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World Economy Lecture 2

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Clara Volintiru

on 5 March 2014

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Transcript of World Economy Lecture 2

World Economy Lecture 2
Trade liberalization
as a consequence of free trade agreements
multiplication effects
Diminishing costs of production

Instruments of the state
Monetary Policy
Role of the state
Economic growth
(GDP, GNP, GDP per capita) vs.
Fiscal Policy
Trade Policy
Monetary Policy
is the process by which the government, central bank, or monetary authority manages the supply of money, or trading in foreign exchange markets
Expansionary Policy
--> increases the total supply of money, by
lowering interest rates

targets unemployment
Contraction Policy
--> decreases the the total supply of money, by
increasing interest rates

targets inflation
Fiscal Policy
Trade Policy
(Chase-Dunn, Kawano, Brewer 2000)
is a large axial division of labor with multiple political centers and multiple cultures
(Wallerstein 1987)
contemporary international economic system is more closely integrated than in any previous era
. The global financial crisis that began in 2008 provides a clear illustration of the relationship between
trade, finance, international institutions
, and the difficulties that governments fave in coping with the problems generated by
complex interdependencies
(Ravenhill 2014)
(trade between national economies, interconnectivity)
(transnational flows of capitak and other resources, foreign investments, MNCs, Bretton Woods world economy)
'market failures'
World Economic System
Multinational Companies (MNCs)
International Institutions
- ‘Effective and legitimate governance requires agreement on the purpose of the international economy’
(Gilpin 2001:11)
various markets ( e.g. financial, labour, trade) - various approaches (e.g. laissez-fair, regulated)
Economic Globalization

(Gilpin 2001)
Growing income inequality

within nations
High chronic levels of
(esp. developed countries like Western Europe)
(e.g. Spain 40%, 'lost generation', NEETs!!!)
Environmental degradation
Unregulated international financial flows
(with negative consequences on national economies) -->
'Reasonable estimates say that the
Transatlantic Trade Partnership (TPP)
could boost the annual world output by
$600 billion
The Economist, 22nd February 2014
: price stability, full employment and economic growth
the actions of a government in setting the level of public expenditure and how that expenditure is funded.
Expansionary fiscal policy
- increase in government purchases of goods and services, and/or decrease in net taxes.
Contraction fiscal policy
- decrease in government purchases of goods and services, and/or increase in net taxes
Neutral fiscal policy
- no intention of affecting economic activity y

Taxes are applied to
individual income
corporate income --> debate on their effectiveness
Minimalist state
- basic functions (e.g. defense and law enforcement) (
laissez-fair doctrine
) - individual welfare is sourced in the multiplication effects of private economic activity
Maximal stat
- welfare and 'stimulative' functions beyond the basic ones (e.g. infrastructure development, research and education, social protection) -
debate on the need for '
safe nets
World Economic System
: Components and Inter-dependencies

government policy controlling foreign trade

Free trade policy
Protectionist trade policy
: tariffs, non-tariff barriers: import quotas, export subsidies, national procurement, voluntary export restraints, national procurement, red-tape barriers
Full transcript