy during the Great Depression (1929 – 1938), World War II (1939 – 1945), and the postwar era (1946 – 1950). (4 points)





















3. Identify and describe the three most common reasons countries trade, and give an example of each of these trade motivations in action. (4 points)




















4. Four of the main types of trade barriers are tariffs, quotas, embargoes, and standards. Define each and briefly describe its economic impact. (4 points)





















5. Describe the impact of a strong (appreciating) U.S. dollar and a weak (depreciating) U.S. dollar on both the U.S. economy and the economies of major U.S. trading partners. (4 points)













Part II: Application and Critical Thinking (20 points)
6. In the 20th century, the U.S. economy's shift from the gold standard to the Bretton Woods system, and what happened over time as a result, had an important role in changing the United States' standing in the world. Write a short essay on the Bretton Woods system and the global role of the U.S. dollar that addresses the following prompts.

a. Explain what the gold standard was, including its connection to the U.S. and world economies in the early 1900s.

b. Explain the Bretton Woods system and how it initially affected the global role of the U.S. dollar.

c. What was the effect of the Bretton Woods system over time? Explain what happened in the early 1970s that ended the system. How was the status of the U.S. dollar affected as a result?

(20 points)

Answer 1

1. Globalization places pressure on nations to reduce tariffs, subsidies and other barriers to free trade. As a result, Globalization promotes economic growth, creates jobs, makes companies more competitive and lowers prices for consumers. Globalization increases technological development by allowing countries to gain easier access to foreign knowledge. Globalization also enhances international competition.

2. The worldwide prosperity of the 1920s ended abruptly with the stock market crash in October 1929 and the great economic depression that followed. The inflation of the money supply during this period led to an unsustainable inceease in both asset prices and capital goods.

3. Differences in Technology: Advantageous trade can happen amongst nations if the countries differ in their technological abilities to produce goods and services. For example conversion of resources to outputs

ii. Differences in Resource Endowments: Advantageous trade can happen between nations if the nations differ in their endowments of resources. For example, presence of certain resources in one country and its absence in another.

iii. Differences in Demand: Advantageous trade can happen among countries if demands or preferences differ between countries. Individuals in different countries can prefer or demand for different products. For example, the Chinese are likely to demand more rice than Americans, even if consumers face the same price.

4. Tariffs are described as levies that a government places on imports entering a country, its impact is that it may increase the price of a commodity.

An import quota infers the numerical limit set to deduce the quantity of a commodity that can be imported into a country.

Tariffs and quotas are established to react to international trade and its effects.

5. The impact of the appreciation and depreciation of dollars is that it will reduce inflation in the US and vice versa in their partners. That is, if dollars appreciate, in the US, inflation is reduce and inflation is increased in that of their partners but when dollars depreciate, inflation occurs in the US and not in their partners .

6a. The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold. The gold standard is not currently used by any government. Britain stopped using the gold standard in 1931, and the U.S. followed suit in 1933, finally abandoning the remnants of the system in 1973.

b. The Bretton Woods System required a currency peg to the U.S. dollar which was in turn pegged to the price of gold.

What was the effect of the Bretton Woods system over time?

The Bretton Woods System demanded a currency peg to the U.S. dollar which was in turn pegged to the price of gold. The Bretton Woods System ended in the 1970s but created a lasting influence on international currency exchange and trade through its development of the IMF and World Bank.

Therefore, the correct answers are as given above

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