4: macroeconomics/international business

Question 1

what are leakages?

Answer 1

when income is used for purposes other than domestic consumption (savings, taxes, and imports)

Question 2

what are injections?

Answer 2

sources of amounts added to domestic production that do not result from domestic consumption expenditures (gov spending, gov subsidiaries, investment spending)

Question 3

what is GDP

Answer 3

gross domestic product is the total market value of all final goods and services produced within the borders of a nation in a particular period. note that GDP includes the output of foreign owned factories in the US but excludes the output of US owned factories operating abroad

Question 4

what is nominal GDP

Answer 4

nominal GDP measures the value of all final goods and services produced within the borders of a nation in terms of current dollars

Question 5

what is real GDP

Answer 5

real GDP measures the value of all final goods and services produced within the borders of a nation in terms of constant prices.

real GDP=nominal GDP/GDP deflator x 100
deflator is the price index used to adjust nominal GDP for changes in overall prices of goods and services.

Question 6

how is GDP calculated under the expenditure approach

Answer 6

Government purchases of goods and services
gross private domestic investment
personal consumption expenditures
net exports (exports-imports)

Question 7

how is GDP calculated under the income approach

Answer 7

income of proprietors
profits of corporations
interest
rental income
adjustments for net foreign income
taxes
employee compensation
depreciation

Question 8

what is cyclical unemployment

Answer 8

downturn in business cycle

Question 9

what is frictional unemployment

Answer 9

transition or imperfect information

Question 10

what is structural unemployment

Answer 10

jobs they had previously have been greatly reduced or eliminated. resulting from technological advances or because lack is skills available for job

Question 11

what is unemployment rate

Answer 11

unemployment/size of labor force

Question 12

what is natural rate of unemployment

Answer 12

all unemployment except cyclical/size of labor force

Question 13

In the macroeconomic context, investment includes spending on

Answer 13

1. Residential construction;
2. Nonresidential construction;
3. Business durable equipment;
4. Business inventory

Question 14

list the factors that shift aggregate demand

Answer 14

changes in wealth, changes in real interest rates, changes in expectations about the future economic outlook, changes in exchange rates, changes in gov spending, changes in consumer taxes

Question 15

list the factors that shift short run aggregate supply

Answer 15

changes in resource costs
resource availability
technological advances

Question 16

what is the definition of a business cycle

Answer 16

business cycles are defined as the ride and fall of economic activity relative to its long term growth trend

Question 17

phases of a typical business cycle

Answer 17

expansionary phase: rising growth in economic activity (real GDP)
peak: high point of economic activity
contractionary phase: declining growth in economic activity
trough: low point of economic activity
recovery phase: economic activity starts to increase and return to its long term trend

Question 18

how is a recession defined

Answer 18

a recession is defined as a period during which real GDP is falling for at least two consecutive quarters. recessions are characterized by falling real output and rising unemployment

Question 19

what are the characteristics of depression

Answer 19

a depression is a very severe recession. a depression is characterized by a sustained period of falling real GDP and high rates of unemployment.

Question 20

economists generally agree that business cycles result from what

Answer 20

shifts in aggregate demand and aggregate supply

Question 21

What happens to price levels and purchasing power during inflation

Answer 21

During a period of inflation, the general level of prices is increasing, or the purchasing power of the dollar is decreasing. increase rates increase

Question 22

what is the consumer price index and its purpose

Answer 22

The Consumer Price Index for All Urban Consumers (published monthly) relates the prices paid by all urban consumers for a “basket” of goods and services during a period to the price of the “basket” in a prior reference period.
commonly used to measure deflation/inflation
purpose is to measure and compare prices over time
(current-prior)/prior

Question 23

what are the causes of demand pull inflation and cost pull inflation

Answer 23

demand pull inflation is caused by increases in aggregate demand. spending for domestic goods exceeds productive capacity of economy

cost push inflation: caused by reduction in short run aggregate supply

Question 24

list the three ways the federal reserve could increase the money supply

Answer 24

purchase government securities on the open market
lower the discount rate
lower the required reserve ratio

Question 25

explain the relationship between interest rates and the money supply

Answer 25

an increase in money supply leads to a decrease in interest rates and viseversa

Question 26

what is the likely impact of a decrease in the money supply on interest rates, real GDP, and the overall price level

Answer 26

increase interest rates, decrease real GDP, decrease overall price level

Question 27

name the motivations for developing international business operations

Answer 27

comparative advantage
imperfect markets: barriers to trade
product cycle: establishment of foreign subsidiaries to more efficiently capitalize on foreign demand for domestic products

Question 28

identify three inherent risks of international business operations

Answer 28

exchange rate fluctuation
operating in foreign economies
political risk

Question 29

what are import quotas and import tariffs

Answer 29

import quotas: restricts quantity that can be imported

import tariffs: tax on imported goods

Question 30

three main accounts USA reports international activity

Answer 30

current, capital. financial

Question 31

Average propensity to consume (APC):

Average propensity to save (APS):

Answer 31

Average propensity to consume (APC): Measures the percent of disposable income spent on consumption goods. APC = CS/DI
Average propensity to save (APS): Measures the percent of disposable income not spent, but rather saved. APS = S/DI
APC + APS = 1

Question 32

what is inflation and deflation

Answer 32

Inflation (or inflation rate) is the annual rate of increase in the price level; deflation (or deflation rate) is the annual rate of decrease in the price level.

Question 33

Transfer pricing?

Answer 33

Transfer pricing is the determination of the amounts at which transactions between affiliated entities will be recorded. The issue of transfer pricing has special significance when the affiliated entities are located in different countries.

Question 34

name the factors influencing exchange rates

Answer 34

trade related factors; relative inflation rates, relative income levels, government controls
financial factors: relative interest rates, capital flows

Question 35

identify the three categories of exchange rate exposure

Answer 35

transaction risk: balances from prior transactions
economic risk: alter value of future transactions
translation risk: conversion of FS

Question 36

what is Globalization

Answer 36

The movement toward a more integrated and interdependent world economy, evidenced by the increased mobility of goods, services, labor, technology and capital throughout the world.

Question 37

what type of crisis is addressed by international monetary fund

Answer 37

1. Currency crisis—When speculation in the exchange value of a currency causes a dramatic depression in its value
2. Banking crisis—When a loss in confidence in the banking system of a country leads to a run on banks
3. Financial debt crisis—When a country cannot meet its foreign debt obligations

Question 38

what is the objective of the world bank

Answer 38

The objective of the World Bank is to promote general economic development, especially in developing countries, primarily by leading for infrastructure, agricultural, education, and similar needs.

Question 39

what is a frequently used statistical measure of globaliztion

Answer 39

world trade expressed as a percentage of GDP

Question 40

what is meant by a shift in economic balance of power

Answer 40

the ability of the worlds emerging nations to contend with the economies of the industrialized world for power, resources, influence, ect. is a change or shift in the economic balance of power from previous decades.