International Business Charles Hill 12th Edition- Test Bank
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Sample Test
International Business, 12e (Hill)
Chapter 3 National Differences in Economic
Development
1) GDP allows a more direct comparison of living standards in
different countries than other measures.
Answer: FALSE
Explanation: The purchasing power parity (PPP) adjustment
allows a more direct comparison of living standards in different countries.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
2) In Sen’s view, development is an economic process that should
be assessed primarily by material output measures such as GNI per capita.
Answer: FALSE
Explanation: 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.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
3) GDP is one of the measures used by the Human Development
Index (HDI) to measure the quality of human life in different nations.
Answer: FALSE
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: 1 Easy
Topic: Economic Development
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: FALSE
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: 1 Easy
Topic: Economic Development
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
5) If a country’s economy is to sustain long-term economic
growth, the business environment must be conducive to innovations and
entrepreneurial activity.
Answer: TRUE
Explanation: 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.
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: Knowledge Application
Accessibility: Keyboard Navigation
6) The state of Illinois was having budget difficulties, so it
hired several private management consultancy firms to manage some state-owned
enterprises. This is an example of privatization.
Answer: FALSE
Explanation: Privatization refers to the process of
selling state-owned enterprises to private investors.
Difficulty: 1 Easy
Topic: Nationalization and Privatization of Business
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: TRUE
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. 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.
Difficulty: 1 Easy
Topic: Property Rights and Intellectual Property Rights
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
8) Most property in poor countries is owned legally by
investors.
Answer: FALSE
Explanation: Because most property in 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.
Difficulty: 1 Easy
Topic: Economic Development
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
9) Totalitarian states promote human freedom and human
development, which facilitates economic progress.
Answer: FALSE
Explanation: Totalitarian states, by limiting human
freedom, also suppress human development and therefore are detrimental to
progress.
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: Knowledge Application
Accessibility: Keyboard Navigation
10) Since the late 1980s, there has been a strong move away from
a more free market economic model and toward more centrally planned and mixed
economies.
Answer: FALSE
Explanation: 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.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: FALSE
Explanation: 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.
Difficulty: 1 Easy
Topic: Different Forms of Government
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) New information and communication technologies have enabled
the spread of democratic ideals.
Answer: TRUE
Explanation: 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.
Difficulty: 1 Easy
Topic: How the Physical Environment and Technology
Influence Culture
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: TRUE
Explanation: 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: Differences in Economic Systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
14) Hong Kong has economic freedom, so it follows that it also
has political freedom.
Answer: FALSE
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: 1 Easy
Topic: The Political Debate
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
15) In a command economy, the prices are determined by the free
interplay of demand and supply.
Answer: FALSE
Explanation: 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: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
16) In mixed economies, in certain sectors the state sets
prices, owns businesses, limits private enterprise, restricts investment by
foreigners, and restricts international trade.
Answer: TRUE
Explanation: 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.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: TRUE
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.
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: Knowledge Application
Accessibility: Keyboard Navigation
18) For privatization to work, it must also be accompanied by a
more general deregulation and opening of the economy.
Answer: TRUE
Explanation: For privatization to work, it must also be
accompanied by a more general deregulation and opening of the economy.
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: Knowledge Application
Accessibility: Keyboard Navigation
19) To improve airport security following a major terrorist
attack, the government of a country takes over the airport security
industries This is an example of privatization.
Answer: FALSE
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: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
20) A country with a well-functioning market economy does not
need laws protecting private property rights and providing mechanisms for
contract enforcement.
Answer: FALSE
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: Country Risk Produced by Legal Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: TRUE
Explanation: 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.
Difficulty: 1 Easy
Topic: Country Risk Produced by Legal Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
22) A market with a large number of consumers with low living
standards will have a relatively large market when measured in economic terms.
Answer: FALSE
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: The Potential, Risks, and Challenges of Emerging
Markets
Learning Objective: 03-04 Explain the implications for
management practice of national difference in political economy.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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.
Answer: TRUE
Explanation: 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.
Difficulty: 1 Easy
Topic: The Potential, Risks, and Challenges of Emerging
Markets
Learning Objective: 03-04 Explain the implications for
management practice of national difference in political economy.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
24) A country’s economic system and property rights regime are
reasonably good predictors of economic prospects.
Answer: TRUE
Explanation: 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.
Difficulty: 2 Medium
Topic: The Potential, Risks, and Challenges of Emerging
Markets
Learning Objective: 03-04 Explain the implications for
management practice of national difference in political economy.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
25) Economic risks are independent of political risk.
Answer: FALSE
Explanation: Economic risks are not independent of
political risk. Economic mismanagement may give rise to significant social
unrest and hence political risk.
Difficulty: 1 Easy
Topic: The Potential, Risks, and Challenges of Emerging
Markets
Learning Objective: 03-04 Explain the implications for
management practice of national difference in political economy.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
26) ________ per person figures can be misleading because they
don’t consider differences in the cost of living.
1. A)
Gross domestic product (GDP)
2. B)
Gross national income (GNI)
3. C)
Purchasing power parity (PPP)
4. D)
Human Development Index (HDI)
Answer: B
Explanation: GNI per person figures don’t consider
differences in the cost of living, so they can be misleading.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
27) GNI per capita can be adjusted by ________ to account for
differences in the cost of living.
1. A)
gross domestic product
2. B)
gross values added
3. C)
purchasing power
4. D)
the total value of goods and services produced
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 for a more direct
comparison of living standards in different countries.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
28) The ________ adjustment allows for a more direct comparison
of living standards in different countries.
1. A)
gross domestic product
2. B)
value added
3. C)
gross national income (GNI)
4. D)
purchasing power parity (PPP)
Answer: D
Explanation: 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.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
29) GNI and PPP data are useful because they provide a ________
of economic development.
1. A)
static picture
2. B)
dynamic analysis
3. C)
static analysis
4. D)
global view
Answer: A
Explanation: 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.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
30) In a ________, the state owns all means of production.
1. A)
mixed economy
2. B)
planned economy
3. C)
market economy
4. D)
totalitarian state
Answer: B
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: 1 Easy
Topic: Centrally Planned Economy
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
31) The economic freedom associated with a ________ creates
greater incentives for innovation and entrepreneurship than either a planned or
a mixed economy.
1. A)
closed economy
2. B)
political economy
3. C)
market economy
4. D) command
economy
Answer: C
Explanation: 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.
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: Knowledge Application
Accessibility: Keyboard Navigation
32) Which of the following is a legal means by which the state
can expropriate the profits from innovation?
1. A)
demands for money to grant a license
2. B)
expropriation
3. C)
enforcing property rights
4. D)
excessive taxation
Answer: D
Explanation: 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).
Difficulty: 2 Medium
Topic: Government Policies Affecting Trade
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) Some ________ have fostered a market economy and strong
property rights protection and have experienced rapid economic growth.
1. A)
totalitarian regimes
2. B)
command economies
3. C)
dictatorships
4. D)
centrally planned systems
Answer: A
Explanation: Some totalitarian regimes have fostered a
market economy and strong property rights protection and have experienced rapid
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: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
34) Several of the fastest-growing Asian economies adopted more
________ governments during the past three decades, including South Korea and
Taiwan.
1. A) totalitarian
2. B)
democratic
3. C)
dictatorial
4. D)
socialist
Answer: B
Explanation: 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.
Difficulty: 1 Easy
Topic: Different Forms of Government
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
35) The general assertion is that nations investing more in
________ will have higher economic growth rates.
1. A)
infrastructure
2. B)
centralized urban centers
3. C)
education
4. D)
manufacturing
Answer: C
Explanation: 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.
Difficulty: 2 Medium
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
36) 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.
1. A)
gross domestic product
2. B)
Human Development Index
3. C)
living standards rate
4. D)
purchasing power
Answer: D
Explanation: A 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. GNI per person figures can be
misleading because they don’t consider differences in the cost of living. 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.
Difficulty: 1 Easy
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
37) Which of the following are more conducive to economic
growth?
1. A)
democratic regimes
2. B)
totalitarian regimes
3. C)
dictatorships
4. D)
benevolent monarchies
Answer: A
Explanation: Some totalitarian regimes have fostered a
market economy and strong property rights protection and have experienced rapid
economic growth. However, there is no guarantee that a dictatorship will
continue to pursue such progressive policies. Dictators are rarely benevolent.
Many are tempted to use the apparatus of the state to further their own private
ends, violating property rights and stalling economic growth. Totalitarian
states, by limiting human freedom, also suppress human development and
therefore are detrimental to progress. Given this, it seems likely that
democratic regimes are far more conducive to long-term economic growth than are
dictatorships, even benevolent ones.
Difficulty: 2 Medium
Topic: Different Forms of Government
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) 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).
1. A)
command economy
2. B)
planned economy
3. C)
market economy
4. D)
mixed economy
Answer: C
Explanation: 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.
In a market economy, 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). Similarly, existing businesses are free
to improve their operations through innovation. To the extent that they are
successful, both individual entrepreneurs and established businesses can reap
rewards in the form of high profits. Thus, market economies contain enormous
incentives to develop innovations.
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: Knowledge Application
Accessibility: Keyboard Navigation
39) GNI per person figures can be misleading because
1. A)
they also include barter agreements.
2. B)
they provide a dynamic picture of development.
3. C)
they don’t consider differences in the cost of living.
4. D)
they don’t consider exchange rate.
Answer: C
Explanation: 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.
Difficulty: 2 Medium
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the level
of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
40) Which of the following helps in adjusting GNI such that it
accounts for the differences in the cost of living?
1. A) purchasing
power parity (PPP) adjustment
2. B)
Human Development Index
3. C)
debt to GNI ratio
4. D)
consumer price index
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 for a more direct
comparison of living standards in different countries.
Difficulty: 2 Medium
Topic: The Uses of National Income Data
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
41) In some countries, the official GNI per capita measured at
PPP data does not reflect the actual total annual income because
1. A) it
doesn’t consider differences in the cost of living.
2. B) it
gives a static picture of development.
3. C) it
fails to include income earned from other countries in the form of dividends.
4. D)
large amounts of economic activity may be in the form of barter agreements.
Answer: D
Explanation: 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.
Difficulty: 2 Medium
Topic: The Uses of National Income Data
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 the following was developed by the United Nations
to measure the quality of life in different nations?
1. A)
gross national income
2. B)
Human Development Index
3. C)
purchasing power parity
4. D)
gross domestic product
Answer: B
Explanation: 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.
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: Knowledge Application
Accessibility: Keyboard Navigation
43) Many countries in Africa score below 0.5 on the Human
Development Index. This means that these countries have
1. A)
few political freedoms.
2. B)
poor quality of life.
3. C)
low purchasing power parity.
4. D) no
gross domestic product.
Answer: B
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).
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: Knowledge Application
Accessibility: Keyboard Navigation
44) Which of the following is one of the measures that HDI is
based on?
1. A)
life expectancy at birth
2. B)
political freedom
3. C)
attainment of housing
4. D)
whether the lowest incomes are sufficient to meet the basic needs of life
Answer: A
Explanation: 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).
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: Knowledge Application
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45) ________, a Nobel Prize–winning economist, has argued that
development is not just an economic process, but it is a political one as well.
1. A)
Hernando de Soto
2. B)
Karl Marx
3. C)
Samuel Huntington
4. D)
Amartya Sen
Answer: D
Explanation: 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.
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: Knowledge Application
Accessibility: Keyboard Navigation
46) According to Amartya Sen, development should be
1. A)
seen as a process of expanding the real freedoms that people experience.
2. B)
seen as a nonpolitical concept that focuses on the net income of a country.
3. C)
viewed as a purely economic process.
4. D)
assessed by material output measures such as GNI per capita.
Answer: A
Explanation: 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 be seen as a process of expanding
the real freedoms that people experience.
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: Knowledge Application
Accessibility: Keyboard Navigation
47) Which of the following statements pertaining to innovation
and entrepreneurship is true?
1. A)
They are the engines of growth.
2. B)
They require strong legal systems.
3. C)
They require state ownership of means of production.
4. D)
They require a mixed economy.
Answer: A
Explanation: The lack of economic freedom and incentives
for innovation occurred in many mixed economies in those sectors where the
state had a monopoly. This stagnation provided the impetus for the widespread
privatization of state-owned enterprises that was witnessed in many mixed
economies during the mid-1980s and is still going on today.
Difficulty: 2 Medium
Topic: Economic Development
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Analytical Thinking
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48) A market economy encourages innovation because
1. A)
state ownership of enterprises reduces risks of innovation.
2. B)
economic freedom leads to greater incentives for innovation.
3. C)
government-owned and funded research centers become hubs of innovation.
4. D)
the prices of goods and services, including new products, are fixed by
government.
Answer: B
Explanation: The economic freedom associated with a market
economy creates greater incentives for innovation and entrepreneurship than
either a planned or a mixed economy. In a market economy, 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).
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: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
49) Stagnation can occur in planned economies because
1. A)
entrepreneurial individuals have few economic incentives for innovation.
2. B)
private ownership of means of production leads to exploitation of workers.
3. C)
prices of goods and services are fixed by market forces of supply and demand.
4. D)
lack of barriers to trade results in increased competition for domestic
producers.
Answer: A
Explanation: The lack of economic freedom and incentives
for innovation was probably a main factor in the economic stagnation of many
former communist states and led ultimately to their collapse at the end of the
1980s. Similar stagnation occurred in many mixed economies in those sectors
where the state had a monopoly (such as coal mining and telecommunications in
Great Britain).
Difficulty: 1 Easy
Topic: Centrally Planned Economy
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
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50) ________ is required for a business environment to be
conducive to innovation and entrepreneurial activity.
1. A)
State ownership of means of production
2. B)
Strong legal protection of property rights
3. C)
Barriers to foreign trade and investment
4. D)
Government regulation of the market
Answer: B
Explanation: Strong legal protection of property rights is
a requirement for a business environment to be conducive to innovation,
entrepreneurial activity, and hence economic growth.
Difficulty: 1 Easy
Topic: Property Rights and Intellectual Property Rights
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
51) 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
1. A)
have political stability.
2. B)
invest in infrastructural development.
3. C)
have better defined and secure property rights.
4. D)
have adequate market regulation.
Answer: C
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: 1 Easy
Topic: Property Rights and Intellectual Property Rights
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
52) 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?
1. A)
detailed state planning
2. B)
restricting direct investment by foreign enterprises
3. C)
strong property rights
4. D)
market regulation
Answer: C
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: Property Rights and Intellectual Property Rights
Learning Objective: 03-01 Explain what determines the
level of economic development of a nation.
Bloom’s: Apply
AACSB: Knowledge Application
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53) A free market economy in which property rights are protected
leads to subsequent economic growth that often leads to the establishment of
1. A) a
democratic regime.
2. B) a
planned economy.
3. C)
government-owned enterprises.
4. D) a
socialist economy.
Answer: A
Explanation: While it is possible to argue that democracy
is not a necessary precondition for a free market economy in which property
rights are protected, subsequent economic growth often leads to establishment
of a democratic regime.
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: Knowledge Application
Accessibility: Keyboard Navigation
54) 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?
1. A) A
wave of democratic revolutions has swept the world.
2. B)
Totalitarian governments have arisen, replacing democratically elected
governments.
3. C)
There has been a strong move toward centrally planned economies and away from
free market economic models.
4. D)
Mixed economies are fast replacing market economies.
Answer: A
Explanation: There has been a strong move away from
centrally planned and mixed economies and toward a more free market economic
model.
Difficulty: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
55) 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.
1. A)
Samuel Huntington
2. B)
Amartya Sen
3. C)
Francis Fukuyama
4. D)
Hernando de Soto
Answer: A
Explanation: Huntington sees a world that is split into
different civilizations, each of which has its own value systems and ideology.
Difficulty: 2 Medium
Topic: The Political Debate
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Knowledge Application
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56) Which of the following is one of the three main reasons for
the spread of democracy?
1. A)
New information and communication technologies have broken down the ability of
the state to control access to uncensored information.
2. B)
Totalitarian regimes delivered economic progress to the bulk of their
populations but not enough to the power brokers.
3. C) Democratic
regimes failed to deliver economic progress to the vast bulk of their
populations.
4. D)
Economic advances in the past quarter-century have led to the emergence of a
class of ruling elite.
Answer: A
Explanation: There are three main reasons for the spread
of democracy. First, many totalitarian regimes failed to deliver economic
progress to the vast bulk of their populations. Second, new information and
communication technologies have broken down the ability of the state to control
access to uncensored information. Third, 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.
Difficulty: 2 Medium
Topic: Different Forms of Government
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
57) According to what political scientist’s thesis is global
terrorism a product of the tension between civilizations and the clash of value
systems and ideology?
1. A)
Amartya Sen
2. B)
Samuel Huntington
3. C)
Francis Fukuyama
4. D)
Hernando de Soto
Answer: B
Explanation: In Huntington’s thesis, global terrorism is a
product of the tension between civilizations and the clash of value systems and
ideology.
Difficulty: 1 Easy
Topic: Terrorism, Terrorist Activities, and
Countermeasures
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
58) One of the reasons for the spread of democracy is the
emergence of ________ who have pushed for democratic reforms.
1. A) a
more vocal working poor
2. B)
better educated lower classes
3. C) a
desperate urban poor
4. D)
increasingly prosperous middle and working classes
Answer: D
Explanation: 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.
Difficulty: 2 Medium
Topic: Different Forms of Government
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
59) Since the late 1980s, there has been a spread of democracy.
This is because
1. A) a
state’s ability to control access to uncensored information has increased.
2. B)
the socialist model failed to deliver economic progress to the vast bulk of
their populations.
3. C) in
many countries the middle and working classes have become less powerful.
4. D) in
many countries state-ownership of firms has encouraged innovation and
entrepreneurship.
Answer: B
Explanation: Many totalitarian regimes failed to deliver
economic progress to the vast bulk of their populations. In looking for
alternatives to the socialist model, the populations of these countries could
not have failed to notice that most of the world’s strongest economies were
governed by representative democracies.
Difficulty: 2 Medium
Topic: Different Forms of Government
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
60) 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
1. A)
state ownership of productive resources
2. B)
regulated markets
3. C)
democratic reforms
4. D)
planned economies
Answer: C
Explanation: 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.
Entrepreneurs and other business leaders, eager to protect their property
rights and ensure the dispassionate enforcement of contracts, are another force
pressing for more accountable and open government.
Difficulty: 1 Easy
Topic: Differences in Political systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
61) Political scientist Samuel Huntington argues that
modernization in non-Western societies can result in a retreat toward the
traditional. This is exemplified by the
1. A)
Islamic resurgence.
2. B)
popularization of modern gadgets.
3. C)
adoption of Western culture.
4. D)
higher levels of literacy and education.
Answer: A
Explanation: Huntington maintains that while many
societies may be modernizing—they are adopting the material paraphernalia of
the modern world, from automobiles to Coca-Cola and MTV—they are not becoming
more Western. On the contrary, Huntington theorizes that modernization in
non-Western societies can result in a retreat toward the traditional, such as
the resurgence of Islam in many traditionally Muslim societies.
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: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
62) According to political scientist Samuel Huntington, the rise
of Islamic fundamentalism is a response to the
1. A)
corruption prevalent in planned economies.
2. B)
restricted access to formal education.
3. C)
alienation produced by modernization.
4. D)
restrictions associated with totalitarian regimes.
Answer: C
Explanation: Huntington theorizes that modernization in
non-Western societies can result in a retreat toward the traditional, such as
the resurgence of Islam in many traditionally Muslim societies. The rise of
Islamic fundamentalism is portrayed as a response to the alienation produced by
modernization.
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: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
63) Which of the following statements is true about Samuel
Huntington?
1. A)
Samuel Huntington argues that there is a universal civilization based on
widespread acceptance of Western democratic ideals.
2. B)
Samuel Huntington argues that the rise of Islamic fundamentalism is a response
to the alienation produced by modernization.
3. C)
Samuel Huntington argues that global terrorism is a product of the static
nature of traditional values and religious systems.
4. D)
Samuel Huntington argues that many societies, by adopting the material paraphernalia
of the modern world, are becoming more Western.
Answer: B
Explanation: Huntington theorizes that modernization in
non-Western societies can result in a retreat toward the traditional, such as
the resurgence of Islam in many traditionally Muslim societies.
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: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
64) Paralleling the spread of democracy since the 1980s has been
the transformation from
1. A)
free-market economies to socialist economies.
2. B)
mixed economies to collectivist economies.
3. C)
open economies to closed economies.
4. D)
command economies to market-based economies.
Answer: D
Explanation: Paralleling the spread of democracy since the
1980s has been the transformation from centrally planned command economies to
market-based economies. More than 30 countries that were in the former Soviet
Union or the Eastern European Communist bloc have changed their economic
systems.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
65) Since the 1980s, there has been a transformation from
________ economies to ________ economies.
1. A)
mixed; market-based
2. B)
centrally planned command; market-based
3. C)
centrally planned command; mixed
4. D)
market-based; centrally planned command
Answer: B
Explanation: The rationale for economic transformation has
been the same the world over. 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: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
66) 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?
1. A)
state-ownership of enterprises
2. B)
fixing of prices by the government
3. C)
deregulation of the economy
4. D)
lowering competition
Answer: C
Explanation: 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: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-02 Identify the macropolitical and
macroeconomic changes occurring worldwide.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
67) Which of the following is a step in the shift toward a
market-based economic system?
1. A)
increasing trade barriers
2. B)
increasing price controls
3. C)
nationalization
4. D)
creation of a legal system to safeguard property rights
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: 2 Medium
Topic: Differences in Economic Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
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68) ________ involves removing legal restrictions to the free
play of markets, the establishment of private enterprises, and the manner in
which private enterprises operate.
1. A)
Privatization
2. B)
Developing command economies
3. C)
Deregulation
4. D)
Globalization
Answer: C
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: 1 Easy
Topic: Government Policies Affecting Trade
Learning Objective: 03-03 Describe how transition economies
are moving toward market-based systems.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
69) ________ 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.
1. A)
Globalization
2. B)
Economic transformation
3. C)
Deregulation
4. D)
Privatization
Answer: D
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: Nationalization and Privatization of Business
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Understand
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
70) ________ involves removing legal restrictions to the free
play of markets, the establishment of private enterprises, and the manner in
which private enterprises operate.
1. A)
Deregulation
2. B)
Trade certification
3. C) A
product law
4. D) A
liability law
Answer: A
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: 1 Easy
Topic: Government Policies Affecting Trade
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
71) Which of the following is a step involved in the
deregulation of a command economy?
1. A)
adding price controls
2. B)
temporarily restricting international trade
3. C)
abolishing laws regulating the establishment and operation of private
enterprises
4. D)
increasing restrictions on direct investment by foreign enterprises
Answer: C
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. Deregulation
in command economies involved 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: Government Policies Affecting Trade
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
72) Without a strong legal system in a market economy
1. A)
the incentive to engage in economic activity can be increased substantially.
2. B)
private-sector entrepreneurs can expropriate the profits generated by the
efforts of private and public entities.
3. C)
mechanisms for contract enforcement fall to private and corporate lawyers.
4. D)
private and public entities can expropriate the profits generated by the
efforts of private-sector entrepreneurs.
Answer: D
Explanation: A well-functioning market economy requires
laws protecting private property rights and providing mechanisms for contract
enforcement. 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. Private and public entities, including
organized crime, can expropriate the profits generated by the efforts of
private-sector entrepreneurs.
Difficulty: 2 Medium
Topic: Country Risk Produced by Legal Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Analytical Thinking
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73) Which of the following is an example of deregulation?
1. A) a
country that implements a simplified income tax filing system
2. B) a
country that takes over a leading private bank to prevent it from filing for
bankruptcy
3. C) a
country that provides agricultural subsidies to farmers
4. D) a
country that encourages foreign direct investment
Answer: D
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: 2 Medium
Topic: Government Policies Affecting Trade
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
74) Which of the following is a characteristic of a command
economy?
1. A)
promotion of foreign direct investment
2. B)
allowing prices to be set by the interplay between demand and supply
3. C)
limited international trade
4. D)
restricted state-ownership of means of production
Answer: C
Explanation: The governments in most command economies
exercised tight control over prices and output. They also prohibited private
enterprises from operating in most sectors of the economy, severely restricted
direct investment by foreign enterprises, and limited international trade.
Difficulty: 1 Easy
Topic: Differences in Economic Systems
Learning Objective: 03-03 Describe how transition
economies are moving toward market-based systems.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
75) 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
1. A)
nationalization.
2. B)
industrialization.
3. C)
liberalization.
1. D)
privatization.
Answer: D
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: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
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