WGU Global-Economics-for-Managers Practice Exam Questions & Answers

In Global Economics for Managers, John Dunning's OLI framework explains why firms engage in foreign direct investment (FDI). One of its three components is internalization advantages, making option C correct.

Internalization advantages arise when a firm finds it more efficient to conduct business activities internally rather than through market transactions such as licensing or outsourcing. By internalizing operations, firms can reduce transaction costs, protect proprietary knowledge, maintain quality control, and avoid contractual disputes.

The OLI framework consists of:

Ownership advantages: firm-specific assets such as technology or brand reputation

Location advantages: benefits of operating in a particular country

Internalization advantages: gains from keeping activities within the firm

When all three advantages are present, firms are more likely to pursue FDI rather than exporting or licensing.

Option D is not part of the OLI framework. Thus, option C is correct.

Variable costs change as output changes. Option A is correct because a tax charged on variable inputs increases as the firm uses more inputs to produce more output. Option E is also correct because the cost of parts used in individual devices rises directly with the number of devices produced. If the manufacturer produces more computers, it must buy more parts; if production falls, parts costs fall. The other choices are fixed costs because they generally do not vary directly with the quantity produced in the short run. A license fee, CEO salary, rent, and monthly internet service are normally paid regardless of whether output is high or low. Managers must separate fixed and variable costs to make production, pricing, shutdown, and break-even decisions.

A firm should restart production when total revenue is greater than total variable cost, meaning the firm can cover its variable costs and contribute something toward fixed costs. Option C is correct because, after a short-term shutdown, fixed costs may still exist whether the firm produces or not. The key restart decision is whether operating revenue can cover variable operating expenses. If total revenue exceeds total variable cost, production reduces losses or may generate profit. Option A is not sufficient because total revenue being less than total cost may still allow production to be better than shutdown if variable costs are covered. Option B means producing additional units lowers profit, so it supports decreasing production. Option D does not justify restarting. The short-run rule focuses on variable cost coverage.

In Global Economics for Managers, producer surplus measures the well-being of sellers, making option B correct.

Producer surplus is the difference between the price producers receive and the minimum price they are willing to accept. It reflects profits plus fixed costs and indicates how much sellers benefit from participating in a market.

Options A and D confuse producer surplus with consumer or total surplus. Option C is incorrect because producer surplus is not total revenue.

Therefore, option B is correct.

In Global Economics for Managers, the Federal Reserve increases the money supply primarily through open market operations, specifically by buying government bonds from the public, making option C correct.

When the Fed purchases government securities, it pays banks and other sellers by crediting their reserves. This action increases the amount of reserves in the banking system, enabling banks to extend more loans. As lending expands, the money supply grows through the money multiplier process.

Option A would decrease the money supply. Option B tightens monetary conditions. Option D reduces banks' ability to lend.

Managers should understand this mechanism because changes in the money supply affect interest rates, investment, exchange rates, and aggregate demand. Therefore, option C accurately describes how the Fed increases the money supply.