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What is the world economy characterized by today?
International movement of factor inputs
What are the most identifiable characteristics of multinationals?
- Stock ownership and management
- Company headquarters may be outside of producing country
- Foreign sales represent a high portion of total sales
Multinationals have diversified their operations along what three lines?
What are the four major factors that influence foreign direct investments?
- Market demand
- Trade restrictions
- Investment regulations
- Labor productivity and costs
How does multinational enterprise compare to the comparative advantage principle?
It basically agress with the comparative advantage principle, however, a great advantage to multinational enterprise is their able to intra trade if they have more than one subsidiary. Subsidiaries are companies owned by another company. They can raise profit by trading with one another. There is less trade regulation.
What effect does interational labor migration have on the economy?
Migration increases output and decreases wages where people immigrate. Migration decreases output and increases wages in the country of emigration. The world is changed by an increase in net output.
What is the balance of payments?
Yearly comparison record of a nation's economic transactions to other nations.
Why is the balance of goods and services important to policymakers?
Indicates the net transfer of real resources overseas and it measures how much a nation's exports and imports are part of its gross national product.
If a country realizes a deficit (surplus) in its current account then what?
It becomes a net demander (supplier) of funds to the rest of the world.
How does the international indebtedness compare to the balance of payments?
Balance of payments is a flow concept where international indebtedness is a stock concept at a certain point in time.
What function does the foreign-exchange market provide?
the institutional framework that individuals, businesses, and financial investors use to purchase and sell foreign exchange. New York, Tokyo, and London.
How is the equilibrium rate of exchange determined?
Intersection of supply and demand
What does exchange arbitrage permit?
The rates of exchange in different parts of the world to be the same.
in a free market how are exchange rates determined?
By market fundamentals and market expectations.
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