BEC - Economics Flashcards
Oligopoly
Game Theory
Concentration Ratio
Means few firms in the market, each relatively large.
A useful tool in choosing responses to actions of competitors in such a market
Measures the market share of the several largest firms in the industry.
Perfect Competition
Large # of small sellers of a standardized product such that the company has no influence over price.
There is easy entry and exit to the industry, and each firm produces a small portion of total output.
An example is Farming.
National Income Formula
Net Domestic Product (NDP) + Net Income - Indirect business taxes
NDP = GDP - Depreciation.
Personal Income (PI)
Net Income - Corporate Income Taxes and Undistributed Profits - Social Security Contributions + Transfer Payments
A significant decline in the exchange rate of the U.S. dollar generally will have which of the follow effects?
It will benefit U.S Exporters.
The decline in exchange rate of the U.S Dollar will make goods produced in the U.S less expensive in foreign currencies.
Country Risk
Risk specifically associated with a particular foreign location is the risk associated with operating in that country.
In the modern world economy, balance-of-payments deficits and surpluses can be eliminated
through the market mechanism of flexible exchange rates.
Which of the following hedging techniques defines hedging payables as borrowing funds in the local currency of the payables, and investing the funds until they are needed?
Money market hedge
A money market hedge involves the firm taking a position in domestic or foreign money markets to hedge a payables or receivables position.
Variable rate loans reduce the potential interest rate risk of
both borrowers and lenders.
The overall impact is to reduce the risk of significant gains or losses than could affect either borrowers or lenders.
Which of the following methods may the Federal Reserve use to reduce inflationary pressures?
To reduce inflationary pressures, the Federal Reserve would adopt a restrictive monetary policy to reduce the money supply. As the money supply declines, interest rates will increase, reducing business investment and spending. Measures to reduce the supply of money include selling bonds and increasing margin requirements (also called the reserve requirement).
Increased demand for product A increases the demand for resources used to produce product A. What is the best explanation for the increase in the demand for resources?
Derived demand is a term used in economic analysis that describes the demand placed on one good or service (e.g., material, labor) as a result of changes in the price for some other related end-product. The derived demand can have a significant impact on the derived good’s market price. For example, the demand for steel leads to derived demand for iron ore, which is a critical production component. As the demand for steel increases, so does its price.
Information related to the financial transactions for a country is given as follows with values stated in billions of dollars.
Gross domestic product (GDP) $4,000
Transfer payments 500
Corporate income taxes 50
Social Security contributions 200
Indirect business taxes 210
Personal income taxes 250
Undistributed corporate profits 25
Depreciation 500
Net income earned abroad for the country 0
Personal income is:
Gross domestic product (GDP) $4,000
- Depreciation (500)
= Net domestic product (NDP)(at mkt cost) $3,500
- Indirect business taxes (210)
= Net national income (NNI) (at factor cost) $3,290
- Corporate income taxes ( 50)
- Undistributed corporate profits ( 25)
- Social Security contributions (200)
+ Transfer payments 500
= PERSONAL INCOME $3,515
Personal income is all income received by individuals whether earned or unearned and is computed before any deductions for personal income taxes.
