,WGU C211 OA Exam | Global Economics for Managers (2026) Q&A |
WGU
1. The institution-based view of global business suggests that the success and failure of firms
are determined by their external environment. Which of the following is the primary
purpose of formal institutions?
A) To provide unwritten social norms that guide behavior
B) To reduce uncertainty by establishing the "rules of the game"
C) To eliminate all competition in the marketplace
D) To maximize shareholder value above all else
Correct Answer: To reduce uncertainty by establishing the "rules of the game"
Rationale: Formal institutions, such as laws and regulations, reduce uncertainty by creating a
stable framework for competition and trade. Informal institutions provide unwritten norms,
but the primary purpose of formal ones is to establish clear rules that guide economic
behavior and reduce risk.
2. A manager is evaluating a potential foreign market and notes significant differences in
language, religious beliefs, and social norms compared to the home country. According to
the CAGE Distance Framework, this represents which type of distance?
A) Administrative distance
B) Geographic distance
C) Economic distance
D) Cultural distance
Correct Answer: Cultural distance
Rationale: The CAGE framework identifies four types of distance: Cultural (language, norms,
values), Administrative (laws, policies), Geographic (physical distance), and Economic
(wealth, income). Differences in language and social norms fall under cultural distance,
which can increase the barriers to market entry.
,3. According to the pendulum view of globalization, which of the following best
characterizes the historical pattern of globalization?
A) A linear and inevitable progression toward greater integration
B) A cyclical process that alternates between expansion and retrenchment
C) A recent phenomenon driven solely by technological advances
D) A stable process with no significant fluctuations
Correct Answer: A cyclical process that alternates between expansion and retrenchment
Rationale: The pendulum view posits that globalization is not a linear trend but a cyclical
process that swings between periods of greater integration and periods of retrenchment,
influenced by wars, economic crises, and political shifts. This contrasts with the "new" view,
which sees globalization as a recent and powerful force.
4. A U.S.-based technology firm decides to establish a wholly owned subsidiary in India to
take advantage of lower labor costs for software development. This is an example of which
type of foreign direct investment (FDI)?
A) Horizontal FDI
B) Vertical FDI
C) Portfolio investment
D) Licensing
Correct Answer: Vertical FDI
Rationale: Vertical FDI occurs when a firm invests in a different stage of the value chain in
another country. By establishing a subsidiary for software development (an upstream
activity), the firm is engaging in vertical FDI to access lower production costs, distinguishing
it from horizontal FDI, which involves the same business activities abroad.
5. A government imposes a tax on imported automobiles to protect its domestic auto
industry. This tax is an example of a:
A) Quota
B) Tariff
, C) Subsidy
D) Local content requirement
Correct Answer: Tariff
Rationale: A tariff is a tax imposed on imported goods, which raises their price and protects
domestic industries from foreign competition. A quota restricts the quantity of imports, a
subsidy is a government payment to support domestic producers, and a local content
requirement mandates a certain percentage of a product's value to be produced
domestically.
6. A country has a comparative advantage in producing wheat if it:
A) Can produce wheat more efficiently than any other country
B) Has the lowest opportunity cost of producing wheat compared to other goods
C) Produces more wheat than any other country
D) Has the most advanced technology for wheat farming
Correct Answer: Has the lowest opportunity cost of producing wheat compared to other
goods
Rationale: Comparative advantage is determined by the lowest opportunity cost, not
absolute efficiency or total output. A country specializes in producing goods for which it has
the lowest opportunity cost, leading to gains from trade. Absolute advantage refers to
producing more with the same resources.
7. A retail chain is evaluating a foreign market and identifies high tariffs, complex
regulations, and a history of political instability. According to the PESTEL framework, these
factors are primarily associated with which external environment?
A) Economic and Social
B) Political and Legal
C) Technological and Environmental
D) Competitive and Market
WGU
1. The institution-based view of global business suggests that the success and failure of firms
are determined by their external environment. Which of the following is the primary
purpose of formal institutions?
A) To provide unwritten social norms that guide behavior
B) To reduce uncertainty by establishing the "rules of the game"
C) To eliminate all competition in the marketplace
D) To maximize shareholder value above all else
Correct Answer: To reduce uncertainty by establishing the "rules of the game"
Rationale: Formal institutions, such as laws and regulations, reduce uncertainty by creating a
stable framework for competition and trade. Informal institutions provide unwritten norms,
but the primary purpose of formal ones is to establish clear rules that guide economic
behavior and reduce risk.
2. A manager is evaluating a potential foreign market and notes significant differences in
language, religious beliefs, and social norms compared to the home country. According to
the CAGE Distance Framework, this represents which type of distance?
A) Administrative distance
B) Geographic distance
C) Economic distance
D) Cultural distance
Correct Answer: Cultural distance
Rationale: The CAGE framework identifies four types of distance: Cultural (language, norms,
values), Administrative (laws, policies), Geographic (physical distance), and Economic
(wealth, income). Differences in language and social norms fall under cultural distance,
which can increase the barriers to market entry.
,3. According to the pendulum view of globalization, which of the following best
characterizes the historical pattern of globalization?
A) A linear and inevitable progression toward greater integration
B) A cyclical process that alternates between expansion and retrenchment
C) A recent phenomenon driven solely by technological advances
D) A stable process with no significant fluctuations
Correct Answer: A cyclical process that alternates between expansion and retrenchment
Rationale: The pendulum view posits that globalization is not a linear trend but a cyclical
process that swings between periods of greater integration and periods of retrenchment,
influenced by wars, economic crises, and political shifts. This contrasts with the "new" view,
which sees globalization as a recent and powerful force.
4. A U.S.-based technology firm decides to establish a wholly owned subsidiary in India to
take advantage of lower labor costs for software development. This is an example of which
type of foreign direct investment (FDI)?
A) Horizontal FDI
B) Vertical FDI
C) Portfolio investment
D) Licensing
Correct Answer: Vertical FDI
Rationale: Vertical FDI occurs when a firm invests in a different stage of the value chain in
another country. By establishing a subsidiary for software development (an upstream
activity), the firm is engaging in vertical FDI to access lower production costs, distinguishing
it from horizontal FDI, which involves the same business activities abroad.
5. A government imposes a tax on imported automobiles to protect its domestic auto
industry. This tax is an example of a:
A) Quota
B) Tariff
, C) Subsidy
D) Local content requirement
Correct Answer: Tariff
Rationale: A tariff is a tax imposed on imported goods, which raises their price and protects
domestic industries from foreign competition. A quota restricts the quantity of imports, a
subsidy is a government payment to support domestic producers, and a local content
requirement mandates a certain percentage of a product's value to be produced
domestically.
6. A country has a comparative advantage in producing wheat if it:
A) Can produce wheat more efficiently than any other country
B) Has the lowest opportunity cost of producing wheat compared to other goods
C) Produces more wheat than any other country
D) Has the most advanced technology for wheat farming
Correct Answer: Has the lowest opportunity cost of producing wheat compared to other
goods
Rationale: Comparative advantage is determined by the lowest opportunity cost, not
absolute efficiency or total output. A country specializes in producing goods for which it has
the lowest opportunity cost, leading to gains from trade. Absolute advantage refers to
producing more with the same resources.
7. A retail chain is evaluating a foreign market and identifies high tariffs, complex
regulations, and a history of political instability. According to the PESTEL framework, these
factors are primarily associated with which external environment?
A) Economic and Social
B) Political and Legal
C) Technological and Environmental
D) Competitive and Market
