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DEPOSIT CREATION IN A SINGLE BANK

• If the central bank buys a security from a bank, the bank has excess reserves, which it will seek to lend
• The loan replaces the securities as an asset on the bank’s balance sheet

Read more: MGT411 - Money & Banking - Lecture Handout 34

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THE POLITICAL ECONOMY OF INTERNATIONAL TRADE

VER:

A voluntary export restraint (VER) may have the same effect as a quota. In a VER, another country or countries agree to not export more than a certain quantity to another country or countries. VERs are usually only enacted when it is feared that a more restrictive tariff or quota will be levied unless exports are"voluntarily" reduced. In other words, the threat of retaliation encourages compliance.

1. Import quotas and VERs benefit domestic producers and harm domestic consumers. They can also even help foreign producers, as foreign producers can raise the price they charge for the limited supply they can sell, and take the difference as additional profit.
   LOCAL CONTENT REQUIREMENT:
2. Local content requirements specify that firms must produce some portion of a good domestically. The purpose of a local content requirement is usually to aid the formation of domestic industries, to keep manufacturers from switching to foreign suppliers, or to keep foreign firms from setting up “screwdriver plants.” where imported manufactured components undergo simple assembly in order to avoid some other trade restriction on the importation of the fully assembled product. Domestic suppliers benefit, and domestic consumers must bear the costs.
   ANTI-DUMPING LAWS:
3. Dumping occurs when a country sells goods in another country below cost or below fair market value. Dumping is a way firms can unload excess production into foreign markets. When plants must operate at a certain level regardless of domestic demand, the producer may find it appropriate to export some portion of the factory’s output abroad. At times dumping may also be done for predatory reasons, hoping to drive other producers out of the market, and subsidizing foreign sales with higher domestic prices. Antidumping policies are designed to prevent dumping from occurring, or by instituting import taxes in order to bring prices of “dumped” goods back up to fair levels.
   ADMINISTRATIVE ACTIONS
4. A wide range of administrative barriers can be enacted. Taking so much time to inspect goods that they spoil or setting down specific regulations on "product standards" that are very expensive to meet.



Read more: MGT520 - International Business - Lecture Handout 26