BEC Q1

Question 1

What does elasticity refer to

Answer 1

a change in demand that results from a change in prices

Something is considered elastic if there is an increase in demand will be in proportion to a decrease in price - 4% increase in price results in a 4% decrease in demand

Something is considered inelastic - if the increase in demand is proportionately lower than a decrease in price (3% decrease in demand with a 5% increase in price)

Question 2

What is market equilibrium

Answer 2

An equilibrium quantity supplied equals quantity demanded

There are no surpluses or shortages

Price controls if in place are not binding

Question 3

What is stagflation

Answer 3

It is a combination of stagnation ( high unemployment) and inflation

Question 4

Under what circumstances can a country impose countervailing duties legally

Answer 4

For a country to be able to impose countervailing duties legally under WTO rules, the other country must have disobeyed a WTO panel that told it to correct a problem.

Question 5

What characterizes a perfectly competitive market

Answer 5

perfectly competitive markets are characterizes

Question 6

What happens when the fed reduces the discount rate

Answer 6

It makes it less expensive to borrow money and make a profit

Question 7

What is the multiplayer effect

Answer 7

Thi sis the ratio of change in GDR to change in underlying form of spending - consumption, investment, or government spending

Question 8

What happens with an increase in reserve requirements

Answer 8

This reduces the amount banks can lend - reducing money supply

Question 9

What happens when the Fed Reserve sells US TreasuryBonds

Answer 9

It reduces the money supply by taking money out of circulation

Question 10

What does full employment imply

Answer 10

This means there is frictional unemployment ( you leave voluntarily) and structural unemployment - which is unemployment due to need for retraining ( not less demand for workers)

Question 11

What does it mean when actual nation income is less than potential national income

Answer 11

this is recession - 2 quarter of negative GDP growth

Question 12

What does it mean when there is a decline in the purchasing power of money

Answer 12

This means that there is an increase in the demand for all goods and service - a growing economy

Question 13

What does it mean when there is a shortage of raw materials and rising cost

Answer 13

a growing economy

Question 14

What is the definition f an opportunity cost

Answer 14

The best alternative use or befit foregone as the result of a business decision

An idle space does not have any alternative use - has NO forgone benefit and therefore an opportunity cost of zero

Question 15

What can the government do to slow down an economy

Answer 15

reduce government spending

increase taxes

reduce money supply

increase tax rates

all of these will serve to dampen the economy

Question 16

What is happening with companies and low and higher value added tasks

Answer 16

lower value- added tasks - are being shifted to developing countries

the higher value-added tasks remain in developed countries

Question 17

What about matching assets and liabilities and revenues and expenses across countries and currencies

Answer 17

• This may reduce exchange rate risk, but achieving this is both not easy and one goal among many

Question 18

How doe step government measure price inflation

Answer 18

CPI
PPI or
GDP inflator

Question 19

What happens when a country reduced its rate of monetary growth

Answer 19

• Less money is available
• Interest rate increase as people compete for loans
• Tight credit ( because of high interest rates or difficult to get credit) will contract spending
• Less money and tighter credit - means that businesses have less to invest in people, inventories and production facilities - which will lower GDP and the goods available to export

Question 20

What is Okun’s Law

Answer 20

This is a general rule of thumb for linking changes in economic growth and unemployment