Chapter 16 - Chapter 16 International Cooperation to...

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Chapter 16 International Cooperation to Promote Global Prosperity Post WWII period has been characterized by a high degree of cooperation among the major trading nations Three international institutions created for this purpose: World Bank, International Monetary Fund, and GATT/WTO. Short History France demanded Germany pay them reparations after WWI German resorted to printing more money Hyperinflation occurred and wiped out the economy of the middle class The rest of Europe also suffered from unemployment To boost employment they: o Devalued their currency – making their goods cheaper for foreigners, and foreign goods more expensive to their citizens o Raising tariffs – made foreign goods more expensive and encouraged citizens to buy domestically Because these strategies focused internally and didn’t take into account the impact on other countries, they are referred to as beggar-thy-neighbor policies. Over the long run, they discouraged trade, and productivity of labor and capital decreased. If productivity of capital falls, then profits decline and firms are unwilling to reinvest, which hurts manufacturers of capital equipment and in the long run makes the original firm less productive. These policies prolonged the great depression in the 30’s, which ended when WWII started. Bretton Woods Agreement Late 1944 – reps of 44 allied nations met in the New Hampshire resort community of Bretton Woods. Wanted to make an international economic environment that would promote peace and mutual prosperity Bretton Woods agreement: o Created the International Bank for Reconstruction and Development (IBRD) – goal was to lend money to rebuild infrastructure of war-torn Europe. More commonly known as the World Bank. The Marshall Plan aided it in its efforts. New mission was to promote growth in less developed countries through low interest, long-term loans. o Created the International Monetary Fund (IMF) – one of the goals was to discourage competitive exchange rate devaluations.
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Oversaw the functioning of the new international monetary system, which created a U.S. dollar based fixed exchange rate system (collapsed in 1971). Now it helps countries in need during economic crises
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This note was uploaded on 10/02/2011 for the course MGMT 209 taught by Professor Swim during the Spring '08 term at Texas A&M.

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Chapter 16 - Chapter 16 International Cooperation to...

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