Inflation, Monetary Policy, and Verbeke's Framework

Flashcards about inflation, interest rates, monetary and fiscal policies, and Verbeke's Dynamic Framework based on lecture notes.

What is inflation?

The general and continuous increase in the prices of goods and services in an economy over time.

How is inflation usually measured?

Consumer Price Indices (CPI or IPC), which track the price trends of a basket of goods.

What are some reasons inflation might rise?

Higher demand than production, increased production costs, excessive money printing, International crises.

How might inflation decrease or slow down?

Demand decreases, production costs decrease, central banks raise interest rates, restrictive fiscal policies.

What are interest rates?

The cost of money; what you pay extra when you borrow or what you earn when you deposit money.

What is monetary policy?

Managed by the central bank to regulate the amount of money in circulation and interest rates.

What are the two types of monetary policy?

Expansive (to stimulate the economy) and Restrictive (to slow down inflation).

What is fiscal policy?

Managed by the government, concerning taxes and public spending.

What are the two types of fiscal policy?

Expansive (to stimulate the economy) and Restrictive (to reduce debt or curb inflation).

What is Verbeke's Dynamic Framework (or Verbeke’s Model of the MNE)?

A theoretical model by Alain Verbeke to explain the behavior and performance of multinational enterprises (MNEs) in a global context.

What are the 6 main trade-offs in Verbeke's Dynamic Capabilities Framework?

Integration vs. Responsiveness; Global Efficiency vs. Local Effectiveness; Exploitation vs. Exploration; Bounded Reliability vs. Bounded Rationality; Organizational Complexity vs. Simplicity; Internalization vs. Externalization.

What are the key elements of Verbeke's model?

Firm-Specific Advantages: unique skills; Country-Specific Advantages: advantages from the host country; Recombinant Capabilities: ability to re-combine FSAs and CSAs.

What is the objective of Verbeke's framework?

Helps understand strategic decisions of MNEs, such as where to locate activities and how to adapt to different markets.