Political Economy & Globalization Concepts Quiz

Mercantilism views the state as the primary economic actor, emphasizing political power in shaping trade and wealth accumulation. It focuses on maintaining trade surpluses, controlling resources, and strengthening national power. Unlike free-market capitalism or communal systems, mercantilism relies heavily on government intervention, tariffs, and regulation to protect domestic interests and enhance national economic strength in international trade relations.

Protectionism involves government policies like tariffs, quotas, and subsidies aimed at shielding domestic industries from foreign competition. By restricting imports, governments attempt to protect local jobs and industries. While it may offer short-term benefits, protectionism can reduce efficiency, raise prices for consumers, and provoke retaliatory trade measures, affecting long-term economic growth and global trade relations.

Keynesianism centers on managing aggregate demand to stabilize economic cycles. During recessions, governments increase spending or cut taxes to stimulate demand and reduce unemployment. The theory assumes markets may not self-correct quickly, requiring state intervention. This contrasts with laissez-faire economics, as Keynesian policies rely on fiscal tools to balance growth, employment, and economic stability.

Stagflation is an unusual economic condition where inflation rises while economic growth slows and unemployment increases. Normally, inflation and unemployment move inversely, but stagflation breaks this pattern. It poses policy challenges because measures to control inflation may worsen unemployment, while stimulus efforts may further increase inflation, making economic management particularly complex.

Homogenization refers to the process where cultures, economies, or societies become increasingly similar due to globalization. Standardized products, global brands, and shared consumption patterns reduce local distinctions. While homogenization can improve efficiency and global integration, it may also erode cultural diversity and local traditions, raising concerns about loss of identity and economic dependency.

Indigenization describes how foreign goods, ideas, or practices are adapted to suit local cultures and conditions. Instead of replacing local traditions, external influences are modified to fit domestic needs. This process allows societies to participate in globalization while preserving cultural relevance, ensuring foreign influences align with local values, preferences, and socio-economic realities.

McDonaldization explains how fast-food principles such as efficiency, predictability, calculability, and control spread across industries. These principles prioritize standardization and speed, influencing education, healthcare, and retail sectors. While efficiency improves, critics argue it reduces creativity, human interaction, and quality, leading to rigid systems focused on quantity over meaningful outcomes.

Financialization refers to the growing dominance of financial markets and borrowing in economic activity. Businesses, governments, and individuals increasingly rely on credit and financial instruments to fund spending. While this can stimulate short-term growth, excessive financialization may increase debt, economic instability, and inequality, shifting focus away from productive investment toward speculative financial gains.

A sovereign debt crisis occurs when a country cannot repay or refinance its debt without external assistance. High debt levels, weak revenue collection, and economic shocks contribute to such crises. Governments may seek bailouts, impose austerity, or restructure debt, often leading to social and political consequences alongside economic contraction and reduced investor confidence.

The paradox of thrift explains how increased saving by individuals can reduce overall economic saving. When households save more, consumption falls, lowering demand and income. This reduces total savings in the economy. Although saving benefits individuals, widespread saving during downturns can slow growth and worsen recessions, highlighting the conflict between individual and collective economic outcomes.

Neoliberalism promotes market-driven economic policies, emphasizing deregulation, privatization, and reduced government intervention. It assumes markets allocate resources efficiently and stimulate growth. While neoliberal reforms can increase efficiency and investment, critics argue they may increase inequality, weaken social safety nets, and reduce government capacity to address economic and social challenges.

Globalization refers to the increasing interconnectedness of economies, cultures, and societies through trade, technology, and communication. It enables faster movement of goods, capital, and ideas across borders. While globalization can drive growth and innovation, it may also deepen inequality, expose economies to global shocks, and challenge local industries and cultural identities.

Inflation is the sustained increase in the general price level of goods and services over time. It reduces purchasing power, meaning consumers can buy less with the same income. Moderate inflation supports economic growth, but high inflation distorts prices, discourages saving, and creates uncertainty, making economic planning difficult for households and businesses alike.

Deflation occurs when the general price level falls over time. While lower prices may seem beneficial, deflation can reduce spending as consumers delay purchases, expecting further price drops. This decreases demand, lowers production, and increases unemployment. Prolonged deflation can lead to economic stagnation, making it difficult for economies to recover without policy intervention.

Comparative advantage explains why countries benefit from trade by specializing in goods they produce at lower opportunity costs. Even if one country is more efficient in all goods, trade remains beneficial. Specialization increases total output, improves efficiency, and allows countries to consume beyond domestic production possibilities, forming the foundation of international trade theory.