Supporting standards comprise 35% of the U. S. History Test

18 (B)

Supporting Standard (18)The student understands the economic effects

of increased worldwide interdependence as the U. S. enters the 21st century.

The Student is expected to:(B) Identify the impact of international

events, multinational corporations, government policies, & individuals on the

21st century economy

Supporting Standard (18)The student understands the economic effects

of increased worldwide interdependence as the U. S. enters the 21st century.

The Student is expected to:(B) 1 Identify the impact of international events

on the 21st century economy

1990 Oil Price Shock

The 1990 oil price spike occurred in response to the Iraqi invasion of Kuwait on August 2, 1990. Lasting only 9 months, the price shock was less extreme and of shorter

duration than the previous oil crises of 1973 and 1979-1980, yet the rise in prices is widely believed to have been a significant factor in the recession of the early

1990s. Average monthly prices of oil rose from $17 per barrel in July to $36 per barrel in October. As the U.S.-led coalition experienced military success against Iraqi forces,

concerns about long-term supply shortages eased and prices began to fall.

The 1990 oil price spike occurred in response to the Iraqi invasion of Kuwait on August 2, 1990. Lasting only 9 months, the price shock was less extreme and of shorter

duration than the previous oil crises of 1973 and 1979-1980, yet the rise in prices is widely believed to have been a significant factor in the recession of the early

1990s. Average monthly prices of oil rose from $17 per barrel in July to $36 per barrel in October. As the U.S.-led coalition experienced military success against Iraqi forces,

concerns about long-term supply shortages eased and prices began to fall.

Iraqi invasion of kuwait & subsequent effects

On August 2, 1990, The Republic of Iraq invaded the State of Kuwait, leading to a 7-month occupation of Kuwait and an eventual U.S.-led military intervention.

While Iraq officially claimed Kuwait was stealing its oil via slant drilling, its true motives are more complicated and less clear. At the time of the invasion, Iraq owed Kuwait $14 billion of outstanding debt that Kuwait had loaned it during the Iraq-Iran war. In addition, Iraq felt Kuwait was overproducing oil, lowering prices and

hurting Iraqi oil profits in a time of financial stress.

On August 2, 1990, The Republic of Iraq invaded the State of Kuwait, leading to a 7-month occupation of Kuwait and an eventual U.S.-led military intervention.

While Iraq officially claimed Kuwait was stealing its oil via slant drilling, its true motives are more complicated and less clear. At the time of the invasion, Iraq owed Kuwait $14 billion of outstanding debt that Kuwait had loaned it during the Iraq-Iran war. In addition, Iraq felt Kuwait was overproducing oil, lowering prices and

hurting Iraqi oil profits in a time of financial stress.

In the buildup to the invasion, Iraq and Kuwait had been producing 4.3 million barrels (680,000 m3) of oil a day. This potential loss, coupled with threats to Saudi Arabian oil

production, led to a rise in prices from $21 per barrel at the end of July to $28 per barrel on August 6. On the heels of the invasion, prices rose to a peak of $46 per barrel in mid-October. The United States’ rapid intervention and subsequent military success helped

to mitigate the potential risk to future oil supplies, thereby calming the market and restoring confidence. After only three quarters, or 9 months, the spike had subsided.

In the buildup to the invasion, Iraq and Kuwait had been producing 4.3 million barrels (680,000 m3) of oil a day. This potential loss, coupled with threats to Saudi Arabian oil

production, led to a rise in prices from $21 per barrel at the end of July to $28 per barrel on August 6. On the heels of the invasion, prices rose to a peak of $46 per barrel in mid-October. The United States’ rapid intervention and subsequent military success helped

to mitigate the potential risk to future oil supplies, thereby calming the market and restoring confidence. After only three quarters, or 9 months, the spike had subsided.

U. S. Policy response

The U.S. Federal Reserve’s monetary tightening in 1988 targeted the rapid inflation of the 1980s. By increasing the federal funds rate and lowering growth expectations, the Fed hoped to slow and eventually reduce inflationary pressures, creating greater price stability. The August 6 invasion was seen as a direct threat to the price stability the Fed sought. In fact, the Council of Economic Advisors published a consensus estimate that

a one-year, 50 percent increase in the price of oil could temporarily raise the price level of the economy by 1 percent and potentially lower real output by the same amount.

The U.S. Federal Reserve’s monetary tightening in 1988 targeted the rapid inflation of the 1980s. By increasing the federal funds rate and lowering growth expectations, the Fed hoped to slow and eventually reduce inflationary pressures, creating greater price stability. The August 6 invasion was seen as a direct threat to the price stability the Fed sought. In fact, the Council of Economic Advisors published a consensus estimate that

a one-year, 50 percent increase in the price of oil could temporarily raise the price level of the economy by 1 percent and potentially lower real output by the same amount.

Despite the potential for inflation, the U.S. Fed and central banks around the globe decided it would not be necessary to raise interest rates to counteract the rise in oil prices. Rather, the U.S. Federal Reserve decided to maintain interest rates

as if the oil price spike were not occurring. This decision to refrain from action stemmed from confidence in the future success of Desert Storm to protect major oil-producing facilities in the Middle East and a will to maintain the long-term credibility of economy policy that had been built up during the 1980s. To avoid being accused of inaction in the face of potential economic turbulence, the U.S. revised the Gramm-Rudman-Hollings Balanced Budget Act. Initially, the act

prohibited the U.S. from changing budget deficit targets even in the event of a negative shock to the economy. When oil prices rose, revision of this act allowed the U.S. government to adjust its budget for changes in the economy, further mitigating the risk of rising prices. The result was a peak in prices at $46 per barrel in mid-October, followed by a

steady decline in prices until 1994.

Despite the potential for inflation, the U.S. Fed and central banks around the globe decided it would not be necessary to raise interest rates to counteract the rise in oil prices. Rather, the U.S. Federal Reserve decided to maintain interest rates

as if the oil price spike were not occurring. This decision to refrain from action stemmed from confidence in the future success of Desert Storm to protect major oil-producing facilities in the Middle East and a will to maintain the long-term credibility of economy policy that had been built up during the 1980s. To avoid being accused of inaction in the face of potential economic turbulence, the U.S. revised the Gramm-Rudman-Hollings Balanced Budget Act. Initially, the act

prohibited the U.S. from changing budget deficit targets even in the event of a negative shock to the economy. When oil prices rose, revision of this act allowed the U.S. government to adjust its budget for changes in the economy, further mitigating the risk of rising prices. The result was a peak in prices at $46 per barrel in mid-October, followed by a

steady decline in prices until 1994.

Supporting Standard (18)The student understands the economic effects

of increased worldwide interdependence as the U. S. enters the 21st century.

The Student is expected to:(B) 2 Identify the impact of multinational corporations on the 21st century economy

Multinational Corporations

A multinational corporation (MNC) or multinational enterprise (MNE) are organizations that own or control production or services facilities in one or more countries other than the home country. For example,

when a corporation that is registered in more than one country or that has operations in more than one country may be attributed as MNC. Usually, it is a large corporation which both produces and sells goods

or services in various countries. It can also be referred to as an international corporation. They play an important role in globalization. Arguably, the first multinational business organization was the Knights Templar, founded in 1120. After that came the British East India Company in 1600 and then the Dutch

East India Company, founded March 20, 1602, which would become the largest company in the world for nearly 200 years.

A multinational corporation (MNC) or multinational enterprise (MNE) are organizations that own or control production or services facilities in one or more countries other than the home country. For example,

when a corporation that is registered in more than one country or that has operations in more than one country may be attributed as MNC. Usually, it is a large corporation which both produces and sells goods

or services in various countries. It can also be referred to as an international corporation. They play an important role in globalization. Arguably, the first multinational business organization was the Knights Templar, founded in 1120. After that came the British East India Company in 1600 and then the Dutch

East India Company, founded March 20, 1602, which would become the largest company in the world for nearly 200 years.

Criticisms of Multinationals

Anti-corporate advocates criticize multinational corporations for entering countries that have low human rights or environmental standards. They claim

that multinationals give rise to large merged conglomerations that reduce competition and free enterprise, raise capital in host countries but export the

profits, exploit countries for their natural resources, limit workers’ wages, erode traditional cultures, and challenge national sovereignty.

Anti-corporate advocates criticize multinational corporations for entering countries that have low human rights or environmental standards. They claim

that multinationals give rise to large merged conglomerations that reduce competition and free enterprise, raise capital in host countries but export the

profits, exploit countries for their natural resources, limit workers’ wages, erode traditional cultures, and challenge national sovereignty.

Supporting Standard (18)The student understands the economic effects

of increased worldwide interdependence as the U. S. enters the 21st century.

The Student is expected to:(B) 3 Identify the impact of government

policies on the 21st century economy

The Federal Reserve Board possesses the power to speed up or slow down the U. S. economy through control of the

interest rate.

By raising the prime rate, the Fed can contract the money supply and prevent an economic boom from

becoming too high . . .

and lower the prime rate to prevent the economy from plummeting into a recession.

Supporting Standard (18)The student understands the economic effects

of increased worldwide interdependence as the U. S. enters the 21st century.

The Student is expected to:(B) 4 Identify the impact of individuals on

the 21st century economy

George W. Bush

The President’s choices in the aftermath of 9/11 impacted everyone in the entire nation.

The 2001 invasion of

Afghanistan not only cost the U. S. the lives of

countless soldiers but the financial cost of

the war had drastic

economic implications.

Similarly, President Bush’s decision to invade Iraq in search of weapons of mass destruction had

monumental economic

implications at home and costs

some 4,500 American lives and another 1.5 million

Iraqis.

One may consider the wars in Afghanistan & Iraq worth the cost—in increased security for Americans both at home & abroad, in maintaining U. S. prestige &

power throughout the world, or exacting retribution upon those who did America harm. One may consider the conflicts wrongheaded unnecessary imperial mischief .

Whatever opinion one may hold, the course of events after 9/11 bore the unique stamp of the American president in

office at this very pivotal time in history.

Fini