Glossary of intbusines ex1

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Commanding Heights
segments and industries in an economy that effectively control and support the others, such as oil, railroads, banking and steel.
Keynesian Economic Theory
The government should increase spending to stabilize the economy. Popular after WWII. Unpopular after stagflation.
War Reparations
when a country is forced by other countries to pay for damages caused during a war. germany had to pay great war reparations after WWI, which put them in a great amount of debt.
when there is slow economic growth and high unemployment, compounded with inflation
Disadvantages of State-Owned Enterprises
less creativity, less motivation to succeed.
Bretton Woods Conference
created the General Agreement on Tariffs and Trade (GATT), International Monetary Fund (IMF), and World Bank

Moral Hazard
when people behave recklessly because they know if things go wrong they will be bailed out
Troubled Asset Relief Program (TARP)
$700 billion bailout program for financial institutions and automakers.
The Fed used funds to purchase commercial paper and mortgage-backed securities.
A controversial provision of the program is that the employee compensation programs at the firms receiving financial support are subject to review by a “special master” of compensation.
As of December 2009, $175 billion has been repaid.

American Recovery and Reinvestment Plan
$787 billion stimulus package to “jump-start the economy to create and save jobs.”
Package includes funding for infrastructure projects, education, and tax cuts for individuals and businesses.
Popular programs include “Cash for Clunkers” and tax credits for homebuyers.
A controversial provision was the “Buy American” clause.

Budget Deficit versus National Debt
budget deficit is when the government spends more than it makes in taxes in a give year. national debt is compoundment of budget deficit from year to year
Glass-Steagall Act
was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation
Sovereign Wealth Funds
a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally
the shift toward a more integrated and interdependent world economy
Foreign Direct Investment
when a firm invests resources in business activities outside its home country
Intellectual Property / Intellectual Property Rights
property that is the product of intellectual activity, establish ownership rights over intellectual property, patents copyrights and trademarks
Tariffs and Nontariff Barriers to Trade
Nontariff Barriers: any governmental regulation, policy or procedure other than a tariff that has the effect of impeding international trade
Tariff: a tax levied on imported goods

General Agreement on Tariffs and Trade (GATT)
Negotiated after World War II with the main objective of reducing barriers to international trade.
Agreements on tariff barriers and subsidies were negotiated over eight rounds between 1947 and 1993.
The last successful round of negotiations, the Uruguay Round, extended GATT to cover services, enhanced intellectual property right protections and created the World Trade Organization to oversee the international trading system.

World Trade Organization (WTO)
The signatory nations of GATT agreed to create the WTO to supplant the GATT agreement.
The WTO is an institutional body as compared to the series of trade rules that constitute GATT.
Goals are to promote the lowering of barriers to trade and to police member countries’ adherence to WTO agreements.
Provides a forum for settling trade disputes and can impose trade sanctions if a member state has trade policies that violate regulations.
The current round of negotiations, the Doha round, started in 2001 and has yet to achieve its goals, primarily due to conflicts over agricultural subsidies.

World Bank
It was also created in 1944 after the Bretton Woods meetings to promote economic development.
It provides low-interest loans and grants to developing countries for education, health and infrastructure development.

simplifies the transshipment from one mode of transportation to another
The belief that the state should own enterprises and run them for public good rather than private profit.
Some socialist systems focused on controlling the “Commanding Heights” of economies.
Many countries have moved away from state-run enterprises through privatization.

Common Law
Past court decisions act as precedents to form future policies.
The judge plays a significant role as a law maker.
An action is legal unless prohibited.
Contracts tend to be very detailed with all contingencies specified.

civil law
Every law of the country is "codified" or written into comprehensive codes.
An action is illegal unless specifically allowed by code.
The duty of the judge is to apply the law as enacted.

Theocratic Law
A theocratic law system is based on religious teachings.
Islamic law is currently the most widely practiced form of theocratic law.

Islamic Law
A quasi-religious system mostly based on the Koran the teachings of the Prophet Mohammed.
There is no separation of church and state and it regulates all public and private behavior.
regulations for personal hygiene, prayers, fasting, giving to the poor, and many other religious matters

Foreign Corrupt Practices Act
Makes it a criminal offense for an American to offer payment to the officials of other governments for the purpose of getting or maintaining business.
The law does not prohibit grease payments:
minor payments to officials to get them to do what they are supposed to do anyway

Grease Payments versus Bribes
a grease payment is a payment that is made to speed up a process that is going to be finished reguardless
First-Mover Advantages
the advantage gained by the initial occupant of a market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match.
private ownership of enterprises
Theory contends a country should maintain a trade surplus to accumulate wealth by exporting more than it imports.
Maximize exports through subsidies.
Minimize imports through tariffs and quotas.
Economists later argued that no country could sustain a surplus in the balance of trade in the long run.

Theory of Absolute Advantage
Countries should engage in trade when they have an absolute advantage in their ability to a produce good efficiently.
A country should produce only goods where it is most efficient, and trade for those goods where it is not efficient.

Ricardo’s Theory of Comparative Advantage
Demonstrates that countries can benefit from trade even if a country has an absolute advantage of production in all products.
A country should specialize in the production of goods that it produces most efficiently and buy the goods it produces comparatively less efficiently from other countries.
A nation may import products even when it has an absolute advantage in the production of that product.

Heckscher-Olin Theory
Purports that differences in factor endowments and factor costs determine comparative advantage.
Countries should export goods that intensively use factor endowments which are locally abundant and import goods made from locally scarce factors.

Leontief Paradox
Actual trade patterns are not always consistent with predictions based on the Heckscher-Olin Theory.
A limitation of the Heckscher-Olin Theory is that it assumes that technology is the same across countries but differences in technology may lead to differences in trade patterns.
Statistically controlling for differences in technology in empirical studies increases the predictive power of the Heckscher-Olin Theory.

Product Life-Cycle Theory
Originally based on conditions in the mid 20th century when U.S. firms created new products and initially made and sold them in the U.S.
Then sales in advanced nations were followed by local production in advanced nations.
As the industry matured in the U.S. and advanced nations, price became the main competitive weapon. Production then shifted to lower labor cost countries.

New Trade Theory
Contends that countries sometimes specialize in the production and export of certain products not because of underlying differences in factor endowments but because of economies of scale and first mover advantages.

Statistical Discrepancies
gross domestic product less gross domestic income
he economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports, and prevent foreign take-over of native markets and companies.
Government payments to domestic producers that lower production costs.
Cash grants, low-interest loans, tax breaks, or government equity participation

Import Quotas
Restriction on the quantity of a good to be imported into a country.
Can be enacted by issuing import licenses to a limited number of firms.
With a tariff rate quota, a lower tariff rate is applied to imports within the quota than those above the quota.

Tariff Rate Quota
a lower tariff rate is applied to imports within the quota than those above the quota.
Voluntary Export Restraints
Quota on trade imposed by exporting country, typically at the request of the importing country.
Countries agree to voluntary export restraints to avoid other trade actions.

countries agree to avoid further trade actions

Quota Rent
the difference between the demand price and the supply price at the quota limit
Local Content Requirements
Requires some specific fraction of a good to be produced domestically.
Requirement can pertain to a minimum percent of component parts or a percent of the value of the good.
Used by developing nations to promote economic development.

Administrative Trade Policies
Bureaucratic rules designed to make it difficult for imports to enter a country.
Seemingly neutral administrative rules regarding certification procedures, food safety requirements, environmental standards, product safety, etc., may be designed to create barriers to imports.

Anti-dumping actions

Designed to prevent foreign firms from:
Selling goods below production costs
Selling goods below fair market value
Countervailing duties are assessed if the government believes that the foreign firm has engaged in dumping

Countervailing Duties
assessed if the government believes that the foreign firm has engaged in dumping.
Smoot-Hawley Act
raised U.S. tariffs on over 20,000 imported goods to record levels. The ensuing retaliatory tariffs by U.S. trading partners reduced American exports and imports by more than half and according to some views may have contributed to the severity of the Great Depression.
Beggar-Thy-Neighbor Trade Policies
policy that seeks benefits for one country at the expense of others
Principles of the World Trade Organization
It’s a set of rules
Documents provide the legal ground-rules for international commerce for signatory nations.
It’s a negotiating forum
Provides a process for member governments to try to sort out the trade problems they face with each other and to help trade flow as freely as possible.
It’s a forum for settling disputes
Provides neutral procedures for interpreting and enforcing WTO agreements.

Goals of and challenges with the Doha Round of trade negotiations
Limit use of antidumping policies.
Reduce high levels of protectionism in agriculture.
Provide greater protection of IPRs.
Further reduce tariffs on industrial goods and services.

Presidential Fast Track
the authority of the President of the United States to negotiate agreements that the Congress can approve or disapprove but cannot amend or filibuster.
Most-Favored-Nation Policy
a status or level treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must, nominally, receive equal trade advantages as the "most favored nation" by the country granting such treatment
GATT Article 24
permits member countries to form a CU or FTA. The EC adopted VILs to keep out agricultural products, lowered duties to many African and Mediterranean countries, which are not extended to other GATT contracting parties.
Regional Economic Integration
Regional trading blocs are increasing in importance and may pit one bloc against another.
Regional trade agreements may be diverting more trade than they are creating.
The comprehensive trade packages discussed under the WTO are broader in scope and would more efficiently use the world’s resources.

Political Structure of the European Union
The Council represents the individual member states and is the legislative arm of the EU.
Consists of ministers from the national governments with one representative per member state per topic.
There are nine configurations of the Council depending on the topic to be discussed, including Economic and Financial Affairs, Agriculture, and Education.
Votes are proportional to country size but the votes are weighted in favor of smaller countries.
Most decisions are made by majority vote, but some sensitive issues require unanimity.

Copenhagen Criteria
The Copenhagen criteria are the rules that define whether a nation is eligible to join the European Union. The criteria require that a nation have the institutions to preserve democratic governance and human rights, a functioning market economy, and that the nation accept the obligations and intent of the EU.

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