Latin American Economics

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What are the ten tenets of the Washington Consensus, as delineated by John Williamson?: -Fiscal discipline
-Public expenditure prioritization
-Tax reform
-Market determined, modest interest rates
-Competitive exchange rates
-Import liberalization
-Unrestricted FDI
-Privatization
-Deregulation
-Property rights
What is Ricardian equivalence?: The notion that individuals adjust their savings behavior to anticipate future taxation, so that whether public expenditure is financed by taxation or bonds has no impact on aggregate demand.
What does the primary deficit not take into account?: Interest payments
Does the Washington Consensus support or discourage sustained fiscal deficits?: Discourage
How does the Washington Consensus feel about subsidies?: They should be eliminated when possible
Name at least 2 sectors deemed appropriate for public expedinture by the Washington Consensus.: Health care, education, public administration
The Washinton Consensus believes the tax base should be _______ and the marginal tax rate should be ______.: Broad, moderate
According to the Washington Consensus, how should interest rates be determined?: By the market
What does the Washington Consensus say about exchange rates?: They should be competitive, and preferably market-determined
According to John Williamson, what is the worst form of protection?: Import licensing
According to the Washington Consensus, what should a country's attitude toward foreign direct investment be?: Liberal, encouraging
Would a policy recommendation be positive or normative economics?: Normative
What are the two extremes that determine the far left and far right in economics?: Complete laissez-faire, complete government control
What two countries are cited as exceptions to the general Latin American trend of increased access to foreign capital?: Ecuador, Argentina
What country is cited as an exception to the general trend of a friendlier attitude towards foreign direct investment?: Venezuela
What two countries are cited as exceptions to the trend of convergent monetary policy?: Argentina, Venezuela
What country is cited as an exception to the trend of a preference for floating versus fixed exchange rates?: Ecuador
What country is cited as an exception to the trend of diminished state participation in the economy?: Venezuela
What two countries are cited as exceptions to the trend of consolidation of democracy?: Venezuela, Argentina
What are the four basic components of a government budget?: Tax revenues, non-tax revenues, current expenditures, capital expenditures
Into what two categories is 'current expenditures' divided?: Interest, non-interest
What are the four primary methods governments can use to finance budget deficits?: Sale of debt to resident investors, sale of debt to non-resident investors, sale of debt to central bank, sale of state assets
What are factor services?: The cross-border services of factors of production such as capital (loan capital or equity capital) and laor (migrant workers)
What is the largest component of unrequited transfers in Latin America?: Remittances from abroad
What are the two main components of the current account?: Commerce in goods and services, plus unrequited transfers
What is the trade balance?: Merchandise exports minus merchandise imports
What is added to the trade balance to arrive at the current account balance?: Factor service balance, non-factor service balance, unilateral transfers
Do higher foreign purchases of local debt increase or decrease the capital account balance?: Increase
Do higher domestic purchases of foreign securities increase or decrease the capital account balance?: Decrease
Does incoming foreign direct inestment increase or decrease the capital account balance?: Increase
Do foreign deposits with local banks increase or decrease the capital account balance?: Increase
What is the balance of payments?: The summary accounting for all of a country's international transactions over a given period (a flow concept).
How is the balance of payments calculated?: Balance of payments = the sum of the current and capital accounts (must equal 0)
What is the basic GNP equation?: GNP = C + I + G + X - M
What is the basic equation for national savings?: National savings = R + GNP - C - G
What is the basic equation for a current account deficit?: Deficit = M - X - R
What is the basic equation for investment, taking into account foreign remittances?: Investment = [R + GNP - C - G] + (M - X - R)
What is the basic equation for a government deficit?: Deficit = G - T, or expenditures minus taxes
What two countries escaped the negative growth trend in the 80's?: Colombia, Chile
What were the only two countries experiencing positive per-capita income growth in the late 90's?: Mexico, Chile
What are some of the adverse effects of income inequality?: Violence, weak institutions, increased difficulty in responding to economic shocks
What were some of the dominant external influences on Latin America's economies during the late 90's?: Upward pressure on interest rates, strengthening activity in industrial countries, contagion from emerging market crises
What is the Mexican 'sexenio' curse?: The tendency for outgoing presidents to devalue the currency at the end of their 6-year term
What president took power when the Mexican sexenio trend was broken?: Vicente Fox
What was the purpose of Mexican president Miguel de la Madrid's pacto de solidaridad?: To curb inflation
What does Weintraub mention as the main cause of inflation in Mexico during the 70's?: Public sector deficits
What president nationalized banks in Mexico in 1982?: Jose Lopez Portillo
What are Mexican cetes?: Treasury certificates denominated in pesos
What are Mexican tesobonos?: Treasury bonds denominated in pesos but indexed to the dollar
What internal 1994 political event does Weintraub say lowered Mexico's foreign reserves by $10 billion?: The assassination of presidential candidate Luis Donaldo Colosio
What is a Tobin tax?: A tax on international capital movements
What is the moral hazard issue concerning the Mexico bail-out?: The concern over the rescue of international investors sending money to Mexico looking for high profits
What external 1998 economic event caused Brazil's economy serious problems?: Russia's default
How did Brazil and Mexico differ during their respective crises in terms of foreign reserves?: Brazil lost $30 billion in one month, which took Mexico a full year to lose
What changes did the IMF make Brazil take with their currency during the Sept. 1998 bailout agreement?
When did Brazil finally allow its currency to float?: January 1999
What Argentine Economy Minister introduced the convertibility system in 1991?: Domingo Cavallo
What was the Argentine peso pegged to in 1991?: The US dollar
What caused the overvaluation of the Argentine peso after 1991?: The appreciation of the dollar
What Argentine president resigned in December 2001?: Fernando de la Rua
What caused the deterioration in Latin America's terms of trade just after the 1997 crisis?: Sharp fall in the price of commodities in international markets
According to Bour, what was the country most affected by the external environment?: Brazil
What three effects does Bour say the Russian crisis had on Latin America's economies?: Negative shock to commodity prices, terms of trade shock, and credit rationing shock
What is the Mead-Salter-Swan-Dornbusch model?: Illustrates that, in reducing a current account deficit, expenditure-reducing policies must be accompanied by expenditure and output-switching policies to keep internal balance (unemployment) under control.
According to Ocampo, what were the main features of the early 90's in Latin American economies?: Increased inflows of external capital, real appreciation of local currencies, and reduced inflation
What is the main purpose of the Copper Stabilization Fund and the Petroleum Stabilization Fund in Chile?: To reduce the volatility of consumer prices or the income received by public and private economic agents
What is the liquidity ratio?: M2/GDP

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