Chapter 3 Question

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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
C. they don't consider differences in the cost of living
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
A. Purchasing power parity (PPP) adjustment
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.
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
B. Human Development Index
51. The HDI is based on all of the following measures EXCEPT:


A. life expectancy at birth.

B. political freedom.

C. educational attainment.

D. whether average incomes are sufficient to meet the basic needs of life.
B. political freedom.
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
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. should be viewed as a purely economic process.

D. assessed by material output measures such as GNI per capita.
A. seen as a process of expanding the real freedoms that people experience.
54. Which of the following statement pertaining to innovation and entrepreneurship is NOT true?


A. They are the engines of growth.

B. They require strong property rights.

C. They require state ownership of means of production.

D. They require a market economy.
C. They require state ownership of means of production.
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
B. economic freedom leads to greater incentives for innovation
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.
A. entrepreneurial individuals have few economic incentives for innovation.
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
B. Strong legal protection of property rights
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
B. excessive taxation
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 ____.


A. they have political stability

B. they invest in infrastructural development

C. they have better defined and secure property rights

D. they have adequate market regulation
C. they have better defined and secure property rights
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
C. Strong property rights
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.
A. a democratic regime.
62. The political economy of many of the world's nation-states has changed radically since the late 1980s. All of the following are trends that have been evident EXCEPT:


A. a wave of democratic revolutions has swept the world.

B. totalitarian governments collapsed and have been replaced by democratically elected governments.

C. there has been a strong move away from centrally planned economies toward free market economic models.

D. mixed economies are fast replacing market economies.
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
B. the socialist model failed to deliver economic progress to the vast bulk of their populations
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
C. democratic reforms
Political scientist Samuel Huntington argues that modernization in non-Western societies can result in a retreat toward the traditional. This is exemplified by ____.


A. the Islamic resurgence

B. the popularization of modern gadgets

C. the adoption of Western culture

D. the higher levels of literacy and education
A. the Islamic resurgence
66. According to political scientist Samuel Huntington, the rise of Islamic fundamentalism is a response to ____.


A. the corruption prevalent in planned economies

B. the restricted access to formal education

C. the alienation produced by modernization

D. the restrictions associated with totalitarian regimes
C. the alienation produced by modernization
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.
B. Samuel Huntington argues that the rise of Islamic fundamentalism is a response to the alienation produced by modernization.
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.
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
C. Deregulation of the economy
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
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
A. Deregulation
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
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
C. Limited international trade
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
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.
C. are sheltered from foreign competition.
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
B. privatization
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.
D. a general deregulation of the economy.
78. Which of the following factors is NOT likely to make a country a more attractive location for international business?


A. Democratic regimes

B. Planned economies

C. Strong protection of property rights

D. Market-based economic policies
B. Planned economies
79. The benefits of doing business in a country are a function of all of the following EXCEPT:


A. the size of the market.

B. its present wealth.

C. its past growth.

D. its future growth prospects.
C. its past growth.
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.
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.
C. late-mover disadvantage.
82. In all of the following scenarios, the costs of doing business in a country tend to be greater, EXCEPT where:


A. political payoffs are required to gain market access.

B. supporting infrastructure is lacking.

C. local laws set strict standards with regard to environmental pollution.

D. there is limits or caps on damage awards.
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
B. legal 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
B. are less favorable
85. Economic growth appears to be a function of a country's capacity for growth and ___________.


A. its previous economic success

B. its political environment

C. its free market system

D. its mixed economy
C. its free market system