C211 Global Economics for Managers Practice Questions - Set 5 - Part 1

Correct Answer: c) To protect domestic industries by making imports more expensive

Tariffs are used to make imported goods more expensive, thereby protecting domestic industries from foreign competition.

Correct Answer: c) Institutional distance

Institutional distance measures how different the formal and informal institutions of two countries are, affecting how businesses operate across borders.

Correct Answer: b) Resource mobility

Resource mobility refers to the ability to transfer resources from one industry to another, depending on market conditions and demand.

Correct Answer: c) The possession of valuable, rare, and inimitable resources

Firms with ownership advantages, such as valuable, rare, and inimitable resources, are more likely to succeed in foreign direct investment (FDI).

Correct Answer: a) Comparative advantage

Comparative advantage theory suggests that countries should specialize in producing and exporting goods where they have a relative efficiency advantage and import goods where other countries are more efficient.

Correct Answer: a) Cross-price elasticity

Cross-price elasticity measures how the demand for one good responds to the price change of another good. For complementary goods, an increase in the price of one decreases the demand for the other.

Correct Answer: d) Voluntary export restraint (VER)

A VER is an international trade agreement in which exporting countries voluntarily limit the amount of goods they send to a particular country.

Correct Answer: b) Gross Domestic Product (GDP)

GDP measures the total value of goods and services produced within a country's borders by its residents and businesses.

Correct Answer: b) Copyright

Copyright grants creators of original works exclusive legal rights to use, distribute, and profit from their creations for a specified period of time.

Correct Answer: c) It prepares businesses for multiple future scenarios

Scenario planning allows firms to consider various potential futures and develop strategies to address high-risk or uncertain events.

Correct Answer: c) Intrafirm trade

Intrafirm trade refers to transactions that take place between subsidiaries of the same multinational enterprise (MNE) located in different countries.

Correct Answer: c) First-mover advantage

First-mover advantage refers to the benefits that early entrants into a market gain, such as establishing brand recognition and customer loyalty, which later entrants cannot easily replicate.

Correct Answer: b) Radical view

The radical view is opposed to foreign direct investment, often supporting nationalization of foreign-owned businesses to protect domestic industries.

Correct Answer: c) GDP deflator

The GDP deflator measures the price level by comparing nominal GDP to real GDP, reflecting changes in the overall price level in an economy.

Correct Answer: c) To provide financial stability and facilitate international monetary cooperation

The IMF promotes international financial stability by providing short-term financial assistance to countries facing balance-of-payments problems and fostering global monetary cooperation.

Correct Answer: b) Substitution effect

The substitution effect occurs when a price change causes consumers to switch from one good to another, typically choosing a cheaper alternative.

Correct Answer: c) Antitrust policy

Antitrust policy consists of government measures designed to prevent monopolies, cartels, and anti-competitive behavior, ensuring healthy competition in markets.

Correct Answer: a) Internationalization

Internationalization refers to the process where a firm expands its operations by replacing cross-border markets with its own subsidiaries or operations in multiple countries.

Correct Answer: c) Automatic stabilizers

Automatic stabilizers are government programs, such as unemployment benefits and progressive taxes, that automatically boost aggregate demand during economic downturns without the need for new policies.

Correct Answer: a) Product life cycle theory

Product life cycle theory explains changes in trade patterns based on the life cycle of products, from innovation to growth, maturity, and eventual decline.