WGU C211 - Global Economics for Managers exam questions and answers 2023 update

**What Political views exist on Foreign Direct Investment (FDI)** **answer includes radicalism** Radical View - Hostile to foreign direct investment (FD) Free Market View - Suggests foreign direct investment (FDI) unrestricted by government intervention is the best. Pragmatic Nationalism - Only approves foreign direct investment (FDI) when its benefits outweigh its costs. **What is Resource similarity** The extent to which a given competitor possesses strategic endowment comparable, in terms of both type & amount, to those of the focal firm. **How are supply and demand related to the exchange rate of a country?** The price of a commodity, a country's currency, is fundamentally determined by this. Strong demand leads to price hikes; oversupply results in price drops. **What advantages exist with First-mover?** 1. Proprietary, technological leadership 2. Pre-emption of scarce resources 3. Establishment of entry barriers for late entrants 4. Avoidance of clash with dominant firms at home 5. Relationships with key stakeholders such as governments **How is global business affected by democracy?** An individual's right to freedom of expression and organization. For example, starting up a firm is an act of economic expression **How is global business affected by totalitarianism?** These countries often experience wars, riots, protests, chaos, & breakdowns, which result in higher political risk. **Democracy** Citizens elect representatives to govern the country on their behalf. Right to freedom of expression and organization. **Totalitarianism** One person or party exercises absolute political control over the population. **What is Property right?** The legal rights to use an economic resource & to derive income & benefits from it. **Intellectual property is a right of?** right of ownership/right to derive income from it **Market economy** Characterized by the "invisible hand" of market forces-all factors of production should be privately owned. **Command economy** Defined by a government taking all factors of production to be government-owned or state-owned, & all supply, demand, & pricing are planned by the government. **Mixed economy** An economy that has elements of both a market economy & a command economy. It boils down to the relative distribution of market forces versus command forces. **What is an Indifference curve used for** A curve that shows consumption bundles that give the consumer the same level of satisfaction (i.e. combinations of pizza & Pepsi with which the consumer is equally satisfied.) **Competitive demand curve** horizontal demand curve **Monopolist demand curve** downward sloping demand curve ***Describe the basic distinctions between the market models with respect to: 1. number of market participants 2. type of product being marketed *ease of entry/exit into the market the prevalence of advertising/marketing** 1. Monopoly (1 firm - cable tv) Oligopoly (few firms - cigarettes) *entry is difficult & advertising is a natural feature. 2. Monopolistic competition many firms, diff products (movies) Perfect competition many firms, identical products (milk) *entry is easy & spend very little on advertising. **What Fundamental truth realized when studying the behavior of an oligopolistic firm within the context/model called "prisoner's dilemma"** **look for cooperative in the answer** self-interest makes it difficult for the oligopolists to maintain cooperative outcome. Relentless logic of self-interest drives participants toward the non-cooperative outcome, which is worse for both parties. Each oligopolist has an incentive to cheat. Just as self-interest drives the prisoners in the prisoners' dilemma to confess, self-interest makes it difficult for the oligopolists to maintain the cooperative outcome with low production, high prices, & monopoly profits. ***How might an oligopolistic firm behave like a monopoly? What forces may prevent this?*** **look for competition in the answer** Forming a cartel and acting like a monopolist, but self-interest drives them towards competition. **What tools does the Federal Reserve's have with regards to monetary control** FOMC - Federal Open Market Committee & the open market operation, the purchase & sale of U.S. government bonds. **When the Fed buys bonds, what impact does this have on the money supply and aggregate demand?** After the purchase, these dollars are in the hands of the public. Thus, an open-market purchase of bonds by the Fed increases the money supply. **When the Fed sells bonds, what impact does this have on the money supply and aggregate demand?** After the sale, the dollars the Fed receives for the bonds are out of the hands of the public. Thus, an open-market sale of bonds by the Fed decreases the money supply. **What is a Discount rate** The interest rate banks pay when borrowing from the Federal Reserve. **Reserve ratio** What is one way the Federal Reserve influences the reserve ratio? The fraction of total deposits that a bank holds as reserves. By altering reserve requirements **If the Fed uses monetary policy in a way that increases money supply, what effect will this have on interest rates and aggregate demand (consider them separately)?** Interest rates lower and aggregate demand expands. **If the government uses fiscal policy to increase government spending what impact will this have on interest rates and aggregate demand?** Raises interest rates and an increase in aggregate demand. **What is Normal good?** A good for which an increase in income leads to an increase in demand **What is Cross-price elasticity** Comparison of Compares 2 goods: 1. Substitutes=positive cross-price elasticity 2. Complements=negative cross-price elasticity **3 types of elasticity, their equations, purpose and outcomes** (1) Price elasticity of demand - % chg in Q D / % chg in P (2) Income elasticity - % chg in Q D / % chg in income (3) Cross-price elasticity - % chg in Q D Good 1/% chg in Good #2 P ***What are Two primary categories of trade barriers that exist?* **Tariffs and Non-Tariff** **What is Consumer surplus?** - Amount a buyer is willing to pay for a good, minus amount the buyer actually pays for it -Measures the benefit buyers receive from participating in a market -Closely related to the demand curve **Who receives consumer surplus?** **The buyer.** **Producer surplus** - Amount a seller is paid for a good minus the seller's cost of providing it. - Closely related to the supply curve. - A higher price raised producer surplus. **Describe the four components of GDP and how they affect aggregate demand.** **Go with residential and building** (1) Consumption (2) Investment (3) Govt purchases (4) Net exports **Policymakers can influence aggregate demand with monetary policy.** 1. An increase in the money supply reduces the equilibrium interest rate for any given price level. Because a lower interest rate stimulates investment spending, the aggregate-demand curve shifts to the right. 2. A decrease in the money supply raises the equilibrium interest rate for any given price level & 987',l shifts the aggregate-demand curve to the left. **Policymakers can influence aggregate demand with fiscal policy.** 1. An increase in government purchases or a cut in taxes shifts the aggregate-demand curve to the right. 2. A decrease in government purchases or an increase in taxes shifts the aggregate-demand curve to the left. **Which entry mode is a non-equity arrangement for a company contemplating entry into a foreign market?** Licensing **What size commitment is required for a non-equity mode of entry into a foreign market?** Small commitment **What are three supportive pillars for formal institution?** Laws, regulations, rules **Which condition applies when a competitive firm decides to temporarily shut down?** Average variable costs are above the price. **Which fiscal policy would be most effective at raising consumer spending and expanding aggregate demand?** Enacting a permanent income tax cut **How does a monopolistic market set their price?** Price MC **How are international rates set?** Floating