C211 Global Economics for Managers Practice Questions - Set 1 - Part 2

Correct Answer: c) Productivity differences

Productivity differences between countries play a key role in determining the balance of trade.

Correct Answer: b) Resource mobility theory

Resource mobility theory posits that resources used in one industry can be reallocated to another as needed.

Correct Answer: b) Inverse

The law of demand states that, all else equal, when the price of a good rises, the quantity demanded decreases, indicating an inverse relationship.

Correct Answer: c) Absolute advantage theory

Absolute advantage theory explains that nations benefit from specializing in the production of goods where they have an absolute efficiency advantage.

Correct Answer: b) Many buyers and sellers, and identical products

A perfectly competitive market is characterized by many buyers and sellers, all trading identical products, ensuring no individual buyer or seller can influence the market price.

Correct Answer: b) Total revenue increases

When demand is inelastic, a price increase leads to a proportionally smaller decrease in quantity demanded, resulting in higher total revenue.

Correct Answer: b) Willingness to pay

Willingness to pay is the maximum amount a buyer is willing to spend on a good, reflecting the value they place on the product.

Correct Answer: c) Bounded rationality

Bounded rationality refers to the necessity of making rational decisions in the absence of complete information, recognizing cognitive limitations.

Correct Answer: c) Gold standard

Under the gold standard, most currencies were fixed in terms of gold, providing stability in exchange rates.

Correct Answer: c) Agglomeration

Agglomeration refers to the clustering of economic activities in specific locations, which can create efficiencies and benefits for firms.

Correct Answer: a) Consumption + Investment + Government Purchases + Net Exports

GDP is calculated as the sum of consumption, investment, government purchases, and net exports (exports minus imports).

Correct Answer: b) Leverage

Leverage refers to the use of borrowed money to increase the potential return on investment.

Correct Answer: d) Vertical line

A perfectly inelastic demand curve is vertical, indicating that the quantity demanded does not change regardless of price changes.

Correct Answer: a) Purchasing Power Parity (PPP)

Purchasing Power Parity (PPP) is a theory that determines exchange rates based on the relative prices of identical goods in different countries.

Correct Answer: a) Central bank

The central bank oversees the banking system and regulates the money supply to ensure economic stability.

Correct Answer: a) Antidumping duty

Antidumping duties are tariffs imposed on goods that are sold below cost with the intention of harming local businesses.

Correct Answer: a) Automatic stabilizers

Automatic stabilizers are changes in fiscal policy that naturally boost aggregate demand during economic downturns, such as unemployment benefits.

Correct Answer: a) Antitrust law

Antitrust laws are designed to prevent monopolies and cartels from reducing competition and manipulating prices.

Correct Answer: b) Monopolistic competition

Monopolistic competition describes a market structure where many firms sell similar but differentiated products, allowing some degree of pricing power.

Correct Answer: a) Bandwagon effect

The bandwagon effect occurs when investors follow others into the same investments, often creating market bubbles or crashes.