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Sample Test
Global Business Today, 11e (Hill)
Chapter 3 National Differences in Economic
Development
1) The purchasing power parity for different countries is
adjusted (up or down) depending upon whether a country’s cost of living is
lower or higher than the cost of living in the United States.
Answer: TRUE
Explanation: To account for differences in the cost of
living, one can adjust GNI per capita by purchasing power. The base for the
adjustment is the cost of living in the United States. The PPP for different
countries is then adjusted (up or down) depending upon whether the cost of
living is lower or higher than in the United States.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Gross national income is a measure of the monthly income
received by residents of a nation.
Answer: FALSE
Explanation: One common measure of economic development is
a country’s gross
national income (GNI) per head of population. GNI is regarded
as a yardstick for the economic activity of a country; it measures the total
annual income received by residents of a nation.
Difficulty: 1 Easy
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking; Diversity
Accessibility: Keyboard Navigation
3) A shadow economy refers to similar economic activity that
takes place in competing nations.
Answer: FALSE
Explanation: Large amounts of economic activity may be in
the form of unrecorded cash transactions or barter agreements. People engage in
such transactions to avoid paying taxes.Known as the black economy or shadow economy,
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 figures reported.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The gross national income (GNI) per capita comes much closer
to Amartya Sen’s conception of how development should be measured than narrow
economic measures such as Human Development Index (HDI).
Answer: FALSE
Explanation: The HDI comes much closer to Sen’s conception
of how development should be measured than narrow economic measures such as GNI
per capita.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Economists who argue that innovation and entrepreneurial
activity are the engines of long-run economic growth, define innovation broadly
to include not just new products but also new processes, new organizations, new
management practices, and new strategies.
Answer: TRUE
Explanation: There is substantial agreement among
economists that innovation and entrepreneurial activity are the engines of
long-run economic growth. Those who make this argument define innovation
broadly to include not just new products but also new processes, new
organizations, new management practices, and new strategies.
Difficulty: 2 Medium
Topic: Economic and Business Implications of Cultural
Change
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) If a country’s economy is to sustain long-run economic
growth, the business environment must be conducive to the consistent production
of product and process innovations and to entrepreneurial activity.
Answer: TRUE
Explanation: If a country’s economy is to sustain long-run
economic growth, the business environment must be conducive to the consistent
production of product and process innovations and to entrepreneurial activity.
Difficulty: 1 Easy
Topic: Economic and Business Implications of Cultural
Change
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) In a planned economy, there is a great deal of freedom for
entrepreneurial activity and reward.
Answer: FALSE
Explanation: 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.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) A nation that has inadequate enforcement of property rights
reduces the motivation for innovative activity.
Answer: TRUE
Explanation: Without strong property rights protection,
businesses and individuals run the risk that the profits from their innovative
efforts will be expropriated, either by criminal elements or by the state.
Inadequately enforced property rights reduce the incentives for innovation and
entrepreneurial activity—because the profits from such activity are
“stolen”—and hence reduce the rate of economic growth.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) The Peruvian development economist Hernando de Soto has
argued that much of the developing world will fail to reap the benefits of
capitalism until they relax the property rights offered by their legal systems.
Answer: FALSE
Explanation: 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.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) Five of the fastest growing economies of the past 30
years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in
common at the start of their economic growth: democratic governments.
Answer: FALSE
Explanation: Five of the fastest growing economies of the
past 30 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one
thing in common at the start of their economic growth: undemocratic
governments.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking; Diversity
Accessibility: Keyboard Navigation
11) A totalitarian regime can promote economic growth if it
commits to a market system and values strong protection of property rights.
Answer: TRUE
Explanation: Only a totalitarian regime that is committed
to a market system and strong protection of property rights is capable of
promoting economic growth.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) A strong belief that economic progress leads to adoption of
a democratic regime underlies the fairly permissive attitude that many Western
governments have adopted toward human rights violations in China.
Answer: TRUE
Explanation: A strong belief that economic progress leads
to adoption of a democratic regime underlies the fairly permissive attitude
that many Western governments have adopted toward human rights violations in
China.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the level
of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) During the late 1980s and early 1990s, many totalitarian
governments collapsed and were replaced by democratically elected governments.
Answer: TRUE
Explanation: During the late 1980s and early 1990s, a wave
of democratic revolutions swept the world. Totalitarian governments collapsed
and were replaced by democratically elected governments that were typically
more committed to free market capitalism than their predecessors had been.
Difficulty: 1 Easy
Topic: Different Forms of Government
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) As categorized by Freedom House, citizens in a “partly free”
country enjoy a high degree of political and civil freedom.
Answer: FALSE
Explanation: In “free” countries, citizens enjoy a high
degree of political and civil freedoms. “Partly free” countries are
characterized by some restrictions on political rights and civil liberties,
often in the context of corruption, weak rule of law, ethnic strife, or civil
war. In “not free” countries, the political process is tightly controlled and
basic freedoms are denied.
Difficulty: 2 Medium
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Advances in technology and communication have fostered the
growth of democratic ideals.
Answer: TRUE
Explanation: New information and communication
technologies—including satellite television, desktop publishing, and, most
important, the Internet and associated social media—have reduced a state’s
ability to control access to uncensored information. These technologies have
created new conduits for the spread of democratic ideals and information from
free societies.
Difficulty: 2 Medium
Topic: Different Forms of Government
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) The late influential political scientist Samuel Huntington
predicted that the universalization of Western liberal democracy will be the
final form of human government.
Answer: FALSE
Explanation: The late influential political scientist
Samuel Huntington argued there is no “universal” civilization based on
widespread acceptance of Western liberal democratic ideals.
Difficulty: 1 Easy
Topic: Different Forms of Government
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Diversity
Accessibility: Keyboard Navigation
17) Francis Fukuyama promoted the idea that Western liberal
democracy would be the final form of human government and lead to a harmonious
world.
Answer: TRUE
Explanation: In an influential book, 25 years ago author
Francis Fukuyama argued, “We may be witnessing . . . the end of history as
such: that is, the end point of mankind’s ideological evolution and the
universalization of Western liberal democracy as the final form of human
government.” Fukuyama went on to argue that the war of ideas may be at an end
and that liberal democracy has triumphed.
Difficulty: 1 Easy
Topic: Different Forms of Government
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Diversity
Accessibility: Keyboard Navigation
18) In general, command and mixed economies failed to deliver
the kind of sustained economic performance that was achieved by countries
adopting market-based systems.
Answer: TRUE
Explanation: In general, 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.
Difficulty: 1 Easy
Topic: Different Forms of Government
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19) Nations that have economic freedom also have political
freedom.
Answer: TRUE
Explanation: Economic freedom does not necessarily equate
with political freedom.For example, the two top states in the Heritage
Foundation index, Hong Kong and Singapore, cannot be classified as politically
free.
Difficulty: 2 Medium
Topic: Different Forms of Government
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
20) Communist nations were the first to adopt deregulation efforts.
Answer: FALSE
Explanation: Deregulation involves
removing legal restrictions to the free play of markets, the establishment of
private enterprises, and the manner in which private enterprises operate.
Before the collapse of communism, the governments in most command economies
exercised tight control over prices and output, setting both through detailed
state planning.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) Privatization occurs when state-owned property is
transferred into the hands of individuals.
Answer: TRUE
Explanation: Privatization transfers the ownership
of state property into the hands of private individuals, frequently by the sale
of state assets through an auction.
Difficulty: 2 Medium
Topic: Nationalization and Privatization of Business
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) State-owned enterprises still dominate the banking and
health care industries in China.
Answer: TRUE
Explanation: Despite this three-decade trend, large
amounts of economic activity are still in the hands of state-owned enterprises
in many nations. In China, for example, state-owned companies still dominate
the banking, energy, telecommunications, health care, and technology sectors.
Difficulty: 2 Medium
Topic: Nationalization and Privatization of Business
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) It is predicted that China will surpass the United States
and become the world’s largest national economy within the next two decades.
Answer: TRUE
Explanation: If China and the United States continue to
grow at the rates they did during 1996–2017, China will surpass the United
States to become the world’s largest national economy within the next two
decades.
Difficulty: 1 Easy
Topic: Nationalization and Privatization of Business
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) It is more costly to do business in relatively primitive or
undeveloped economies because of the lack of infrastructure and supporting
businesses.
Answer: TRUE
Explanation: 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.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-04: Explain the implications for
management practice of national difference in political economy.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) Social unrest and disorder are less likely to be found in
countries that contain more than one ethnic nationality.
Answer: FALSE
Explanation: Social unrest and disorder are more likely to
be found in countries that contain more than one ethnic nationality.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-04: Explain the implications for
management practice of national difference in political economy.
Bloom’s: Remember
AACSB: Diversity; Reflective Thinking
Accessibility: Keyboard Navigation
26) Gross national income figures should be carefully evaluated
because they don’t take into account differences in
1. A)
the available workforce.
2. B)
government intervention.
3. C)
the cost of living.
4. D)
market conditions.
5. E)
political power.
Answer: C
Explanation: GNI per person figures can be misleading
because they don’t consider differences in the cost of living.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) One common measure of economic development is a country’s
1. A)
gender ratio.
2. B)
gross national income.
3. C)
infant mortality rate.
4. D)
population density.
5. E)
total geographical area.
Answer: B
Explanation: One common measure of economic development is
a country’s gross national income (GNI) per head of population.
Difficulty: 1 Easy
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) A country’s ________ measures the total annual income
received by residents of a country and is regarded as a yardstick for the
economic activity of a country.
1. A) income
elasticity of demand
2. B)
gross national product
3. C)
net cash flow ratio
4. D)
gross national income
5. E)
income equity ratio
Answer: D
Explanation: GNI is regarded as a yardstick for the
economic activity of a country; it measures the total annual income received by
residents of a nation.
Difficulty: 1 Easy
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
29) Purchasing power parity is used to adjust gross national
income in order to make a more direct comparison of ________ in various
countries.
1. A)
living standards
2. B)
population density
3. C)
geographical area
4. D)
factor endowments
5. E)
labor productivity
Answer: A
Explanation: 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 a more direct comparison of
living standards in different countries.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) To calculate purchasing power parity, the figure is adjusted
based on
1. A)
the trading value of gold in the exchange market.
2. B)
the median cost of living in the top five economic nations.
3. C)
the status of the cost of living in the United States
4. D)
average daily exchange rates in the selected nation.
5. E)
limits set by each nation’s government.
Answer: C
Explanation: 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 a more direct comparison of
living standards in different countries. The base for the adjustment is the
cost of living in the United States. The PPP for different countries is then
adjusted (up or down) depending on whether the cost of living is lower or
higher than in the United States.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) In 2017, if the PPP per capita of China was $16,760 and the
PPP per capita of the United States was $60,200, this means that the
1. A)
GNI per capita was greater in China.
2. B)
percent of goods and services consumed in the United States was lower.
3. C)
standard of living in China was better.
4. D)
cost of living was lower in China.
5. E)
annual average GDP growth rate was lower in China.
Answer: D
Explanation: In 2017 the GNI per capita for China was
$8,690, but the PPP per capita was $16,760, suggesting that the cost of living
was lower in China and that $8,690 in China would buy as much as $16,760 in the
United States.
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
32) In 2017, if the GNI per capita of India was $1,820 and its
PPP per capita was $7,060, this means that the cost of living in India was
lower than the cost of living in
1. A)
China.
2. B)
Great Britain.
3. C)
Germany.
4. D)
the United States.
5. E)
the rest of the world.
Answer: D
Explanation: PPP or purchasing power parity allows a more
direct comparison of living standards in different countries. The base for the
adjustment is the cost of living in the United States.
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
33) As a result of ________, large amounts of economic activity
in India are not made official and the GDP figures of the country fail to tell
the entire story of the economy.
1. A) a
large population
2. B)
unrecorded cash transactions
3. C)
deregulation
4. D)
nationalization
5. E)
closed totalitarianism
Answer: B
Explanation: In some countries the “official” figures do
not tell the entire story. Large amounts of economic activity may be in the
form of unrecorded cash transactions, or barter agreements. In some countries
(India being an example), they are reportedly very significant. Known as the
black economy, estimates suggest that in India it may be around 50 percent of
GDP.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking; Diversity
Accessibility: Keyboard Navigation
34) A black economy occurs when
1. A)
large amounts of economic activity are in the form of legally recorded cash
transactions.
2. B)
citizens engage in barter agreements to avoid paying taxes.
3. C) a
country’s GNI per capita exceeds $30,000.
4. D)
the expenses of the government are less than its income.
5. E) a
country has a trade surplus with another foreign country.
Answer: B
Explanation: Large amounts of economic activity may be in
the form of unrecorded cash transactions, or barter agreements. People engage
in such transactions to avoid paying taxes, and although the share of total
economic activity accounted for by such transactions may be small in developed
economies such as the United States, in some countries (India being an
example), they are reportedly very significant. Known as the black economy,
estimates suggest that in India it may be around 50 percent of GDP.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
35) The three measures of the ________ are life expectancy at
birth, educational attainment, and average incomes based on PPP estimates.
1. A)
Human Development Index
2. B)
Gross National Income
3. C)
Gross Domestic Product
4. D)
Cost of Living Index
5. E)
Cash Reserve Ratio
Answer: A
Explanation: The Human Development Index (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).
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) Amartya Sen believed that ________ should also be a factor
in the human development index.
1. A)
birth rates
2. B)
political freedom
3. C)
educational attainment
4. D)
basic average income
5. E)
geographical conditions
Answer: B
Explanation: As such, the HDI comes much closer to 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.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) According to the Human Development Index, average income
adjusted for PPP should be sufficient to
1. A)
provide basic needs such as food and shelter.
2. B)
promote economic development.
3. C)
foster decentralization.
4. D)
boost social class.
5. E)
foster entrepreneurial dynamism.
Answer: A
Explanation: 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).
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) The country of Jinret is classified as having low human
development (the quality of life is poor). This means its HDI is
1. A) a
score of less than 0.5 on the HDI scale.
2. B)
around 6.0.
3. C)
greater than 5.0 but less than 7.0.
4. D)
around 80.
5. E) in
the bottom 60 percentile.
Answer: A
Explanation: The HDI is scaled from 0 to 1. Countries
scoring less than 0.5 are classified as having low human development (the
quality of life is poor); those scoring from 0.5 to 0.8 are classified as
having medium human development; those that score above 0.8 are classified as
having high human development.
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
39) ________ is broadly defined as the development of new
products, processes, organizations, management practices, and strategies.
1. A)
Privatization
2. B)
Dynamism
3. C)
Demographics
4. D)
Innovation
5. E)
Benchmarking
Answer: D
Explanation: Innovation refers to the development of new
products, processes, organizations, management practices, and strategies.
Difficulty: 1 Easy
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) Traditional grocery stores now have to compete with Amazon’s
front-door delivery services. As a result, many grocery stores now offer online
ordering and home delivery. This new strategy is an example of
1. A)
privatization.
2. B)
economic deregulation.
3. C)
purchasing power parity.
4. D)
innovation
5. E)
benchmarking.
Answer: D
Explanation: Innovation refers to the development of new
products, processes, organizations, management practices, and strategies.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
41) Which activity engaged in by DenimExpress best exemplifies
innovation?
1. A)
DenimExpress cut the prices of its products by 10 percent.
2. B)
DenimExpress entered the Chinese market.
3. C)
DenimExpress offered a “me-to” product similar to that of a competitor.
4. D)
DenimExpress developed a new business model by selling directly to customers.
5. E)
DenimExpress cut its costs by 10 percent.
Answer: D
Explanation: Innovation refers to the development of new
products, processes, organizations, management practices, and strategies.
Changing the business model is changing the process of doing business.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
42) Which of these individuals can be considered an
entrepreneur?
1. A)
Sam, an employee at a sporting goods store, is solely responsible for all the
purchases and sales at the store.
2. B)
Joe recycles old household articles to build phones, radios, and other things
for his personal use.
3. C)
Max makes his living by investing in small companies that have the potential to
grow.
4. D)
Shondra started a company that processes plastic bags into fabric used in
automobiles.
5. E)
Ryan invented a hair regrowth formula and sold it to a company that sells
several other hair growth products.
Answer: D
Explanation: Entrepreneurs first commercialize innovative
new products and processes, and entrepreneurial activity provides much of the
dynamism in an economy.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
43) When considering innovations and entrepreneurship, it can be
said that
1. A) a
command economy creates greater incentives for innovation and entrepreneurship
than a market economy.
2. B) if
a country’s economy is to sustain long-run economic growth, the business
environment must restrict entrepreneurial activity.
3. C) a
high level of entrepreneurial activity leads to a low level of innovation.
4. D) innovations
in production and business processes lead to an increase in the productivity of
labor and capital.
5. E)
strong legal protection of property rights creates an unfavorable environment
for innovation and entrepreneurship.
Answer: D
Explanation: Innovation and entrepreneurial activity help
to increase economic activity by creating new products and markets that did not
previously exist. Moreover, innovations in production and business processes
lead to an increase in the productivity of labor and capital, which further
boosts economic growth rates.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) An unfavorable environment for innovations and
entrepreneurship is the result of
1. A) a
market economy.
2. B)
economic freedom.
3. C)
state monopoly in production.
4. D)
privatization.
5. E)
strong legal protection of property rights.
Answer: C
Explanation: 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.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) Lindsey lives in a country where the state owns all the
means of production and there is little incentive for entrepreneurial activity.
Lindsey lives in a
1. A)
market economy.
2. B)
mixed economy.
3. C)
planned economy.
4. D)
private economy.
5. E)
democratic economy.
Answer: C
Explanation: In a planned economy, the state owns all
means of production.
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
46) In the country of Bolar, the state owns key industries such
as energy and transportation. The rest of the industries are privately owned.
Bolar is a ________ economy.
1. A)
market
2. B)
planned
3. C)
mixed
4. D)
private
5. E)
democratic
Answer: C
Explanation: In a mixed economy, the state has a monopoly
in certain industry sectors (such as coal mining and telecommunications in
Great Britain until recently).
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
47) At one time, economic stagnation resulted in Great Britain
because the coal mining and telecommunications industries were
1. A)
privatized.
2. B)
sold off to foreign owners.
3. C)
monopolies owned by the state.
4. D)
compromised during the war.
5. E)
decentralized.
Answer: C
Explanation: Economic stagnation occurred in many mixed
economies in those sectors where the state had a monopoly (such as coal mining
and telecommunications in Great Britain). This stagnation provided the impetus
for the widespread privatization of state-owned enterprises that was witnessed
in many mixed economies during the mid-1980s.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) The nation of Talden sold Talden Communications, a
state-owned monopoly, to private investors. This is an example of
1. A)
communism.
2. B)
isolationism.
3. C) privatization.
4. D)
economizing.
5. E)
protectionism.
Answer: C
Explanation: Privatization refers to the process of
selling state-owned enterprises to private investors.
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
49) Jason loves to invent new products but knows that in his
country it is difficult for him to reap the rewards of innovations because they
are quickly and legally copied by others after he releases them into the
marketplace. As a result, Jason has decided to stop inventing. What is
preventing Jason from doing what he loves?
1. A)
weak property rights protection
2. B)
excessive tariffs
3. C)
privatization
4. D)
strong government intervention
5. E)
purchasing power parity
Answer: A
Explanation: Strong legal protection of property rights is
another requirement for a business environment to be conducive to innovation,
entrepreneurial activity, and hence economic growth.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
50) The country of Marita ensures strong legal protection of
property rights. It is likely that the businesses and individuals in Marita
will
1. A)
want to invest more in innovations.
2. B)
avoid privatization.
3. C)
face more corruption.
4. D)
avoid entrepreneurial activity.
5. E) be
faced with a higher tax debt.
Answer: A
Explanation: Strong legal protection of property rights is
another requirement for a business environment to be conducive to innovation,
entrepreneurial activity, and hence economic growth.
Difficulty: 3 Hard
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
51) People in the West tend to associate a(n) ________with a
free market system, strong property rights protection, and economic progress.
1. A)
anarchist state
2. B)
representative democracy
3. C)
planned economy
4. D) communist
state
5. E)
command economy
Answer: B
Explanation: People in the West tend to associate a
representative democracy with a market economic system, strong property rights
protection, and economic progress.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Only a totalitarian regime that is committed to ________ is
capable of promoting economic growth.
1. A) a
command economy
2. B) a
dictatorship
3. C)
limiting human freedom
4. D) a
strong protection of property rights
5. E)
limiting individualism and privatization
Answer: D
Explanation: Only a totalitarian regime that is committed
to a market system and strong protection of property rights is capable of
promoting economic growth.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the level
of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) According to economist Hernando de Soto, the key issue in
the relationship between capitalism and property rights is the inability of
owners to
1. A)
pay the necessary taxes on their property.
2. B)
establish legal title to the property they own.
3. C)
adapt to a planned economic system.
4. D)
create a production monopoly.
5. E)
foster dynamism through entrepreneurial activity.
Answer: B
Explanation: De Soto’s 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.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
54) China, South Korea, Taiwan, Singapore, and Hong Kong have
had the fastest-growing economies in the past 40 years. What did these five
countries have in common at the start of their economic spur?
1. A)
extensive trade agreements
2. B)
undemocratic governments
3. C)
active entrepreneurial activity
4. D)
high tariff barriers
5. E)
strong property rights protection
Answer: B
Explanation: Five of the fastest-growing economies of the
past 40 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one
thing in common at the start of their economic growth: undemocratic
governments.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
55) The belief that geography can influence economic policy, and
hence economic growth rates, goes back to
1. A)
Adam Smith.
2. B)
Amartya Sen.
3. C)
Plato.
4. D)
Aristotle.
5. E)
Karl Marx.
Answer: A
Explanation: While a country’s political and economic
systems are probably the big engines driving its rate of economic development,
other factors are also important. One that has received attention is geography.
But the belief that geography can influence economic policy, and hence economic
growth rates, goes back to Adam Smith.
Difficulty: 1 Easy
Topic: Geographical Implications that Affect Trade
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
56) The influential economist Jeffrey Sachs argues that which of
the following, with their long engagements in international trade, have been
the most supportive of market institutions throughout history?
1. A)
mountainous states
2. B)
tropical regions
3. C)
military societies
4. D)
landlocked states
5. E)
coastal states
Answer: E
Explanation: The influential economist Jeffrey Sachs
argues that throughout history, coastal states, with their long engagements in
international trade, have been more supportive of market institutions than
landlocked states, which have tended to organize themselves as hierarchical
(and often militarized) societies.
Difficulty: 1 Easy
Topic: Geographical Implications that Affect Trade
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
57) Which of these countries demonstrates Jeffrey Sachs’s
argument about trade?
1. A)
The nation of Ilar exports rice but imports wheat because it is more cost
effective.
2. B)
The soil conditions in Sarut are so poor that no crops can be grown and the
country must import all food sources.
3. C)
Intellectual property rights are well-protected in the nation of Acher which
provides an absolute advantage.
4. D)
The citizens of Rener fail to participate in entrepreneurial activity because
of the planned economy.
5. E)
The true GNI of the nation of Wolcott is unknown because of the “hidden
economy.”
Answer: B
Explanation: Sachs’s point is that by virtue of favorable
geography, 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. He also argues that,
irrespective of the economic and political institutions a country adopts,
adverse geographic conditions—such as the high rate of disease, poor soils, and
hostile climate that afflict many tropical countries—can have a negative impact
on development.
Difficulty: 3 Hard
Topic: Geographical Implications that Affect Trade
Learning Objective: 03-01: Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Diversity; Knowledge Application
Accessibility: Keyboard Navigation
58) In the context of political economy, one notable development
of the past 30 years has been the spread of
1. A)
centrally planned economies.
2. B)
mixed economies.
3. C)
totalitarian governments.
4. D)
democracy.
5. E)
communism.
Answer: D
Explanation: One notable development of the past 30 years
has been the spread of democracy (and, by extension, the decline of
totalitarianism).
Difficulty: 1 Easy
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) During the late 1980s and early 1990s, many of the world’s
nation-states moved away from
1. A) democratically
elected governments.
2. B)
free market capitalism.
3. C)
individualism.
4. D)
political and civil freedoms.
5. E)
totalitarian governments.
Answer: E
Explanation: During the late 1980s and early 1990s, a wave
of democratic revolutions swept the world. Totalitarian governments collapsed
and were replaced by democratically elected governments that were typically
more committed to free market capitalism than their predecessors had been.
Difficulty: 1 Easy
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
60) According to Freedom House, just under ________ of the
world’s nations are considered “free.”
1. A) 5
percent
2. B) 20
percent
3. C) 90
percent
4. D) 75
percent
5. E) 50
percent
Answer: E
Explanation: Freedom House classified some 88 countries as
free in 2018, accounting for about 45 percent of the world’s nations.
Difficulty: 1 Easy
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
61) “Not all democracies are free, as some still restrict
certain political and civil liberties.” Which country best fits this argument?
1. A)
Australia
2. B)
the United States
3. C)
Great Britain
4. D)
Russia
5. E)
Canada
Answer: D
Explanation: Not all democracies are free, according to
Freedom House, because some democracies still restrict certain political and
civil liberties. For example, Russia was rated “not free.”
Difficulty: 1 Easy
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
62) The collapse of ________ in Eastern Europe was precipitated
by the growing gulf between the vibrant and wealthy economies of the West and
the stagnant economies of the East.
1. A)
democracy
2. B)
communism
3. C) a
free economy
4. D)
capitalism
5. E)
privatization
Answer: B
Explanation: The collapse of communism in Eastern Europe
was precipitated by the growing gulf between the vibrant and wealthy economies
of the West and the stagnant economies of the communist East.
Difficulty: 2 Medium
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
63) How have new information and communication technologies,
including the Internet, affected the political economy in general?
1. A)
They have led to the spread of communism.
2. B)
They have reduced a state’s ability to control access to uncensored
information.
3. C)
They have led to the collapse of democracy.
4. D)
They have created new conduits for the spread of closed societies.
5. E)
They have led to increased suppression of political and economic freedoms.
Answer: B
Explanation: New information and communication
technologies, including satellite television, desktop publishing, and, most
important, the Internet, have reduced a state’s ability to control access to
uncensored information. These technologies have created new conduits for the
spread of democratic ideals and information from free societies.
Difficulty: 2 Medium
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Reflective Thinking; Technology
Accessibility: Keyboard Navigation
64) Economic advances in many countries have led to the
1. A)
decline of middle and working classes.
2. B)
rise of totalitarian reforms.
3. C)
decline of property rights.
4. D)
emergence of closed and self-contained societies.
5. E)
emergence of increasingly prosperous middle and working classes.
Answer: E
Explanation: In many countries economic advances have led
to the emergence of increasingly prosperous middle and working classes that
have pushed for democratic reforms.
Difficulty: 1 Easy
Topic: Economic and Business Implications of Cultural
Change
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking; Diversity
Accessibility: Keyboard Navigation
65) According to the author Francis Fukuyama, the world is most
likely witnessing the end of
1. A)
free market economies.
2. B)
capitalism.
3. C)
liberal democracies.
4. D)
privatization.
5. E)
humanity’s ideological evolution.
Answer: E
Explanation: Author Francis Fukuyama has argued, “We may
be witnessing . . . the end of history as such: that is, the end point of
mankind’s ideological evolution and the universalization of Western liberal
democracy as the final form of human government.” Fukuyama goes on to say that
the war of ideas may be at an end and that liberal democracy has triumphed.
Difficulty: 1 Easy
Topic: Differences in Political Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
66) Francis Fukuyama saw a world in which ________ was the final
form of human government.
1. A)
communism
2. B)
dictatorship
3. C)
totalitarianism
4. D)
democracy
5. E)
monarchism
Answer: D
Explanation: Author Francis Fukuyama has envisioned a more
harmonious world dominated by a universal civilization characterized by
democratic regimes and free market capitalism. “We may be witnessing . . . the
end of history as such: that is, the end point of mankind’s ideological
evolution and the universalization of Western liberal democracy as the final
form of human government.”
Difficulty: 1 Easy
Topic: Economic and Business Implications of Cultural
Change
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
67) Samuel Huntington held the opposite view from Fukuyama and
believed that the modernization of non-Western societies caused those societies
to
1. A)
become more Western.
2. B)
retreat toward the traditional.
3. C)
focus on democratic regimes.
4. D)
promote diversity and inclusion.
5. E)
reject material possessions.
Answer: A
Explanation: Huntington theorized that modernization in
non-Western societies can result in a retreat toward the traditional.
Difficulty: 2 Medium
Topic: Economic and Business Implications of Cultural
Change
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) In Samuel Huntington’s thesis, global terrorism is a product
of the
1. A)
clash of value systems and ideology between civilizations.
2. B)
widespread acceptance of universal global civilization.
3. C)
declining liberal democratic ideals.
4. D) differences
in the factor endowments between countries.
5. E)
geographical differences between nations.
Answer: A
Explanation: In Huntington’s thesis, global terrorism is a
product of the tension between civilizations and the clash of value systems and
ideology.
Difficulty: 2 Medium
Topic: Economic and Business Implications of Cultural
Change
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) As democracy has spread since the 1980s, so has the
development of more ________ economies.
1. A)
centrally planned
2. B)
mixed
3. C)
totalitarian
4. D)
command
5. E)
market-based
Answer: E
Explanation: Paralleling the spread of democracy since the
1980s has been the transformation from centrally planned command economies to
market-based economies.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
70) In the context of global economy, what has been widely
accepted since the late 1980s?
1. A)
centrally planned command economy
2. B)
mixed economy
3. C)
nationalization of private property
4. D)
deregulation of economies
5. E)
authoritarian regime
Answer: D
Explanation: Paralleling the spread of democracy since the
1980s has been the transformation from centrally planned command economies to
market-based economies. Many states in Asia, Latin America, and Western Europe
have sold state-owned businesses to private investors (privatization) and
deregulated their economies to promote greater competition.
Difficulty: 1 Easy
Topic: Economic Development
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
71) Based on calculations for 2018, which country is ranked by
the Heritage Foundation as having the world’s freest economy?
1. A)
Ireland
2. B)
Hong Kong
3. C)
North Korea
4. D)
Canada
5. E)
the United States
Answer: B
Explanation: According to the 2018 index, which is
summarized in Map 3.6, the world’s freest economies are (in rank order) Hong
Kong, Singapore, New Zealand, Switzerland, Australia, Ireland, Estonia, the
United Kingdom, Canada, and the United Arab Emirates.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-02: Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
72) The government of Cafor wants to create a market-based
economic system. To do so, the government should
1. A) abolish
the laws that deal with protection of property rights.
2. B)
introduce stringent foreign investment regulations.
3. C)
increase its intervention in the economy.
4. D)
adopt privatization.
5. E)
oppose democracy.
Answer: D
Explanation: The shift toward a market-based economic
system often entails a number of steps: deregulation, privatization, and
creation of a legal system to safeguard property rights.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-03: Describe how transition economies
are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
73) A nation would ________ as part of deregulation efforts.
1. A)
prohibit private enterprises from operating in certain sectors
2. B)
commit to communism
3. C)
remove price controls
4. D)
create a centrally planned economic system
5. E)
increase restrictions on foreign direct investment
Answer: C
Explanation: Deregulation involves removing price
controls, thereby allowing prices to be set by the interplay between demand and
supply; abolishing laws regulating the establishment and operation of private
enterprises; and relaxing or removing restrictions on direct investment by
foreign enterprises and international trade.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
74) The country of Garuf has recently removed all legal
restrictions on the establishment of private enterprises. This action
represents the process of
1. A)
the nationalization of private assets.
2. B)
deregulation.
3. C)
socialism.
4. D)
expanding totalitarian controls.
5. E)
isolationism.
Answer: B
Explanation: Deregulation involves removing legal
restrictions to the free play of markets, the establishment of private
enterprises, and the manner in which private enterprises operate.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
75) The country of Watoo would be using deregulation efforts if
1. A) it
exercises tight control over the prices of food grains.
2. B)
the establishment of private enterprises in the steel industry is prohibited by
the government.
3. C)
the retail sector in Watoo is opened for foreign direct investment.
4. D)
the Watoo government does not have a legal system to safeguard property rights.
5. E)
Watoo ranks the lowest among the countries that grant both political and
economic freedoms to its citizens.
Answer: C
Explanation: Deregulation involves removing price
controls, thereby allowing prices to be set by the interplay between demand and
supply; abolishing laws regulating the establishment and operation of private
enterprises; and relaxing or removing restrictions on direct investment by
foreign enterprises and international trade.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
76) The deregulation of an economy involves
1. A)
increasing restrictions on direct investment by foreign enterprises and
international trade.
2. B)
privatizing state-owned enterprises.
3. C)
exercising a high degree of state control over production and pricing.
4. D)
abolishing laws related to the protection of property rights.
5. E)
opposing democracy by adopting communism.
Answer: B
Explanation: Deregulation involves removing price
controls, thereby allowing prices to be set by the interplay between demand and
supply; abolishing laws regulating the establishment and operation of private
enterprises; and relaxing or removing restrictions on direct investment by
foreign enterprises and international trade.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
77) What started in Great Britain in the early 1980s when Prime
Minister Margaret Thatcher started to sell state-owned assets such as the
British telephone company?
1. A)
nationalization
2. B)
privatization
3. C)
antidemocratic government
4. D)
communism
5. E)
antiglobalization
Answer: B
Explanation: The privatization movement started in Great
Britain in the early 1980s when then Prime Minister Margaret Thatcher started
to sell state-owned assets such as the British telephone company, British
Telecom (BT).
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
78) How does privatization help stimulate gains in economic
efficiency?
1. A) It
allows newly privatized firms to gain monopoly position in a particular
industry.
2. B) It
provides incentives to new private owners to search for increases in
productivity and to enter new markets.
3. C) It
encourages state control over price and production output.
4. D) It
raises barriers to direct investment by foreign enterprises.
5. E) It
results in reservation of heavy industry for state ownership and the increase
of import tariffs.
Answer: B
Explanation: 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.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
79) The nation of Gren recently began privatization efforts;
however, as a way to protect newly privatized firms, the government imposed
strong tariffs on imports from foreign competitors. This has resulted in little
competition for these newly privatized firms and essentially created
1. A)
state monopolies.
2. B)
few barriers to trade.
3. C) a
mini-multinational.
4. D) a
democratic regime.
5. E) a
totalitarian state.
Answer: A
Explanation: 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. In such cases, the newly privatized firms are
sheltered from competition and continue acting like state monopolies.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
80) An accurate description of privatization is that
1. A) it
started in China in the early 1980s.
2. B) it
involves replacing a state-owned monopoly with a private monopoly.
3. C) it
is most successful when countries adopt communism.
4. D)
when newly privatized firms are protected from foreign competition, they have
little incentive to restructure their operations to become more efficient.
5. E) in
today’s context, a country runs the risk of experiencing a serious economic
crisis if it liberalizes and privatizes state-owned enterprises.
Answer: D
Explanation: With regard to privatization, when the newly
privatized firms are sheltered from competition and continue acting like state
monopolies, they often have little incentive to restructure their operations to
become more efficient.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
81) The country of Morson has decided to privatize the state-owned
cable television company. How can the country help this newly privatized
industry succeed?
1. A)
impose high corporate taxes on the company immediately after its privatization
2. B)
increase barriers to foreign direct investment
3. C)
intervene in the company’s operations by exercising price controls
4. D)
split the company into independent units to compete with each other
5. E)
prohibit foreign companies from entering into the field of telecommunication
Answer: D
Explanation: When Brazil decided to privatize the
state-owned telephone monopoly, Telebras, the government also split the company
into four independent units that were to compete with each other and removed
barriers to foreign direct investment in telecommunications services. This
action ensured that the newly privatized entities would face significant
competition and thus would have to improve their operating efficiency to
survive.
Difficulty: 3 Hard
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
82) The absence of a legal system that protects property rights
and the lack of machinery to enforce that system in a market economy usually
results in
1. A) an
improvement in the operating efficiency of newly privatized firms.
2. B)
reduced barriers to foreign direct investment and international trade.
3. C) an
increase in the incentives to engage in economic activity.
4. D)
deregulation and privatization of the economy.
5. E)
the lack of incentive to engage in economic activity.
Answer: E
Explanation: 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.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
83) What is one implication of the global changes in political
and economic systems for international business?
1. A)
The ideological conflict between collectivism and individualism is less in
evidence today.
2. B)
Adoption of Western ideology is declining worldwide.
3. C)
The global tide has been running in favor of command economies and totalitarian
dictatorships.
4. D)
Free markets and democracy are being replaced by mixed economies and communist
governments.
5. E)
Liberalization and privatization of state-owned enterprises has been losing
popularity.
Answer: A
Explanation: The global changes in political and economic
systems discussed earlier have several implications for international business.
The long-standing ideological conflict between collectivism and individualism
that defined the twentieth century is less in evidence today.
Difficulty: 2 Medium
Topic: Differences in Political Systems
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
84) Some believe that the global financial crisis of 2008–2009
was the result of
1. A) a
lack of free markets.
2. B) a
lack of regulation.
3. C)
political ideologies in opposition to democracy.
4. D) a
strong presence of command economies.
5. E) a
lack of privatization.
Answer: B
Explanation: Many commentators have blamed the problems
that led to the global financial crisis of 2008–2009, and the recession that
followed on a lack of regulation, and some reassessment of Western political
ideology seems likely.
Difficulty: 2 Medium
Topic: Differences in Political Systems
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
85) Recent global changes in political and economic systems show
that
1. A)
East European communist ideology is now widespread.
2. B) a
lack of deregulation was the cause for the global financial crisis of
2008–2009.
3. C) it
is guaranteed that democracy will thrive in most of the world’s newer
democratic states.
4. D)
the multipolar world dominated by a number of civilizations of the Cold War era
has vanished and is now being replaced by a bipolar world.
5. E)
many undeveloped and impoverished national markets of eastern Europe, Latin
America, Africa, and Asia are potentially enormous for international business.
Answer: E
Explanation: For nearly 50 years, half of the world was
off-limits to Western businesses. Now much of that has changed. Many of the
national markets of Eastern Europe, Latin America, Africa, and Asia may still
be undeveloped and impoverished, but they are potentially enormous.
Difficulty: 2 Medium
Topic: Economic and Political Arguments Surrounding
Regional Economic Integration
Learning Objective: 03-03: Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
86) A country with ________ is more likely to attain high and
sustained economic growth rates and is a more attractive location for
international business.
1. A)
weak protection of property rights
2. B) a
democratic regime
3. C)
command-based economic policies
4. D)
ideologies that differ from Western ideologies
5. E) a
totalitarian dictatorship
Answer: B
Explanation: Countries with democratic regimes,
market-based economic policies, and strong protection of property rights are
more likely to attain high and sustained economic growth rates and are thus a
more attractive location for international business.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-04: Explain the implications for
management practice of national difference in political economy.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
87) There are currently over 1.3 billion people living in India,
which makes it a large market when measuring the number of potential consumers.
However, India is still considered a smaller market in economic terms because
of
1. A)
the country’s orientation toward democracy.
2. B)
low birthrates.
3. C)
high living standards.
4. D)
limited purchasing power.
5. E) a
commitment to a free market system
Answer: D
Explanation: 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.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-04: Explain the implications for
management practice of national difference in political economy.
Bloom’s: Understand
AACSB: Analytical Thinking; Diversity
Accessibility: Keyboard Navigation
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