Economics and Strategy 5

Question 1

If the real rate of interest is the same in both countries the country with the higher nominal interest rate

Answer 1

is expected to experience a higher rate of inflation

Question 2

If wages rise in a stable market

Answer 2

1) demand for labor will decline and

2) employment will fall.

Question 3

devaluing currency so the currency of the country with the higher nominal interest rate will likely be selling at a forward discount

Answer 3

Is associated with A higher rate of inflation

Question 4

reducing government spending,
increasing taxes,
reducing the money supply, and
increasing interest rates

Answer 4

is the most effective way to dampen the economy and prevent inflation

Question 5

Reducing the discount rate

Answer 5

Would Increasing the money supply

Question 6

Lower taxes

increase in government spending

Answer 6

Would Stimulate the economy from a recession

Question 7

Open market operations through bond sales and purchases are flexible (government securities can be purchased or sold in large or small amounts),

This causes prompt changes in bank reserves, and are more subtle than reserve ratio changes

Answer 7

Are most important means by which the money supply is controlled

Question 8

companies can reduce the potential loss from host-government expropriation of their foreign subsidiaries by

Answer 8

Financing the subsidiary with local-country capital

The parent company could then default on the local creditors in the event that the subsidiary is expropriated from them. The creditors’ claims would have to be satisfied by the expropriating host government.

Question 9

can be real or perceived by the customer

is often done by market segment

is not always related to the cost of producing the product

Answer 9

product differentiation

Question 10

The demand for a foreign currency (exchange rates) is determined by

Answer 10

Supply and Demand