BEC Q3 Flashcards
What are the primary concerns of macroeconomics
unemployment, economic growth and inflation
What is the effect of the federal reserve purchasing federal securities and lowering the discount rate
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
What is the effect of the fed reserve raising the discount rate
-It makes it more expensive for banks to obtain and lend out money which reduces the money supply
What is the effect of the fed reducing reserve requirements
This allows banks to lend more money and therefore increases the money supply
What are strategies a company can use to manage the risk of changes in exchange rates
- Purchase currency-related derivative
- Financing operatons in each market with loans obtained in the local currency
Matching local revenues with local costs
What is the law of diminishing returns
- The value of goods decrease as more of them are made available
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
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
During the second half of the 20th century most recessions followed what action by the Fed Reserve
They increased interest rates as a means of forestalling current or expected increases in inflation rates
What are freely fluctuating exchange rates and what do they do
- 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
what happens when a country imports substantially more than it exports
Its currency will depreciate and its future imports will be more expensive
What happens when a country exports more than it imports
It currency will appreciate and its products will be more expensive for foreign purchasers
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.
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.
What is game theory
The action of one firms are likely to affect the decisions of others firms
What is the concentration ratio
It is a measure of total outputs of an industry by a certain number of of firms - like 4 largest
What is the Herfindahl index
Herfindahl index is a measure of the size of firms within an industry.
What is demand
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.
What is the cross elasticity of demand
Cross-elasticity of demand reflects the impact that price has on the quantity demanded of two related products.
What is a supply curve
reflects the impact of prices of the amount of product offered.
What happens when a foreign currency becomes weaker compared to the US dollar
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
How does inflation distort reported income?
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.
