Introduction to Business Final Exam - Questions and Answers What are the 3 major indicators of economic conditions? 1) GDP 2) Unemployment Rate 3) Price
... [Show More] Indexes The total value of final goods and services produced in a country in a given year. Gross Domestic Product (GDP) The number of civilians at least 16 years old who are unemployed and tried to find a job within the prior 4 weeks. Unemployment Rate A general rise in the prices of goods and services over time. Inflation A situation in which price increases are slowing (the inflation rate is declining). Disinflation A situation in which prices are declining. Deflation A situation when the economy is slowing but prices are going up anyhow. Stagflation Monthly statistics that measure the pace of inflation or deflation. Consumer Price Index (CPI) An index that measures prices at the wholesale level. Producer Price Index (PPI) The periodic rises and falls that occur in economies over time. Business Cycles Tw or more consecutive quarters of decline in the GDP. Recession A severe recession, usually accompanied by deflation. Depression Economist who identified the 4 phases of long-term business cycles. Joseph Schumpeter
4 phases of the business cycle: 1) Economic boom 2) Recession 3) Depression 4) Recovery The federal government's efforts to keep the economy stable by increasing or decreasing taxes or government spending. Fiscal Policy The sum of government deficits over time. National Debt The amount of money the federal government spends beyond what it gathers in taxes for a given fiscal year. National Deficit The theory that a government policy of increasing spending and cutting taxes could stimulate the economy in a recession. Keynesian Economic Theory The management of the money supply and interest rates by the Federal Reserve. Monetary Policy What organization is responsible for monetary policy? Federal Reserve Bank What countries have a mixed economy? The U.S. and most other industrialized countries Who decides what to produce under capitalism? Businesspeople Buying products from another company. Importing Selling products to another country. Exporting The largest importing nation in the world. U.S. Enables a nation to produce what it is most capable of producing and buy what it needs from others in a mutually beneficial exchange relationship.
Global Trade The movement of goods and services among nations without political or economic barriers. Free Trade Theory that states that a country should sell to other countries those products that is produces most effectively and efficiently. Any buy from other countries those products that it cannot produce as effectively or efficiently. Comparative Advantage Theory The advantage that exists when a country has a monopoly on producing a specific product or is able to produce is more efficiently than all other countries. Absolute Advantage The total value of a nation's exports compared to its imports measured over a particular period. Balance of Trade A favorable balance of trade; occurs when the value of a country's exports exceeds that of its imports. Trade Surplus An unfavorable balance of trade; occurs when the value of a country's imports exceeds that of its exports. Trade Deficit The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment. Balance of Payment Selling products in a foreign country at lower prices than those charged in the producing country. Dumping A global strategy in which a firm (licensor) allows a foreign company (licensee) to produce its product in exchange for a fee (royalty). Licensing Advantages of licensing: 1) Firm can gain revenues it would not otherwise in its home market 2) Licensees must purchase everything from licensing firm 3) Licensors spend little to no money Provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services. Export Assistance Centers (EACs) A contractual agreement whereby someone with a good idea for a business sells others the rights to use the business name and sell a product or service in a given territory in a specified manner. Franchising A foreign country's production of private-label goods to which a domestic company then attaches its brand name or trademark; part of the broad category of outsourcing. Contract Manufacturing Enables a company to experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant. Contract Manufacturing A partnership in which 2 or more companies join to undertake a major project. Joint Venture A long-term partnership between 2 or more companies established to help each company build competitive market advantages. Strategic Alliance The buying of permanent property and businesses in foreign nations. Foreign Direct Investment (FDI) A company owned in a foreign country by another company, called the parent company. Foreign Subsidiary An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management. Multinational Corporation Investment funds controlled by governments holding large stakes in foreign companies. Sovereign Wealth Funds (SWFs) What are the benefits of international joint ventures? 1) Shared technology & risk 2) Shared marketing & management expertise 3) Entry into markets where foreign companies are often not allowed What are the drawbacks of joint ventures? 1) One partner can learn the other's skills and use it to the advantage 2) May become too large to be as flexible as needed What makes a strategic alliance different from a joint venture? They don't share costs, risks, management, or profits. The primary advantage of a subsidiary Company maintains complete control over any technology or expertise it may possess Shortcoming of a subsidiary The need to commit funds and technology within foreign boundaries The value of one nation's currency relative to the currencies of other countries. Exchange Rate Means a dollar is trading for more foreign currency than previously. -Foreign products become cheaper -U.S. products become more expensive High value of the dollar Means a dollar is traded for less foreign currency. -Foreign products become more expensive -U.S. products become cheaper Low value of the dollar Currencies "float" in value according to the supply and demand for them in the global market. Floating Exchange Rate Lowering the value of a nation's currency relative to other currencies. Devaluation A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services. Countertrading Law that prohibits "questionable" or "dubious" payments to foreign officials to secure business contracts. Foreign Corrupt Practice Act What are 4 major hurdles to successful global trade? 1) Sociocultural Forces 2) Economic & Financial 3) Legal & Regulatory 4) Physical & Environmental The use of government regulations to limit the import of goods & services. [Show Less]