C211 Global Economics for Managers
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Free C211 Global Economics for Managers Questions
What does the Fed do to expand aggregate demand? Choose two.
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Lower the interest rate
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Decrease the money supply
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Reduce the quantity of reserves
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Raise mortgage rates
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Increase the foreign exchange rate
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Increase the money supply
Explanation
Explanation
Correct answer: (A.) Lower the interest rate and (F.) Increase the money supply
To expand aggregate demand, the Federal Reserve uses monetary policy to make borrowing cheaper and stimulate spending. This includes lowering interest rates and increasing the money supply, which encourages businesses and consumers to invest and spend more. Actions like decreasing the money supply, reducing reserves, or raising rates would contract demand rather than expand it.
When is it best for a firm to restart production?
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When total variable costs are less than the total revenue after a short term stop
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When total revenue is less than total cost
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When marginal cost is greater than marginal revenue
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When total cost is greater than total revenue
Explanation
Explanation
Correct answer: (A.) When total variable costs are less than the total revenue after a short term stop
A firm should restart production in the short run if it can cover its variable costs with the revenue it earns. Even if total costs (including fixed costs) exceed total revenue, as long as total revenue is greater than total variable costs, the firm can contribute to covering fixed costs and minimize losses compared to shutting down completely. Options B and D describe situations where the firm is incurring losses, and option C indicates that producing more would reduce profit, not increase it. Therefore, the correct condition is when total variable costs are less than total revenue.
Describe the role of regulative institutions in shaping entrepreneurial behavior.
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Regulative institutions provide funding for startups.
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Regulative institutions set the legal framework that influences how entrepreneurs operate.
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Regulative institutions create informal networks among entrepreneurs.
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Regulative institutions have no impact on entrepreneurship.
Explanation
Correct Answer:
Regulative institutions set the legal framework that influences how entrepreneurs operate.
Explanation:
Regulative institutions are formal rules, laws, and regulations that establish what behaviors are acceptable and enforceable within a society. These institutions influence entrepreneurial activity by defining property rights, contract enforcement, taxation, licensing requirements, and business registration processes. Entrepreneurs rely on clear and predictable legal frameworks to plan investments, secure financing, and operate efficiently. Without strong regulative institutions, businesses face higher uncertainty, legal risks, and potential barriers to market entry, which can discourage innovation and economic growth.
Why Other Options Are Wrong:
Regulative institutions provide funding for startups
This is incorrect because regulative institutions focus on rules and enforcement rather than financial support. Funding typically comes from private investors, banks, or government programs, not the regulatory framework itself.
Regulative institutions create informal networks among entrepreneurs
This is false because informal networks are influenced by social and cultural institutions, not regulative institutions, which are formal and legally binding.
Regulative institutions have no impact on entrepreneurship
This is incorrect because regulative institutions directly shape the environment in which entrepreneurs operate, influencing risk, compliance costs, and market entry possibilities.
What are the three classical international trade theories?
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Absolute advantage, comparative advantage, and Heckscher-Ohlin theory.
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Mercantilism, new trade theory, and strategic trade theory.
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Ricardian model, product life cycle theory, and Porter’s diamond model.
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Factor proportions theory, competitive advantage, and trade creation.
Explanation
Correct Answer:
Absolute advantage, comparative advantage, and Heckscher-Ohlin theory.
Explanation:
The three classical international trade theories explain why countries engage in trade and how they benefit from it. Absolute advantage, introduced by Adam Smith, suggests that countries should produce goods they can make more efficiently than others. Comparative advantage, developed by David Ricardo, shows that countries gain from specializing in goods in which they have a lower opportunity cost. The Heckscher-Ohlin theory (also known as the factor proportions theory) emphasizes that countries will export goods that use their abundant factors of production intensively. Together, these theories form the foundation of classical trade analysis.
Why Other Options Are Wrong:
Mercantilism, new trade theory, and strategic trade theory
This is incorrect because these represent historical and modern trade approaches rather than the three classical trade theories. Mercantilism focuses on accumulating wealth through trade surpluses, while new trade theory and strategic trade theory are part of modern trade analysis.
Ricardian model, product life cycle theory, and Porter’s diamond model
This is false because while the Ricardian model is related to comparative advantage, the product life cycle theory and Porter’s diamond model are modern theories that explain trade patterns differently and are not part of the classical framework.
Factor proportions theory, competitive advantage, and trade creation
This is incorrect because while the factor proportions theory (Heckscher-Ohlin) is classical, competitive advantage and trade creation are modern or policy-based concepts rather than classical trade theories.
In situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms. This is one of the two core propositions underpinning an institution-based view of global business. Which situation illustrates this proposition?
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Several businesses relocate to incorporate overseas because of a new domestic tax policy that will increase their tax liability by 15%.
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The features of a city demonstrate a deep concern and commitment to environmental protection.
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A major corporation is planning to build a new headquarters. When choosing between three major U.S. cities, corporate officials consider the cost of living for their employees, the distance from major airports and the tax credits offered by the states for creating jobs.
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Because of high taxes in a country the rising costs of doing business in that country
Explanation
Explanation
Correct answer: (B.) The features of a city demonstrate a deep concern and commitment to environmental protection
This proposition highlights the importance of informal institutions—such as cultural norms, values, and societal expectations—when formal rules are weak, unclear, or ineffective. Option B illustrates this idea, showing that corporate decision-making can be guided by informal constraints like a city’s commitment to environmental protection. Even when formal regulations may be insufficient, these informal factors provide consistency and predictability for firms operating in that environment.
When producing a piece of luggage the marginal cost is $92 and the marginal revenue is $81. What is the best action for the respective firm?
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Restart production
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Decrease production
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Increase production
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Enter the market
Explanation
Explanation
Correct answer: (B.) Decrease production
When marginal cost (MC) exceeds marginal revenue (MR), producing additional units reduces profit because each extra unit costs more to make than it generates in revenue. In this scenario, MC is $92 and MR is $81, meaning the firm loses $11 for every extra piece of luggage produced. To maximize profit, the firm should decrease production until MR equals MC.
If two companies in the technology sector have high resource similarity, how might this affect their strategic decisions regarding product development?
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They will increase prices to maximize profits.
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They will likely form a partnership to share resources.
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They will reduce their product offerings to avoid competition.
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They may engage in aggressive competition to differentiate their products.
Explanation
Correct Answer:
They may engage in aggressive competition to differentiate their products.
Explanation:
High resource similarity means that two firms possess comparable tangible and intangible resources, making them capable of competing in similar markets. When firms are closely matched, they are likely to compete intensely to capture market share. This often drives them to differentiate their products through innovation, marketing, or unique features to avoid direct head-to-head competition on identical offerings. Understanding resource similarity is crucial in strategic management as it helps predict competitive behavior and potential areas of rivalry.
Why Other Options Are Wrong:
They will increase prices to maximize profits
This is unlikely because direct competition typically limits the ability to raise prices without losing market share.
They will likely form a partnership to share resources
While partnerships are possible, high resource similarity more often leads to competition rather than cooperation, especially in sectors driven by innovation.
They will reduce their product offerings to avoid competition
This is incorrect because reducing offerings does not enhance competitiveness; firms usually seek differentiation rather than contraction in markets where resources are similar.
What are costs to home countries of foreign direct investment? Choose two.
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Reduced standard of living
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Job loss
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Capital outflow
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Cultural disintegration
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Loss of intellectual property
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Loss of sovereignty
Explanation
Explanation
Correct answer: (B.) Job loss and (C.) Capital outflow
When a company makes a foreign direct investment (FDI), it shifts some capital and operations abroad. This can lead to capital outflow (option C) as funds are invested in another country instead of the home economy. It can also result in job loss (option B) if domestic workers are replaced or production is relocated overseas. Other options, like cultural disintegration or loss of sovereignty, are more indirect or pertain to the host country rather than the home country.
When supply increases and demand stays the same, what happens to the equilibrium point of price and quantity?
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Quantity increases.
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Price increases.
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Quantity decreases.
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Price remains the same.
Explanation
Explanation
Correct answer: (A.) Quantity increases.
An increase in supply, with demand unchanged, means more goods are available at every price. This puts downward pressure on price because sellers compete to sell the larger quantity. At the same time, the equilibrium quantity rises because consumers purchase more at the lower price. Therefore, the equilibrium price decreases while quantity increases.
institution-based view of global business focuses on the specific relationship between which two entities?
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Firms and governments
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Firms and institutions
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Customers and firms
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Customers and institutions
Explanation
Correct answer:
A) Firms and governments
Explanation:
The institution-based view of global business examines how firms interact with institutions, particularly governments and regulatory systems. These institutions establish rules, laws, and policies that influence how firms operate and compete in international markets.
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