International Economics & Industrial Policy: A Comprehensive Guide

Posted on Nov 1, 2024 in Economy

International Economics and Industrial Policy

Key Concepts and Questions

Industrial Policy and Economic Growth

Question 1: Industrial Policy and Sectoral Protection

Protecting specific sectors can lead to a proliferation of companies within those sectors. Economies of scale can favor monopolies. A higher “employment threshold” requires more production growth to generate employment. “Appropriability” is a sophisticated argument for industrial policy.

Question 2: Exchange Rates and Trade

A shift from an exchange rate of 2 euros/$ to 1.5 euros/$ increases European imports. Promoting intermediate goods industries is a common argument for industrial policy. Export-led growth based on primary products can worsen terms of trade. Devaluation can increase effective demand.

Question 3: Sophisticated Arguments for Industrial Policy

The existence of monopoly profits is a sophisticated argument for industrial policy.

Trade and Tariffs

Question 4: Tariffs and Economic Growth

Reducing tariffs generally benefits a country’s economy.

Question 5: Inflation and Interest Rates

During high demand-pull inflation, governments should raise interest rates.

Question 6: Technological Modernization

Tariff reductions can stimulate technological modernization.

Question 7: Exchange Rates and Competitiveness

A shift from 0.95 euros/$ to 0.70 euros/$ increases American companies’ competitiveness.

Multinational Enterprises and Trade

Question 8: Multinational Structures

Branches lack the independent commercial and financial forms of other multinational structures.

Question 9: Protectionism and Exports

Protecting the domestic paper market from foreign competition would likely reduce the export earnings of domestic book exporters.

International Organizations and Agreements

Question 10: IMF and Gold Reserves

IMF members must deposit 25% of their quota in gold.

Question 11: WTO and Most-Favored-Nation Clause

The most-favored-nation clause prevents WTO members from selectively applying tariff reductions to some members but not others.

Question 12: International Expansion and Technology

A high technological level is conducive to the international expansion of domestic firms.

Question 13: Euro Appreciation and Competitiveness

Euro appreciation against the dollar makes European businesses less competitive.

Question 14: Tripartite Agreement of 1936

The Tripartite Agreement aimed to establish fixed exchange rates between the US, France, and Britain.

Industrial Policy and Resource Allocation

Question 15: Industrial Policy in Advanced Countries

Industrial policy is used in advanced countries to shift resources between sectors.

Question 16: Central Bank Intervention and Exchange Rates

To counter downward pressure on its currency, a central bank should buy its own currency in the international market.

Employment and Tariffs

Question 17: Employment Thresholds

Italy, with a 2.5% growth requirement, has the highest employment threshold compared to France (1.5%) and Germany (2%).

Question 18: Tariff Types

A tariff of one hundred pesetas per imported bicycle is a specific tariff.

Self-Sufficiency and Specialization

Question 19: Population and Specialization

Larger economies, like country C with 40 million inhabitants, are more likely to achieve higher specialization under self-sufficiency.

Question 20: Income and Basic Needs

Individuals with lower incomes, like the one with 30,000 pts, allocate a higher percentage of their income to basic needs.

Question 21: Protectionism and Exports

High protection for the leather and skins industry would likely reduce shoe exports.

Market Equilibrium and Inflation

Question 22: Excess Demand and Price Adjustments

When planned expenditure exceeds productive capacity, prices increase to restore market equilibrium.

Question 23: Core Inflation

“Core inflation” excludes volatile items like wheat.

Question 24: Exchange Rates and Competitiveness

A shift from 0.65 euros/$ to 0.80 euros/$ increases EU business competitiveness.

Question 25: Theoretical Analysis of Input and Output

Theoretically, when industry input increases, output increases proportionally.

Question 26: Energy Crisis Factors

The contraction in US oil stocks contributed to the energy crisis.

Question 27: GATT and Most-Favored-Nation Clause

The most-favored-nation clause in GATT prevents discriminatory tariff reductions.

Question 28: Bretton Woods and Exchange Rates

The Bretton Woods system aimed to set exchange rates based on pre-WWII trade patterns.

Question 29: Comparative Advantage and Trade

Even if one country is more efficient at producing two goods, trade can still occur if opportunity costs differ.

Question 30: Cost-Push Inflation

Reduced supply of an input can contribute to cost-push inflation.