Test Bank For International Business Competing in the Global Marketplace 11th Edition By Hill

Chapter 03 National Differences in Economic Development True / False Questions 1. GNI allows a more direct comparison of living standards in different countries. True False 2. In Sen's view, development is an economic process that should be assessed by material output measures such as GNI per capita. True False 3. Life expectancy at birth is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations. True False 4. Political freedom is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations. True False 5. If a country's economy is to sustain long-run economic growth, the business environment must be conducive to innovations and entrepreneurial activity. True False 6. Privatization refers to the process of hiring private management consultancy firms to manage state-owned enterprises. True False 7. Peruvian development economist Hernando de Soto has argued that the chronic inability of property owners to establish legal title to the property they own is a key problem for innovation, and entrepreneurial activity in developing nations. True False 8. Most property in poor countries is owned legally by investors. True False 9. Totalitarian states promote human freedom and human development, which facilitates economic progress. True False 10. Since the late 1980s, there has been a strong move away from a more free market economic model and toward a more centrally planned and mixed economies. True False 11. Many totalitarian regimes were able to deliver economic progress to the vast bulk of their populations, which curbed the spread of democracy during the late 1980s. True False 12. New information and communication technologies have enabled the spread of democratic ideals. True False 13. Transformation from centrally planned command economies to market-based economies can be attributed to the fact that command and mixed economies failed to deliver the sustained economic performance achieved by countries adopting market-based systems. True False 14. Economic freedom necessarily equates with political freedom. True False 15. In a command economy, the prices are determined by the free interplay of demand and supply. True False 16. In mixed economies, in certain sectors the state sets prices, owns businesses, limits private enterprise, restricts investment by foreigners, and restricts international trade. True False 17. Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms continue to receive subsidies from the state and if they are protected from foreign competition. True False 18. For privatization to work, it must also be accompanied by a more general deregulation and opening of the economy. True False 19. The government of a country takes over the airport security industries following a major terrorist attack, to improve airport security. This is an example of privatization. True False 20. A well-functioning market economy requires laws protecting private property rights and providing mechanisms for contract enforcement. True False 21. When communism collapsed, many of the communist countries lacked the legal structure required to protect property rights because all the property was earlier held by the state. True False 22. A market with a large number of consumers with low living standards will have a relatively large market when measured in economic terms. True False 23. The long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers. True False 24. A country's economic system and property rights regime are reasonably good predictors of economic prospects. True False 25. Economic risks are independent of political risk. True False Multiple Choice Questions 26. _____ per person figures can be misleading because they don't consider differences in the cost of living. A. Gross domestic product (GDP) B. Gross national income (GNI) C. Purchasing power parity (PPP) D. Human Development Index (HDI) 27. GNI per capita can be adjusted by _____ to account for differences in the cost of living. A. gross domestic product B. gross values added C. purchasing power D. the total value of goods and services produced 28. The _____ adjustment allows for a more direct comparison of living standards in different countries. A. gross domestic product B. value added C. gross national income (GNI) D. purchasing power parity (PPP) 29. GNI and PPP data are useful because they provide a _____ of economic development. A. dynamic analysis B. cross-sectional view C. static analysis D. global view 30. In a _____, the state owns all means of production. A. mixed economy B. planned economy C. market economy D. totalitarian state 31. The economic freedom associated with a _____ creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy. A. mixed economy B. planned economy C. market economy D. command economy 32. Which of the following is a legal means by which the state can expropriate the profits from innovation? A. Demands for money to grant a license B. Expropriation C. Enforcing property rights D. Excessive taxation 33. Some _____ have fostered a market economy and strong property rights protection and have experienced rapid economic growth. A. totalitarian regimes B. command economies C. dictatorships D. centrally planned systems 34. Several of the fastest-growing Asian economies adopted more _____ governments during the past three decades, including South Korea and Taiwan. A. totalitarian B. democratic C. dictatorial D. socialists 35. Anecdotal comparisons suggest that the assertion that nations that invest more in _____ will have higher growth rates is true. A. infrastructure B. centralized urban centers C. education D. manufacturing 36. One of the reasons for the spread of democracy is the emergence of _____ who have pushed for democratic reforms. A. a more vocal working poor B. better educated lower classes C. a desperate urban poor D. increasingly prosperous middle and working classes 37. Political scientist _____ predicts that there will be a world that is split into different civilizations, each of which has its own value systems and ideology. A. Samuel Huntington B. Amartya Sen C. Francis Fukuyama D. Hernando de Soto 38. According to political scientist's thesis is global terrorism a product of the tension between civilizations and the clash of value systems and ideology? A. Amartya Sen B. Samuel Huntington C. Francis Fukuyama D. Hernando de Soto 39. _____ involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. A. Privatization B. Developing command economies C. Deregulation D. Globalization 40. _____ is seen as a way to stimulate gains in economic efficiency by giving owners a powerful incentive—the reward of greater profits—to search for increases in productivity, to enter new markets, and to exit losing ones. A. Globalization B. Economic transformation C. Deregulation D. Privatization 41. By identifying and investing early in a potential future economic star, international firms can _____ and gain experience in that country's business practices. A. build brand loyalty B. learn which government officials need to receive kickbacks C. begin to stockpile that country's currency D. build infrastructure 42. _____ are the advantages gained by early entrants into a market. A. Early investor advantages B. First-mover advantages C. First-to-market advantages D. Late-mover advantages 43. Countries with _____ economies in which property rights are protected tend to achieve greater economic growth rates than other economies where property rights are poorly protected. A. mixed B. market C. free market D. command 44. It may be more costly to do business in relatively primitive or undeveloped economies because of: A. international trade restrictions. B. the lack of governmental support. C. difficulty obtaining workers. D. the lack of infrastructure and supporting businesses. 45. One visible indicator of _____ tends to be a country's inflation rate. A. economic mismanagement B. high GNI C. political risks D. low HDI 46. The overall attractiveness of a country as a potential market or investment site for an international business depends on: A. if the country has a high gross national income. B. balancing the benefits, costs, and risks associated with doing business in that country. C. whether the company can be the first mover in the market. D. whether the government can be greased. 47. GNI per person figures can be misleading because ____. A. they also include barter agreements B. they provide a dynamic picture of development C. they don't consider differences in the cost of living D. they don't consider exchange rate 48. Which of the following helps in adjusting GNI such that it accounts for the differences in the cost of living? A. Purchasing power parity (PPP) adjustment B. Human Development Index C. Debt to GNI ratio D. Consumer Price Index 49. In some countries, the official GNI per capita measured at PPP data does not reflect the actual the total annual income because: A. it doesn't consider differences in the cost of living. B. it gives a static picture of development. C. it fails to include income earned from other countries in the form of dividends. D. large amounts of economic activity may be in the form of barter agreements. 50. Which of the following is a measure that is developed by the United Nations to measure the quality of life in different nations? A. Gross national income B. Human Development Index C. Purchasing power parity D. Gross domestic product 51. Which of the following is one of the measures that HDI is based on? A. Life expectancy at birth. B. Political freedom. C. Attainment of housing. D. Whether the lowest incomes are sufficient to meet the basic needs of life. 52. _____, a Nobel Prize-winning economist, has argued that development is not just an economic process, but it is a political one as well. A. Hernando de Soto B. Karl Marx C. Samuel Huntington D. Amartya Sen 53. According to Amartya Sen, development should be: A. seen as a process of expanding the real freedoms that people experience. B. seen as a non-political concept that focuses on the net income of a country. C. viewed as a purely economic process. D. assessed by material output measures such as GNI per capita. 54. Which of the following statements pertaining to innovation and entrepreneurship is true? A. They are the engines of growth. B. They require strong legal systems. C. They require state ownership of means of production. D. They require a mixed economy. 55. A market economy encourages innovation because: A. state ownership of enterprises reduces risks of innovation. B. economic freedom leads to greater incentives for innovation. C. government-owned and funded research centers become hubs of innovation. D. the prices of goods and services, including new products, are fixed by government. 56. Stagnation can occur in planned economies because: A. entrepreneurial individuals have few economic incentives for innovation. B. private ownership of means of production leads to exploitation of workers. C. prices of goods and services are fixed by market forces of demand and supply. D. lack of barriers to trade results in increased competition for domestic producers. 57. _____ is required for a business environment to be conducive to innovation and entrepreneurial activity. A. State ownership of means of production B. Strong legal protection of property rights C. Barriers to foreign trade and investment D. Government regulation of the market 58. The state can expropriate the profits from innovation through legal means, such as _____. A. bureaucratic kickbacks B. excessive taxation C. black market transactions D. privatization 59. The influential Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until they: A. have political stability. B. invest in infrastructural development. C. have better defined and secure property rights. D. have adequate market regulation. 60. According to Hernando de Soto, which of the following factors is essential for the developing world to be able to reap the benefits of innovation and entrepreneurship? A. Detailed state planning B. Restricting direct investment by foreign enterprises C. Strong property rights D. Market regulation 61. A free market economy in which property rights are protected leads to subsequent economic growth, which often leads to the establishment of: A. a democratic regime. B. a planned economy. C. government owned enterprises. D. a socialist economy. 62. The political economy of many of the world's nation-states has changed radically since the late 1980s. Which of the following is a trend that has been evident? A. a wave of democratic revolutions has swept the world. B. totalitarian governments have arisen, replacing democratically elected governments. C. there has been a strong move toward centrally planned economies and away from free market economic models. D. mixed economies are fast replacing market economies. 63. Since the late 1980s, there has been a spread of democracy. This is because: A. a state's ability to control access to uncensored information has increased. B. the socialist model failed to deliver economic progress to the vast bulk of their populations. C. in many countries the middle and working classes have become less powerful. D. in many countries state-ownership of firms has encouraged innovation and entrepreneurship. 64. In many countries entrepreneurs and other business leaders, eager to protect their property rights and ensure the dispassionate enforcement of contracts, had pushed for _____. This contributed to a wave of democratic revolutions during the late 1980s and early 1990s. A. state ownership of productive resources B. regulated markets C. democratic reforms D. planned economies 65. Political scientist Samuel Huntington argues that modernization in non-Western societies can result in a retreat toward the traditional. This is exemplified by the _____. A. Islamic resurgence B. popularization of modern gadgets C. adoption of Western culture D. higher levels of literacy and education 66. According to political scientist Samuel Huntington, the rise of Islamic fundamentalism is a response to the: A. corruption prevalent in planned economies. B. restricted access to formal education. C. alienation produced by modernization. D. restrictions associated with totalitarian regimes. 67. Which of the following statements is true about Samuel Huntington? A. Samuel Huntington argues that there is a universal civilization based on widespread acceptance of Western democratic ideals. B. Samuel Huntington argues that the rise of Islamic fundamentalism is a response to the alienation produced by modernization. C. Samuel Huntington argues that global terrorism is a product of the static nature of traditional values and religious systems. D. Samuel Huntington argues that many societies, by adopting the material paraphernalia of the modern world, are becoming more Western. 68. Paralleling the spread of democracy, since the 1980s there has been the transformation from: A. free-market economies to socialist economies. B. mixed economies to collectivist economies. C. open economies to closed economies. D. command economies to market-based economies. 69. Many states in Asia, Latin America, and Western Europe have shifted away from a mixed economy to a market-based economy. Which of the following measures is most likely to be promoted by such states? A. State-ownership of enterprises B. Fixing of prices by the government C. Deregulation of the economy D. Lowering competition 70. Which of the following is a step in the shift toward a market-based economic system? A. Increasing trade barriers B. Increasing price controls C. Nationalization D. Creation of a legal system to safeguard property rights 71. _____ involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. A. Deregulation B. Trade certification C. A product law D. A liability law 72. Which of the following is an example of deregulation? A. A country that implements a simplified income tax filing system B. A country that takes over a leading private bank to prevent it from filing for bankruptcy C. A country that provides agricultural subsidies to farmers D. A country that encourages foreign direct investment 73. Which of the following is a characteristic of a command economy? A. Promotion of foreign direct investment B. Allowing prices to be set by the interplay between demand and supply C. Limited international trade D. Restricted state-ownership of means of production 74. The finance minister of a country considers several large, state-owned iron manufacturing units to be inefficient and a source of corruption. To generate resources for public expenditure and promote economic growth, the government decides to auction an entire iron manufacturing plant to sell it to a strategic investor. This process exemplifies _____. A. nationalization B. industrialization C. liberalization D. privatization 75. Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms: A. stop receiving subsidies from the government. B. are completely owned by private individuals. C. are sheltered from foreign competition. D. are allowed to restructure their operations. 76. The sale of state assets through an auction is most likely to lead to _____. A. trade certification B. privatization C. nationalization D. market regulation 77. For privatization to work, it must also be accompanied by: A. an increase in trade barriers and tariffs. B. an increase in government subsidies. C. stronger barriers to foreign competition. D. a general deregulation of the economy. 78. Which of the following factors is likely to make a country a more attractive location for international business? A. Totalitarian regimes B. Planned economies C. Government ownership of production methods D. Market-based economic policies 79. The benefits of doing business in a country are a function of which of the following? A. The size of the market. B. Its past wealth. C. Its past growth. D. Its future plans for infrastructure development. 80. Sony was a pioneer in the portable music market segment. Sony's Walkman was an innovative product which created a new category altogether and made Sony a technological leader. This gave the company an edge over other consumer electronics brands that introduced portable music players for a very long time. In this example, Sony had the: A. vertical integration advantage. B. purchasing power parity advantage. C. free-rider advantage. D. first-mover advantage. 81. Google launched Google Plus to gain a foothold in the social media market. However, given that there are numerous social networking platforms and Facebook is already a leader in social media, Google Plus found it challenging to generate brand loyalty and establish itself in the market. This was because of _____. A. incumbent disadvantage B. disintermediation disadvantage C. late-mover disadvantage D. horizontal integration disadvantage 82. The costs of doing business in a country tend to be greater if: A. political payoffs are not required to gain market access. B. supporting infrastructure is sponsored by government. C. local laws set strict standards with regard to environmental pollution. D. there is limits or caps on damage awards. 83. The likelihood that a trading partner will opportunistically break a contract or expropriate property rights is called a(n) _____. A. economic risk B. legal risk C. cultural risk D. political risk 84. A change in political regime in a country can result in laws that _____ to international businesses. A. are more favorable B. are less favorable C. provide less incentives D. provide more incentives 85. Economic growth appears to be a function of a country's capacity for growth and its _____. A. previous economic success B. political environment C. free market system D. mixed economy 86. To account for differences in the cost of living, one can adjust GNI per capita by _____, which allows for a more direct comparison of living standards in different countries. A. gross domestic product B. Human Development Index C. living standards rate D. purchasing power 87. Which of the following are more conducive to economic growth? A. Democratic regimes B. Totalitarian regimes C. Dictatorships D. Benevolent monarchies 88. _____ are the handicaps that late entrants to a market might suffer. A. Government regulations B. Late-mover disadvantages C. Black economy D. Purchasing power disparity 89. In a _____, any individual who has an innovative idea is free to try to make money out of that idea by starting a business (by engaging in entrepreneurial activity). A. command economy B. planned economy C. market economy D. mixed economy 90. Jeffrey Sachs argues that by virtue of _____, certain societies are more likely to engage in trade than others and are thus more likely to be open to and develop market-based economic systems, which in turn promotes faster economic growth. A. friendly political systems B. favorable economic conditions C. high gross national incomes D. favorable geography 91. Which of the following is one of the three main reasons for the spread of democracy? A. New information and communication technologies have broken down the ability of the state to control access to uncensored information. B. Totalitarian regimes delivered economic progress to the bulk of their populations but not enough to the power brokers. C. Democratic regimes failed to deliver economic progress to the vast bulk of their populations. D. Economic advances in the past quarter-century have led to the emergence of a class of ruling elite. 92. Since the 1980s, there has been a transformation from _____ economies to _____ economies. A. mixed; market-based B. centrally planned command; market-based C. centrally planned command; mixed D. market-based; centrally planned command 93. Which of the following is a step involved in the deregulation of a command economy? A. Adding price controls B. Temporarily restricting international trade C. Abolishing laws regulating the establishment and operation of private enterprises D. Increasing restrictions on direct investment by foreign enterprises 94. Without a strong legal systems in a market economy: A. the incentive to engage in economic activity can be increased substantially. B. private-sector entrepreneurs can expropriate the profits generated by the efforts of private and public entities. C. mechanisms for contract enforcement fall to private and corporate lawyers. D. private and public entities can expropriate the profits generated by the efforts of private-sector entrepreneurs. 95. Which of the following is a first-mover advantage? A. International firms may gain experience in that country's business practices. B. An international firm can reap the rewards of growth in a new market without incurring the risks. C. A firm may have the opportunity to be the first to introduce generic brands to a market. D. A firm can gauge how well their product will do in the market without taking the risk of investing their. Essay Questions 96. What is the philosophy of Amartya Sen? 97. Why does education lead to economic development? 98. Discuss Samuel Huntington's views on Islamic fundamentalism. 99. Since the 1980s, there has been a transformation from centrally planned command economies to market-based economies. What is the rationale for this transformation? 100. Is privatization by itself enough to guarantee economic growth? Why? Explain using an example. 101. How does the ownership structure of newly privatized firms affect its functioning? 102. What are the factors that determine the long-run monetary benefits of doing business in a country? 103. What are the factors that determine the costs of doing business in a country? 104. Why does doing business in a country with a relatively unsophisticated economy result in increased costs? 105. What are the factors that contribute to the risks of doing business in a country? Chapter 03 National Differences in Economic Development Answer Key True / False Questions 1. GNI allows a more direct comparison of living standards in different countries. FALSE Referred to as a purchasing power parity (PPP) adjustment, it allows a more direct comparison of living standards in different countries. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 2. In Sen's view, development is an economic process that should be assessed by material output measures such as GNI per capita. FALSE The Nobel Prize-winning economist Amartya Sen has argued that development should be assessed less by material output measures such as GNI per capita and more by the capabilities and opportunities that people enjoy. In Sen's view, development is not just an economic process, but it is a political one too. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 3. Life expectancy at birth is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations. TRUE The HDI is based on three measures: life expectancy at birth (a function of health care), educational attainment (measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education), and whether average incomes, based on PPP estimates, are sufficient to meet the basic needs of life in a country (adequate food, shelter, and health care). AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 4. Political freedom is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations. FALSE The HDI is based on three measures: life expectancy at birth (a function of health care), educational attainment (measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education), and whether average incomes, based on PPP estimates, are sufficient to meet the basic needs of life in a country (adequate food, shelter, and health care). AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 5. If a country's economy is to sustain long-run economic growth, the business environment must be conducive to innovations and entrepreneurial activity. TRUE Innovations in production and business processes lead to an increase in the productivity of labor and capital, which further boosts economic growth rates. Entrepreneurs first commercialize innovative new products and processes, and entrepreneurial activity provides much of the dynamism in an economy. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 6. Privatization refers to the process of hiring private management consultancy firms to manage state-owned enterprises. FALSE Privatization refers to the process of selling state-owned enterprises to private investors. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Nationalization and Privatization of Business 7. Peruvian development economist Hernando de Soto has argued that the chronic inability of property owners to establish legal title to the property they own is a key problem for innovation, and entrepreneurial activity in developing nations. TRUE The influential Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until property rights are better defined and protected. His arguments are interesting because he says the key problem is not the risk of expropriation but the chronic inability of property owners to establish legal title to the property they own. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Property Rights and Intellectual Property Rights 8. Most property in poor countries is owned legally by investors. FALSE Because most property is poor countries is informally "owned," the absence of legal proof of ownership means that property holders cannot convert their assets into capital, which could then be used to finance business ventures. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 9. Totalitarian states promote human freedom and human development, which facilitates economic progress. FALSE Totalitarian states, by limiting human freedom, also suppress human development and therefore are detrimental to progress. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 10. Since the late 1980s, there has been a strong move away from a more free market economic model and toward a more centrally planned and mixed economies. FALSE The political economy of many of the world's nation-states has changed radically since the late 1980s. There has been a strong move away from centrally planned and mixed economies and toward a more free market economic model. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: Differences in Economic Systems 11. Many totalitarian regimes were able to deliver economic progress to the vast bulk of their populations, which curbed the spread of democracy during the late 1980s. FALSE One of the causes for the spread of democracy is that many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: Different Forms of Government 12. New information and communication technologies have enabled the spread of democratic ideals. TRUE New information and communication technologies have created new conduits for the spread of democratic ideals and information from free societies. Today, the Internet is allowing democratic ideals to penetrate closed societies as never before. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: How the Physical Environment and Technology Influence Culture 13. Transformation from centrally planned command economies to market-based economies can be attributed to the fact that command and mixed economies failed to deliver the sustained economic performance achieved by countries adopting market-based systems. TRUE Command and mixed economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systems, such as the United States, Switzerland, Hong Kong, and Taiwan. As a consequence, even more states have gravitated toward the market-based model. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: Differences in Economic Systems 14. Economic freedom necessarily equates with political freedom. FALSE Economic freedom does not necessarily equate with political freedom. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: The Political Debate 15. In a command economy, the prices are determined by the free interplay of demand and supply. FALSE Before the collapse of communism, the governments in most command economies exercised tight control over prices and output, setting both through detailed state planning. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Differences in Economic Systems 16. In mixed economies, in certain sectors the state sets prices, owns businesses, limits private enterprise, restricts investment by foreigners, and restricts international trade. TRUE In mixed economies, the role of the state was more limited; but here too, in certain sectors the state sets prices, owns businesses, limits private enterprise, restricts investment by foreigners, and restricts international trade. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Differences in Economic Systems 17. Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms continue to receive subsidies from the state and if they are protected from foreign competition. TRUE Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms continue to receive subsidies from the state and if they are protected from foreign competition by barriers to international trade and foreign direct investment. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Nationalization and Privatization of Business 18. For privatization to work, it must also be accompanied by a more general deregulation and opening of the economy. TRUE For privatization to work, it must also be accompanied by a more general deregulation and opening of the economy. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Nationalization and Privatization of Business 19. The government of a country takes over the airport security industries following a major terrorist attack, to improve airport security. This is an example of privatization. FALSE Privatization transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Nationalization and Privatization of Business 20. A well-functioning market economy requires laws protecting private property rights and providing mechanisms for contract enforcement. TRUE Without a legal system that protects property rights, and without the machinery to enforce that system, the incentive to engage in economic activity can be reduced substantially by private and public entities, including organized crime, that expropriate the profits generated by the efforts of private-sector entrepreneurs. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Country Risk Produced by Legal Systems 21. When communism collapsed, many of the communist countries lacked the legal structure required to protect property rights because all the property was earlier held by the state. TRUE When communism collapsed, many of these countries lacked the legal structure required to protect property rights, all property having been held by the state. Although many nations have made big strides toward instituting the required system, it will be many more years before the legal system is functioning as smoothly as it does in the West. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Country Risk Produced by Legal Systems 22. A market with a large number of consumers with low living standards will have a relatively large market when measured in economic terms. FALSE While some markets are very large when measured by number of consumers (e.g., China and India), low living standards may imply limited purchasing power and therefore a relatively small market when measured in economic terms. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 23. The long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers. TRUE The long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 24. A country's economic system and property rights regime are reasonably good predictors of economic prospects. TRUE A country's economic system and property rights regime are reasonably good predictors of economic prospects. Countries with free market economies in which property rights are protected tend to achieve greater economic growth rates than command economies or economies where property rights are poorly protected. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 25. Economic risks are independent of political risk. FALSE Economic risks are not independent of political risk. Economic mismanagement may give rise to significant social unrest and hence political risk. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets Multiple Choice Questions 26. _____ per person figures can be misleading because they don't consider differences in the cost of living. A. Gross domestic product (GDP) B. Gross national income (GNI) C. Purchasing power parity (PPP) D. Human Development Index (HDI) GNI per person figures can be misleading because they don't consider differences in the cost of living. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 27. GNI per capita can be adjusted by _____ to account for differences in the cost of living. A. gross domestic product B. gross values added C. purchasing power D. the total value of goods and services produced To account for differences in the cost of living, one can adjust GNI per capita by purchasing power. Referred to as a purchasing power parity (PPP) adjustment, it allows for a more direct comparison of living standards in different countries. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 28. The _____ adjustment allows for a more direct comparison of living standards in different countries. A. gross domestic product B. value added C. gross national income (GNI) D. purchasing power parity (PPP) Referred to as a purchasing power parity (PPP) adjustment, it allows for a more direct comparison of living standards in different countries. The base for the adjustment is the cost of living in the United States. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 29. GNI and PPP data are useful because they provide a _____ of economic development. A. dynamic analysis B. cross-sectional view C. static analysis D. global view The GNI and PPP data give a static picture of development. They tell us, for example, that China is much poorer than the United States, but they do not tell us if China is closing the gap. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 30. In a _____, the state owns all means of production. A. mixed economy B. planned economy C. market economy D. totalitarian state In a planned economy, the state owns all means of production. Consequently, entrepreneurial individuals have few economic incentives to develop valuable new innovations, because it is the state, rather than the individual, that captures most of the gains. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Centrally Planned Economy 31. The economic freedom associated with a _____ creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy. A. mixed economy B. planned economy C. market economy D. command economy It has been argued that the economic freedom associated with a market economy creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Differences in Economic Systems 32. Which of the following is a legal means by which the state can expropriate the profits from innovation? A. Demands for money to grant a license B. Expropriation C. Enforcing property rights D. Excessive taxation The state can expropriate the profits from innovation through legal means, such as excessive taxation, or through illegal means, such as demands from state bureaucrats for kickbacks in return for granting an individual or firm a license to do business in a certain area (i.e., corruption). AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Government Policies Affecting Trade 33. Some _____ have fostered a market economy and strong property rights protection and have experienced rapid economic growth. A. totalitarian regimes B. command economies C. dictatorships D. centrally planned systems Some totalitarian regimes have fostered a market economy and strong property rights protection and have experienced rapid economic growth. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 34. Several of the fastest-growing Asian economies adopted more _____ governments during the past three decades, including South Korea and Taiwan. A. totalitarian B. democratic C. dictatorial D. socialists Several of the fastest-growing Asian economies adopted more democratic governments during the past three decades, including South Korea and Taiwan. Thus, although democracy may not always be the cause of initial economic progress, it seems to be one consequence of that progress. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Different Forms of Government 35. Anecdotal comparisons suggest that the assertion that nations that invest more in _____ will have higher growth rates is true. A. infrastructure B. centralized urban centers C. education D. manufacturing Education emerges as another important determinant of economic development. The general assertion is that nations that invest more in education will have higher growth rates because an educated population is a more productive population. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 36. One of the reasons for the spread of democracy is the emergence of _____ who have pushed for democratic reforms. A. a more vocal working poor B. better educated lower classes C. a desperate urban poor D. increasingly prosperous middle and working classes In many countries the economic advances of the past quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: Different Forms of Government 37. Political scientist _____ predicts that there will be a world that is split into different civilizations, each of which has its own value systems and ideology. A. Samuel Huntington B. Amartya Sen C. Francis Fukuyama D. Hernando de Soto Huntington sees a world that is split into different civilizations, each of which has its own value systems and ideology. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: The Political Debate 38. According to political scientist's thesis is global terrorism a product of the tension between civilizations and the clash of value systems and ideology? A. Amartya Sen B. Samuel Huntington C. Francis Fukuyama D. Hernando de Soto In Huntington's thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic: Terrorism, Terrorist Activities, and Countermeasures 39. _____ involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. A. Privatization B. Developing command economies C. Deregulation D. Globalization Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Government Policies Affecting Trade 40. _____ is seen as a way to stimulate gains in economic efficiency by giving owners a powerful incentive—the reward of greater profits—to search for increases in productivity, to enter new markets, and to exit losing ones. A. Globalization B. Economic transformation C. Deregulation D. Privatization Privatization is seen as a way to stimulate gains in economic efficiency by giving new private owners a powerful incentive—the reward of greater profits—to search for increases in productivity, to enter new markets, and to exit losing ones. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-03 Describe how transition economies are moving toward market-based systems. Topic: Nationalization and Privatization of Business 41. By identifying and investing early in a potential future economic star, international firms can _____ and gain experience in that country's business practices. A. build brand loyalty B. learn which government officials need to receive kickbacks C. begin to stockpile that country's currency D. build infrastructure By identifying and investing early in a potential future economic star, international firms may build brand loyalty and gain experience in that country's business practices. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 42. _____ are the advantages gained by early entrants into a market. A. Early investor advantages B. First-mover advantages C. First-to-market advantages D. Late-mover advantages First-mover advantages are the advantages that are gained by early entrants into a market. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 43. Countries with _____ economies in which property rights are protected tend to achieve greater economic growth rates than other economies where property rights are poorly protected. A. mixed B. market C. free market D. command A country's economic system and property rights regime are reasonably good predictors of economic prospects. Countries with free market economies in which property rights are protected tend to achieve greater economic growth rates than command economies or economies where property rights are poorly protected. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: Property Rights and Intellectual Property Rights 44. It may be more costly to do business in relatively primitive or undeveloped economies because of: A. international trade restrictions. B. the lack of governmental support. C. difficulty obtaining workers. D. the lack of infrastructure and supporting businesses. It may be more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses. At the extreme, an international firm may have to provide its own infrastructure and supporting business, which obviously raises costs. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 45. One visible indicator of _____ tends to be a country's inflation rate. A. economic mismanagement B. high GNI C. political risks D. low HDI One visible indicator of economic mismanagement tends to be a country's inflation rate. Another is the level of business and government debt in the country. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 46. The overall attractiveness of a country as a potential market or investment site for an international business depends on: A. if the country has a high gross national income. B. balancing the benefits, costs, and risks associated with doing business in that country. C. whether the company can be the first mover in the market. D. whether the government can be greased. The overall attractiveness of a country as a potential market or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-04 Explain the implications for management practice of national difference in political economy. Topic: The Potential, Risks, and Challenges of Emerging Markets 47. GNI per person figures can be misleading because ____. A. they also include barter agreements B. they provide a dynamic picture of development C. they don't consider differences in the cost of living D. they don't consider exchange rate One common measure of economic development is a country's gross national income (GNI) per head of population. GNI per person figures can be misleading because they don't consider differences in the cost of living. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 48. Which of the following helps in adjusting GNI such that it accounts for the differences in the cost of living? A. Purchasing power parity (PPP) adjustment B. Human Development Index C. Debt to GNI ratio D. Consumer Price Index To account for differences in the cost of living, one can adjust GNI per capita by purchasing power. Referred to as a purchasing power parity (PPP) adjustment, it allows for a more direct comparison of living standards in different countries. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 49. In some countries, the official GNI per capita measured at PPP data does not reflect the actual the total annual income because: A. it doesn't consider differences in the cost of living. B. it gives a static picture of development. C. it fails to include income earned from other countries in the form of dividends. D. large amounts of economic activity may be in the form of barter agreements. In some countries the "official" figures do not tell the entire story because large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. Estimates suggest that in India it may be around 50 percent of GDP, which implies that the Indian economy is half as big again as the officially reported figures. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: The Uses of National Income Data 50. Which of the following is a measure that is developed by the United Nations to measure the quality of life in different nations? A. Gross national income B. Human Development Index C. Purchasing power parity D. Gross domestic product Sen's influential thesis has been picked up by the United Nations, which has developed the Human Development Index (HDI) to measure the quality of human life in different nations. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 51. Which of the following is one of the measures that HDI is based on? A. Life expectancy at birth. B. Political freedom. C. Attainment of housing. D. Whether the lowest incomes are sufficient to meet the basic needs of life. The HDI comes much closer to Amartya Sen's conception of how development should be measured than narrow economic measures such as GNI per capita—although Sen's thesis suggests that political freedoms should also be included in the index, and they are not. The HDI is based on three measures: life expectancy at birth (a function of health care); educational attainment (measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education); and whether average incomes, based on PPP estimates, are sufficient to meet the basic needs of life in a country (adequate food, shelter, and health care). AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 52. _____, a Nobel Prize-winning economist, has argued that development is not just an economic process, but it is a political one as well. A. Hernando de Soto B. Karl Marx C. Samuel Huntington D. Amartya Sen The Nobel Prize-winning economist Amartya Sen has argued that development is not just an economic process, but it is a political one too, and to succeed requires the "democratization" of political communities to give citizens a voice in the important decisions made for the community. AACSB: Knowledge Application Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Gradable: automatic Learning Objective: 03-01 Explain what determines the level of economic development of a nation. Topic: Economic Development 53. According to Amartya Sen, development should be: A. seen as a process of expanding the real freedoms that people experience. B. seen as a non-political concept that focuses on the net income of a country. C. viewed as a purely economic process. D. assessed by material output measures such as GNI per capita. The Nobel Prize-winning economist Amartya Sen has argued that development should be assessed less by material output measures such as GNI per capita and more by the capabilities and opportunities that people enjoy. According to Sen, development should