Practice Test 9

A crisis-response passage compares Iceland (Europe) and Thailand (Asia) after financial shocks. It defines economic liberalization in this context as restructuring banks, increasing transparency, and adjusting regulations to restore market confidence, often alongside trade and investment openness, with goals of stabilizing currency values and limiting inflation. Iceland nationalized failing banks temporarily, imposed capital controls, and later liberalized gradually as stability returned; political fallout included cabinet turnover and expanded parliamentary scrutiny of financial regulators. Thailand, after the 1997 crisis, accepted an IMF-supported program that closed insolvent finance companies, strengthened bank supervision, and reduced crony lending; GDP contracted sharply then recovered, while party competition intensified amid debates over sovereignty and social protection. The text argues that liberalization during crises can alter domestic institutions by empowering independent regulators and can reshape international politics by increasing reliance on external rules and lenders. Based on the passage, what political challenges are commonly faced during economic liberalization as described in the passage?

In a comparative study of Poland (Europe) and Chile (South America), analysts describe economic liberalization as policies that expand market competition through price deregulation, trade openness, and privatization (selling state firms), aiming to raise growth and attract investment. In Poland’s transition after 1989, “shock therapy” rapidly freed most prices, cut subsidies, opened trade, and launched mass privatization; inflation fell from roughly 600% (1990) to under 50% (1992) while unemployment rose above 10%, and political reforms included competitive elections and stronger parliamentary oversight. In Chile’s earlier liberalization (late 1970s–1990s), tariffs were sharply reduced, state enterprises were privatized, and fiscal rules were tightened; growth improved over time, yet inequality remained politically salient, and later democratic governments expanded targeted social spending to preserve legitimacy. Both cases note that the IMF supported stabilization advice and, in Chile’s case, credibility with external lenders; the WTO framework reinforced trade rules. The text argues liberalization reshapes domestic coalitions (winners in export and finance sectors, losers in protected industries) and alters international alignments by increasing reliance on global markets. Based on the passage, what political challenges are commonly faced during economic liberalization as described in the passage?