Global Economics Short Answer

Answer the following questions in short answer/essay form. The answers can be found on the internet. Competency 1 COMPETENCY: Globalization (Peng Chapters 1, 5, 6, 11) Explain the New, Evolutionary, and Pendulum views of Globalization. How do these differ from one another? What is Foreign Direct Investment? What different political views exist on FDI? What benefits exist to a country receiving FDI? Elaborate. What costs exist to a country receiving FDI? Elaborate. How do resources and capabilities influence the competitive dynamics of a business? What is resource similarity and how does this impact competitive dynamics? COMPETENCY: International Trade and Foreign Exchange Market (Peng Chapters 5, 7, 10) 1- Give a description of the classical theory of international trade. 2- How would the modern theory compare to the classical theory? 3- Compare absolute advantage to comparative advantage. What differences exist? 4- What is mercantilism and why is this an important term? 5- What are the critical features of the product life cycle? 6- How would you describe strategic trade? 7- How are supply and demand related to the exchange rate of a country? 8- Which theory came first, mercantilism or modern-day protectionism? 9- If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this? 10- What is transaction risk? 11- Explain the concept of “hedging” as it relates to reducing various types of risk. 12- What is the difference between currency hedging and strategic hedging? 13- What advantages exist with first mover? 14- What advantages exist with late mover? 15- Consider the model of foreign market entries. How is scale-of-entry related/relevant? Competency 2 COMPETENCY: Political and Economic Forces (Peng Chapter 2) 1- How do institutions reduce uncertainty? 2- Discuss and compare the three pillars (regulatory, normative, and cognitive) 3- Compare formal and informal institutions. 4- On what is the institution based view of global business grounded? What core propositions lie at the root of this view? 5- How is global business affected by democracy? 6- How is global business affected by totalitarianism? 7- What are the differences between democracy and totalitarianism? 8- Explain the core features of civil, common and theocratic law? How do they compare? 9- What is a property right? In what way are property rights essential? 10- What is an intellectual property right? 11- Contrast the market, command, and mixed economy types. Competency 3 COMPETENCY: Consumer Behavior (Mankiw Chapter 21) 1- What is an indifference curve? 2- What are the four properties of an indifference curve? 3- Explain marginal rate of substitution. 4- What is a budget constraint? 5- How might a budget constraint be impacted by an increase in income? 6- What two graphical elements are needed in order to determine a consumer’s optimal point of consumption? 7- How is a consumer’s optimal point of consumption determined precisely? What is the condition that must be met? COMPETENCY: Firm Behavior under Different Market Structures (Mankiw Chapters 13-17) 1- How is marginal cost derived? 2- How is marginal cost related to total cost? 3- What is the specific formula to calculate marginal cost? 4- If Dave’s company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6th unit? 5- Total cost is made of two types of costs, what are they? 6- How does a firm determine to shut down in the short-run? What rule characterizes this? 7- What is a price taker? Which of the market structures are characterized as being “price takers”? 8- When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take? 9- How is the demand curve for a perfectly competitive firm distinct from the demand curve for a monopolistic market? 10- What does “downward sloping” with regards to a demand curve mean? 11- Where do firms with market power determine the quantity of product/service they will produce? 12- What is the primary goal/objective of the firm? 13- If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues in order to accomplish their primary objective? 14- Describe the basic distinctions between the market models with respect to: number of market participants, type of product being marketed, ease of entry/exit into the market, and the prevalence of advertising/marketing. 15- What fundamental truth is realized when studying the behavior of an oligopolistic firm within the context/model called “prisoner’s dilemma”? 16- How might an oligopolistic firm behave like a monopoly? What forces may prevent this? Competency 4 COMPETENCY: Macroeconomic Principles (Mankiw Chapters 29 & 34) 1- What tools does the Federal Reserve have with regards to monetary control? 2- What are open market operations? 3- When the Fed buys bonds, what impact does this have on the money supply and aggregate demand? 4- When the Fed sells bonds, what impact does this have on the money supply and aggregate demand? 5- What is a discount rate? 6- When the Fed reduces the discount rate, what impact will this have on the money supply and the aggregate demand? 7- When the Fed increases the discount rate, what impact will this have on the money supply and the aggregate demand? 8- What is a reserve ratio? 9- What would the Fed need to do with the reserve ratio in order to increase the money supply and aggregate demand in the economy? 10- What would the Fed need to do with the reserve ratio in order to decrease the money supply and aggregate demand in the economy? 11- If the Fed uses monetary policy in a way that increases money supply, what effect will this have on interest rates and aggregate demand (consider them separately)? 12- If the government uses fiscal policy to increase government spending what impact will this have on interest rates and aggregate demand? 13- If the government uses fiscal policy and cuts taxes, what effect will this have on interest rates and aggregate demand? COMPETENCY: Microeconomic Principles (Mankiw Chapters 4 & 5) 1- Explain the effect an income change might have on shifting the demand curve? 2- What is the difference between a normal good and an inferior good? Explain. 3- Explain how the price of related goods is related to changes in the demand curve? 4- If Luke and I are the only sellers of paper in a given market, and Luke drops his prices for paper, how will this impact the demand for my paper? Which way will the demand curve shift? 5- What other factors might influence the position of the demand curve? 6- What numerical value determines whether or not a product/service is considered price elastic versus inelastic? 7- What is income elasticity and how is it measured? 8- What is price elasticity of demand? Explain the distinctions between elastic, inelastic, and unit-elastic. 9- What two results stem from income elasticity? Why is this important to an economist? 10- What is cross-price elasticity? How is this defined and what result comes from this measure of elasticity? 11- Can you summarize the 3 types of elasticity, their equations, purpose and outcomes? 12- In the net, how are price (P) and quantity (Q) changed by a simultaneous increase in demand and supply? 13- In the net, how are price (P) and quantity (Q) changed by a simultaneous increase in demand and decrease in supply? 14- In the net, how are price (P) and quantity (Q) changed by a simultaneous decrease in demand and supply? 15- In the net, how are price (P) and quantity (Q) changed by a simultaneous decrease in demand and increase in supply? COMPETENCY: Measuring Economic Performance (Mankiw Chapters 7 & 23) 1- What is consumer surplus? 2- Who receives consumer surplus? 3- In relation to the demand curve and price, how is consumer surplus measured? 4- What is producer surplus? 5- Who receives producer surplus? 6- In relation to the supply curve and price, how is producer surplus measured? 7- How is total surplus determined? 8- In what ways might government or policy makers make use of surplus measures? 9- What is the difference between macroeconomics and microeconomics? 10- Why must income equal expenditure in an economy as a whole? 11- Define gross domestic product (GDP). What does it measure? 12- Describe the four components of GDP and explain how they affect aggregate demand. 13- Why are transfer payments such as social security not counted in government expenditures? 14- What is the difference between real and nominal GDP? Why do we need to measure GDP in real terms?

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