BEC Q3

Question 1

What are the primary concerns of macroeconomics

Answer 1

unemployment, economic growth and inflation

Question 2

What is the effect of the federal reserve purchasing federal securities and lowering the discount rate

Answer 2

This will increase the money supply

This is considered expansionary

by lowering the discount rate - it enables banks to obtain and loan out money at lower rates of interest = money money supply

Question 3

What is the effect of the fed reserve raising the discount rate

Answer 3

-It makes it more expensive for banks to obtain and lend out money which reduces the money supply

Question 4

What is the effect of the fed reducing reserve requirements

Answer 4

This allows banks to lend more money and therefore increases the money supply

Question 5

What are strategies a company can use to manage the risk of changes in exchange rates

Answer 5

• Purchase currency-related derivative
• Financing operatons in each market with loans obtained in the local currency

Matching local revenues with local costs

Question 6

What is the law of diminishing returns

Answer 6

• The value of goods decrease as more of them are made available

Question 7

Why does a business with a shorter or less intense business cycle have a competitive advantage over a business with a longer or more intense one

Answer 7

They have a competitive advantage because the high and the lows are less intense and lasting - this means that the business cycle is a factor in competitive advantage

Question 8

During the second half of the 20th century most recessions followed what action by the Fed Reserve

Answer 8

They increased interest rates as a means of forestalling current or expected increases in inflation rates

Question 9

What are freely fluctuating exchange rates and what do they do

Answer 9

• help avoid imbalances in a country’s balance of payments

They do increase the need for foreign currency hedging because future changes in exchange rates are not as certain under a freely fluctuating system as they are under a fixed exchange rate system

Question 10

what happens when a country imports substantially more than it exports

Answer 10

Its currency will depreciate and its future imports will be more expensive

Question 11

What happens when a country exports more than it imports

Answer 11

It currency will appreciate and its products will be more expensive for foreign purchasers

Question 12

What is the effect on prices of U.S. imports and exports when the dollar depreciates?

Import prices will increase and export prices will decrease.

Answer 12

When the dollar depreciates, additional dollars are required to buy the same amount of foreign currency required to pay for imports. Accordingly, import prices increase. Since the dollar’s value declines and U.S. goods are priced in dollars, U.S. exports become cheaper for foreign consumers.

Question 13

What is game theory

Answer 13

The action of one firms are likely to affect the decisions of others firms

Question 14

What is the concentration ratio

Answer 14

It is a measure of total outputs of an industry by a certain number of of firms - like 4 largest

Question 15

What is the Herfindahl index

Answer 15

Herfindahl index is a measure of the size of firms within an industry.

Question 16

What is demand

Answer 16

Demand is the quantity of a good or service that consumers are willing and able to purchase at a particular price and at a particular time.

Question 17

What is the cross elasticity of demand

Answer 17

Cross-elasticity of demand reflects the impact that price has on the quantity demanded of two related products.

Question 18

What is a supply curve

Answer 18

reflects the impact of prices of the amount of product offered.

Question 19

What happens when a foreign currency becomes weaker compared to the US dollar

Answer 19

goods and services become cheaper in US dollars

Therefore the items will become cheaper for US purchasers and have a competitive advantage in eh US

Question 20

How does inflation distort reported income?

Answer 20

Depreciation allocates the historical cost of an acquired asset over the years of its use.

Since inflation causes price levels to rise over time, the cost of replacing an asset will be higher than the original cost.

Reported income will be overstated because the depreciation expense reflects the lower historical cost rather than the inflation-adjusted replacement cost.

Wages typically increase with inflation as workers negotiate higher wages to offset the rising cost of living and employers compete to retain talented workers.

Sales typically reflect current product prices because firms adjust the price of products in periods of inflation.

Interest rates are not necessarily affected by inflation and interest expense may be reflective of current borrowing rates, although the money paid will have less purchasing power.