BEC Q4

Question 1

an increase in available sources increases the economies capacity to

Answer 1

prroduce more goods and service

• this does not automatically increase the amount of goods and services produced
• nor does it automatically increase the standard of living
• nor automatically increase technological efficiency

Question 2

If the NAIRU is 5%, the actual rate of unemployment is 9%, and the rate of inflation is 12%,

Answer 2

stagflation

Unemployment far above NAIRU and high inflation (in double digits) qualify as stagflation. Twelve percent is a historically high rate of inflation in the U.S.

Question 3

What is the short-term Phillip Curve

Answer 3

It implies that in the short term - policies resulting in higher inflation may also reduce unemployment

Question 4

What is the best way to minimize risk from foreign currency fluctuations

Answer 4

When an entity maintains equal levels of receivables and payables in the same currency, a loss on debts resulting from an increase in the exchange rate will be offset by an equal gain on receivables, and vice versa, making this an effective means of avoiding the risk.

Question 5

What is the definition of opportunity cost

Answer 5

It is the best alternative use or benefit foregone as a result of a business decision

Question 6

What are entitlement payments

Answer 6

These include medicare, medicaid, SS

An increase in entitlement payments might be linked with an increase in the deficit

Question 7

Is the CPI a good measure for businesses

Answer 7

No - because it is based on a basket of goods compared to previous periods. It is not a great measure for business because what business buy is different than what consumer buy

Question 8

What is the Consumer Confidence Index

Answer 8

the CCI surveys customer confidence on the state of the economy

Question 9

What is the difference between Gross national Product and Net National Product

Answer 9

GNP - measures the total market value of products and services produced by the entire economy

Net National product is GNP minus depreciation

Question 10

What is the purpose of the CPI

Answer 10

It is to compare relative price changes over time

Question 11

What is structural unemployment

Answer 11

This is a mismatch between the skills of workers and the needs of labor market - usually from technological advances that eliminate the need for the specific skills many worker possess

• they lose their jobs because of changes in the demand for goods and services
• This is also a change in the composition of employment opportunities as jobs will be created in some sectors and others will lose jobs in other sectors

Question 12

What is collusive pricing

Answer 12

This happens when competing suppliers agree they will not compete on the basis of price.

Therefore there is a uniform price to be charged by all suppliers

This it enables the supplier to establish higher than market prices

Question 13

What is a trade surplus

Answer 13

This is when one country’s exports exceed their imports

Its a positive thing because it means more employment

It can strengthen their currency

It means their is higher demand for a country’s goods

Question 14

What happened with the economy in the 2000’s

Answer 14

The global economy was expanding

• Developing countries experienced trade surpluses (your exports exceed your imports)
• This is because their goods were relatively cheap
• These countries then went out and invested these monies in expansion abroad -

Question 15

What is the theory of derived demand

Answer 15

• This means that demand for product A will mean there is a demand for the resources for product A

An increased demand in apple pies means that there is an increased demand for apples

Question 16

What is the theory of the invisible hand

Answer 16

It is an unobservable market force that helps the demand AND supply of goods reach equilibrium automatically

Question 17

What happens when you open your markets to foreign investment

Answer 17

• tends to lead to an increase in investment growth
• an increase in direct foreign investment
• an increase in the interconnectivity of local and world markets - thusly changing the volatility of emerging stock market returns
• local firms cost of capital tends to decrease because there is greater supply of providers of capital

Question 18

What are the effects of a decline in the US dollar

Answer 18

• It tends to hurt US importers (need to spend more money to buy the same amount of goods)
• It tends to benefit US Exporters ( foreign markets have more buying power against the weakened US dollar and may buy more US exports)

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Question 19

What happens when the FedReserve raises the discount rate

Answer 19

The discount rate is the rate the Fed Reserve charges to banks for short term loans of reserves

Each bank must have a certain amount of reserve on hand for the money deposited with its by account holders

If the rate is raised it is likely that otters short term interest rates will increase as well

The discount rate is for short term loans and would not have that much impact on long term loans

As intérêts rates increase - consumer spending and corporate profits tend to decrease

Question 20

What are strategies you could use to manage the risk of a customer failing to make the contractual payments they have committed to

Answer 20

• require customers to post guarantees or collateral
• purchase credit default swaps
• diversify customers