A city ordinance that freezes rent prices may cause:
Answer(s): C
Choice "c" is correct. A city ordinance that freezes rent prices (such as rent control and rent stabilization in New York City) may cause the quantity demanded for rental space to exceed the quantity supplied.This occurs if the rent-controlled price is set below the market clearing price. At the controlled price, the quantity supplied will be constrained due to the low rent prices for the rent-controlled and rent-stabilized properties; builders will not want to build and rent properties for less than they are worth on the open market. The quantity demanded for the rental space will still be artificially high due to the city ordinance, which sets the controlled price below the market price. Thus, the quantity demanded will exceed the quantity supplied. New York City rent control is a perfect example of the effect of a price ceiling and the problems that it can cause.Choice "a" is incorrect. A city ordinance that freezes rent prices will not cause the demand curve for rental space to fall. Price changes cause movements along the demand curve, not shifts in the demand curve. Choice "b" is incorrect. A city ordinance that freezes rent prices will not cause the supply curve for rental space to rise. Price changes cause movements along the supply curve, not shifts in the supply curve.Choice "d" is incorrect. A city ordinance that freezes rent prices will not cause the quantity supplied to exceed the quantity demanded. This choice is backwards.
What is strategic planning?
Answer(s): A
Choice "a" is correct. Strategic planning is the creation of an overall strategic plan for an organization to achieve its overall "business objectives." The strategic plan will establish the general direction of the organization.Choice "b" is incorrect. Strategic planning will not establish the resources that the plan will require. The resources that the plan will require are part of the implementation of the strategic plan, not part of the plan itself. Choice "c" is incorrect. Strategic planning will not establish the budget for the organization. Budgets are even further down implementing the plan than are the resources that the plan will require.Choice "d" is incorrect. Strategic planning does not consist of decisions to use parts of the organization's resources in specified ways. Again, these decisions are part of the implementation of the strategic plan, not part of the plan itself.
In evaluating the impact of relative inflation rates on the demand for a foreign currency, which of the following is true?
Answer(s): B
Choice "b" is correct. As inflation associated with a foreign currency increases in relation to a domestic economy, demand for the foreign currency falls. Inflation weakens the foreign currency in relation to the domestic currency and makes foreign products more expensive and reduces demand. Reduced demand for a foreign import will reduce the demand for its currency.Choice "a" is incorrect. Inflation, along with interest rates and trade restrictions are significant determinants of exchange rates.Choice "c" is incorrect. As inflation associated with a foreign currency increases in relation to a domestic economy, demand for the foreign currency falls. Inflation weakens the foreign currency in relation to the domestic currency and makes foreign products more expensive and reduces demand. Reduced demand for a foreign import will reduce the demand for its currency, not increase demand.Choice "d" is incorrect. As inflation associated with a foreign currency decreases in relation to a domestic economy, demand for the foreign currency rises. Inflation weakens the domestic currency in relation to the foreign currency and makes foreign products less expensive and increases demand. Increased demand for a foreign import will increase the demand for its currency, not decrease demand.
Which of the following is not correct about the purchasing power parity theory of explaining changes in exchange rates?
Choice "c" is correct. The purchasing power parity theory holds that inflation will cause exchange rates to automatically adjust to ensure that an equal amount of a common currency will purchase similar goods in separate economies. The International Fischer effect considers the premium or discount on interest rates as an indicator of inflation.Choice "a" is incorrect. The basic idea underlying the purchasing power parity theory is that the purchasing power of a common currency in different economies for similar products will remain the same and that inflation in any particular economy will cause exchange rates to adjust until parity is consistently achieved.Choice "b" is incorrect. The purchasing power parity theory holds that inflationary forces on foreign and domestic currencies will cause the exchange rates to automatically adjust to ensure that a common currency will have identical or similar purchasing power in each economy for similar goods.Choice "d" is incorrect. The purchasing power parity theory is presented as both an absolute theory of parity determination regardless of market imperfections and as a relative concept that considers market imperfections.
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