Ch.3 Exam Prep National Differences in Economic Development

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.

2) Gross national income is a measure of the monthly income received by residents of a nation.

3) A shadow economy refers to similar economic activity that takes place in competing nations.

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).

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.

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.

7) In a planned economy, there is a great deal of freedom for entrepreneurial activity and reward.

8) A nation that has inadequate enforcement of property rights reduces the motivation for innovative activity.

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.

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.

11) A totalitarian regime can promote economic growth if it commits to a market system and values strong protection of property rights.

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.

13) During the late 1980s and early 1990s, many totalitarian governments collapsed and were replaced by democratically elected governments.

14) As categorized by Freedom House, citizens in a "partly free" country enjoy a high degree of political and civil freedom.

15) Advances in technology and communication have fostered the growth of democratic ideals.

16) The late influential political scientist Samuel Huntington predicted that the universalization of Western liberal democracy will be the final form of human government.

17) Francis Fukuyama promoted the idea that Western liberal democracy would be the final form of human government and lead to a harmonious world.

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.

19) Nations that have economic freedom also have political freedom.

20) Communist nations were the first to adopt deregulation efforts.

21) Privatization occurs when state-owned property is transferred into the hands of individuals.

22) State-owned enterprises still dominate the banking and health care industries in China.

23) It is predicted that China will surpass the United States and become the world's largest national economy within the next two decades.

24) It is more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses.

25) Social unrest and disorder are less likely to be found in countries that contain more than one ethnic nationality.

26) Gross national income figures should be carefully evaluated because they don't take into account differences in

A) the available workforce.

B) government intervention.

C) the cost of living.

D) market conditions.

E) political power.

27) One common measure of economic development is a country's

A) gender ratio.

B) gross national income.

C) infant mortality rate.

D) population density.

E) total geographical area.

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.

A) income elasticity of demand

B) gross national product

C) net cash flow ratio

D) gross national income

E) income equity ratio

29) Purchasing power parity is used to adjust gross national income in order to make a more direct comparison of ________ in various countries.

A) living standards

B) population density

C) geographical area

D) factor endowments

E) labor productivity

30) To calculate purchasing power parity, the figure is adjusted based on

A) the trading value of gold in the exchange market.

B) the median cost of living in the top five economic nations.

C) the status of the cost of living in the United States

D) average daily exchange rates in the selected nation.

E) limits set by each nation's government.

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

A) GNI per capita was greater in China.

B) percent of goods and services consumed in the United States was lower.

C) standard of living in China was better.

D) cost of living was lower in China.

E) annual average GDP growth rate was lower in China.

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

A) China.

B) Great Britain.

C) Germany.

D) the United States.

E) the rest of the world.

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.

A) a large population

B) unrecorded cash transactions

C) deregulation

D) nationalization

E) closed totalitarianism

34) A black economy occurs when

A) large amounts of economic activity are in the form of legally recorded cash transactions.

B) citizens engage in barter agreements to avoid paying taxes.

C) a country's GNI per capita exceeds $30,000.

D) the expenses of the government are less than its income.

E) a country has a trade surplus with another foreign country.

35) The three measures of the ________ are life expectancy at birth, educational attainment, and average incomes based on PPP estimates.

A) Human Development Index

B) Gross National Income

C) Gross Domestic Product

D) Cost of Living Index

E) Cash Reserve Ratio

36) Amartya Sen believed that ________ should also be a factor in the human development index.

A) birth rates

B) political freedom

C) educational attainment

D) basic average income

E) geographical conditions

37) According to the Human Development Index, average income adjusted for PPP should be sufficient to

A) provide basic needs such as food and shelter.

B) promote economic development.

C) foster decentralization.

D) boost social class.

E) foster entrepreneurial dynamism.

38) The country of Jinret is classified as having low human development (the quality of life is poor). This means its HDI is

A) a score of less than 0.5 on the HDI scale.

B) around 6.0.

C) greater than 5.0 but less than 7.0.

D) around 80.

E) in the bottom 60 percentile.

39) ________ is broadly defined as the development of new products, processes, organizations, management practices, and strategies.

A) Privatization

B) Dynamism

C) Demographics

D) Innovation

E) Benchmarking

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

A) privatization.

B) economic deregulation.

C) purchasing power parity.

D) innovation

E) benchmarking.

41) Which activity engaged in by DenimExpress best exemplifies innovation?

A) DenimExpress cut the prices of its products by 10 percent.

B) DenimExpress entered the Chinese market.

C) DenimExpress offered a "me-to" product similar to that of a competitor.

D) DenimExpress developed a new business model by selling directly to customers.

E) DenimExpress cut its costs by 10 percent.

42) Which of these individuals can be considered an entrepreneur?

A) Sam, an employee at a sporting goods store, is solely responsible for all the purchases and sales at the store.

B) Joe recycles old household articles to build phones, radios, and other things for his personal use.

C) Max makes his living by investing in small companies that have the potential to grow.

D) Shondra started a company that processes plastic bags into fabric used in automobiles.

E) Ryan invented a hair regrowth formula and sold it to a company that sells several other hair growth products.

43) When considering innovations and entrepreneurship, it can be said that

A) a command economy creates greater incentives for innovation and entrepreneurship than a market economy.

B) if a country's economy is to sustain long-run economic growth, the business environment must restrict entrepreneurial activity.

C) a high level of entrepreneurial activity leads to a low level of innovation.

D) innovations in production and business processes lead to an increase in the productivity of labor and capital.

E) strong legal protection of property rights creates an unfavorable environment for innovation and entrepreneurship.

44) An unfavorable environment for innovations and entrepreneurship is the result of

A) a market economy.

B) economic freedom.

C) state monopoly in production.

D) privatization.

E) strong legal protection of property rights.

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

A) market economy.

B) mixed economy.

C) planned economy.

D) private economy.

E) democratic economy.

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.

A) market

B) planned

C) mixed

D) private

E) democratic

47) At one time, economic stagnation resulted in Great Britain because the coal mining and telecommunications industries were

A) privatized.

B) sold off to foreign owners.

C) monopolies owned by the state.

D) compromised during the war.

E) decentralized.

48) The nation of Talden sold Talden Communications, a state-owned monopoly, to private investors. This is an example of

A) communism.

B) isolationism.

C) privatization.

D) economizing.

E) protectionism.

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?

A) weak property rights protection

B) excessive tariffs

C) privatization

D) strong government intervention

E) purchasing power parity

50) The country of Marita ensures strong legal protection of property rights. It is likely that the businesses and individuals in Marita will

A) want to invest more in innovations.

B) avoid privatization.

C) face more corruption.

D) avoid entrepreneurial activity.

E) be faced with a higher tax debt.

51) People in the West tend to associate a(n) ________with a free market system, strong property rights protection, and economic progress.

A) anarchist state

B) representative democracy

C) planned economy

D) communist state

E) command economy

52) Only a totalitarian regime that is committed to ________ is capable of promoting economic growth.

A) a command economy

B) a dictatorship

C) limiting human freedom

D) a strong protection of property rights

E) limiting individualism and privatization

53) According to economist Hernando de Soto, the key issue in the relationship between capitalism and property rights is the inability of owners to

A) pay the necessary taxes on their property.

B) establish legal title to the property they own.

C) adapt to a planned economic system.

D) create a production monopoly.

E) foster dynamism through entrepreneurial activity.

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?

A) extensive trade agreements

B) undemocratic governments

C) active entrepreneurial activity

D) high tariff barriers

E) strong property rights protection

55) The belief that geography can influence economic policy, and hence economic growth rates, goes back to

A) Adam Smith.

B) Amartya Sen.

C) Plato.

D) Aristotle.

E) Karl Marx.

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?

A) mountainous states

B) tropical regions

C) military societies

D) landlocked states

E) coastal states

57) Which of these countries demonstrates Jeffrey Sachs's argument about trade?

A) The nation of Ilar exports rice but imports wheat because it is more cost effective.

B) The soil conditions in Sarut are so poor that no crops can be grown and the country must import all food sources.

C) Intellectual property rights are well-protected in the nation of Acher which provides an absolute advantage.

D) The citizens of Rener fail to participate in entrepreneurial activity because of the planned economy.

E) The true GNI of the nation of Wolcott is unknown because of the "hidden economy."

58) In the context of political economy, one notable development of the past 30 years has been the spread of

A) centrally planned economies.

B) mixed economies.

C) totalitarian governments.

D) democracy.

E) communism.

59) During the late 1980s and early 1990s, many of the world's nation-states moved away from

A) democratically elected governments.

B) free market capitalism.

C) individualism.

D) political and civil freedoms.

E) totalitarian governments.

60) According to Freedom House, just under ________ of the world's nations are considered "free."

A) 5 percent

B) 20 percent

C) 90 percent

D) 75 percent

E) 50 percent

61) "Not all democracies are free, as some still restrict certain political and civil liberties." Which country best fits this argument?

A) Australia

B) the United States

C) Great Britain

D) Russia

E) Canada

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.

A) democracy

B) communism

C) a free economy

D) capitalism

E) privatization

63) How have new information and communication technologies, including the Internet, affected the political economy in general?

A) They have led to the spread of communism.

B) They have reduced a state's ability to control access to uncensored information.

C) They have led to the collapse of democracy.

D) They have created new conduits for the spread of closed societies.

E) They have led to increased suppression of political and economic freedoms.

64) Economic advances in many countries have led to the

A) decline of middle and working classes.

B) rise of totalitarian reforms.

C) decline of property rights.

D) emergence of closed and self-contained societies.

E) emergence of increasingly prosperous middle and working classes.

65) According to the author Francis Fukuyama, the world is most likely witnessing the end of

A) free market economies.

B) capitalism.

C) liberal democracies.

D) privatization.

E) humanity's ideological evolution.

66) Francis Fukuyama saw a world in which ________ was the final form of human government.

A) communism

B) dictatorship

C) totalitarianism

D) democracy

E) monarchism

67) Samuel Huntington held the opposite view from Fukuyama and believed that the modernization of non-Western societies caused those societies to

A) become more Western.

B) retreat toward the traditional.

C) focus on democratic regimes.

D) promote diversity and inclusion.

E) reject material possessions.

68) In Samuel Huntington's thesis, global terrorism is a product of the

A) clash of value systems and ideology between civilizations.

B) widespread acceptance of universal global civilization.

C) declining liberal democratic ideals.

D) differences in the factor endowments between countries.

E) geographical differences between nations.

69) As democracy has spread since the 1980s, so has the development of more ________ economies.

A) centrally planned

B) mixed

C) totalitarian

D) command

E) market-based

70) In the context of global economy, what has been widely accepted since the late 1980s?

A) centrally planned command economy

B) mixed economy

C) nationalization of private property

D) deregulation of economies

E) authoritarian regime

71) Based on calculations for 2018, which country is ranked by the Heritage Foundation as having the world's freest economy?

A) Ireland

B) Hong Kong

C) North Korea

D) Canada

E) the United States

72) The government of Cafor wants to create a market-based economic system. To do so, the government should

A) abolish the laws that deal with protection of property rights.

B) introduce stringent foreign investment regulations.

C) increase its intervention in the economy.

D) adopt privatization.

E) oppose democracy.

73) A nation would ________ as part of deregulation efforts.

A) prohibit private enterprises from operating in certain sectors

B) commit to communism

C) remove price controls

D) create a centrally planned economic system

E) increase restrictions on foreign direct investment

74) The country of Garuf has recently removed all legal restrictions on the establishment of private enterprises. This action represents the process of

A) the nationalization of private assets.

B) deregulation.

C) socialism.

D) expanding totalitarian controls.

E) isolationism.

75) The country of Watoo would be using deregulation efforts if

A) it exercises tight control over the prices of food grains.

B) the establishment of private enterprises in the steel industry is prohibited by the government.

C) the retail sector in Watoo is opened for foreign direct investment.

D) the Watoo government does not have a legal system to safeguard property rights.

E) Watoo ranks the lowest among the countries that grant both political and economic freedoms to its citizens.

76) The deregulation of an economy involves

A) increasing restrictions on direct investment by foreign enterprises and international trade.

B) privatizing state-owned enterprises.

C) exercising a high degree of state control over production and pricing.

D) abolishing laws related to the protection of property rights.

E) opposing democracy by adopting communism.

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?

A) nationalization

B) privatization

C) antidemocratic government

D) communism

E) antiglobalization

78) How does privatization help stimulate gains in economic efficiency?

A) It allows newly privatized firms to gain monopoly position in a particular industry.

B) It provides incentives to new private owners to search for increases in productivity and to enter new markets.

C) It encourages state control over price and production output.

D) It raises barriers to direct investment by foreign enterprises.

E) It results in reservation of heavy industry for state ownership and the increase of import tariffs.

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

A) state monopolies.

B) few barriers to trade.

C) a mini-multinational.

D) a democratic regime.

E) a totalitarian state.

80) An accurate description of privatization is that

A) it started in China in the early 1980s.

B) it involves replacing a state-owned monopoly with a private monopoly.

C) it is most successful when countries adopt communism.

D) when newly privatized firms are protected from foreign competition, they have little incentive to restructure their operations to become more efficient.

E) in today's context, a country runs the risk of experiencing a serious economic crisis if it liberalizes and privatizes state-owned enterprises.

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?

A) impose high corporate taxes on the company immediately after its privatization

B) increase barriers to foreign direct investment

C) intervene in the company's operations by exercising price controls

D) split the company into independent units to compete with each other

E) prohibit foreign companies from entering into the field of telecommunication

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

A) an improvement in the operating efficiency of newly privatized firms.

B) reduced barriers to foreign direct investment and international trade.

C) an increase in the incentives to engage in economic activity.

D) deregulation and privatization of the economy.

E) the lack of incentive to engage in economic activity.

83) What is one implication of the global changes in political and economic systems for international business?

A) The ideological conflict between collectivism and individualism is less in evidence today.

B) Adoption of Western ideology is declining worldwide.

C) The global tide has been running in favor of command economies and totalitarian dictatorships.

D) Free markets and democracy are being replaced by mixed economies and communist governments.

E) Liberalization and privatization of state-owned enterprises has been losing popularity.

84) Some believe that the global financial crisis of 2008–2009 was the result of

A) a lack of free markets.

B) a lack of regulation.

C) political ideologies in opposition to democracy.

D) a strong presence of command economies.

E) a lack of privatization.

85) Recent global changes in political and economic systems show that

A) East European communist ideology is now widespread.

B) a lack of deregulation was the cause for the global financial crisis of 2008–2009.

C) it is guaranteed that democracy will thrive in most of the world's newer democratic states.

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.

E) many undeveloped and impoverished national markets of eastern Europe, Latin America, Africa, and Asia are potentially enormous for international business.

86) A country with ________ is more likely to attain high and sustained economic growth rates and is a more attractive location for international business.

A) weak protection of property rights

B) a democratic regime

C) command-based economic policies

D) ideologies that differ from Western ideologies

E) a totalitarian dictatorship

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

A) the country's orientation toward democracy.

B) low birthrates.

C) high living standards.

D) limited purchasing power.

E) a commitment to a free market system

88) In economic terms, the long-run monetary benefits of doing business in a country are based on the size of the market, the present purchasing power of consumers and the ________ of the country.

A) gender ratio

B) geographic location

C) natural resources

D) future consumer wealth

E) political history

89) Complexion Care Inc., a U.S.-based skin care firm, was the first in the industry to identify the growth potential of Thailand and made huge investments in its economy. As a result, the firm was able to build brand loyalty and gain experience in that country's business practices. In this situation, Complexion Care Inc. has benefited from

A) a first-mover advantage.

B) forward integration.

C) unrelated differentiation.

D) deregulation.

E) privatization.

90) Which of these companies is demonstrating a first-mover advantage?

A) Tide-All Inc. has more than 50 percent market share in the telecom industry, because no other company has invested in this industry before Tide-All Inc.

B) The first 50 people who respond to the tweet sent out by Hal's Hamburgers receive a $5 coupon they can use on their next order.

C) The level of satisfaction Simon experienced when dining at the Tasty Cafe was highest the first time but reduced each time he dined there.

D) Innovative Creations Inc. was the first to exit the declining pager phone manufacturing industry and as a result, it avoided losing a lot of money.

E) Jenna has been asked to review the mascara she bought from AllWell Beauty. Her feedback will help the company improve the product.

91) When Galaxy Ventures, a real estate company, entered the low-cost housing business, the market was already saturated with other players. Thus, the company was forced to exit the market due to lack of customer loyalty and substantial dividends. Galaxy Ventures was facing

A) first-mover disadvantages.

B) late-mover disadvantages.

C) last-in first-out disadvantages.

D) comparative disadvantages.

E) absolute disadvantages.

92) Both China and India have achieved high growth rates despite relatively weak property rights regimes and high levels of corruption, because of

A) the shift toward a communist ideology.

B) their high living standards.

C) their large population.

D) their high consumer purchasing power.

E) the shift toward a market-based economic system.

93) When considering the economic prospects of a country, it can be said that

A) the economic system and property rights regime are reasonably good predictors of economic prospects of a country.

B) countries with command economies tend to achieve greater economic growth rates than free market economies.

C) countries which do not have property rights protection tend to achieve greater economic growth rates.

D) countries where property rights are not well respected and where corruption is rampant always have very low levels of economic growth.

E) the advantages of building brand loyalty and gaining experience in a country's business practices is greater for a last-mover than for a first-mover.

94) The cost of doing business is most likely to be the lowest in

A) closed totalitarian states.

B) primitive or undeveloped economies.

C) open democratic societies.

D) countries where local laws and regulations set strict standards with regard to product safety, safety in the workplace, and environmental pollution.

E) countries that lack well-established laws for regulating business practice.

95) AllSteel Inc. is planning an international expansion. In terms of the costs involved in conducting business in a country, it will be most economical for the company if it chooses a country

A) with a closed totalitarian political system.

B) where the company will have to provide its own infrastructure and supporting business.

C) where laws regarding product safety, safety in the workplace, and environmental pollution are extremely stringent.

D) where politicians are held accountable by the electorate.

E) with no local laws to protect intellectual property.

96) When considering the cost of doing business in another country, what would be considered the most attractive market or investment site?

A) a country that has adopted a closed totalitarian state

B) a country that has a well-developed body of business contract law

C) a country with a command-based economic system

D) a country with stringent product safety laws and huge liability insurance rates

E) a country which does not provide any protection for property rights

97) When social unrest and disorder in a country cause drastic changes in its business environment that adversely affect the profit of a business, the business is facing a ________ risk.

A) political

B) demographic

C) ethical

D) technological

E) physiological

98) BrandLine Corp. has decided not to do business in a country after learning that many citizens are violently protesting recent government embargoes on food resources. BrandLine is concerned with the ________ risk associated with the country.

A) political

B) economic

C) demographic

D) legal

E) technological

99) Lamboria Republic is facing a high rate of inflation, and the government debt in the country is also high. As a result, the country's business environment is beginning to deteriorate, and the profits of the business enterprises are hurt. According to this information, Lamboria Republic is facing what type of risk?

A) legal

B) ethical

C) demographic

D) ethnographic

E) economic

100) Jeremy reminded the board members that it is important to understand the inflation rate of a country before entering into business. Jeremy is concerned with the ________ risks of doing business.

A) ethical

B) economic

C) technological

D) legal

E) sociological

101) A(n) ________ risk occurs when a trading partner opportunistically breaks a contract or expropriates property rights.

A) political

B) legal

C) economic

D) sociological

E) cultural

102) Diabetic Daily Inc., based in the United States, hesitates to enter into a joint venture with Azpak Limited, a Sri Lankan company, due to inadequate protection of intellectual property rights. Diabetic Daily Inc. is trying to avoid what type of risk?

A) political

B) legal

C) ethical

D) economic

E) ethnographic

103) The risks of doing business are most likely to be the highest in a country that

A) has low inflation rates.

B) supports high living standards.

C) has only one ethnic nationality.

D) protects intellectual property.

E) faces frequent changes in government and government policy.

104) Generally, the costs and risks associated with doing business in a foreign country are typically lower in

A) less developed countries.

B) economically advanced countries.

C) totalitarian states.

D) countries with high inflation and falling living standards.

E) countries that lack intellectual property rights.

105) Wood Source Corp. is considering doing business in Central America but is concerned that some governments have been accused of corrupt practices. What aspect of the overall attractiveness of doing business in Central America does this represent?

A) benefits

B) costs

C) norms

D) risks

E) values

106) Describe Amartya Sen's conceptions of development.

107) Validate the argument made by economists that innovation and entrepreneurial activity are the basis for long-term economic growth.

108) Discuss Jeffrey Sachs's conception of geography, education, and economic development.

109) Briefly describe the three significant changes that have occurred in the political economy of some of the world's nation-states since the late 1980s.

110) Explain the broad categories of political freedom established by Freedom House and discuss how these categories are represented in the world today.

111) Describe how author Francis Fukuyama's vision of the new world differs from that of the late influential political scientist Samuel Huntington.

112) Discuss Samuel Huntington's idea of the new world order. What are its implications for international business?

113) Discuss the concept of deregulation and its role in a market-based economic system.

114) Describe how the privatization movement began and discuss some of the most dramatic privatization programs that have taken place.

115) Discuss the significance of legal systems in the context of shifting toward a market-based economic system.

116) Describe some of the risks associated with the changing political economy.

117) Land and Sea Incorporated would like your opinion about various countries as potential markets and investment sites. What general information can you share with them about assessing the overall attractiveness of a potential country as a market?