Questions and Answers of Business Economics And Finance

3. What are the costs of inflation? Which of these costs do you think are most important for your economy?
2. In what sense is inflation like a tax? How does thinking about inflation as a tax help explain hyperinflation?
1. Explain how an increase in the price level affects the real value of money.
10. Suppose that the government passes a law requiring employers to provide employees some benefit (such as a guaranteed pension) that raises the cost of an employee by€4 per hour.a. What effect
9. Some workers in the economy are paid a flat salary and some are paid by commission. Which compensation scheme would require more monitoring by supervisors? In which case do firms have an incentive
8. Consider an economy with two labour markets, neither of which is unionized. Now suppose a union is established in one market.a. Show the effect of the union on the market in which it is formed. In
7. Do you think that firms in small towns or in cities have more market power in hiring? Do you think that firms generally have more market power in hiring today than 50 years ago, or less? How do
6. Consider the minimum wage law.a. Suppose the minimum wage is above the equilibrium wage in the market for unskilled labour. Using a supply-anddemand diagram of the market for unskilled labour,
5. Using a diagram of the labour market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded and the amount
4. Are the following workers more likely to experience shortterm or long-term unemployment? Explain.a. A construction worker laid off because of bad weather.b. A manufacturing worker who loses her
3. Assume that there is an increase in the labour participation rate in a country with a growing number of females entering the workforce. What would you expect to happen to the average wage rate and
2. Should firms be forced to contribute to the costs of improving job search? Explain your answer.
1. If the unemployment rate is rising in a country, does this mean that firms will find it easier to be able to hire new workers? What might your answer depend on?
10. Explain four ways in which a firm might increase its profits by raising the wages it pays.
9. What claims do advocates of unions make to argue that unions are good for the economy?
8. How does the existence of unions add to a firm’s costs?
7. How do unions affect the natural rate of unemployment?
6. Are minimum wage laws a better explanation for structural unemployment among teenagers or among university graduates?Why?
5. Explain how minimum wage laws can lead to an increase in unemployment.
4. Why is frictional unemployment inevitable? How might the government reduce the amount of frictional unemployment?
3. Why is there an apparent contradiction between short spells of unemployment and unemployment being long term?
2. Explain how the number of people employed and the number of people unemployed can both rise at the same time.
1. What is the difference between the labour force and the population of working age?
10. Explain whether each of the following events shifts the short-run aggregate supply curve, the aggregate demand curve, both, or neither. For each event that does shift a curve, use a diagram to
9. Suppose workers and firms suddenly believe that inflation will be quite high over the coming year. Suppose also that the economy begins in long-run equilibrium, and the aggregate demand curve does
7. Suppose the central bank expands the money supply, but because the public expects this action, it simultaneously raises its expectation of the price level. What will happen to output and the price
5. Explain why the following statements are false:a. ‘The aggregate demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods.’b. ‘The long-run
4. In Figure 17.7, how does the unemployment rate at points B and C compare to the unemployment rate at point A? Under the sticky wage explanation of the short-run aggregate supply curve, how does
3. Explain whether each of the following events will increase, decrease or have no effect on long-run aggregate supply:a. The country experiences a wave of immigration.b. The government raises the
2. Suppose that the economy is in a long-run equilibrium:a. Use a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply and long-run aggregate
10. What sort of policy do you think would be the most appropriate to bring about a reduction in a country’s natural rate of unemployment?
9. Why do recessions ultimately come to an end?
8. Use a supply and demand diagram to show how an economy can experience rising prices and falling growth (stagflation)at the same time.
10. What is happening to the Swiss real exchange rate in each of the following situations? Explain.a. The Swiss nominal exchange rate is unchanged, but prices rise faster in Switzerland than abroadb.
9. Suppose that a car company owned entirely by South Korean citizens opens a new factory in the north of England.a. What sort of foreign investment would this represent?b. What would be the effect
8. Would each of the following groups be happy or unhappy if the euro appreciated? Explain.a. US pension funds holding French government bondsb. German manufacturing industriesc. Australian tourists
7. International trade in each of the following products has increased over time. Suggest some reasons why this might be so.a. wheatb. banking servicesc. computer softwared. automobiles
6. How would the following transactions affect UK exports, imports and net exports?a. A British art lecturer spends the summer touring museums in Italyb. Students in Paris flock to see the Royal
5. How would the following transactions affect UK net capital outflow? Also, state whether each involves direct investment or portfolio investment.a. A British mobile telephone company establishes an
4. Do you think that firms in small towns or in cities have more market power in hiring? Do you think that firms generally have more market power in hiring today than 50 years ago, or less? How do
3. Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected:a. Is the real interest rate on this
2. One day Boris the Barber, plc, collects €400 for haircuts.Over this day, his equipment depreciates in value by €50. Of the remaining €350, Boris sends €30 to the government in sales taxes,
1. Below are some data from the land of milk and honey.a. Compute nominal GDP, real GDP and the GDP deflator for each year, using 2012 as the base year.b. Compute the percentage change in nominal
10. Describe the economic logic behind the theory of purchasing power parity.
9. If a Japanese car is priced at 500 000 yen, a similar German car is priced at €10 000, and a euro can buy 100 yen, what are the nominal and real exchange rates?
8. Define net exports and net capital outflow. Explain how and why they are related.
7. What is the GDP deflator and how does it differ to the consumer prices index?
5. Over a long period of time, the price of a chocolate bar rose from €0.10 to €0.60. Over the same period, the consumer prices index rose from 150 to 300. Adjusted for overall inflation, how
4. Which do you think has a greater effect on the consumer prices index: a 10 per cent increase in the price of chicken or a 10 per cent increase in the price of caviar? Why?
2. What does the level of a nation’s GDP measure? What does the growth rate of GDP measure? Would you rather live in a nation with a high level of GDP and a low growth rate, or in a nation with a
10. Is it ever possible for fundamental analysis to tell an investor everything they need to know about the value of an asset? Explain your answer.
9. This chapter explains that investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit.a. Why is it difficult to implement both of these
8. ‘Some economists worry that the ageing populations of industrial countries are going to start running down their savings just when the investment appetite of emerging economies is growing’
7. Over the past 20 years, new computer technology has enabled firms to reduce substantially the amount of inventories they hold for each unit of sales. Illustrate the effect of this change on the
6. Suppose the government borrows €5 billion more next year than this year.a. Use a supply-and-demand diagram to analyze this policy.Does the interest rate rise or fall?b. What happens to
5. Suppose that BP is considering exploring a new oil field.a. Assuming that BP needs to borrow money in the bond market to finance the purchase of new oil rigs and drilling machinery, why would an
4. When the Greek government announced that it could default on its debt to foreigners in the latter part of 2011, interest rates rose on bonds issued by many other European countries but fell on
3. For which kind of asset would you expect to pay the higher average return: stock in an industry that is very sensitive to economic conditions (such as a car manufacturer) or stock in an industry
2. For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain.a. A bond of the UK government or a bond of an east European government.b. A bond that repays
1. A company has an investment project that would cost€10 million today and yield a pay off of €15 million in four years.a. Should the firm undertake the project if the interest rate is 11 per
10. What is a government budget deficit? How does it affect interest rates, investment and economic growth?
9. Describe a change in the tax system that might increase private saving. If this policy were implemented, how would it affect the market for loanable funds?
8. What factors should an analyst think about in determining the value of an asset?
7. What is investment? How is it related to national saving?
6. What is private saving? What is public saving? How are these two variables related?
5. What benefit do people get from the market for insurance?What two problems impede the insurance company from working perfectly?
4. A chemical processing manufacturer is considering investing in a new process to produce a constituent ingredient for an agricultural fertilizer. It expects the return on the investment to last for
3. What might be some of the advantages and disadvantages to a firm of issuing bonds or issuing shares as a source of finance?
2. The interest rate is 7 per cent. Use the concept of present value to compare €200 to be received in 10 years and €300 to be received in 20 years.
10. Imagine that someone were to offer you a choice: you could spend four years studying at the world’s best university, but you would have to keep your attendance there a secret. Or you could be
9. Hannah works for Joachim, whom she hates because of his snobbish attitude. Yet when she looks for other jobs, the best she can do is find a job paying €15 000 less than her current salary.
8. A minimum wage law distorts the market for low-wage labour. To reduce this distortion, some economists advocate a two-tiered minimum wage system, with a regular minimum wage for adult workers and
7. This chapter has assumed that labour is supplied by individual workers acting competitively. In some markets, however, the supply of labour is determined by a union of workers.a. Explain why the
6. Suppose that labour is the only input used by a perfectly competitive firm that can hire workers for €150 per day. The firm’s production function is as follows:Each unit of output sells for
5. In recent years, the United Kingdom has experienced a significant inflow of capital in the form of direct investment, especially from the Far East. For example, both Honda and Nissan have built
4. Suppose a harsh winter in Normandy destroys part of the French apple crop.a. Explain what happens to the price of apples and the marginal product of apple pickers as a result of the freeze. Can
3. Your enterprising uncle opens a sandwich shop that employs 7 people. The employees are paid €6 per hour and a sandwich sells for €13. If your uncle is maximizing his profit, what is the value
1. Suppose that the government proposes a new law aimed at reducing heath care costs: all citizens are to be required to eat one apple daily.a. How would this apple-a-day law affect the demand and
10. Give an example of how discrimination might persist in a competitive market.
10. Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company’s profit depends on whether Little Kona enters and whether Big Brew sets a high
9. Farmer Jones and Farmer MacDonald graze their cattle on the same field. If there are 20 cows grazing in the field, each cow produces €4000 of milk over its lifetime. If there are more cows in
8. Assume that two airline companies decide to engage in collusive behaviour.Let’s analyze the game between two such companies.Suppose that each company can charge either a high price for tickets
7. The chapter states that the ban on cigarette advertising on television which many countries imposed in the 1970s increased the profits of cigarette companies. Could the ban still be good public
6. This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy.
5. A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of mining diamonds is constant at €1000 per diamond, and the demand for diamonds
4. The Economist (15 November 2001) reported that ‘OPEC has failed to agree immediate production cuts to shore up oil prices. Afraid of losing market share, it wants nonmembers, who would also
3. If you were thinking of entering the ice cream business, would you try to make ice cream that is just like one of the existing (successful) brands? Explain your decision using the ideas of this
2. Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.a. Draw a diagram showing Sparkle’s demand curve, marginal revenue curve, average total cost curve, and
1. Classify the following markets as perfectly competitive, monopolistic or monopolistically competitive, and explain your answers.a. wooden HB pencilsb. bottled waterc. copperd. local telephone
10. Why might predatory pricing not be
9. What is resale price maintenance, and why is it controversial?
8. What kinds of behaviour do the competition laws prohibit?
7. Give two examples other than oligopoly to show how the prisoners’ dilemma helps to explain behaviour.
6. What is the prisoners’ dilemma, and what does it have to do with oligopoly?
5. How does the number of firms in an oligopoly affect the outcome in its market?
5. Why is it difficult to prove that cartels actually exist in practice?
4. Does the article suggest that the authorities in countries around the world have been successful in preventing anti-competitive practices in the cement industry? Explain your answer.
3. Why might there be little incentive to ‘game the domestic market’because of high export prices?
2. Outline the argument put forward by cement sector leaders to counter the accusations by the authorities.Do you agree with their argument?
1. Explain why price-fixing is seen as being ‘anti-competitive’.

Showing 300 - 400 of 1467