INS3003 EXAM 2 FSU EXAM newest actual

INS3003 EXAM 2 (FSU) EXAM newest actual / | QUESTIONS & ANSWERS (VERIFIED) | verified | GRADED A+

UN Monetary & Financial Conference - Bretton Woods (1944) - ----Answers__----44 ally countries at Bretton Woods conference -Goal of the Bretton Woods conference was to put into place this new international economic system

Harry Dexter White & John Maynard Keynes - ----Answers__- ---White was representing the US Treasury and Keynes was representing the British Treasury -Keynes was FOR economy being controlled by government -Bretton Woods system is more of a moderate Keynesian approach -entails state regulation of the economy, but not as severely as Keynes would like

Bretton woods= 4 agreements/ institutions - ----Answers__-- -1. Dollar/Gold Standard -Keynes would have preferred a neutral international currency, but the US pushed for the dollar and was the one financing this

• International Monetary Fund (IMF) 1 / 4

-A new body designed as a massive emergency bank -When a country cannot deal with an economic issue on its own, the IMF

• is the reserve bank to provide the necessary money

-We do not want another country to experience such an economic crisis that it leads to political instability -BUT, money always comes with conditions -If a country has to appeal to the IMF, the IMF will study that country's economy and tell that country what it must do to fix its problems

• International Bank for Reconstruction and Development

(IBRD)

-Designed to provide loans to countries undergoing the rebuilding process -Was not able to provide enough money to Europe—it got worse in Europe before it got better -Now called the World Bank

• General Agreement on Tariffs and Trade (GATT)

-"The Little Engine that Could" -Seems to be the smallest of the agreements, but it drives everything else forward -If the purpose of the conference is to revitalize international trade, then the GATT had to work -The goal of the GATT was to promote free trade amongst its member states 2 / 4

-Most Favored Nation -Whatever you agree to with 1 power or nation, it applies to everybody -This prevents regional trade blocs from developing -Designed to bring tariffs down because tariffs block the flow of goods -Now called the World Trade Organization

Early blip in the system - ----Answers__---A. Dollar Shortage & Convertibility Crisis -As Europe was repaying war debt, dollars were flowing into the USA.-There was a dollar shortage outside of the USA -While Europe was so weak economically, the Bretton Woods system could not function -The high demand but low supply of the dollar threatened to raise the value of the dollar -This would make US export goods very expensive and further increase the dollar shortage

-Reached crisis status in 1947: Europe could no longer convert

their currency into dollars

• Options...

-Europe could devalue their currency to increase their exports, but they weren't producing enough for this to be beneficial 3 / 4

-France devalued its currency by 80%, and then its currency became worthless -Restrict the economy through austerity (usually has to do with government spending) -This would mean NOT buying the goods that the countries need to rebuild -Europe needed CAPITAL (specifically, dollars) -This is how Europe recovered -USA provided Europe dollars so that Europe could repay its debt, finance reconstruction, get industries producing again, and start trading on international market

A global problem - ----Answers__----Europe's economic crisis threatened to affect the USA economy -If Europe could no longer buy our goods, that would be bad for us -The USA was looking to create a GLOBAL economic system, but the USA would have to be the banker for this -In the years following WWII, USA provided 9 BILLION dollars in loans and aid to Europe -This was not enough—the money funneled right back to the US to pay off debt and pay for goods -Loans came from the IBRD, but the IBRD did not have the funds to pull Europe out of this crisis—required something more (the Marshall Plan)

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