Question 1

Why are the 1980s known in Latin America as the "lost decade"?

Accepted Answer

The 1980s in Latin America are known as the "lost decade" because income and investment in the region declined dramatically during this time. This was due in part to a debt crisis, inflation, and economic mismanagement.

Question 2

Why is foreign direct investment sometimes controversial in developing countries?

Accepted Answer

Foreign direct investment can be controversial in developing countries because multinational corporations may keep a significant portion of the profit from their investments, leading to concerns about exploitation and unfair distribution of wealth.

Question 3

What is a bilateral investment treaty (BIT)?

Accepted Answer

A bilateral investment treaty (BIT) is a type of international agreement between two countries designed to promote and protect private foreign investment. The main purpose of a BIT is to protect investors from discrimination or expropriation by the host government. It typically includes provisions on investment protection, investor-state arbitration, and dispute settlement.

A) is incorrect because it refers to an IMF loan agreement, not a bilateral investment treaty.

C) is also incorrect because tax treaties are separate agreements from BITs and deal exclusively with taxation matters.

D) is incorrect because it does not relate to bilateral investment treaties, but rather to bailing out foreign banks for risky investments.

Question 4

Critics of this international institution refer to it as an international loan shark,because it lends to countries in their hour of greatest need but also attaches unpopular conditions as a requirement for receiving a loan.

Accepted Answer

The International Monetary Fund (IMF) is often criticized for its lending practices, which some argue are exploitative and damaging to borrowing countries. The IMF often attaches conditions to its loans, such as austerity measures and economic liberalization policies, that require borrowing countries to make significant changes that can harm their citizens in the short term. This has led some to refer to the IMF as an "international loan shark."

Question 5

Why did restrictions on immigration increase during the nineteenth and early twentieth centuries in the United States?

Accepted Answer

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Question 6

Why did the debt crises of the 1980s lead to increased foreign direct investment in developing countries in the 1990s?

Accepted Answer

The debt crises of the 1980s led to developing countries removing restrictions on FDI because their access to foreign loans had dried up. FDI became a more attractive option for these countries to attract foreign investment and stimulate economic growth.

Question 7

Which of the following is an example of how the U.S.government responded to the global financial crisis?

Accepted Answer

The U.S. government responded to the global financial crisis by using billions of dollars to bail out banks. This was done through the Troubled Asset Relief Program (TARP), which aimed to stabilize the financial system and prevent a complete collapse of the economy. Enacting tariffs on foreign imports, defaulting on debt held by Chinese and Japanese banks, and raising taxes to pay off debt were not major actions taken by the government in response to the global financial crisis.

Question 8

Where did the 2008 financial crisis originate?

Accepted Answer

The 2008 financial crisis originated in the United States due to the collapse of the subprime mortgage market and the consequent failure of major financial institutions such as Lehman Brothers and Bear Stearns. This led to a global economic recession.

Question 9

To which of the following countries did the Asian financial crisis of the 1990s spread?

Accepted Answer

The Asian financial crisis of the 1990s spread mainly to countries in Asia, including Indonesia, South Korea, Thailand, and Malaysia. It did not directly spread to any of the countries listed in the answer choices. However, it did indirectly affect some countries outside of Asia that had economic ties to the affected countries, such as Russia, which experienced a financial crisis of its own in 1998 partly due to its exposure to the Asian economies. Therefore, the best answer choice is C, Russia.

Question 10

Why is there no effective international institution that helps regulate foreign direct investment (FDI)?

Accepted Answer

There are currently no widely accepted global concerns when it comes to regulating FDI. Additionally, there is no strong demand for cooperation in this area. As a result, there has been little push for the creation of an international institution to manage FDI. It's worth noting that while multinational corporations may have some influence in this area, they are not the only factor at play.

Question 11

Which of the following groups is most likely to oppose immigration in a developed country?

Accepted Answer

Low-skilled workers are usually the most affected by immigration as they can face increased competition for jobs and potentially lower wages due to the increased labor supply. Thus, they are more likely to oppose immigration. Farmers, high-skilled workers, and business owners may have more varied opinions depending on their specific circumstances.

Question 12

Why was the 1997-98 Asian financial crisis a surprise?

Accepted Answer

The East Asian countries suffering from the financial crisis had been considered successful models of development and their economies had grown rapidly in the years leading up to the crisis. This made the crisis a surprise as it was unexpected that these successful economies would suddenly face financial turmoil.

Question 13

The financial crises of the late 2000s and early 2010s primarily affected what type of country?

Accepted Answer

The financial crises of the late 2000s and early 2010s primarily affected developed countries, such as the United States and countries in Europe, as they were heavily involved in global financial markets and had complex financial systems with interconnected institutions. Autocratic, underdeveloped, or autarkic countries were not immune to the effects of the crises, but they were not the primary targets.

Question 14

Which of the following is an example of the leverage a host country has with regard to multinational corporations?

Accepted Answer

Nationalization of foreign companies is an example of leverage a host country has over multinational corporations. In this case, Chile nationalized international copper companies, which means the government took control of the assets and operations of those companies within its borders. This gives the host country more control over the production, pricing, and distribution of the natural resources involved. Options A, B, and C relate to company-specific decisions and do not reflect the power of the host country over multinational corporations.

Question 15

How does the Heckscher-Ohlin theory explain why there is international immigration?

Accepted Answer

The Heckscher-Ohlin theory posits that countries will export goods that use their abundant factors of production and import goods that use their scarce factors. This principle can extend to the movement of factors themselves, including labor. Therefore, countries tend to export or have an outflow of goods, capital, or people associated with their abundant factor, as they have a comparative advantage in producing goods or services that utilize this factor.

Question 16

Capital and labor are similar in the international political economy because:

Accepted Answer

Both capital and labor have a tendency to move towards places where they can find higher returns, which may lead to the scarcity of these factors in particular regions or countries. This movement can have significant impacts on the economy and politics of both the host country and the origin country.

Question 17

Which of the following examples of migration would be best explained by the Heckscher-Ohlin theory?

Accepted Answer

The Heckscher-Ohlin theory explains migration based on differences in factor endowments, such as labor. An unskilled worker moving from a labor-abundant country (El Salvador) to a labor-scarce country (United States) aligns with this theory.

Question 18

The International Monetary Fund is controversial because some believe that:

Accepted Answer

The International Monetary Fund (IMF) has faced criticism in the past for its handling of debtor nations, with some arguing that it takes unfair advantage of such nations by imposing harsh economic conditions in exchange for financial assistance. This has caused controversy and raised questions about the organization's role and impact on global economic relations.

Question 19

How did the collapse of the U.S.housing market spark the global financial crisis?

Accepted Answer

The collapse of the U.S. housing market sparked the global financial crisis because many mortgages and associated financial instruments, such as mortgage-backed securities, were based on the assumption that housing prices would continue to increase. When housing prices began to decline, these investments became worthless, leading to a widespread financial collapse. This affected not only the United States but also other countries that were invested heavily in the U.S. housing market.

Question 20

A multinational corporation is created by what type of investment?

Accepted Answer

A multinational corporation is created by foreign direct investment, which involves the establishment of a company or acquisition of a stake in a company in a foreign country with the intention of actively managing that company. Portfolio investment involves passive investment in securities such as stocks and bonds, while concessional lending and sovereign lending refer to loans provided by governments or government-backed institutions.

Quiz 8: International Financial Relations