POL 202 Int. RelationsExam # 2 Study Guide Lectures: 16 - 27Lecture 16-19 (10/10-10/17)What is the difference between comparative advantage and absolute advantage?Comparative advantage is the principle of specialization to countries; producing what they do best. Absolute advantage is the ability to produce something better than the other.In Table A below, name the country that has an absolute advantage for cloth and the country with an absolute advantage for wine.In Table A above, mane the country that has a comparative advantage in cloth and the country witha comparative advantage in wine.What is the consumer surplus and the producer surplus?Producer surplus is what producers as a whole gain from higher prices and consumer surplus is what consumers as a whole save from lower prices.What is opportunity cost? Give an example.Opportunity Cost is what a country foregoes to produce a particular good. An example is Englandand Portugal and production of wine and cloth, England will specialize in wine and will forego producingwine and vice versa. What does the term “factors of production” mean? Identify two factors of production.Resources essential for economic activity. Land, labor, capital, human capital.What is a tariff? What is the purpose of imposing tariffs?Tax on imports levied at the border and paid by the importer (trade taxes). Purpose is to raise the price on the imported product and the consumer would pay for it meaning that the consumer would pay more for it, this would protect the domestic producers from foreign producers.What is a “nontariff barrier to trade? Give an example.A nontariff barrier to trade are obstacles to imports an ex of this is a quantitative restriction, so there is a limit of the number of thing that can be imported.What is trade liberalization? Name an international organization past or present that promotes trade liberalization.Trade liberalization is reducing trade barriers. GATT and WTO.Why are producers of domestic good more likely to succeed in promoting trade policy than consumers of those products?By what means doess the World Trade Organization enforce its dispute settlements?Complaints are sent to the dispute settlement body and a panel investigates the violation, after theruling the organization must bring the policy to conform to the rules or it is subject to a sanction.Lecture 20-22 (10/20-10/22)Financial RelationsExplain the difference between foreign portfolio investment and foreign direct investment.The difference is that foreign portfolio investment exercises managerial control of the foreign operation and the direct investment does not.Why do private investors invest abroad? Why do poor countries borrow from abroad?They want to make more money. Poor countries borrow from abroad because the interest and profit rates are lower because capital is abundant. Explain the apparent paradox that while capital is more scarce in developing countries, most foreign investment takes place in industrialized countries.The benefits and costs do not accrue equally to all the people in the country. The profit is better inindustrialized countries as opposed to the developing countries.What is concessional finance? Name an international organization that practices concessional finance.Form of aid, lent below-market interest rates, World BankWhat is the IMF? What is its role in international finance relations?International Monetary Funds, membership organization that included both borrowing and lending to countries.Identify two common criticisms of multinational corporations.Not investing at home and looking for pollution-friendly regimesDescribe three examples of conditions typically imposed by the IMF for providing loans.Implementing program that meets IMF standards, needs substantial funds to carry out activities, What are “austerity measures”? Give one example.Policies that reduce consumption an example is raising taxes.Lecture 23-25 (10/27-10/31)Monetary RelationsIdentify a domestic group that prefers a weaker currency and a group that prefers a stronger currency. Explain why each group had its preference.What is monetary policy? How do governments use it to respond to high unemployment?Important tool of national governments to influence broad macroeconomic conditions by changing national interest rates. It stimulates the economy by lowering interest rates, allowing companies to expand, creating more jobs.What is the difference between a fixed and a floating exchange rate? Give a current or historical example of each.Fixed rate is national money that keeps the value in terms of another currency like gold (Germansin Japan), a floating exchange rate allows the value of the currency to change freely depending on the market or other factors (U.S. Dollar)What is an adjustable peg?System of fixed but adjustable rates.Identify one key advantage and one key disadvantage of a fixed exchange rate.Provides stability but reduces governments’ ability to have its own independent monetary policy.Identify one key advantage and one key disadvantage of a floating exchange rate.Freedom to pursue monetary policy, but make international trade and investment more difficult.How was the value of the USD set during the Bretton Woods system? How about the values of the major currencies such as the British pound or their French franc?$35 per ounce gold, they were on a fixed but adjustable rate allowing for alterations after a long period of time.What is the G20? Describe its composition in general terms.Forum of 20 leading economies, countries, markets and EU reps; meetings to coordinate policies and related issues among countriesLecture 26-27 (11/03-11/05)DevelopmentWhy can’t geographic location fully explain why some countries are poor and others are rich?There are some locations that have similar geographic locations yet they are doing fine.What is infrastructure? What is it important for economic development?Infrastructure is basic structures needed for social activity. Important because they allow for tradeand exchange between countries and facilitates basic accommodations to the people within the country.What is meant by “terms of trade”? Why is declining terms of trade important to development?Relationship between a country’s export prices and its import prices. They get less for what they sell and pay more for what they buy making trade difficult.What is meant by the “resource curse”?Initial wealth gives rise to subsequent poverty theoryExplain