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IPE final
IPE final study guide
Undergraduate 4

Additional Economics Flashcards




Asian Financial Crisis
  • In the 1990s Asia attracted almost half of the total capital inflow into developing countries. 
  • Maintained high interest rates attractive to foreign investors looking for high rate of return. 
  • Large inflows of money and dramatic run up in asset prices. And growth in GDP
  • Short term capital flows were expensive and highly conditioned for quick profit, developement money went in a largely uncontrolled manner 
  • Became dependent upon exports
  • made contries susceptible to currency movements
  • large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both financial and corporate sectors. 
  • Causes:
  • Due to US reforms, the US became more attractive investment destination relative to Southeast Asia; as the US dollar rose, exports became more expensive and less attractive in the global 
  • policies that distorted incentives within the lender–borrower relationship.
  • The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level.[10] These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations.
  •  foreign investors attempted to withdraw their money, the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels
  •  the crisis could be seen as the failure to adequately build capacity in time to prevent Currency Manipulation
Balance of Payments
  • accounting record of all monetary transactions between a country and the rest of the world.
  • These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. 
  • The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. 
  • Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. 
  • Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.
Creative Destruction
  • The term is derived from Marxist economic theory, where it refers to the linked processes of the accumulation and annihilation of wealth under capitalism. 
  • describes the way in which capitalist economic development arises out of the destruction of some prior economic order
  • "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

  • derivative instrument is a contract between two parties that specifies conditions (especially the dates, resulting values of the underlying variables, and notional amounts) under which payments, or payoffs, are to be made between the parties.
Development Theory 
  • The scope of economic development includes the process and policies by which a nation improves the economic, political, and social well-being of its people.[2]
  • The neocolonial dependence school emphasizes the unequal power relationships between the developed and less developed countries and blames underdevelopment on conscious or unconscious developed country exploitation, which is perpetuated by a small elite ruling class within the less developed countries
  •  occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency as a store of value, unit of account, and/or medium of exchange within the domestic economy.
  • There are two common indicators of dollarization. The first one is the share of foreign currency deposits (FCD) in the domestic banking system in thebroad money including of FCD. The second measure is the share of all foreign currency deposits held by domestic residents at home and abroad in their total monetary assets. 
  • The biggest economies to have officially dollarized as of June 2002 are Panama (since 1904), Ecuador (since 2000), and El Salvador (since 2001). 
Export Processing Zone (EPZ)    
  • Also know as Free Trade Zone
  • an area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities.
  •  It is a region where a group of countries has agreed to reduce or eliminate trade barriers
Finance Capital
  • Financial capital or just capital in finance and accounting, refers to the funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services.
  •  Real Capital or Economic Capital comprises physical goods that assist in the production of other goods and services, e.g. shovels for gravediggers, sewing machines for tailors, or machinery and tooling for factories.
  • Financial capital generally refers to saved-up financial wealth, especially that used to start or maintain a business
Foreign Direct Investment (FDI)
  • is direct investment into one country by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country. 
  • Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region.
Commodity Futures
  • is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today (the futures price or the strike price) with delivery occurring at a specified future date, the delivery date.
Gold Standard
  • is a monetary system in which the standard economic unit of account is a fixed weight of gold. 
Gross National Product (GNP)
  • is the market value of all products and services produced in one year by labor and property supplied by the residents of a country. 
  • Unlike Gross Domestic Product (GDP), which defines production based on the geographical location of production, GNP allocates production based on ownership.
  • GNP does not distinguish between qualitative improvements in the state of the technical arts (e.g., increasing computer processing speeds), and quantitative increases in goods (e.g., number of computers produced), and considers both to be forms of "economic growth"
Hedge Fund
  • is an investment fund that can undertake a wider range of investment and trading activities than other funds, but which is only open for investment from particular types of investors specified by regulators. 
  • These investors are typically institutions, such as pension funds, university endowments and foundations, or high net worth individuals. 
  • As a class, hedge funds invest in a diverse range of assets, but they most commonly trade liquid securities on public markets. 
Human Development Index (HDI)
  • is a composite statistic used to rank countries by level of "human development", taken as a synonym of the older term standards of living or Quality of life, and distinguish "very high human development", "high human development", "medium human development", and "low human development" countries.
  • The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education, and standards of living for countries worldwide.
  •  It is a standard means of measuring well-being, especially child welfare. 
  • It is used to distinguish whether the country is a developed, a developing or an under-developed country 
  • also to measure the impact of economic policies on quality of life.
International Monetary Fund (IMF)
  •  is an international organization that was created on July 22, 1944 at the Bretton Woods Conference and came into existence on December 27, 1945 when 29 countries signed the Articles of Agreement
  • IMF's stated goal was to stabilize exchange rates and assist the reconstruction of the world’s international payment system post World War II. 
  • Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds on a temporary basis.
  •  Through this activity and others such as surveillance of its members' economies and policies, the IMF works to improve the economies of its member countries.
  • The IMF describes itself as “an organization of 188 countries (as of April 2012), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.” 
Leverage Buyout
  • The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. 
  • Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. 
  • The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

Millennium Development Goals

are eight international development goals that all 193United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015. The goals are:

  • eradicating extreme poverty and hunger,
  • achieving universal primary education,
  • promoting gender equality and empowering women
  • reducing child mortality rates,
  • improving maternal health,
  • combating HIV/AIDS, malaria, and other diseases,
  • ensuring environmental sustainability, and
  • developing a global partnership for development
Mortgage Backed Securities 

A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

  • When you invest in a mortgage-backed security you are essentially lending money to a home buyer or business. An MBS is a way for a smaller regional bank to lend mortgages to its customers without having to worry about whether the customers have the assets to cover the loan. Instead, the bank acts as a middleman between the home buyer and the investment markets. 

Mundell-Fleming Model
  • The Mundell–Fleming model portrays the short-run relationship between an economy's nominal exchange rate, interest rate, and output (in contrast to the closed-economy IS-LM model, which focuses only on the relationship between the interest rate and output). 
  • The Mundell–Fleming model has been used to argue that an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. 
  • This principle is frequently called the "impossible trinity," "unholy trinity," "irreconcilable trinity," "inconsistent trinity" or the "Mundell–Fleming trilemma."
No Income, No Asset (NINA) Loan

is a term used in the United States mortgage industry to describe one of many documentation types which lenders may allow when underwriting a mortgage.

  • the only thing an applicant had to show was his/her credit rating
  • gained wider notoriety due to the subprime mortgage crisis in July/August 2007 as a prime example of poor lending practices.
  • The term grew in usage during the 2008 financial crisis as the sub prime mortgage crisis was blamed on such loans.
Pax Britannica
  • was the period of relative peace in Europe and the world (1815–1914) during which the British Empire controlled most of the key maritime trade routes and enjoyed unchallenged sea power
Post Fordist Production 

 is the name given to the dominant system of economic production, consumption and associated socio-economic phenomena, in most industrialized countries since the late 20th century. 

Post-Fordism is characterized by the following attributes:

  • Small-batch production.
  • Economies of scope.
  • Specialized products and jobs.
  • New information technologies.
  • Emphasis on types of consumers in contrast to previous emphasis on social class.
  • The rise of the service and the white-collar worker.
  • The feminization of the work force.

Shorting a market
  •  is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to that third party. 
  • The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than it received on selling them. 
  • The short seller will incur a loss if the price of the assets rises 
Structural Adjustment Policies
  • the policies implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton WoodsInstitutions) in developing countries. 
  • These policy changes are conditions for getting new loans from the International Monetary Fund (IMF) or World Bank, or for obtaining lower interest rates on existing loans. 
  • Conditionalities are implemented to ensure that the money lent will be spent in accordance with the overall goals of the loan. The Structural Adjustment Programs (SAPs) are created with the goal of reducing the borrowing country's fiscal imbalances.
Transnational Corporations (TNC)
  • A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,[5] TNCs spread out their operations in many countries sustaining high levels of local responsiveness.[6] An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralised headquarters.[7] However, the terms TNC and MNC are often used interchangeably.
  • is a corporation enterprise that manages production or deliversservices in more than one country.
Trade Related Intellectual Property Rights (TRIPS)
  •  is an international agreement administered by theWorld Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.
  • Specifically, TRIPS contains requirements that nations' laws must meet for copyright rights, including the rights of performers, producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents; monopolies for the developers of new plant varieties; trademarks; trade dress; and undisclosed orconfidential information. 
  • TRIPS also specifies enforcement procedures, remedies, and dispute resolution procedures.
  • Protection and enforcement of all intellectual property rights shall meet the objectives to contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.
Volcker Shock
  • The federal Reserve pushed short term interest rates up
  • average 11.2 in 1979
  • raised by volcker to peack of 20% 
  • prime rate rose to 21.5%
  • Volcker kept American interest rates at these extremely high levels until late 1982
  • Reduced manufacturing output
  • Reduced family income by 10%
  • Raised unemployment to 11%
  • Got inflation under 4%
  • oil prices increased
  • raised import cost for LDCs
  • reduced demand from West
World Bank
  •  is an international financial institution that provides loans to developing countries for capital programs.
  • The World Bank's official goal is the reduction of poverty. 
World Trade Organization (WTO)
  • is an organization that intends to supervise and liberalize international trade.
  • The organization deals with regulation of trade between participating countries;
  • it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments[5]:fol.9-10 and ratified by their parliaments.
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