Global-Economics-for-Managers Exam Questions & Answers

Option B best illustrates managers and firms rationally pursuing their interests within institutional constraints. A new domestic tax policy changes the formal institutional environment by increasing firms' expected tax burden. The firms respond rationally by relocating overseas to reduce costs and protect profitability. This is exactly how the institution-based view explains business behavior: institutions create rules and constraints, and firms choose strategies that improve outcomes within those constraints. Option A emphasizes political connections, but it is less direct because it focuses on unequal access to influence rather than a broad institutional constraint. Option C illustrates informal ethical constraints overriding weak formal rules. Option D involves operating around corruption, but B is the clearest case of formal institutional change causing rational firm relocation.

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In Global Economics for Managers, the Federal Reserve lowers the federal funds rate by purchasing government bonds, making option C correct.

Bond purchases increase bank reserves, easing liquidity conditions in the interbank market. With more reserves available, banks lend to each other at lower interest rates, reducing the federal funds rate.

Options A and B raise interest rates, while option D is fiscal policy.

Therefore, option C is correct.

In Global Economics for Managers, oligopolies are defined by a small number of sellers, interdependence, and strategic interaction, making options A, B, and C correct.

Option C is foundational: oligopolies consist of only a few dominant firms, unlike perfect or monopolistic competition. Because of this concentration, firms cannot ignore competitors' actions.

Option B highlights interdependence, a defining feature of oligopolies. Firms must consider how rivals will respond to pricing, output, or strategic changes. This leads to behavior such as price leadership, tacit collusion, or strategic rivalry.

Option A follows directly from interdependence. When one firm changes price or output, it can significantly affect market conditions and the profits of competing firms.

Options D and E incorrectly describe competitive markets, where firms are price takers. Option F is incorrect because oligopolies often have strong incentives to cooperate, either explicitly or tacitly, to maintain profitability.

Thus, A, B, and C accurately capture the essential characteristics of an oligopoly.

In Global Economics for Managers, gross domestic product (GDP) is defined as the market value of all final goods and services produced within a country's borders during a specific period, making option C correct. GDP is the most widely used indicator of a country's economic performance and size.

GDP includes only final goods and services to avoid double counting. Intermediate goods used in production are excluded because their value is already embedded in final goods. GDP also measures production within national borders, regardless of whether the producers are domestic or foreign-owned firms.

Option A, GNI, includes income earned by citizens abroad and excludes income earned domestically by foreign firms. Option B subtracts depreciation from GDP. Option D is not a standard national income measure.

Managers use GDP to evaluate market potential, economic growth, and country risk. Therefore, option C correctly identifies GDP.

In Global Economics for Managers, a market surplus occurs when quantity supplied exceeds quantity demanded, making option B correct.

Surpluses typically arise when prices are set above the equilibrium level. At higher prices, producers supply more while consumers demand less, creating excess supply. Market forces then place downward pressure on prices until equilibrium is restored.

Options A and C describe shortages. Option D may be true in some cases but is not the defining characteristic.

Thus, option B correctly defines a market surplus.