PEST Final Exam

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PEST Final Exam
Thursday 100- 230 p.m.
Additional Office Hours All Day
Wednesday Economics Section Format. Two
sections (1) choose and answer 4 short answer
questions (2) choose and answer 1 essay
question.
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Question 1
GDP (GROSS DOMESTIC PRODUCT) Definition The
value of all final goods and services produced
within a nation in a given year.
Economic growth is the increase in value of the
goods and services produced by an economy.
Specifically, it is the percent rate of increase
in GDP during some period of time, usually
measured in quarters or years.
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Question 2
Per capita income is used by economists to
measure poverty and living standards in developed
and developing nations. Per Capita Income, or
Income per Person Gross Domestic Product
(GDP) ------------------------------------------ P
opulation
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Question 3
The Major Arguments of the Economic Nationalists
1. State power is an inherent part of economic
success and industrial progress. 2. All
industrialized nations have used protectionist
policies such as tariffs and export subsidies in
the past to promote and encourage domestic
industry and economic growth. 3. The best way
for a nation to achieve economic stability and
growth is to protect and promote 'infant
industries' (that is, new or young industries).
The Infant Industry Argument. 4. The theories of
the classical economists (economic liberals) only
apply to a particular nation at a particular
time--Britain during the 19th century.
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General Policies Recommended by Economic
Nationalists

• 1. Promote infant industries by regulating
  trade.
• enact tariffs, quotas, and outright trade
  restrictions on foreign goods
• encourage imports of raw materials (free trade in
  raw materials)
• expand exports to foreign nations

2. Enhance transportation infrastructure within
a nation.

• roadways, railroad systems, canals, and other
  modes of transportation

3. Promote education and technological
progress.

• subsidize research and development
• create patent system to promote innovation
• encourage certain types of immigration (skilled
  workers)
• attract labor required for industrial growth

• 4. In general, encourage the spirit of
  national enterprise
• National bank

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Question 4
A number of conditions in postcolonial American
society gave birth to a stronger US state and the
rise of American protection beginning in 1789
(1) A severe economic depression deepened in the
years which followed American independence in
1783 (2) The British Industrial Revolution led
to the massive export of cheapening commodities
to the United States. Unprecedented British
output required new markets, of which the United
States became one of the most important.
(3) Increasing British imports threatened
competing US producers as well as other groups in
US society, thereby deepening the US economic
crisis. (4) While the US State prior to 1789
lacked the power to regulate trade on a national
basis, the British state controlled and
restricted the global trade of American
commodities in a variety of ways, including US
trade routes to the West Indies. Many American
statesmen believed a strengthened government
would be able to force necessary trade agreements
with Britain.
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Question 5
Why does the modern nation-state exist? In
part, to promote industrialization and economic
development the growth of domestic industry.

• EXAMPLE In American society, the
  industrialization drive begins with the Tariff
  Act of 1789.
• The goal of the government became that of
  promoting and encouraging new industry in order
  to benefit both manufacturing and agriculture
• promote technological advance and scientific
  development.
• apply scientific achievement to the economy.
• develop national infrastructure (roadways and
  transportation systems).
• create new national systems of finance (national
  bank).
• This policy further develops in the United States
  after 1789, and by 1820 becomes so prominent as
  to be called the "American System."

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Question 5
Other examples

• Friedrich List visits the US during the 1820s.
• Learns of the American System and brings ideas
  back to Germany.
• List leads the charge for a German customs union
  called the Zollverein, which forms one condition
  of the modern German nation-state and subsequent
  state-sponsored industrialization.
• During a visit to Germany in the 1870s, Okubo
  Toshimichi learns of the Hamilton-List tradition.
  
• Okubo returns to Japan and founds the Ministry of
  Home Affairs to promote Japanese industry.
• In 1874, he publishes Proposal for Industrial
  Promotion, which calls on the new government to
  induce and monitor the weak entrepreneurs to
  produce industries.

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Question 6
Adam Mueller

• One of the leaders the Romantic movement in
  Germany.
• German Romanticism emphasized the community of
  souls and the merging of the individual into a
  larger whole.
• Mueller argues that society should be, and is, an
  organic whole, not a collection a warring
  self-interested individuals.
• For Mueller, capitalism and the theories of Smith
  and Ricardo led to a disruptive atomization of
  society (that is, one based on the individual and
  not the organic social whole).
• Mueller's solution we must go back in time, to
  the feudal society that marked the Middle Ages

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Question 7

• Plato
• The pursuit of money and increasing foreign trade
  are sources of social conflict.
• In Laws, Plato argues that trade, fills the land
  with wholesaling and retailing, breeds shifty and
  deceitful habits in a mans soul and makes the
  citizens distrustful and hostile.
• For Plato, communal property is needed--common
  property becomes the basis of his ideal Republic.
  Plato is the first thinker to introduce the
  notion of communism defined as communal property
  as a solution to social conflict, and in this
  sense, he is the intellectual founder of
  communism.
• Aristotle
• The source of social conflict is not private
  property. The underlying issue is rather the
  desire for monetary gain in short,
  profit-seeking.
• True wealth, Aristotle argues, is the stock of
  things that are useful in the community of the
  household or the polis.
• Aristotle defines economics as the creation of
  useful goods, of satisfying true human needs.
  Production is about the natural process of
  obtaining food, clothing, and other material
  goods required to satisfy lifes needs.
• For Aristotle, human needs are limited in scope.

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• Influence of Aristotle on the European Socialists
• Louis Blanc "from each according to his
  abilities, to each according to his needs."
• The modern economy should not be based on
  self-interest, but rather designed in such a way
  as to satisfy human needs, as Aristotle argued.

• Robert Owen (coined the term socialism)
• A new type of community must be created
• Like Aristotle, Owen argued that this new
  community should be based on proper character and
  morality.
• Major work Essays on the Principle of the
  Formation of the Human Character
• Example Communities New Lanark, Scotland. New
  Harmony, Indiana.

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Plato and Communism in Practice

• General characteristics of new state required by
  Plato
• Strict discipline and subordination of the
  individual to the group.
• Control of the state by the few.
• State control of morality (creation of proper
  morals).
• State control of music to instill proper
  morality, as determined by the few of the state.

• Economic Goals as defined by Plato
• Complete self-sufficiency.
• No foreign trade no foreign contact no
  immigration or emigration. Strict control of
  foreign visitors and foreign travel.
• Isolation as far as possible from any foreign
  influences. In short, the State would be
  mono-cultural, not multicultural.
• State control of trade, agricultural production
  and distribution, as well as manufacturing.
• Price controls and strict limitation of profit.
• Living standards should be little above the
  subsistence level.
• Technology considered as unnecessary and source
  of conflict in society.
• Practiced in North Korea, the Soviet Communist
  System, and Cuba

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Question 8
Three main resources are required for most types
of production 1. Natural Resources (forests,
oceans, land, minerals, etc.) 2. Labor Resources
(physical and intellectual capacities of human
beings) 3. Technological Resources (tools,
instruments, machines)

• Technology seems to be as old as humankind.
• Every society and civilization seems to have
  utilized technology to some degree.
• The use of technology is one defining
  characteristic of the human species, and one
  important way in which economic systems differ.

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Question 9

• In the 1940s, Joseph Schumpeter begins to
  criticize the neoclassical understanding of
  technology.
• Schumpeter argues that technology is an inherent
  part of modern society, and that technological
  change is an integral component of the modern
  economic system of industrial capitalism.
• Technology is a source of change in modern
  society, a creative force that tends to destroy
  older ways and means of producing, as well as old
  and inefficient firms.
• Schumpeter calls this process the 'perennial gale
  of creative destruction.'

Schumpeter, influenced by Marx, argues that
competition between producers in modern society
creates the underlying drive and impetus for new
technology development. (1) Driven by profit,
firms constantly seek to create new products for
consumers. This drive animates technological
change in consumer markets and modern society
itself. Example record playercassette player
- 8-track CD playerMP3 playeriPod (2) In
addition, firms seek new methods or ways to
create goods during the process of production in
order to gain cost advantages and market power.
Example manual labor mechanized production
assembly line advanced robotics Technologic
al advance thus marks both CONSUMPTION and
PRODUCTION in modern industrial society.
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Question 9

• Schumpeter and Marx argue that technological
  change can create concentration in industries,
  securing monopolies and oligopolies.
• Companies that introduce new technology often
  realize an advantage over competitors. First,
  they can sell existing products for a cheaper
  price. Second, they can introduce entirely new
  products for which there is no existing
  competition.
• For Schumpeter and Marx, the economic system
  itself produces technological change and advance.
  Rapid technological change therefore has certain
  economic dimensions it results in part from the
  operation of the modern economic system.
• In short, rapid technological advance results
  from competition and the drive for profit that
  help define capitalism.

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Question 9

• Thorstein Veblen also believed that technology
  lay at the heart of modern society.
• Veblen argues that human beings are inherently
  creative, showing an inner desire to create
  something new. They desire to solve problems and
  realize objectives.
• For Veblen, innovation and creative thinking are
  part of what it means to be human. Technological
  advance is not so much a product of the
  environment of industrial capitalism in a way,
  modern industrial society is the product of
  innate technological advance and human
  creativity.
• Example Open-Source Movement Linux
• Veblen introduces new and interesting questions
  Is technological change a result of the market
  system of profit-seeking, or the result of an
  inherent need that humans have to create?
• Could profit-seeking even thwart human
  creativity? Some companies buy out competitors
  in order to keep their technology from reaching
  the market. Or develop technology that is then
  kept from the market. Others attempt to sabotage
  the technology of competing companies.
• FUD (Fear, uncertainty and doubt). Microsoft.

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Question 10

• Technological advance seems to give some nations
  an economic advantage over other nations. Most
  modern nations therefore attempt to promote
  technological development via economic policy.
• The encouragement of technological development is
  an important part of economic nationalism and the
  modern nation-state.
• Every society must obtain technology somehow,
  even societies that see technology as producing
  negative social outcomes.
• Soviet Union and the Five Year Plan
• North Korea and reverse engineering.

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Question 10
Why are technological advances so effective in
modern society? Often, new technology is
labor-saving, and provides a way to reduce labor
cost.

• The Industrial Revolution itself begins in Great
  Britain with a technological breakthrough.
• Production of clothing required introduction of
  the spinning jenny. Within that one invention,
  British industry could produce clothing in
  1/374th the time that it took competitors,
  creating a great cost advantage for British
  producers.
• This type of technological advance would mark the
  Industrial Revolution in Europe, the US, and
  Japan, including such examples as the assembly
  line and mass production. Such technological
  advance marks nearly all industries today.

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Question 10 Some effects of technology (just
look over these graphs for an idea of
technologys social impact)
Output and Living Standards 2000BC - 2000AD
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Question 10 Some effects of technology
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Question 10 Some effects of technology
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Question 10 Some effects of technology
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Question 10 Some effects of technology
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Question 10 Some effects of technology
US Industrial Revolution (1870)
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Question 10 Some effects of technology
(negative, in this case)
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Question 11
Some reasons for poverty in the Third World
Lack of technology, low industrial growth,
poorly developed international trade, inadequate
education, poor health care.
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Question 11

• A vicious cycle a poor country cannot adequately
  fund education, health care, or advanced
  technologies, so it stays poor.

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Question 12
Piecemeal social engineering localized social
change. Example Non-Governmental Organizations
(NGOs) such as the Red Cross and Amnesty
International. Utopian social engineering
complete social change Example Attempt of
government to control and manage society leads
to totalitarian regimes and social breakdown.
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Question 13

• The structuralists promoted a policy called
  Import Substitution Industrialization (ISI). ISI
  involved
• The enactment of trade barriers to protect
  emerging domestic industries in short, blocking
  imports
• Creation of new communication and transportation
  networks (called Social Overhead Capital, or SOC)
  in Third World nations.
• In general, a policy of isolationism from the
  First World. ISI policies attempted to provide a
  Big Push for industrial growth and
  modernization in the Third World. The
  structuralists were very much influenced by the
  theories of Hamilton and List (the Economic
  Nationalists).
• ISI policies were popular in 1950s and 1960s, and
  were followed throughout Latin America, Asia,
  Africa (most of the Third World). The policies
  ultimately failed, and were replaced by
  export-based strategies.

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Question 13

• Role of the state in the Third World transform
  or push nations to the final stage of
  development, that is, a society marked by
  manufacturing, agriculture, and commerce.
• Also called modernization theory, as it involved
  ushering developing nations into the modern era
  of industrial capitalism.

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Question 14
Dependency Theory

• Underlying idea the most developed countries in
  the world impoverish the least developed
  countries

• Underdevelopment in Third World is CAUSED BY
  development in the First World

• Poor nations provide natural resources (minerals,
  oil, etc.) for wealthy developed nations
• Poor nations provide cheap labor for wealthy
  developed nations (Walmart)
• Poor nations provide export markets for wealthy
  developed nations that's why the First World is
  interested in development in the first place
  emerging markets
• Elite created in Third World nation rest of
  nation lives in poverty great income disparity.
• First World nations perpetuate a state of
  dependency in the Third World, in part through
  policies of the IMF and World Bank.

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Question 14
Policy Suggested by Dependency Theory
1. Isolationism 2. Promote domestic
industries (produce own products). 3. Control
foreign investment (capital controls on Western
Corporations). Restrict some foreign investment
entirely. 4. Nationalize domestic industries,
especially energy industries (oil), thereby
keeping profits in the country.
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Question 14
Liberalization or Neoliberalization Theory What
is causing problems appearing in the Third
World? The STATE. Get rid of the state, and
the problems of the Third World will disappear.

• Liberalize Trade
• Free Markets
• Let the Free Market WORK

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Question 14

• Liberalization of Trade and Neo-liberalization
  Policy
• Cut subsidies to poor
• Stop subsidizing water and food
• Sell off national industries
• Release exchange controls
• Open borders stop regulating foreign trade
• PROMOTE EXPORTS Export-led growth is called
  Export Oriented Industrialization (EOI).

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Question 15

• Piecemeal approach Non-Governmental
  Organizations (NGOs).
• George Soros in Myanmar and other nations of SE
  Asia. Promote economic development at local
  level.
• Grameen Bank Microcredit organization, grants
  small loans to women in developing nations (97
  of borrowers are women) started in Bangladesh.
• Empowers women in the developing world
• High payback ratesover 98 percent
• More than half of borrowers in Bangladesh have
  risen out of desperate poverty due to
  administered loans.
• The group won the Nobel Peace Prize in 2006.

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Question 15

• Oxfam Works at the local level in developing
  nations for economic change and development.
• Helped women in Mali to start their own
  businesses
• Introduced modern teaching methods in SE Asia
• Showed Ethiopian farmers how to grow more crops
  per acre
• Started rural health programs in Armenia
• Trained community HIV/AIDS workers in Malawi

• Fair Trade Movement NGO involvement at local
  level

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Question 15
What features do successful developing nations
share?

• Support of education
• Development of science and technology (esp. its
  application)
• Open to world trade the most successful
  developing nations are open multicultural trading
  nations (South Korea, Singapore, Taiwan, Chile)
• Promotion of women's rights
• Work together with NGOs to promote development
• Promotion of individual freedom (economic and
  political)

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Question 16
Example of political dimensions of
globalization OWNERSHIP OF U.S. FEDERAL
GOVERNMENT PUBLIC DEBT (US Treasuries in billions
of USD)
December 2006 Japan 644.3 China 349.6 United
Kingdom 239.1 Oil Exporters 100.9 Korea 70 Car
ibbean Banking Centers 68 Taiwan 63.1 Hong
Kong 53.9
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Question 16
Examples of cultural dimensions of
globalization McDonalds (McDonaldization of
the world), Internationalization of Major League
Baseball, PGA and LPGA Tours, Contemporary
classical music Examples of economic dimensions
of globalization Increasing global trade,
increasing capital flows, rise of the global
corporation (Walmart, Pepsi, McDonalds, etc.),
increasing migration of peoples between nations
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Question 16
Basic positions on globalization Pro-globalizati
on Globalization as positive force Anti-globaliz
ation Globalization as negative force Third
position Globalization has both positive and
negative social effects on any society.
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Question 16

• Some economic causes of globalization
• Technology Falling transportation,
  communications, and internet costs (see Friedman
  article)
• Global capitalism Importance of finding new
  markets and cheaper sources of production
  (including labor). Part of the logic of
  capitalism.

Costs of Production for Global Corporations
Profit Revenue - Costs
labor
machinery and raw materials
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Question 17
Positive effects of imports 1. Inexpensive
goods for households (clothing, toys,
electronics, footwear) 2. New types of goods
(new types of food, products, technology) 3.
Inexpensive source of raw materials and machinery
for companies (steel, plastics, chemicals,
etc.) 4. Creates new foreign markets for exports
(example Oklahoman agricultural exports to East
Asia) Negative Effects of imports 1. Threat
to certain domestic producers 2. May therefore
threaten certain types of employment
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Question 18
Eliza Pinckney Indigo production in colonial
America
Importance of women during Revolutionary War and
Industrial Revolution (esp. US South)
Dr. Jeane Porter Hester (USAO alum) world
renowned researcher into blood disease Gladys
Anderson Emerson (1925 USAO alum) isolated
vitamin E GLOBALIZATION'S IMPACT TODAY READ
ESP. THE ARTICLE BY COLIN POWELL