International Politics (Chapter 9)

how is a national monetary system a classic public good?

the price at which one currency is exchanged for another

in terms of a currency, to increase in value in terms of other currencies

in terms of a currency, to decrease in value in terms of other currencies

to reduce the value of one currency in terms of other currencies.

how do higher interest rates effect the demand for currency?

an important tool of national governments to influence broad macroeconomic conditions such as unemployment, inflation, and economic growth. Typically, governments alter this by changing national interest rates or exchange rates.

the institution that regulates monetary conditions in an economy, typically by affecting interest rates and the quantity of money in circulation.

if the central bank wants to stimulate the economy, what does it do?

if the central bank wants to stimulate demand for its country's products in world markets and help local producers, what does it do?

an exchange rate policy under which a government commits itself to keep its currency at or around a specific value in terms of another currency or a commodity, such as gold.

the monetary system that prevailed between around 1870 and 1914, in which countries tied their currencies to gold at a legally fixed price.

an exchange rate policy under which a government permits its currency to be traded on the open market without direct government control or intervention.

this is the monetary order negotiated among the World War II allies in 1944, which lasted until the 1970s and which was based on a U.S. dollar tied to gold. Other currencies were fixed to the dollar but were permitted to adjust their exchange rates.

a monetary system of fixed but adjustable rates. Governments are expected to keep their currencies fixed for extensive periods but are permitted to adjust the exchange rate from time to time as economic conditions change.

GENERAL NOTE: BRETTON WOODS MONEY SYSTEM the Bretton Woods system meant that the U.S. dollar's value could not change (it was fixed at $35 per ounce of gold). Other governments also fixed their currency against the dollar, but the national government of a country other than the United States could devalue or revalue its currency's value if it felt a change was necessary.

GENERAL NOTE: PROS AND CONS OF FIXED EXCHANGE RATE Pros: fixed exchange rates provide currency stability and predictability, which greatly facilitate trade, investment, finance, migration and travel. Cons: a fixed rate reduces or eliminates a government's ability to have its own independent monetary policy, which can be costly (can't alter interest rates to stimulate economy)

which type of people in a country are more likely to favor a floating exchange rate?

why type of people in a country are more likely to favor a fixed exchange rate?

which type of people in a country are more likely to favor a strong exchange rate in comparison to other currencies?

which type of people in a country are more likely to favor a weak exchange rate in comparison to other currencies?

this is one of the core functions of the institutions of national government. It provides predictability in the value of money and thus in the prices of goods.

this has to provide predictability in currency values across borders. If traders, investors, tourists, and others had no idea what exchange rates would be tomorrow or next week, they would be very reluctant to engage in exchange across borders. For the international economy to work well, there must be some predictability.

in the absence of world government and a world money, what are the two things that were used in history as common denominators for international relations? (2)

a formal or informal arrangement among governments to govern relations among their currencies; the agreement is shared by most countries in the world economy.

what are the two principal features of international monetary regimes?

what are the three standards that have been used over time to compare currencies?

this uses a good with value of its own as the basic monetary unit. Typically, this involves a precious metal such as gold or silver. For example, all major national currencies had a fixed value in terms of gold from 1870 to 1914.

this is similar to the Bretton Woods monetary susyem that prevailed from 1945 to 1973. Under this, national governments issue paper currency with a fixed value in terms of gold (or some other commodity). This is one step removed from a pure gold standard, as it requires that governments be able to commit credibly to stand ready to redeem the currency for gold. Under this, national currency values are comparable because they are all expressed in terms of a common commodity.

under this system, national currencies are only backed by the commitments of their issuing governments to support them. In this context, people want to know that the government will act to ensure that the national currency continues to be valuable. This may not mean committing to a fixed rate; it does mean committing to the currency not losing so much value as to become undesirable.

during the 1896 United States presidential election, the populist's campaign was largely focused on switching from the gold to silver standard, what two things would this have done? Many farmers wanted this.

why did Germany agree to the currency union in Europe when everyone's currency was pegged to Germany's already? (3)

when do currency crises' usually occur?

GENERAL NOTE: HOW DOES A CURRENCY CRISIS OCCUR? the government commits itself to a particular exchange rate, over time, for some reasons, the government faces economic and political difficulties in maintaining a fixed rate. as the government faces increasing pressures to devalue the currency, people begin to doubt the credibility of the government's commitment to keep the exchange rate stable. This unease gives investors strong reasons to sell the nation's currency. eventually, the gov runs out of time and the currency is devalued. Anyone in the nation with debt problems is immediately screwed, and recessions is almost always inevitable. Uncertainties in one country can also lead to uncertainties in others as well.