Foreign Service Officer Test - Economics

Full Convertibility

An exchange rate system in which individuals may change dollars into any currency they want for whatever legal purpose they want.

Why is the price elasticity of demand almost always a negative number?

Because the law of demand says that the demand curves slope downward.

Unions

"Workers' associations that bargain with employers over wages, benefits and working conditions"

Efficiency wages

"above-equilibrium wages paid by firms in order to increase worker productivity"

Optimal Comparative Advantage (Crusoe/Friday)

"for each to be completely specialised in produc-tion, and will then trade in order to get some of the other's good"

Firm's structure, strategy, and rivalry" imply in Porter's Theory?

"Different nations are characterized by different management ideologies help or hinder the evolution of national competitiveness. Competition in an industry also tends to breeds rivalry and innovation, improved quality, cost reduction and investment in upgrading same."

Galton's Fallacy

"higher growth rates imply eventual `convergence' i.e. While the poor countries might have higher percentage growth rates, this does not mean that they are closing the absolute output gap with rich countries"

Diseconomies of scope

"means that there can be gains from trade, even when production possibilities frontier are identical"

Political Union

"the evolution of a complete political entity cf: U.S.A. vs the European Union."

Demand Conditions" in Porter's Theory?

#NAME?

Factor Endowments" in Porter's Theory?

#NAME?

term of most bonds?

1 to 30 years. Under 1 year, they are usually referred to as money market instruments.

Vertical Merger

A combination of two companies that are involved in different phases of producing a product.

major theories of FDI?

1. Monopolistic Advantage theory 2. Strategic Behavior (Following competitors) 3. Horizontal FDI (FDI in the same industry abroad as at home) 4. Dunnings Eclectic theory (Location Theory)

Economic Principle

A commonly held economic insight stated as a law or general assumption.

What are two primary objectives of government intervention in international trade?

1. To help domestic firms achieve first mover advantages. 2. Help domestic firms compete against firms who have first mover advantages.

asset utilization ratio?

A measure of how well a firm uses its assets to generate $1 in sales.

Personal Consumption Expenditure (PCE) Deflator

A measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits.

Price level

A measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI.

calculation of multiplier

1/1-MPC or 1/MPS

calculation of potential money multiplier

1/required reserve ratio

What is the largest denomination of US money ever created?

100,000 in 1934.

Flow

A measure that is defined per unit of time.

Hostile Takeover

A merger in which the firm being taken over doesn't want to be taken over.

Economically Efficient

A method of production that produces a fiven level or output at the lowest possible cost.

multiplier formula

=1/1-MPC or 1/MPS

compound tariff?

A TARIFF for a good that combines both a SPECIFIC TARIFF plus an AD VALOREM TARIFF.

ad valorem tariff?

A Tariff based on a percentage of the price of a good.

Sherman Antitrust Act

A U.S. law designed to regulate the competitive process.

Wealth Accounts

A balance sheet of an economy's stock of assets and liabilities.

Means-tested

A benefit program is means-tested if its benefit level declines as the recipient earns additional income.

callable" bond?

A bond that can be paid back early, thus forcing the buyer to find another place to put his money.

Corporation

A business that is treated as a person, legally owned by its stockholders. Its stockholders are not liable for the actions of the corporate "person."

Financial Institution

A business whose primary activity is buying, selling, or holding financial assets.

Partnership

A business with two or more owners.

Feudalism

An economic system in which traditions rule.

Yield Curve

A curve that shows the relationship between interest rates and bonds' time to maturity.

Decision tree (or game tree)

A diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves.

Compensating wage differential

A difference in the wage rateâ€"negative or positiveâ€"that reflects the attractiveness of a job's working conditions.

Supplemental Security Income (SSI)

A federal program that pays benefits, based on need, to the elderly, blind and disabled.

Contractual Intermediary

A financial institution that holds and stores individuals' financial assets.

Despository Institution

A financila institution whose primary financial liability is deposits in checking or savings accounts.

Union Shop

A firm in which all workers must join the union.

Perfectly discriminating monopolist

A firm that charges each buyer exactly his or her reservation price.

Imperfectly competitive firm

A firm that has at least some control over the market price of its product.

domestic firm?

A firm that has little or no international business activity.

Closed Shop

A firm where unions control the hiring.

Price setter

A firm with at least some latitude to set its own price.

Zero Economic Profit

A frim is earning a normal return on its investment i.e. it is doing as well as it could by investing its money elsewhere

Better-than-fair gamble

A gamble whose expected value is positive.

Fair gamble

A gamble whose expected value is zero.

Global firm?

A globally integrated company that tries to achieve and experience curve economies. Products tend to be largely undifferentiated and location of production is chosen to achieve "Minimized unit delivered cost to Market" with largely centralized operations.

Collective good

A good or service that, to at least some degree, is nonrival but excludable.

Free Trade Association

A group of countries that have reduced or eliminated trade barriers among themselves.

Health maintenance organization (HMO)

A group of physicians that provides health services to individuals and families for a fixed annual fee.

Direct Regulation

A kprogram in which the amount of a good people are allowed to use is directly limited by the government.

Say's Law

A law that staes that supply creates its own demand.

Capital good

A long-lived good that is used in the production of other goods and services.

Monetarist Theory

A macroeconomic theory holding that the main cause of changes in the business cycle are changes in money supply.

Third-Party-Payer Market

A market in which the person who receives the good differs from the person paying for the good.

Efficient Market

A market where the quantity supplied=quantity demanded & the price of goods is set at the equilibrium price.

Speculative attack

A massive selling of domestic currency assets by financial investors.

Balance of Payments (BOP)?

A measure of how much money is going into or out of a country. If it is coming in, it is a positive balance. The BOP consists of the current, capital, and reserve accounts.

liquidity ratio?

A measure of how quickly a firm can convert its assets into cash to settle debts.

Cost-plus regulation

A method of regulation under which the regulated firm is permitted to charge a price equal to its explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners.

Classical Growth Model

A model of growth that focuses on the role of capital accumulation in the growth process.

Utilitarianism

A moral theory in which the right course of action is the one that results in the highest total utility.

In-kind transfer

A payment made not in the form of cash but in the form of a good or service.

Unemployment spell

A period during which an individual is continuously unemployed.

Earned-income tax credit (EITC)

A policy under which low-income workers receive credits on their federal income tax.

Business

A private producing unit in our society.

Land Bank Program

A program in which government supports prices by fiving farmers economic incentives to reduce supply.

Tax Incentive Program

A progrma using a tax to create incentives for individuals to structure their activites in a way that is consistent with the desired ends.

Credible promise

A promise to take an action that is in the promiser's interest to keep.

Shared consumption

A property of a good or service such that it can be used by many without diminishing another’s ability to consume the same good; examples include street lights or radio broadcasts.

Real quantity

A quantity that is measured in physical termsâ€"for example, in terms of quantities of goods and services.

Direct Relationship

A relationship in which when one variable goes up, the other goes up too.

Vickrey Auction

A sealed-bid auction where the highest bidder wins pays the price bid by the next-highest bidder.

Positional arms race

A series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality.

Commitment problem

A situation in which people cannot achieve their goals because of an inability to make credible threats or promises.

Efficient (or Pareto-efficient)

A situation is efficient if no change is possible that will help some people without harming others.

Social Security System

A social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survirors.

Economic Takeoff

A stage when the development process becomes self-sustaining.

Disinflation

A substantial reduction in the rate of inflation.

Inflation shock

A sudden change in the normal behavior of inflation, unrelated to the nation's output gap.

Head tax

A tax that collects the same amount from every taxpayer.

Sin Tax

A tax that discourages activities society believes are harmful (sinful).

Excise Tax

A tax that is levied on a specific good, such as tobacco.

Human capital theory

A theory of pay determination that says a worker's wage will be proportional to his or her stock of human capital.

Credible threat

A threat to take an action that is in the threatener's interest to carry out.

retaliation?

A tool that some Governments use to try to force other governments to play by the rules.

Embargo

A total restriction on the import or export of a good.

Acquisition

A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation.

Implicit Collusion

A typd of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.

Commitment device

A way of changing incentives so as to make otherwise empty threats or promises credible.

Traditional Economy

An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution.

Benefit Budget

An element of financial planning where all income is listed and compared to all expenditures. Often expenditure decisions need to be made to hold spending less than or equal to income.

3 core Classical Trade Theories?

Absolute advantage (natural and acquired) Comparative advantage (David Ricardo) Factor Proportions theory ( Heckscher & Ohlin). Some empirical contradictions (Leontif).

What trade theory did Adam Smith promote?

Absolute advantage: A country has an absolute advantage in the production of a product when it is more efficient than other countries.

Efficiency

Achieving a goal as cheaply as possible. Also: using as few inputs as possible.

Productive Efficiency

Achieving as much output as possible from a given amount of inputs or resources.

Services

Activities performed by people, firms, or government agencies to satisfy economic wants.

Accounting cost

Actual expense plus depreciation charges for capital equipment

Marginal Value

Additional benefit derived from purchaisn on more unit of a good

Positive analysis

Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable.

Who is on the $10 bill?

Alexander Hamilton.

Long Run Competitive Equilibrium

All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded.

Implicit costs

All the firm's opportunity costs of the resources supplied by the firm's owners.

Utility

An abstract measure of the satisfaction consumers derive from consuming goods, services, and leisure activities.

Cash Flow Accounting System

An accounting system entering expenses and revenues only when cash is received or paid out.

Corporate Takeover

An action in which another firm or a group of individuals issues a tender offer (that is, offers to buy yup the stock of a company) to gain control and to install its own managers.

Signaling

An action taken by an infomed party that reveals information to an uninformed party and thereby partially offsets adverse selection.

Positional arms control agreement

An agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement.

Employer discrimination

An arbitrary preference by an employer for one group of workers over another.

Firm

An economic institution that transforms factors fo production into goods and services.

Economic loss

An economic profit that is less than zero.

Inflation Tax

An implicit tax on the holders of cash and the holder of any obligations specified in nominal terms.

graduated income tax?

An income tax that takes proportionately more from higher wage earners

Economic Growth

An increase in real output as measured by real GDP or per capita real GDP.

Revaluation

An increase in the official value of a currency (in a fixed-exchange-rate system).

Paasche Index

An index based upon a flexible basket of goods and services.

Laspeyres Index

An index where the basket of goods is fixed.

North American Industry Classification System (NAICS)

An industry classification that categorizes industries by type of economic activity and groups firms with like production processes.

Factor of production

An input used in the production of a good or service.

Fitch Ratings?

An international credit rating agency dual-headquartered in New York City and London. It is one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's.

Specil Interest Group

An organization of people with a particular legislative concern. They work together to gather information, lobby politicians, and publicize their concern.

Who is on the $20 bill?

Andrew Jackson.

Efficient point

Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other.

Incentive

Any reward or benefit, such as money or good feeling, that motivates choices and behaviors.

Financial Assets

Assets such as stocks or bonds, whose benefit to the owner depends on the issuer of the asset meeting certain obligations.

Competition

Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.

Government Bonds

Bonds issued by the gov't & bought & sold by the Fed as a form of monetary policy to manipulate the money supply.

Bretton Woods triangle trade?

Bretton Woods, then, created a system of triangular trade: the United States would use the convertible financial system to trade at a tremendous profit with developing nations, expanding industry and acquiring raw materials. It would use this surplus to send dollars to Europe, which would then be used to rebuild their economies, and make the United States the market for their products. This would allow the other industrialized nations to purchase products from the Third World, which reinforced the American role as the guarantor of stability. When this triangle became destabilized, Bretton Woods entered a period of crisis which lead ultimately to its collapse.

holding co mpany?

Business owning a majority of stock in member companies and therefore able to dictate common policy. Warren Buffett's Berkshire Hathaway is one of the largest publicly traded holding companies; it owns numerous insurance companies, manufacturing businesses, retailers, and other companies.

Currency Stabilization

Buying and selling of a currency by the gobernment to offset temporary fluctuations in supply and demand for currencies.

E-commerce

Buying and selling over the Internet.

Net capital inflows

Capital flows that are equal to foreign purchases of domestic assets (which bring funds into the country) minus domestic purchases of foreign assets (which send funds out of the country); that is, capital inflows minus capital outflows.

Strategic Behavior theory?

In the case of oligopolistic industries, the theory is that if one firm engages in FDI in another country (region), then others should follow.

Allocative function of price

Changes in prices direct resources away from overcrowded markets and toward markets that are underserved.

Rationing function of price

Changes in prices that distribute scarce goods to those consumers who value them most highly.

Price Rigidity

Characteristics of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change

Common Market

Characterized by free movement of factors of production.

Effluent Fees

Charges imposed by government on the level of pollution created.

What is the life span for a US treasury note?

Commonly used bills such as the 1,5,10, and 20 dollar bills last about 2 years. For the 2, 50 and 100, it can be over 4 years.

junk" bonds?

Companies with less-than-investment-grade (Ba and below) ratings issue bonds. These securities, known as high-yield, or "junk," bonds, are generally too speculative for the average investor, but they can provide spectacular returns.

What trade theory did David Ricardo promote?

Comparitive Advantage: The theory that countries can specialize in the production of goods in which they are more efficient.

What tend to be the riskiest type of bonds?

Corporate bonds.

Global Corporation

Corporation with substantial operations on bothe the production and sales sides in more than one country.

Shoeleather Cost of Inflation

Costs of expected inflation caused by people having to make more trips to the bank to make withdrawals because they do not want to keep cash on hand.

Secure Debt

Credit with collateral (a house or a car, e.g.) for the lender

Expansion Path

Curve passing through points of tangency between a firm's isocost lines and its isquants

Cash on the table

Economic metaphor for unexploited gain from exchange.

Above the mid-point on a straight-line demand curve, demand is ___________

Elastic

debt utilization ratio?

Debt utilization ratios measure how well the firm is utilizing debt and XYZ company's ability to repay the debt. Many novice investors believe that a company with no debt is superior. Having little debt on the balance sheet is generally very safe. But most companies assume debt to finance operations so the company can grow. General finance textbooks state that the ideal ratios is around 30%, due to leveraged buyouts the ratio of debt to assets or equity has been increasing.

Capital losses

Decreases in the value of existing assets.

Demand is unit elastic where on the demand curve?

Demand is unit elastic at the MIDPOINT of the demand curve.

Paper Balances

Deposits that exist on paper but are not backed by physical currency.

Policy reaction function

Describes how the action a policymaker takes depends on the state of the economy.

Out of the Labor Force

Describes people who are not employed and are not currently looking for employment. This includes children and retirees.

Phillips Curve

Describes the general inverse relationship between unemployment and inflation.

Equilibrate

Describes the movement of the factors of a market set at the equilibrium price.

What accounting system did merchants of Venice in the late 1400s use?

Double entry bookkeeping.

Euribor?

Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale (or "interbank") money market. The Euro reference rates are based on this.

Induced Expenditures

Expenditures that change a s income changes.

Economic Incentives

Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits, and losses are important economic incentives in a market economy.

Internal Debt

Government debt owed to other fovernmental agencies or to its own citizens.

Official Reserves

Government holdings of foreign currencies.

subsidies?

Government payments to domestic producers. They take the form of cash grants, low interest loans, tax breaks, and government equity participation

Structural policy

Government policies aimed at changing the underlying structure, or institutions, of the nation's economy.

For COMPLEMENTS, the cross-price elasticity of demand is - or +?

For COMPLEMENTS, the cross-price elasticity of demand is NEGATIVE?

Present value of a perpetual annual payment

For an annual interest rate r, the present value (PV) of a perpetual annual payment (M) is the amount that would have to be deposited today at that interest rate to generate annual interest earnings of M: PV = M / r.

For Substitutes, the cross-price elasticity of demand is - or +?

For substitutes, the cross-price elasticity of demand is POSITIVE

International reserves

Foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market.

Price Signaling

Form of implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit

Parallel Conduct

Form of implicit collusion in which one firm consistently follows actions of another

Adverse Selection

Form of market failure resulting when products of different qualities are sold at a signle price because of asymmetric information, so that too much of the low-uality product and too little of the igh-quality product are sold. An example: The pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure.

Two-part tariff

Form of pricining in which consumers are charged both an entry and a usage fee.

Carl Menger?

Founder of Austrian school of economics. Started the neoclassical revolution.

Stabilization policies

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps.

oligarchy

Govn't by the few, especially despotic power exercised by a small and privileged group for corrupt or selfish purposes. It's also a form of monopoly, but by more than one business.

Isocost line

Graph showing all possible combinations of labor and capital that can be purchased for a given total cost

REGIONAL ECONOMIC INTEGRATION (TRADING GROUPS)?

Groups of Countries come together in order to improve economic conditions in their countries.

Public Finance

Grovernment's taxing and spending policies.

FACTOR PROPORTIONS THEORY?

HECKSCHER & OHLIN - the pattern of international trade is based on differences in factor endowments rather than differences in productivity.

Gains from specialization and trade are always possible as long as .................

Gains from specialization and trade are always possible as long as OPPORTUNITY COSTS DIVERGE

Sequential game

Game in which players move in turn, responding to each other's actions and reactions

What options do corporations have for raising capital?

Generally speaking, companies have three choices when they want to raise cash. They can issue shares of stock, they can borrow from the bank, or they can borrow from investors by issuing bonds.

Lemons model

George Akerlof's explanation of how asymmetric information tends to reduce the average quality of goods offered for sale.

National Resources

Gifts of nature†that can be used to produce goods and services; for example, oceans, air, mineral deposits, virgin forests, and actual fields of land. When investments are made to improve fields of land or other natural resources, those resources become, in part, capital resources.

Incentive Effect

How much a person will change his or her hours worked in response to ta change in the wage rate.

Coase theorem

If at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities.

Economic Decision Rule

If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.

Economic Functions of Government

In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income, and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.

Slope

In a straight line, the ratio of the vertical distance the straight line travels between any two points (rise) to the corresponding horizontal distance (run).

Side-effects from taxes

Inefficiency Prevention of some mutually beneficial transactions from occurring.

Below the mid-point on a straight-line demand curve, demand is ___________

Inelastic.

Demand-Pull Inflation

Inflation that o curs when the economy is at or above potential output.

What happens if the fed interest rate goes too low?

Inflation.

First-dollar insurance coverage

Insurance that pays all expenses generated by the insured activity.

Liquidity Preference of Interest?

It was originally Keynes' idea. The hypothesis is that people prefer to have their money be liquid, and must have a reason for it not to be liquid. So, lowering interest rates on low liquidity investment items (30 year bonds, etc...) will make them less attractive to invest in. So, when long term interest rates drop, the demand for money rises.

Economies of Scope

Joint outuput of a single firm is greater than output that could e achieved by two different firms when each produces a single product

Investment

Spending by firms on final goods and services, primarily capital goods. (also a flow concept): expenditures on new machines and buildings (capital goods) that are expected to yield a future stream of income

What is the relationship between a nation's capital and current accounts?

Inverse if a neutral balance of payments is to be obtained.

How can firms acheive "first mover advantage?"

Investing in becoming a first mover requires a large allocation of cash.

Conglomerate FDI?"

Investing in business overseas that has no relationship to your core business.

Horizontal FDI?"

Investing in the same economic activity abroad as one does at home.

what does it mean by capital intensive?

Is a country relying on machinery, rather than labor.

Austrian school of economics?

It is is a school of economic thought that rejects opposing economists' reliance on methods used in natural science for the study of human action, and instead bases its formalism of economics on relationships through logic or introspection called "praxeology". It is a subset of classical liberal school of economics. Friedrich Hayek was a famous member.

dirty float in economics?

It is when a country tries to manipulate the value of its floating currency.

In accounting, what is used for inventory: FIFO or LIFO?

LIFO in the United States.

Comparable Worth Laws

Laws mandating comparable pay for comparable work.

What theory did Leontief promote?

Leontief Paradox: Leontief performed empirical tests on the "factor endowment" idea and found that it does not predict real world scenarios.

Who is on the $5 bill?

Lincoln.

Fed Funds

Loans of excess reserves banks make to one another.

M2

M1 plus savings deposits, small-demonimation time deposits, and money market mutual fund shares, along with some esoteric financial instruments.

The quantity equation

MV=PY, M is the amount of money in the economy, V is the velocity of money, P is the aggregate price level, Y is the real value of the goods and services traded

Bilateral Monopoly

Market with only one seller and one buyer

Economic Efficiency

Maximization of aggregate consumer and producer surplus

Public Assistance

Means-testeed social programs targeted to the poor and providing financial, nutritional, medical, and housing assistance.

Lerner Index of Monopoly Power

Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price

Reserve

Money not given out in loans that is available for repaying depositors.

Commodity Money

Money that has an intrinsic value, that is, value beyond any value given to it because it is money. An example of this would be a gold coin that has value because it is a precious metal.

Fiat Money

Money that has no intrinsic value, that is, its only value comes from the fact that a governing body backs & regulates the currency. This system only works if a gov't backs the money & regulates its production.

Quantity equation

Money times velocity equals nominal GDP: M × V = P × Y.

Dunnings Eclectic theory?

Monopolistic/Ownership Specific Advantage (OSA) explained why firms invested overseas, Internalization explained Which form of entry the firm should take and explained Where the firm should invest through Location Specific Advantage (LSA).

Demand tends to become more or less elastic over time?

More Elastic, because consumers have more time to adjust to a price change.

multi-domestic firm?

Multi-domestic firm is one that focuses on local responsiveness! Product offerings are customized and a complete set of value creating activities are developed in each country/region, with largely autonomous decentralized organizations.

Two types of "Absolute Advantages?"

NATURAL ADVANTAGE (climate, resource availability, eg: abundant labor) ADVANTAGE (technology or developed skills eg: training).

For INFERIOR GOOD, the income elasticity of demand is - or +?

NEGATIVE

Is goodwill a basis for the theory of Monopolistic Advantage?

NO

What theory did Micheal Porter promote?

National Competative Advantage (Porter's Diamond): Combination of the following give competative advantage in the Global Economy: 1. Factor Endowments 2. Demand Conditions 3. Relating and Supporting Industries 4. Firm Strategy, structure, and rivalry.

Consumption expenditure

Spending by households on goods and services such as food, clothing, and entertainment.

Rational spending rule

Spending should be allocated across goods so that the marginal utility per dollar is the same for each good.

neoliberalism?

Neoliberalism is widely used as a description of the revived form of economic liberalism that became increasingly important in international economic policy discussions from the 1970s onwards. In its dominant international use, neoliberalism refers to a political-economic philosophy that de-emphasizes or rejects government intervention in the domestic economy. It focuses on free-market methods, fewer restrictions on business operations, and property rights. In foreign policy, neoliberalism favors the opening of foreign markets by political means, using economic pressure, diplomacy, and/or military intervention.

How often do treasury bills pay interest?

Never. Only T-notes and T-bonds pay interest twice a year. T-bills are simply sold at a discounted price.

Positional externality

Occurs when an increase in one person's performance reduces the expected reward of another's in situations in which reward depends on relative performance.

Cournot model

Oligopoly model in which firms prdouce a homogenoues good, each firm treates the output of its competitors as fixed, and all firms decide simultaneously how much to produce

Bertrand model

Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all frims decide simultaneously what price to charge

Stackelberg Model

Oligopoly model in which one firm set its output before other firms do.

On a straight-line demand curve, elasticity decreases as the price ______ and the quantity _______ increases.

On a straight-line demand curve, elasticity decreases as the price FALLS and the quantity demanded INCREASES.

Deacquisition

One company's sale of either parts of another company it has bought or parts of itself.

Pure commons good

One for which nonpayers cannot easily be excluded and for which each unit consumed by one person means one less unit available for others.

Winner-take-all labor market

One in which small differences in human capital translate into large differences in pay.

Perfect hurdle

One that completely segregates buyers whose reservation prices lie above some threshold from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle.

Positive economic principle

One that predicts how people will behave.

Productivity

Output per unit of input.

Average Product

Output per worker.

For NORMAL GOODS, the income elasticity of demand is - or +?

POSITIVE

Price leadership

Pattern of pricing in which one firm regularly announces price changes that other firms then match

STRATEGIC(NEW) TRADE THEORY?

Paul Krugman. many industries where the world market can only support a certain number of firms. Firms which enter the industry at the beginning, capture: first mover advantages to achieve: economies of scale and scope, benefit from learning curve effects. Firms develop a competitive advantage over any potential rivals. This creates barriers to entry for other prospective firms.

Income

Payments earned by households for selling or renting their productive resources. For example, workers receive wage or salary payments in exchange for their labor.

Wage

Payments for labor services that are directly tied to time worked, or to the number of units of output produced.

Transfer payments

Payments the government makes to the public for which it receives no current goods or services in return.

Producers

People and firms that use resources to make goods and services.

Normal Rate of Profit

Profits just high enough to compensate producers for the explicit and implicit costs (including opportunity costs) they incur in producing a particular good or service, without leading to any net entry or exit by producers in that market. Also called normal profits. Normal profits are an economic cost of production; they mark a point at which any lower level of profit would lead a producer to pursue some other use of his or her resources.

Which of the following two theories justify some limited and selective government intervention to support the development of certain export-oriented industries?

The new trade theory and theory of national competitive advantage

People respond to ......

People respond to incentives

Degree of economies of scope

Percentage of cost savings resulting when two or more products are produced jointly rather than individually

PORTER'S DIAMOND OF NATIONAL ADVANTAGE?

Porter's notion is that 6 sets of variables shape the environment in which firms compete: -Factor endowments -Demand conditions -Related and supporting industries -Firm's structure, strategy, and rivalry -Chance -Government Actions

Block Pricing

Practice of Chargin different prices for different quanitites or "block" of a good.

Second Degree price discrimination

Practice of chargin diferent prices per unit for different quanitities of the same good or service

First degree price discrimination

Practice of charging each customer her reservation price

Peak-load Pricing

Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.

Third Degree Price Discrimination

Practice of dividing consumers into tow or more groups with separrate demand curves and charging different prices to each group

Tying

Practice of requiring a customer to purchase on good in order to purchase another

Bundling

Practice of selling two or more products as a package

Intertemporal price discrimination

Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time.

Related and supporting industries" in Porter's Theory?

Presence of supplier and related industries

Distorted assett allocation, black markets, and shortages can result from what economic regulation?

Price controls.

Average expenditure

Price paid per unit of good

Price Support

Price set by government above free-market level and maintatined by governmental purchases of excess supply

Principal-Agent problem

Problem arising when agents purseue their own goals frather than the goals of principals

Per Capita Growth

Producing more goods and services per person.

_______ theory of international trade suggests that the production of products is likely to switch from advanced countries to developing countries over time.

Product life-cycle

What is the effect of a "Protectionist policy" on the global economy?

Protectionism is often shortsighted and fails in the long run.

Capital inflows

Purchases of domestic assets by foreign households and firms.

Capital outflows

Purchases of foreign assets by domestic households and firms.

International capital flows

Purchases or sales of real and financial assets across international borders.

Basic Needs

Qdequate food, clothing, and shelter.

Product Life-Cycle Theory?"

Raymond Vernon... Proposed that in the life-cycle of products that their production is moved from more developed to lesser developed countries in order to lower costs.

Capital

Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools, and equipment.

The market rewards ______

SCARCITY

Bequest saving

Saving done for the purpose of leaving an inheritance.

Precautionary saving

Saving for protection against unexpected setbacks, such as the loss of a job or a medical emergency.

Life-cycle saving

Saving to meet long-term objectives, such as retirement, college attendance, or the purchase of a home.

Parameter

See Constant.

Game tree

See Decision tree.

Pareto-efficient

See Efficient.

Rise

See Slope.

Run

See Slope.

Efficiency Seeking?"

Seeking to minimizing unit delivered cost to market, for both production and delivery (transportation, insurance, marketing, tariffs etc), to establish a portfolio of production sources reducing risk, obtaining knowledge including technology and skills.

Market Failure

Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers

Inflation hawk

Someone who is committed to achieving and maintaining low inflation, even at some short-run cost in reduced output and employment.

Inflation dove

Someone who is not strongly committed to achieving and maintaining low inflation.

Unit of Account

Something that is used universally in the description of money matters such as prices. The unit of account most commonly used in the US is the dollar.

Rule of 72

The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.

Mixed Strategy

Strategy in which a player makes a random choice among two or more possible actiosn based on a set of chosen probabilities.

Pure Strategy

Strategy in which a player makes a specific choice or takes a specific action

M1

Sum of currency outstanding and balances held in checking accounts.

Variable profit

Sum of prifts on each increamental unit produced by a firm

The main tasks of the Federal Reserve are:

Supervise and regulate banks, Implement monetary policy by open market operations, setting the discount rate, and setting the reserve ratio, Maintain a strong payments system. Control the amount of currency that is made and destroyed on a day to day basis (in conjunction with the Mint and Bureau of Engraving and Printing). Other tasks include: economic research, economic education, community outreach.

NATIONAL COMMERCIAL POLICY?

THE INFLUENCE OF GOVERNMENT IMPOSED AND OTHER DISTORTIONS IN THE MARKETPLACE

Goods

Tangible objects that satisfy economic wants

two primary ways tha government intervenes in international trade?

Tarrif and Non-Tarrif Barriers

Specific Tax

Tax of a certain amount of money per unit sold

Skill-biased technological change

Technological change that affects the marginal products of higher-skilled workers differently from those of lower-skilled workers.

Economic rent

That part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor.

The "Real Cost" of something is ......

The "Real Cost" of something is what you must give up to get it.

Personal Responsibility Act

The 1996 federal law that transferred responsibility for welfare programs from the federal level to the state level and placed a five-year lifetime limit on payment of afdc benefits to any given recipient.

What publishes the CPI every month?

The Bureau of Labor Statistics

5 functions of the Fed?

The Federal Reserve Board controls the supply of money, sets the discount rate, performs open market operations, regulates banks and other financial institutions, and supervises the FDIC.

Competitiveness

The ability of a country to sell its goods to other countries.

accelerator effect in economics?

The accelerator effect in economics refers to a positive effect on private fixed investment of the growth of the market economy (measured e.g. by Gross Domestic Product). Rising GDP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity. This usually implies that profit expectations and business confidence rise, encouraging businesses to build more factories and other buildings and to install more machinery. (This expenditure is called fixed investment.) This may lead to further growth of the economy through the stimulation of consumer incomes and purchases, i.e., via the multiplier effect.

Merger

The act of combining two firms.

Explicit costs

The actual payments a firm makes to its factors of production and other suppliers.

Marginal Physical Product (MPP)

The additional units of output that hiring an additional worker will bring about.

Optimal combination of goods

The affordable combination that yields the highest total utility.

Distribution

The allocation or dividing up of the goods and services a society produces

Purchasing Power

The amount of goods and services that a unit of currency can buy.

Demand for money

The amount of wealth an individual or firm chooses to hold in the form of money.

Principal amount

The amount originally lent.

User cost of capital

The annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest

Labor Productivity

The average output per worker.

Peak

The beginning of a recession, the high point of economic activity prior to a downturn.

Money Multiplier

The number that describes the change in the money supply given an initial deposit and a reserve requirement.

Conspicuous Consumption

The onsumption of goods not for one's direct pleasure, but simply to show off to others.

Normal profit

The opportunity cost of the resources supplied by the firm's owners; Normal profit = Accounting profit âˆ' Economic profit.

Passive Deficit

The part of the deficit that exists because the economy is operating below its potential level of output.

Participation rate

The percentage of the working-age population in the labor force (that is, the percentage that is either employed or looking for work).

Basic elements of a game

The players, the strategies available to each player, and the payoffs each player receives for each possible combination of strategies.

Substitution effect

The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.

Consumption possibilities

The combination of goods and services that a country's citizens might feasibly consume.

Horizontal Merger

The combining of two companies in the same industry.

Who is most affected by per unit taxes?

The cost of per unit taxes is split between the buyer and the seller.

What makes up a nation's Balance of Payments?

The current, capital, and reserve accounts.

Maturation date

The date at which the principal of a bond will be repaid.

Portfolio allocation decision

The decision about the forms in which to hold one's wealth.

_______ are the two macro factors that seem to underlie the trend toward greater globalization.

The decline in barriers to the free flow of goods, services, and capital Technological change

Credibility of monetary policy

The degree to which the public believes the central bank's promises to keep inflation low, even if doing so may impose short-run economic costs.

Outside lag (of macroeconomic policy)

The delay between the date a policy change is implemented and the date by which most of its effects on the economy have occurred.

Inside lag (of macroeconomic policy)

The delay between the date a policy change is needed and the date it is implemented.

Induced aggregate demand

The portion of aggregate demand that is determined within the model.

Autonomous expenditure

The portion of planned aggregate expenditure that is independent of output.

Accounting profit

The difference between a firm's total revenue and its explicit costs.

Economic profit

The difference between a firm's total revenue and the sum of its explicit and implicit costs; also called excess profit.

Federal Funds Interest Rate

The discount interest rate at which the branch banks of the Fed loan money to other banks.

duration gap?

The duration gap is an accounting term for the difference between the duration of assets and liabilites. The duration gap measures how well cash flows for assets and liabilities are matched. When the duration of assets exceeds the duration of liabilities the duration gap is positive. A positive duration gap means greater exposure to rising interest rates; if interest rates go up then the price of assets fall more than the price of liabilities. Conversely, when the duration of assets is less than the duration of liabilities the duration gap is negative; if interest rates fall then the price of assets goes up less than the price of liabilities. Duration has a double-facet view. While a positive duration gap means greater risk, it also means that, on average, payables became due before receivables.

Economic surplus

The economic surplus from taking any action is the benefit of taking the action minus its cost.

Income-expenditure multiplier

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output.

Efficient quantity

The efficient quantity of any good is the quantity that maximizes the economic surplus that results from producing and consuming the good.

Dual Economy

The existence of two sectors: a traditional sector and an internationally oriented modern market sector.

Social Capital

The habitual way of doing things that guides people in how they approach production.

Rent

The income from a factor of production that is in fixed supply.

Efficient markets hypothesis

The theory that the current price of stock in a corporation reflects all relevant information about its current and future earnings prospects.

Principle

The initial amount of money given as a loan.

Discount rate

The interest rate that the Fed charges commercial banks to borrow reserves.

Board of Governors

The leadership of the Fed, consisting of seven governors appointed by the president to staggered 14-year terms.

Discount window lending

The lending of reserves by the Federal Reserve to commercial banks.

Duration

The length of an unemployment spell.

Equilibrium Income

The level of income toward which the economy gravitates in the short run.

Market-Clearing Level

The level, price, or quantity where supply and demand are equal.

Gold Specie Flow Mechanism

The long-run adjustment mechanism that maintained the gold standard.

Rate of Return regulation

The maximum price allowed by a regulatory agency is based on the rate of return that a firm will earn

WILLINGNESS TO BUY

The maximum price at which he or she would buy a good

market definition for globalization?

The merging of historically distinct and separate national markets into one huge global marketplace

Conglomerate Merger

The merging of relatively unrelated businesses.

Economic Force

The necessary reaction to scarcity.

Balance-of-payments deficit

The net decline in a country's stock of international reserves over a year.

Balance-of-payments surplus

The net increase in a country's stock of international reserves over a year.

Hurdle method of price discrimination

The practice by which a seller offers a discount to all buyers who overcome some obstacle.

Indexing

The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index. Indexing prevents the purchasing power of the nominal quantity from being eroded by inflation.

Statistical discrimination

The practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong.

Logrolling

The practice whereby legislators support one another's legislative proposals.

Relative price

The price of a specific good or service in comparison to the prices of other goods and services.

Reverse Engineering

The process of a firm buying other firms' products, disassembling them, figuring out what;s special about them, and then copying them within the limits of the law.

What theory did Raymond Vernon promote?

The product life-cycle theory: the idea that products are intially produced in countries with a supporting market size. Then the are filtered down to the developing world after time as costs increase in the originating country.

Takeover

The purchase of one firm by a shell firm that then takes direct control of all the putchased firm's operations.

Socially optimal quantity

The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.

Core rate of inflation

The rate of increase of all prices except energy and food.

Consumption function

The relationship between consumption spending and its determinants, in particular, disposable (after-tax) income.

Share Distribution of Income

The relative division of total income amoung income groups.

National saving

The saving of the entire economy, equal to GDP less consumption expenditures and government purchases of goods and services, or Y âˆ' C âˆ' G.

Public saving

The saving of the government sector is equal to net tax payments minus government purchases (T âˆ' G).

Private saving

The saving of the private sector of the economy is equal to the after-tax income of the private sector minus consumption expenditures (Y âˆ' T âˆ' C); private saving can be further broken down into household saving and business saving.

Public Choice Analysis

The study of decision making as it affects the organization and operation of government and other collective organizations. Involves the application of economic principles to political science topics.

Three problems with the CPI

The substitution bias, the introduction of new items, and quality changes.

Net Domestic Product (NDP)

The sum of consumption expenditures, government expenditures, net exports, and invetment less depreciation.

Expected value of a gamble

The sum of the possible outcomes of the gamble multiplied by their respective probabilities.

Tragedy of the commons

The tendency for a resource that has no price to be used until its marginal benefit falls to zero.

Fisher effect

The tendency for nominal interest rates to be high when inflation is high and low when inflation is low.

Technological Agglomeration

The tendency of technological advances to spawn further technological advances, creating a concentration of new technologies in a specific location.

Disappearing political discourse

The theory that people who support a position may remain silent, because speaking out would create a risk of being misunderstood.

Quantity Theory of Money

The theory that says that the value of money is based on the amount of money in circulation, that is, the money supply.

Resources

The three (or four) basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.

National Output

The total value of goods and services produced by an economy in a specified time period. Also known as GDP.

Production

The transformation of factors into goods and services.

Concentration Ratio

The value of sales by the topfirms of an industry stated as a percnetage of total industry sales.

Vertical intercept

The value taken by the dependent variable when the independent variable equals zero.

Customer discrimination

The willingness of consumers to pay more for a product produced by members of a favored group, even if the quality of the product is unaffected.

development banks?

There are a few multilateral development banks throughout the world. Their purpose is to assist nations in economic development though loans etc.

Which of the following two statements accurately reflects the trend in foreign direct investments over the past 20 years?

There has been a rapid increase in the total volume of FDI undertaken and there has been a change in the importance of various countries as sources for FDI

Compare the four basic types of economic systems.

Traditional, are ecomies decided by social customs; market economies, are economiesdecided by individuals; command are by gov't; mixed econ are by a combination of markets and gov't

benefit of municipal bonds?

They are always free from federal tax, and usually free from state and local tax. Because of this, their yields can be lower.

convertible bonds?

They carry a provision that the bond can be converted into shares of common stock under certain circumstances. Convertible bonds can be more attractive that bonds with no conversion provision, depending on the price of the underlying stock.

Okun's Law

This details the inverse relationship between unemployment and real GDP.

greenfield investment?

This is foreign direct investment that builds new factories or infastructure. It is the type of FDI most sought by host countries because it leads to infastructure and knowledge transfers.

Who is on the $2 bill?

Thomas Jefferson.

Time preference?

Time preference is the economist's assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well. The time preference theory of interest is an attempt to explain interest through the demand for accelerated satisfaction. This is particularly important in microeconomics. The Austrian School sees time as the root of uncertainty within economics.

Costly-to-fake principle

To communicate information credibly to a potential rival, a signal must be costly or difficult to fake.

Formula for Total Earnings

Total Earnings = Wage x Quantity of Labor Demanded

Average benefit

Total benefit of undertaking n units of an activity divided by n.

Planned aggregate expenditure (PAE)

Total planned spending on final goods and services.

Who is on the $50 bill?

Ulysses S. Grant .

What happens if the fed interest rate goes too high?

Unemployment and low economic growth.

VER's and VEA's?

Voluntary export restraints (VER’S) and voluntary export agreements (VEA'S).

Opportunity benefit

What is gained by making a particular choice

Anchored inflationary expectations

When people's expectations of future inflation do not change even if inflation rises temporarily.

Credentialism

When the academic degrees, or credentials, become more important than the knowledge learned.

Production Function

Y = A f (L,K,H,N) sets out the relationship between the quantity of inputs used in production and the quantity of output from production

Federal Funds Market

a private market (made up mostly of banks) in which banks can borrow reserves from other banks that want to lend them (usually lent for overnight use)

causes of shifts in the consumption function

a change in any other relevant economic variable (besides real disposable income); # of such determinants is unlimited

The most common marketing research technique in developing nations is still:

a combination of cluster analysis and multiple regression analysis.

time deposit

a deposit in a financial institution that requires notice of intent to withdraw or must be left for an agreed period; withdrawal of funds prior to the end of the agreed period may result in a penalty

sweep acount

a despository institutions account that entails regular shifts of funds from transactions deposits that are subject to reserve requirements to savings deposits that are exempt from reserve requirements

According to the textbook, FDI is expensive because

a firm must establish production facilities in a foreign country or acquire a foreign enterprise.

transactions approach

a method of measuring the money supply by looking at money as a medium of exchange

liquidity approach

a method of measuring the money supply by looking at money as a tempory store of value

dissaving

a negative saving: a situation in which spending exceeds income; can occur when a household is able to borrow or use up existing assets

fiduciary monetary system

a system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services

lump-sum tax

a tax that does not depend on income

New Growth Theory

a theory that emphasizes the role of technology rather than capital in the growth process.

five levels of integration of a Trading Group?

a. Free Trade Area b. Customs Union c. Common Market d. Economic Union e. Political Union

four primary motives for engaging in FDI?

a. Resource seeking b. market Seeking c.Efficiency Seeking d.Responding to Competitive dynamics

Responding to Competitive dynamics?"

achieving First Mover Advantages or to responding to a rival's behavior in entering a new geographic market

Government Action" in Porter's Theory?

actions by government that could have a positive or negative effect of foreign business...

direct expenditure offsets

actions on the part of the private sector in spending income that offset government fiscal policy actions; any increase in government in an area that competes with the private sector will have some direct expenditure offset

Function of the Federal Reserve System #6

acts as the "lender of last resort" (the Federal Rserve's role as an institutions that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank's illiquid position from lending to a general loss of confidence in that banks or in others)

Function of the Federal Reserve System #4

acts as the government's fiscal agent (helps the government collect certain tax revenues and aids in the purchase and sale of government securities)

actual change in money supply

actual money multiplier X change in total reserves

Local standards and laws?"

administrative instruments or trade policies

Consider the following scenario. The Netherlands exports tulip bulbs to almost every country in the world except Japan. The reason is that Japanese customs inspectors insist on checking every tulip bulb by cutting it down the middle (which destroys the bulb). The insistence on the part of the Japanese to inspect the bulbs in this manner (which makes it impractical for the Netherlands to export to Japan) is an example of a(n)

administrative trade policy.

Economic Policy

an action (or inaction) taken by government to influence economic actions.

Socialism

an economic system based on individuals' goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.

assumption #3 for balance sheets

an individual bank can lend as much as it is legally allowed

Entrepreneur

an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.

board of Governors of the Federal Reserve System

appointed by the president with the approval of the U.S. senate

indirect effect of an increase in the money supply

banks lower interest rates that they charge on loans-->encourages people to take out those loans-->businesses engage in new investment with the funds loaned-->individuals will engage in more consumption of durable goods (housing, autos, and home entertainment centers)-->generates a rise in aggregate demand--->more people involved in more spending

monopolistic advantage theory?

based on the premise that a firm has obtained a monopolistic advantage through domestic competition that would enable it to be successful internationally.

simplifying assumptions of Keynesian model

businesses pay no indirect taxes (ex. sales taxes); businesses distribute all of their profits to shareholders; there is no depreciations (capital consumption allowance), so gross private domestic investment = net investment; the economy is closed (there is no foreign trade)

potental money multiplier

the reciprocal of the required reserve ratio, assuming no leakages into currency and no excess reserves

inventory investment

changes in business inventories

Customs Union

characterized by common external tariffs.

Economic Union

characterized by harmonization of economic policies of member nations, including introducing a common currency.

transaction deposits

checkable and debitable account balances in commercial banks and other types of financial institutions, such as credit unions and savings banks; any accounts in financial institutions from which you can easily transmit debit-card and check payments without many restrictions

Forward Vertical FDI?"

choosing to invest in economic activity downstream from the core business activity of the business unit.

Vertical FDI?"

choosing to invest in economic activity upstream (Backward Vertical FDI), or Downstream (Forward Vertical FDI) from the core business activity of the business unit.

Backward Vertical FDI?"

choosing to invest in economic activity upstream from the core business activity of the business unit.

fiduciary

comes from the latin fiducia, which means "trust" or "confidence"

Comparative Business/Management?

compared business practices/management in various countries that are different enough to justify study and separate treatment in the academic curriculum

The most global of markets are not markets for __________, where national differences in tastes and preferences are still often important enough to act as a break on globalization.

consumer goods

Monitoring Costs

costs incurred by the organizer of production in seeing to it that the emplooyees do what they're supposed to do.

causes of inflation

decline in long-run aggregate supply (continual reductions in economywide production) and if aggregate demand curve shifts rightward over time at a faster pace then the rightward progression of the long-run aggregate supply curve

The conditions governing how companies are created, organized, and managed and he nature of domestic rivalry is referred to as

demand conditions.

assumption #6 for balance sheets

depository institutions have zero net worth

excess reserves leakages

depository institutions may wish to maintain excess reserves greater than zero (greater the excess reserves, the smaller the money multiplier)

assumption #5 for balance sheets

depository institutions seek to keep zero excess reserves because reserves do not earn interest

Foreign Business?

domestic business operating in foreign countries

The main gains from subsidies accrue to __________, whose international competitiveness is increased as a result of them.

domestic producers

The _______ is a theory of foreign direct investment that combines two other perspectives into a single holistic explanation of FDI.

eclectic paradigm promoted by John Dunning... focused on location specific advantages.

Robert Reich's suggestion about the global economy?

economic national identity is becoming increasingly superfluous, increases in outsourcing is leading to the emergence of Global Products rather than defining products with a "National identity"

How does the Bureau of Labor Statistics calculate unemployment?

egularly gathers data from 60,000 households to compute the unemployment rate.

fedwire

electronic payments transfer system operated by the Federal Reserve System (about 2,000 U.S. depository institutions use to process interbank payments)

Market screening eliminates:

environmental forces.

assumption #4 for balance sheets

every time a loan is made to an individual (consumer or business), all the proceeds from the loan are put into a transaction deposit account; no cash is withdrawn

fixed investment

expenditures by firms on new machines and buildings (capital goods) that are expected to yield a future stream of income

operating budget

expenditures for current operations, such as salaries and interest payments

capital budget

expenditures on investment items, such as machines, buildings, roads, and dams

Market Seeking?"

explore new market opportunities, to circumvent prohibitive protectionist policies and actions such as tariffs and quotas, to establish a local presence to ensure product and customer service availability, to meet buy national requirements, to become more visible locally by hiring many local staff, paying local taxes and to serve a wider range (portfolio) of markets.

depository institutions

financial institutions that accept deposits from savers and lend funds from those deposits out at interest

thrift institutions

financial institutions that receive most of their funds from the savings of the public; they include savings banks, savings and loan associations, and credit unions

The __________ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year). The __________ of foreign direct investment refers to the total accumulated value of foreign-owned assets at any time.

flow, stock

If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of

foreign direct investment.

automatic transfer accounts

funds are automatically transferred from savings deposits to transactions depsits whenever the account holder makes a debit-card transaction or writes a check that would otherwise cause the balance of transactions deposits to become negative

money market mutual funds

funds obtained from the public that investment companies hold in common and use to acquire short-maturity credit instruments, such as certificates of deposit and securities sold by the U.S. government

According to former Secretary of Labor Robert Reich, the propensity of firms to outsource many of their productive activities to different suppliers around the world has resulted in the creation of __________ products.

global

consumption goods

goods purchase by households for immediate satisfaction or to use up (ex. food, movies)

noncontrollable expenditures

government spending that changes automatically without action by Congress

The establishment of a wholly new operation in a foreign country is referred to as a(n):

green-field investment.

net public debt

gross public debt minus all government interagency borrowing

entitlements

guarenteed benefits under a government program such as social security, medicare, or medicaid (often called noncontrollable expenditures)

transactions demand

holding money as a medium of excahnge to make payments (the level varies directly with nominal GDP)

asset demand

holding money as a store of value instead of other assets such as certificates of deposit, corporate bonds, and stocks

precautionary demand

holding money to meet unplanned expenditures and emergencies

Function of the Federal Reserve System #3

holds depository institutions' reserves

The classical dichotomy

holds that the `real' and `monetary' sides of the economy can be analyzed separately

Globalization results in a greater degree of __________ across markets than would be present otherwise.

homogeneity

three main Globalization Drivers?

i. Declining Trade and Investment Barriers. ii. The role of technological change iii. Competition

Rule of 70'

if something grows at a rate of x% a year, it will double in approximately 70/x years.

main determinant of saving (Keynes)

income: Keynes argued that real saving and consumption decisions depend primarily on a household's present real disposable income

According to our textbook, the growing integration of the world economy is:

increasing the intensity of competition in a wide range of manufacturing and service industries

payment intermediaries

institutions that facilitate transfers of funds between depositors who hold transactions deposits with those institutions

investment companies

institutions that manage portfolios of financial instruments called mutual funds on behalf of shareholders; exist largely because of cost savings from their greater scale of operations

savings deposits

interest-earning funds that can be withdrawn at any time without payment of a penalty

Function of the Federal Reserve System #8

intervenes in foreign currency markets (attempts to keep the value of the dollar from changing by buying and selling U.S. dollars in foreign exchange markets)

Dominant Firm

irm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms

Transnational Corporation?

is a firm that strives to be Global and Multi-domestic! ie: It must strive to achieve economies of scale whilst locally responsive.

What important policy implications evolve from an understanding of Porter's Diamond of National Advantage?

it is in the best interest of a firm to upgrade its advanced factors of production: eg: employee training and R & D. Equally, firms should lobby the government to urge them to increase investment in education, infrastructure, and R & D, and to promote strong competition in domestic markets.

Federal Reserves notes

largest component of U.S. currency (paper bills); distributed by the Fed

calculation of change in equilibrium real GDP

multiplier X change in autonomous spending

the correct opportunity cost of holding money is

nominal interest rate i

The new trade theorists argue that the United States leads in exports of commercial jet aircraft not because it is better endowed with the factors of production required to manufacture aircraft, but because:

one of the first movers in the industry were U.S. firms

International Business:

private or governmental business that involves activities crossing national boundaries

According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then:

prohibit the import of these goods from other countries

Function of the Federal Reserve System #2

provides payment-clearing systems: long operated systems for transmitting and clearing payments

Function of the Federal Reserve System #7

regulates the money supply

investment function

represented bas an inverse relationship between the rate of interest and the value of planned real investment (as interest rates fall planned investment spending increases)

assumption # 1 for balance sheets

required reserve ratio is 10% for all transaction deposits

relating income to saving and consumption

saving = disposable income - consumption; or consumption + saving = disposable income

In his study dealing with the competitive advantage of nations, Porter argued that in regard to demand conditions, a nation's firms' gain competitive advantage if their domestic consumers are __________ and __________.

sophisticated, demanding

What is the total cumulative value of foreign investments is referred to as?

stock of foreign direct investments

Function of the Federal Reserve System #5

supervises depository institutions: Fed periodically and without warning examine depository institutions to see what kinds of loans have been made, what has been used as security for the loans, and who has recieved them

Function of the Federal Reserve System #1

supplies the economy with fiduciary currency (paper currency known as Federal Reserve notes); changes throughout the yr (ex. demands for paper currency are largers during the holiday seasons)

store of value

the ability to hold value over time (a function of money), also known as purchasing power

Economic System

the combination of social and individual decision making a society uses to answer the 3 economic questions

saving function

the complement of the consumption function

The foreign direct investment by non-U.S. firms was motivated primarily by the following two factors:

the desire to disperse production activities to optimal locations; and the desire to build a direct presence in major foreign markets

leakages

the entire loan from one bank is not always desposited in another bank (two types)

Outflows of FDI?"

the flow of FDI out of the country

equation of exchange

the formula indicating that the number of monetary units (Ms) times the number of times each unit is spent on final goods and services (V) is identical to the price level (P) times real GDP (Y)

The two main components of globalization are:

the globalization of markets and the globalization of production

The U.S. has been an attractive target for FDI for all of the following reasons except:

the lack of competition.

45 degree reference line

the line along which planned real expenditures equal real GDP per year

As the market in the U.S. and other advanced nations matures, the product becomes more standardized and price becomes:

the main competitive weapon.

relationship between the price of existing bonds and the rate of interest

the market price of existing bonds (and all fixed-income assets) is inversely related to the rate of interest prevailing in the economy

multiplier

the number by which a change in autonomous real investment or autonomous real consumption, for example, is multiplied to get the change in equilibrium real GDP

income velocity of money (V)

the number of times per year a dollar is spent on final goods and services; identically equal to nominal GDP divided by the money supply

One cultural problem a researcher faces when doing primary research is:

the overuse of up-to-date maps.

autonomous consumption

the part of consumption that is independent of the level of disposable income; changes in autonomous consumption shift the consumption function

labor-force participation rate

the percentage of the adult population that is in the labor force

average propensity to consume (APC)

the proportion of total real disposable income that is consumed

average propensity to save (APS)

the proportion of total real disposable income that is saved

Managing an international business is different from managing a purely domestic business for all of the following reasons except:

the range of problems confronted by a manager in an international business are narrower than those confronted by a manager in a domestic business

main determinant of saving (classical model)

the rate of interest (the higher the rate of interest, the more peole wante to save, and therefore the less people wanted to consume)

Since the 1960s, there have been two notable trends in the demographics of the multinational enterprise. These two trends have been:

the rise of non-U.S. multinationals and the growth of mini-multinationals

properties of the multiplier

the smaller the marginal propensity to save, the larger the multiplier; the larger the marginal propensity to consume, the larger the multiplier

effect time lag

the time that elapses between the implementation of a policy and the results of that policy

public debt

the total value of all outstanding federal government securities

generic definition for globalization?

the trend towards a more integrated and interdependent global Economic systems

horizontal short-run aggregate supply curve

there is excessive unemployment and unused capacity in the economy (classical assumptino of everlasting full employment no longer holds)

action time lag

time between recognizing an economic problem and implementing policy to sole it; particularly long for fiscal policy (requires congressional approval)

Resource seeking?"

to ensure that a firm can always access resources that are essential to a firm's long run survival.

Stock of FDI?"

total value of FDI at a given point in time

calculation of required reserves

transaction deposits X required reserve ratio

assumption #2 for balance sheets

transaction deposits are the bank's only liabilities; reserves at a Federal Reserve district bank and loans are the bank's only assets

unit of accounting

way of placing a specific price on economic goods and services (it serves as a standard of value (yardstick) that allows people to compare the relative worth of various goods and services)

currency drains

when deposits increase, public will want to hold more currency (currency in a person's wallet reamins outside banking system and cannot be held by banks as reserves from which to make loans)

Where should firms locate their various production facilities?

where they can be performed most efficiently

WOS?

wholly owned subsidiary

Chance" in Porter's Theory?

wholly unpredictable occurances that you cannot mitigate