D270 Chap 4
The ________ view calls for companies to develop low-cost, high-powered, resource-minimizing innovations that can be marketed to the billions of people living on less than a few dollars a day. A) Base of the Pyramid B) Hierarchy of Needs C) Happy Planet Index D) Gini coefficient
A
A system in which individuals, rather than the government, make the majority of economic decisions is commonly referred to as a ________. A) command economy B) market economy C) private economy D) mixed economy
B
During a time of reflation, the government is most likely to ________. A) lower taxes B) print money C) reduce interest rates D) support infrastructure
B
History suggests that if the economic crisis worsens, we are likely to see more people question the ________. A) fall of communism B) legitimacy of capitalism C) practicality of mixed market economies D) correlation between economic freedom and prosperity
B
In a command economy, ________. A) businesses and consumers are assumed to be the best judges of how resources should be allocated B) the government sets goals and determines the price and quantity of what is produced C) different economic sectors coordinate the activities of the federal government D) each enterprise sets its goals before making reports to the central government
B
In a country's balance of payments, the ________ tracks all trade activity in merchandise. A) capital account B) current account C) payment account D) deficit account
B
Managers at Morrison Manufacturing are considering expanding the firm's production overseas and want to ensure that the firm is located in a country with a high degree of economic freedom. Presently, which of the following locations would most likely offer Morrison the highest economic freedom? A) Bolivia B) Hong Kong C) Venezuela D) North Korea
B
Presently, which of the following countries is BEST characterized as a pure example of a command economy? A) Russia B) North Korea C) China D) Vietnam
B
Some countries opt for a mixed economic system in the belief that although an economic system should aspire to achieve the efficiencies created by free markets, it must also support policies to ________. A) destabilize poverty rates B) achieve low unemployment C) restrict economic growth D) inequitably distribute wealth
B
The United Nations' ________ measures life expectancy, educational attainment, and the standard of living in a given country. A) Human Development Index B) Emerging Economic Stability C) Genuine Progress Indicator D) Net National Product
A
Economic indicators such as GNI, and its expression in terms of per capita, growth rate, and PPP, are not sufficient to develop a clear picture of the overall quality of life in a country.
TRUE
Gross domestic product is the value of production that takes place within a nation's border, without regard to whether the production is done by domestic or foreign factors of production.
TRUE
In a command economy, the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are all planned by the government.
TRUE
In most cases, if the misery index of a country is high, then consumers and businesses are less likely to spend and invest.
TRUE
Inflation affects interest rates, exchange rates, the cost of living, general economic confidence, and the stability of the current political system.
TRUE
The Human Development Index measures the average achievements in a country on three basic dimensions of human development: mortality, knowledge, and standard of living.
TRUE
The collapse of communism in the late 1980s and early 1990s led to a more widespread adoption of the principles of capitalism.
TRUE
The so-called "misery index" is the sum of a country's inflation and unemployment rates.
TRUE
There is a positive correlation between economic freedom and economic growth.
TRUE
A worrisome outcome of chronic inflation is that it tends to ________. A) erode confidence in a country's currency B) give central banking officials excessive flexibility to manage monetary policy C) increase the real income of people, thereby inflating their spending and borrowing levels D) lower consumer demand for foreign goods, which triggers lower prices and eventually lower employment
A
An economic system is the set of structures and processes that ________ in a country. A) guides the allocation of resources and shapes the conduct of business activities B) directs the movement of specific products to specific consumers C) sets the standards of competitive success for companies in the economy D) stipulates the roles and responsibilities of consumers
A
Eileen, a manager at an international restaurant chain, wants to know if it will be most cost effective to buy 1,000 pounds of sugar in Country X or in Country Y using U.S. dollars. Which of the following is Eileen most likely trying to determine? A) purchasing power parity B) economic growth rate C) gross domestic income D) gross national product
A
In a command economy, the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are planned by ________. A) government officials B) private industries C) individual entrepreneurs D) local trade associations
A
Since the late 1980s, the growing emergence of freer markets has been powered by the realization that ________. A) economic growth is directly related to economic freedom B) economic growth has a limited effect on the standard of living C) adoption of free market principles contributes to social injustices D) centrally planned economies are best designed to deliver progress
A
Taylor Enterprises wants to expand its operations into Asia. Managers are focusing on countries with high degrees of economic freedom most likely because the firm is interested in a country with ________. A) minimal government intervention B) standardized minimum wages C) laws favoring sustainability D) state-run corporations
A
The recent global financial crisis has led to which of the following? A) governments seeking to impose more constraints on capitalism B) governments seeking to eliminate constraints on capitalism C) governments seeking to increase the interdependence of developing economies D) governments seeking to eliminate the interdependence of developing economies
A
Uneven income distribution ________. A) exists in almost every country B) is largely a problem for poorer nations C) primarily affects people in urban settings D) is limited to a small share of the world population
A
What is the most likely reason that a universal scheme for assessing the performance and potential of a country's economic environment does NOT exist? A) difficulties of identifying a definitive set of predictive economic indicators B) a lack of reliable economic data from most developed economies C) the isolation of most markets from each other D) static nature of the marketplace
A
A mixed economy is a system where economic decisions are largely market driven and ownership is largely private, but the government intervenes in many private economic decisions.
TRUE
What is inflation?
Answer: Inflation means that prices are going up as measured against a standard level of purchasing power. The inflation rate is the percentage increase in the change in prices from one period to the next, usually a year. Economists use different types of indices to measure inflation. In the United States, the Consumer Price Index is the official measure of inflation. The CPI measures a fixed basket of goods and compares their prices from one period to the next. A rise in the index results in inflation. Inflation affects interest rates, exchange rates, the cost of living, and the general confidence in a country's political and economic system.
An economic system is the set of structures and processes that guides the allocation of resources and shapes the conduct of business activities within a country.
TRUE
What general characteristics of a country should managers consider when analyzing an economic environment? What specific indicators help managers measure the economic development, performance, and potential of a country?
Answer: Managers apply three perspectives to help make sense of the economic environments of various countries. First, they estimate how much freedom they will have to make investments and run operations as they see fit. Second, they evaluate the type of economic system in the country, studying how current policies shape development and performance. The third investigates the points of change that drive economic change, assessing the conditions that moderate economic freedom as well as move a country from one economic system to another. Collectively, the insights help managers pinpoint where investments should go and, perhaps more importantly, where they should not. The key dimension used to distinguish one country from another is the gross national income (GNI). In particular, countries are classified according to per capita GNI, or the size of GNI of a nation divided by its total population. Those countries with high populations and high per capita GNI are generally most desirable in terms of market potential. A country's GNI growth rate also indicates its economic potential. Businesses comparing markets will also likely examine the purchasing power parity (PPP) of a possible foreign market.
The recent global financial crisis has interrupted the trend of national economies ________. A) rapidly adopting the command market model B) steadily adopting the free market model C) moving from the mixed to the command model D) turning away from the mixed model
B
The so-called "misery index" is the sum of a country's ________. A) foreign and national debt B) inflation and unemployment rates C) unemployment level and total debt D) trade deficit and long-term inflation rate
B
To determine whether the standard of living within a country is rising or falling, economists would most likely use which of the following measures? A) per capita GNI B) GNI growth rate C) purchasing power parity D) degree of human development
B
Which of the following countries is the best example of a mixed economic model? A) United States B) France C) United Kingdom D) Australia
B
Which of the following ideas calls for assessing a country's performance based on factors such as life expectancy, leisure time, and income equality? A) microeconomics B) happynomics C) macroeconomics D) green economics
B
Which of the following is most likely a FALSE statement about income inequality? A) The richest 1% of the world's population claims as much income as the bottom 57%. B) GNI is the most effective tool for estimating the relative wealth of a nation's citizens. C) Among industrialized nations, the United States has the largest inequality gap between rich and poor. D) Income inequality between metropolitan and rural areas threatens a country's social stability.
B
________ is a general, sustained rise in prices measured against a standard level of purchasing power. A) Deflation B) Inflation C) Expansion D) Reflation
B
According to the concept of green economics, measuring a country's economic performance should also take into account ________. A) market share B) population size C) ecological costs D) cost-of-living increases
C
Country X is in the process of transforming from a command economy to a market economy. This process most likely involves ________. A) standardized procedures implemented by the state B) high economic growth rates for the long term C) privatization of many factors of production D) violent political and legal upheaval
C
In Country X, all dimensions of economic activity, including pricing and production decisions, are determined by the central government. Which term best describes Country X? A) market economy B) mixed economy C) command economy D) democratic economy
C
In a country that practices state capitalism, all of the following are most likely to be handled by the state EXCEPT ________. A) leveraging control of the financial system B) developing national corporations C) supporting the local activities of foreign competitors D) systematically managing trade relations
C
In the Economic Freedom Index, ________ exhibit high economic freedom whereas ________ exhibit little to no economic freedom. A) mixed economies; market economies B) command economies; market economies C) market economies; command economies D) centrally planned economies; command economies
C
In the United States, the unemployment rate indicates the ________. A) percentage of the labor force that wants to work full-time but can only find part-time employment B) number of people who have stopped looking for work because full-time jobs are unavailable C) percentage of unemployed workers seeking paid work relative to the total labor force D) number of workers eligible for government services and unemployment benefits
C
Kyle, an international manager for Apex Industries, has been given the task of analyzing the economies of three different emerging countries for the firm's potential expansion. Which of the following questions is LEAST relevant to Kyle's assignment? A) How much freedom will Apex have to run its foreign operations? B) What are the current economic policies related to development? C) What is the likelihood that Apex can fill manufacturing positions with locals? D) What factors in the country drive or hinder economic change?
C
Market economies are primarily characterized by ________. A) formal cooperation among government, companies, and workers to achieve stable growth B) heavy government spending and high taxation to pay for a range of social services C) minimal governmental participation D) restricted consumer powers
C
Pender Pharmaceuticals is considering expanding overseas and is focusing primarily on the BRICs. Which of the following countries is one that Pender is considering? A) Indonesia B) Chile C) Russia D) Bangladesh
C
Tatum Manufacturing recently opened a new facility in Hong Kong. The firm can most likely expect the Hong Kong government to ________. A) monitor market prices B) control natural resources C) ensure fair competition D) provide innovation incentives
C
The Human Development Index measures the average achievements in a country on three basic dimensions of human development, including ________. A) promotion of cultural values B) quantity of free time C) extent of knowledge D) sustainability
C
The ________ starts with the same accounting framework used to calculate GDP but then adjusts for values assigned to environmental quality, population health, livelihood security, equity, free time, and educational attainment. A) Gross National Index B) Net National Product C) Genuine Progress Indicator D) Human Development Index
C
The measure of the value of production that occurs within a country's borders without regard to whether the production is done by domestic or foreign factors of production is its ________. A) net national product (NNP) B) gross national product (GNP) C) gross domestic product (GDP) D) gross national income (GNI)
C
Which of the following is NOT a characteristic of capitalism? A) private ownership of assets B) right to profit from individual effort C) state control of factors of production D) private control of investment
C
Which of the following is a statement that summarizes all economic transactions between a country and the rest of the world during a given period of time? A) trade deficit B) Gini coefficient C) balance of payments D) purchasing power parity
C
Communism primarily relies on a system of ________. A) private business ownership B) competitive pricing and marketing C) market-generated supply and demand D) government-controlled economic activity
D
Gross national income (GNI), the broadest measure of economic activity for a country, is defined as the ________. A) total of all consumption and investment that takes place in a national economy B) income generated in one country, regardless of who owns the productive assets C) total of all economic activity in one country less services, such as government administration, health services, and education D) income generated by both total domestic production and the international production activities of national companies
D
In a ________ economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning. A) state-directed B) market C) command D) mixed
D
In a market economy, the patterns of resource allocation are most directly influenced by ________. A) government administrators who monitor the equilibrium of supply and demand B) industry coalitions that strive to improve the efficiency of production and service C) consumer group alliances that negotiate with firms to improve product quality D) consumers who "vote" by their personal decision to buy or not buy products
D
In computing GNI, the value of a Ford car that is manufactured in Mexico using capital from the United States would ________. A) be added to the GNI of the United States as well as to the GNI and GDP of Mexico B) not be added to the GNI of the United States but would be added to the GNI of Mexico C) only affect the computation of GDP and have no bearing on GNI D) be added to the GNI of the United States but not the GNI of Mexico
D
The Economic Freedom Index indicates that economic freedom is positively correlated with all of the following EXCEPT ________. A) life expectancy B) literacy C) environmental sustainability D) diversity
D
The Gini coefficient estimates a country's ________. A) gross national product B) economic development C) political and legal risk D) income inequality
D
The two main categories in the balance of payments are the ________. A) merchandise exchange account and the services account B) external debt and the unilateral transfers account C) merchandise trade account and the capital account D) current account and the capital account
D
Which of the following calls for economic activity that meets present needs without hindering the future needs of society? A) privatization B) state capitalism C) economic freedom D) sustainable development
D
Which of the following governmental actions is LEAST likely to increase national debt? A) macroeconomic stimulus plans B) unemployment benefits C) corporate bailouts D) T-bond sales
D
Which of the following is most likely a true statement about the global economy since the 1980s? A) Socialist governments are intervening more in global exchanges. B) Wealthy countries are exercising total control over emerging markets. C) Developing countries are losing growing shares of their foreign-exchange reserves. D) Emerging economies are adopting the principles and practices of free markets.
D
Which of the following is most typical of a command economy? A) Consumers have choices of many substitutes for any given product. B) Quality of products and services tends to be consistent. C) The prices of goods and services frequently change. D) Many products are usually in short supply.
D
________ typically results when demand decreases and supply increases. A) Inflation B) Chronic inflation C) Reflation D) Deflation
D
A car manufactured in the United States by Toyota would be included in the calculation of the GDP for the United States.
TRUE
A market economy gives individuals the freedom to decide where to work doing what, how to spend or save money, and whether to consume now or later.
TRUE
A market economy is one in which resources are primarily owned and controlled by individuals and companies.
TRUE
Why is economic freedom an important factor to consider when analyzing a country's economic development, performance, and potential?
Economic freedom helps explain a country's development, performance, and potential. Higher-rated countries generally outperform laggards on a variety of measures. Countries with high economic freedom have higher rates of growth and productivity. Income is higher in countries with higher economic freedom; it more than doubles the worldwide average and is 7 times higher than in mostly unfree and repressed economies. Positive relationships exist between economic freedom inflation, and employment. Economic freedom pays social dividends. Life expectancy, literacy, political openness, and environmental sustainability show positive relationships with economic freedom. Collectively, data indicate a positive relationship between economic freedom and various measures of economic performance and quality of life. The data support the argument that liberating resources from government control improves financial performance, economic stability, and standards of living.
In a country's balance of payments, the current account and the capital account represent equal values.
FALSE
In response to the global financial crisis, the United States government took actions that increased economic freedom.
FALSE
In the aftermath of the recent global financial crisis, there has been a significant reduction in the level of government involvement in economic affairs.
FALSE
Inflation occurs because aggregate demand is growing as fast as aggregate supply.
FALSE
The BRICs are the strongest developed economies in the world.
FALSE
The Happy Planet Index measures well-being and perceptions of living conditions by assessing areas such as housing, incomes, security, and work-life balance.
FALSE
The balance of trade is a record of a country's international transactions that take place among companies, governments, or individuals.
FALSE
The calculation of GNI per capita takes into account the differences in the cost of living from one country to another.
FALSE
The government considers itself a better judge of resource allocation than businesses or citizens in a market economy.
FALSE
The range of economic systems in the world today, when represented on a spectrum, has one end anchored by the idea of capitalism, the other with that of socialism.
FALSE
Uneven income distribution is largely a problem confined to poorer nations.
FALSE
What is gross national income? How is it calculated? Illustrate your answer with a specific example.
Gross National Income is the broadest measure of economic activity. It is the market value of final goods and services newly produced by domestically owned factors of production, which includes the international production activities of national companies. For example, the value of a Ford car manufactured in the United States and the portion of the value of a Ford manufactured in Mexico using U.S. capital and management counts in U.S. GNI. However, the portion of the value of a Japanese Toyota manufactured in the United States using Japanese capital and management would not be counted in U.S. GNI, but it would be counted in Japanese GNI.
What issues complicate international economic analysis?
International economic analysis uses many scientific principles but still relies on a variety of behavioral assumptions to interpret activity. Assessments are often more conditional than universal because the complexity of even the simplest economic system defies straightforward classification. Stipulating indicators that definitively represent a country's economic performance and potential is difficult. Secondly, marketplace dynamism means that today's valid measures may prove invalid tomorrow. Third, countries are not isolated. The consequence of connections is an integrated system of markets in which actions in one influence outcomes in others. Interdependencies complicate interpretations. Adjusting analysis for actions and reactions across a broad scope of markets is difficult.
What is the difference between a command economy and state capitalism?
State Capitalism is an economic system whereby the State decides how, when, and where assets will be valued and resources allocated. The State develops national champions, manages trade relations and exchange rates to promote exports and punish imports, leverages control of the financial system to provide low-cost capital to domestic industries, and maintains accommodative legal and regulatory systems. In a command economy, the government owns and controls resources, commanding the authority to decide what products to make, in what quantity, at what price, and in what way. Unlike the command economy, State Capitalism is a system whereby the government explicitly manipulates market outcomes for political purposes. Politics has a profound and pervasive impact on the performance of markets. The government uses markets to promote stability and growth, thereby creating the prosperity and wealth that maximize state power and supports its continued rule. State Capitalism does not have an ideological component—the government manages markets for long-term political survival and power projection, not to enforce an abstract ideal or promote the cult of personality as with the command economy.
What is state capitalism? Why do you think state capitalism is becoming increasingly popular around the world?
State capitalism is an economic system whereby the state decides how, when, and where assets will be valued and resources allocated. The state develops national champions, manages trade relations and exchange rates to promote exports and punish imports, leverages control of the financial system to provide low-cost capital to domestic industries, and maintains accommodative legal and regulatory systems. The global credit crisis has expanded the scale and scope of state capitalism. Countries that favored a larger state presence, higher taxes, heavier regulation, tougher job-protection laws, and more generous social safety programs dealt more successfully with market disruptions than did their free-market counterparts. More fundamentally, state capitalism professes to better protect social values, equalize income distribution, and prevent the accumulation of vast wealth and powerful self-interests that threaten social harmony.
When analyzing the key elements of a country's economic environment, it is best to apply a systems perspective.
True
What is meant by the idea of economic freedom? What factors are used in the Economic Freedom Index? For managers, what role does the Economic Freedom Index play in analyzing the potential of a country?
a. Economic freedom is the "absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself." Rather than the state, individuals decide how they wish to work, produce, consume, save, and invest. Importantly, that freedom is both protected by the state as well as unconstrained by the state. b. The economic factors on which the Economic Freedom Index is based are trade freedom, business freedom, monetary freedom, investment freedom, freedom from corruption, freedom from government, property rights, financial freedom, and labor freedom. c. The study is helpful in that it identifies ways that governments control economic activity and the degree to which they do so. Operationally, this index helps managers understand the degree to which the government of a country intervenes with the principles of free choice, free enterprise, and free prices for reasons that go beyond the basic need to protect property, liberty, citizen safety, and market efficiency. This information helps managers make better plans to invest funds and run operations in a particular country.
Describe the three ways economies can be categorized.
a. Market economy: A market economy is one in which resources are primarily owned and controlled by the private sector, not the public sector. The key factors that make the market economy work are consumer sovereignty and freedom of companies to operate in the market. Prices are determined by supply and demand. b. Command economy: In a command economy, also known as a centrally planned economy, all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan. The government owns and controls all resources. The government sets goals for every business enterprise in the country by how much they produce and for whom. In this type of economy, the government considers itself a better judge of resource allocation than its businesses or citizens. c. Mixed economy: In actuality, no economy is purely market or completely command oriented. Most economies are mixed economies, falling in the middle and combining elements of both. In a mixed economy, economic decisions are principally market driven and ownership is principally private, but the government intervenes, from slightly to extensively, in resource allocations and economic decisions.
