POLS 131 4th Edition Exam 2 Study Guide Chapters 7 8 9 Chapter 7 The Global Financial Crisis Asian Financial Crisis Started in Indonesia caused stock markets to crash and reversed economic growth FDIC insures individual bank deposits for up to 250 000 Deregulation removed many government restrictions on financial institutions in the United States and other countries Global financial liberalization opening banks around the world to competition Glass steagall act of 1933 prohibited commercial banks from underwriting or marketing securities Financial innovations sophisticated financial engineering an outgrowth of revolutions in computer and telecommunications technologies Securitization financial engineering designed to reduce risk Derivatives bets on the creditworthiness of a particular company like insurance on a loan Credit default swap financial innovation used to transfer credit risks away from banks Hedge funds enabled wealthy investors to avoid some financial regulations in global financial markets Arbitrage simultaneously buying at a lower price in one market and selling at a higher price in another market to make a profit Alan Greenspan Chairman of the U S Federal Reserve who kept interest rates low Sovereign wealth funds created by countries to save and recycle surplus revenues Subprime loans high risk credit given to individuals who fail to meet rigorous standards Fannie Mae and Freddie Mac U S government corporations involved in real estate Adjustable rate mortgage a long term loan that has varying interest rates Speculation involves excessive risk taking excessive optimis and the development of a herd mentality Taxpayer relief act of 1977 exempted profits from taxes gained from selling one s home BRIC countries brazil Russia india china Stimulus package money allocated by governments to financial institutions and selected industries to prevent their collapse and reinvigorate economic growth Quantitative stimulus a type of monetary stimulus used by the US federal reserve Long term Treasury bonds are purchased to decrease interest rates Safety nets the health insurance pensions that lessen losses in European economic hard times Chapter 8 Global Trade Mercantilist model Trade model stressing the role of government in trade and emphasizing the importance of balance of payment surpluses Autarky ideology promoting economic national self sufficiency and an end to economic interaction with other countries Comparative adv theory that each country specializes in produciong specific products Competitive adv shift toward the production of goods and services based on cost consideration arbitrary specialization and government and corporate policies Strategic trade theory supports gov subsidies of private industry Smoot hawley tariff act designed to protect American industries and trade from foreign competition Intellectual property rights control that people and corporations have over artistic creative scientific industrial and educational inventions Trade deficit difference between the value of goods and service that a country buys overseas and the value of goods and services it sells to other countries Tariffs taxes imposed on exports and imports that increase their costs Quotas specified limits on products to create a barrier to importing them Subsidies gov payments to industries that keep their prices artificially low Iron triangle relationship among politicians interest gr and gov agencies linked to farming interests Free trade areas characterized by the removal if trade barriers among members Southern African customs union formed in 1910 Chapter 9 Global inequality and poverty Free market and institutionalized property rights rights to private property protected under the market system Dependency theory concept that poor countries overreliance on exports puts them at an economic disadvantage Poverty line the income level under which people cannot adequately sustain themselves a measure of need Apartheid laws laws that legally and forcibly separate people of different ethnic and racial backgronds Caste system religiously driven ideology and social system that promote hierarchy and inequality Gender budgeting analysis of national budgets to determine how spending priorities affect women Microlending practice of granting small loans to help those who do not have access to conventional financial loan services