22) Extensive government restrictions on the use of capital are likely to
A) create dead capital.
B) enhance economic growth.
C) enhance economic freedom.
D) result in capital resources being devoted to their most efficient uses.
23) A nation’s economic growth is more rapid when
A) the government owns all capital resources in a nation.
B) capital resources are devoted to their most efficient use.
C) there are barriers to establishing legal ownership of capital resources.
D) scarce resources are made available for all citizens free of charge.
24) The problem of dead capital can be eliminated by
A) returning all privately owned capital to the government.
B) increasing the labor force participation rate.
C) making it easier for people to establish legal ownership of productive capital.
D) restricting population growth.
25) Countries with the highest degrees of governmental bureaucratic inefficiency index
A) typically are nations with the highest real GDP per capita.
B) typically are nations with the lowest real GDP per capita.
C) normally have the lowest measured levels of dead capital.
D) normally have the highest measured levels of economic freedom.
26) Dead capital is
A) a capital resource that lacks a clear title of ownership.
B) a capital resource that is obsolete.
C) a capital resource that is used to produce non-competitive products.
D) a capital resource associated with the defense industry.
27) When there is a building that is used for production, but no one has clear property rights to it
A) resources are guided to their best use by “the invisible hand.”
B) this is known as “dead capital” and causes efficient production.
C) this is known as “dead capital” and causes no production.
D) this is known as “dead capital” and causes inefficient production.
28) All of the following are major factors limiting economic growth in developing countries
EXCEPT
A) dead capital.
B) deregulation.
C) inefficient government regulation.
D) corruption.
29) Countries with a high level of bureaucratic inefficiency tend to have low rates of real GDP
growth because
A) of complications that keep capital goods from flowing to their most efficient use.
B) of poor accounting practices when determining real GDP.
C) of poor management skill development in companies.
D) they facilitate capital goods development.
30) The tolerance of bribe-taking by government officials
A) reduces economic uncertainty because all investors are aware of the practice.
B) reduces economic efficiency because rules governing property rights are not regularly
enforced.
C) reduces government expenditures because public employees can be paid less.
D) reduces the need for government to impose taxes on poor people.
31) As productive capital goods are established in developing nations
A) developed nations will become less prosperous.
B) they will be less likely to engage in international trade.
C) these countries will experience higher rates of economic growth.
D) portfolio investment will be replaced by loans from international aid agencies.
32) All of the following are examples of institutions that promote real economic growth
EXCEPT
A) an efficient judicial system used to enforce contracts.
B) patent laws that protect innovation.
C) complex rules associated with business licensing used to promote careful business growth.
D) strong law enforcement used to protect business interests.
33) Explain the meaning of the term dead capital, and discuss why its existence retards
economic growth.
34) Define what dead capital is and why economists are concerned with its existence.
35) How have government inefficiencies contributed to the creation of dead capital in the world’s
developing nations?
18.3 A Recent Shift in Global Growth Trends
1) Emerging nations refer to
A) developed countries that have continued to experience high economic growth.
B) developing countries that has never experienced economic growth despite their potential.
C) developing countries that has experienced high economic growth so that they are closer to
advanced-nation status.
D) countries that have per capita real GDP (Gross Domestic Product) levels beyond those of
advanced nations.
2) Which of the following is NOT commonly regarded as an emerging nation?
A) Bangladesh
B) India
C) China
D) Mexico
3) China is regarded as one of the emerging nations because
A) China has experienced high population growth.
B) China has experienced high economic growth.
C) economic and political freedoms in China are still limited.
D) per capita real GDP is now higher in China than in the United States.
4) Since 2000, the overall growth rates among emerging countries have been
A) positive but lower than the overall growth rates among advanced nations.
B) higher than the overall growth rates among advanced nations.
C) negative every year.
D) lower than the overall growth rates among other developing nations.
5) For advanced nations, the average annual rate of growth or real per capital GDP
A) was lower during the 1981-1999 period than during the 2000-2017 period.
B) was higher during the 1981-1999 period than during the 2000-2017 period.
C) was roughly the same between the 1981-1999 period and the 2000-2017 period.
D) has shown random patterns since 1981.
6) According to the text, a typical resident born in an advanced nation in the early 1980s would
A) experience a lower level of per capital real GDP by 2000.
B) experience two times larger in per capital real GDP by 2000.
C) experience three times larger in per capital real GDP by 2000.
D) experience almost the same per capital real GDP by 2000.
7) According to the text, a typical resident born in an emerging country in 2000 would
A) experience a lower level of per capital real GDP by 2017.
B) experience two times larger in per capital real GDP by 2017.
C) experience three times larger in per capital real GDP by 2017.
D) experience almost the same per capital real GDP by 2017.
8) According to the text, the average annual growth rate of real GDP during the 2000-2017
period was about ________ for advanced nations and about ________ for emerging and
developing nations.
A) 5%; 4%
B) 7%; 2%
C) 4.5%; 4.5%
D) 3%; 6%
9) According to the text, the significant decrease in the average annual rate of economic growth
among advanced nations in periods after 2000 was the result of
A) high inflation.
B) a substantial decrease in foreign investment.
C) secular stagnation.
D) high population growth.
10) According to the text, how has the global shift in economic growth occurred since 2000?
A) High economic growth has shifted from emerging nations to developing nations.
B) Economic growth has shifted downward for all nations in the world.
C) High economic growth has shifted from advanced nations to emerging nations.
D) Emerging and developing nations have experienced negative economic growth rates while
advanced nations have continued to experience high economic growth rates.
18.4 Private International Financial Flows as a Source of Global Growth
1) Foreign direct investment is defined as
A) the purchase of more than 10 percent of the shares of ownership in a company in another
nation.
B) funds allocated into a foreign stock market that represent an ownership share of firms less
than 5 percent.
C) opening a deposit account in a foreign bank.
D) purchasing government bonds.
2) The acquisition of more than 10 percent of the shares of ownership in a company in another
nation is called
A) portfolio investment.
B) gross private international investment.
C) foreign direct investment.
D) indirect investment.
3) An example of foreign direct investment is the
A) domestic acquisition of less than 10 percent of a foreign company.
B) foreign purchase of an entire domestic company.
C) purchase of livestock from abroad.
D) sale of insurance in a foreign nation.
4) Most international investment finance today comes from
A) portfolio and foreign direct investment.
B) printing more money.
C) government financing.
D) tax collections.
5) Portfolio investment means buying
A) less than 10 percent of stock shares of of a foreign company.
B) more than 50 percent of stock shares of a foreign company.
C) a combination of different companies’ stock shares.
D) bonds through a financial company.
6) The three sources of private direct investment in developing nations are
A) bank loans, government loans, and Eurobond issues.
B) bank loans, portfolio investments, and foreign direct investments.
C) portfolio loans, IMF loans, and government loans.
D) foreign direct investment, government loans, and Eurobond issues.
7) Which of the following is NOT one of the three primary sources of private investment funds
flowing into developing nations?
A) bank loans
B) foreign direct investment
C) World Bank and IMF loans
D) portfolio investment
8) The primary motivation for private foreign investment in developing nations is
A) to improve the standard of living for workers.
B) to do research in countries with fewer social regulations.
C) to eradicate poverty.
D) the potential for high rates of return.
9) The World Bank has extended a loan to Country X to build a new toll road and counts on the
repayment of the loan from the collected tolls. After the funds have been transferred to the
country, the government decides to spend the money to build a new presidential palace. This is
an example of
A) hostile selection.
B) adverse selection.
C) moral hazard.
D) government risk.
10) An international financial crisis is most often caused by
A) a nation’s central bank lowering domestic interest rates.
B) a government refusing to pay its dues to the United Nations.
C) foreign investments and loans being withdrawn from a nation.
D) a drop in the value of the U.S. dollar.
11) Which of the following is NOT a method for promoting global economic growth?
A) Rely on private markets to direct capital goods toward their best use.
B) Count on developed nations to develop policies that promote economic growth in developing
nations.
C) Encourage population growth so that developing nations’ labor supply increases.
D) market based approach
12) All of the following are sources of funding for capital goods in developing countries
EXCEPT
A) loans from banks.
B) foreign direct investment.
C) taxation.
D) portfolio investment.
13) Portfolio investment is defined as
A) the purchase of less than 40 percent of the shares of ownership in a company in another
country.
B) the acquisition of more than 40 percent of the shares of ownership in a company in another
country.
C) the diversification of purchasing shares in many companies in one country so that risk is kept
to a minimum.
D) none of the above
14) Foreign direct investment is
A) the purchase of less than 10 percent of the shares of ownership in a company in another
country.
B) the purchase of more than 10 percent of the shares of ownership in a company in another
country.
C) the diversification of purchasing shares in many companies in one country so that risk is kept
to a minimum.
D) the diversification of purchasing shares in one company in many countries so that risk is kept
to a minimum.
15) The acquisition of more than 10 percent of the shares of ownership in a company in another
country is known as
A) gross overseas investment.
B) net national investment.
C) portfolio investment
D) none of the above
16) The purchase of less than 10 percent of the shares of ownership in a company in another
country is known as
A) a hostile takeover.
B) dead capital investment.
C) foreign direct investment.
D) portfolio investment.
17) Why are international investors who have invested in developing nations favoring foreign
direct investment and portfolio investment over loans?
A) The process of making loans is usually more difficult for investors to do than foreign direct
and portfolio investment.
B) The interest rate charged on the loans is usually lower than what can be earned in the U.S.
C) It is illegal for banks to make loans to foreign firms.
D) Investors have an aversion to owning dead capital and want to make sure that the resources
they own do not become dead capital.
18) When investment occurs in developing nations
A) investors hope to gain significant returns on their investment and residents gain higher rates
of economic growth.
B) higher rates of economic growth are usually not achieved.
C) significant levels of pollution usually occur.
D) government politicians usually benefit from the illegal payments made to secure the
investment.
19) Adverse selection is a barrier to financing global growth because
A) firms sometimes have trouble determining whether they need funds or not.
B) if investors have trouble identifying high-risk firms they may be unwilling to lend funds to
creditworthy firms.
C) there is the possibility that the funds are used for riskier behavior than the lender agreed to.
D) of the differences between financing using loans, portfolio investment and foreign direct
investment.
20) Moral hazard is a barrier to financing global growth because
A) firms sometimes have trouble determining whether they need funds or not.
B) if investors have trouble identifying high-risk firms they may be unwilling to give money to
creditworthy firms.
C) there is the possibility that the funds are used for riskier behavior than the lender agreed to.
D) of the differences between financing using loans, portfolio investment and foreign direct
investment.
21) An international financial crisis is
A) when at least one developing country defaults on its loans.
B) when a major bank defaults.
C) when a world leader is deposed from office.
D) the rapid withdrawal of foreign investments and loans from a nation.
22) A rapid withdrawal of foreign investments and loans from a nation is
A) dead capital.
B) an international financial crisis.
C) foreign direct capital.
D) portfolio investment.
23) When an international financial crisis occurs
A) financial lenders protect their investments by pouring money into the ailing country.
B) investors sell off bonds and restrict loans as a mechanism to help the country recover.
C) financial flows can slow to a trickle, influencing economic growth.
D) there are no serious financial effects that last more than a few months.
24) International investors are more likely to invest in countries
A) where it is relatively easier to establish property rights to capital goods.
B) where there is a significant amount of dead capital.
C) which have a high amount of government inefficiency.
D) where there are barriers to the ownership of capital goods.
25) Foreign direct investment refers to
A) the acquisition of more than 10 percent of the shares of ownership in a company in another
nation.
B) the acquisition of less than 10 percent of the shares of ownership in a company in another
nation.
C) the granting of a loan to a company located in a foreign country.
D) a direct monetary grant to a foreign company or government.
26) Foreign direct investment implies that the investor obtains ________ share in a foreign
company’s ownership.
A) less than 1 percent
B) less than 5 percent
C) less than 10 percent
D) none of the above
27) The purchase of less than 10 percent of the shares of ownership in a foreign company is
referred to as a
A) portfolio investment.
B) foreign direct investment.
C) foreign indirect investment.
D) negligible investment.
28) Portfolio investment means the
A) purchase of all shares of multiple companies in another country.
B) purchase of less than 50 percent of the shares of ownership in a company in another country.
C) purchase of more than 80 percent of the shares of ownership in a company in another country.
D) purchase of less than 10 percent of the shares of ownership in a company in another country.
29) The acquisition of more than 10 percent of the outstanding shares in a company in another
country is
A) foreign direct investment.
B) foreign direct acquisition.
C) portfolio investment.
D) portfolio acquisition.
30) For foreign direct investment to occur, the purchase has to be more than
A) 2 percent but less than 5 percent of shares in a business located abroad.
B) 5 percent but less than 10 percent of shares in a business located abroad.
C) 8 percent but less than 10 percent of shares in a business located abroad.
D) 10 percent of shares in a business located abroad.
31) If you invest in a foreign company by buying 8 percent of its shares of stock, you have
engaged in
A) portfolio investment.
B) moral hazard.
C) foreign direct investment.
D) adverse selection.
32) If you invest in a foreign company by buying 28 percent of its shares of stock, you have
engaged in
A) portfolio investment.
B) moral hazard.
C) foreign direct investment.
D) adverse selection.
33) Portfolio investment and foreign direct investment are methods through which
A) ownership in assets are acquired in countries other than one’s home country.
B) U.S. residents invest funds in companies that export goods.
C) U.S. residents invest funds in companies that import goods.
D) short-term investments are converted to long-term ones.
34) The possibility for recipients of funds in foreign countries to engage in riskier behavior after
receiving financing is called
A) inequitable financing.
B) moral hazard.
C) adverse selection.
D) asymmetric information.
35) The adverse selection problem in international investment means
A) that those seeking funds for the riskiest projects are those most actively seeking the funds.
B) that the recipients of the funds may use the funds for other than the approved projects.
C) that government officials may demand higher than the usual amount of bribes.
D) those in the highest levels of government are the most dishonest.
36) An example of the moral hazard problem in international investment would be that
A) those seeking funds for the riskiest projects are amongst those most actively seeking the
funds.
B) the recipients of the funds may use the funds for riskier projects than the approved project.
C) government officials may demand higher than the usual amount of bribes.
D) those seeking the funds are dishonest.
37) The purchase of more than ten percent of the shares of a foreign company is known as a(n)
A) foreign direct investment.
B) International Monetary Fund (IMF) investment.
C) portfolio investment.
D) World Bank investment.
38) Investors are often willing to take the risks associated with investing in capital goods in
developing nations because developing nations
A) always insure the investments.
B) insure a small return on investment.
C) get the International Monetary Fund (IMF) to back investments through a series of loan
guarantees.
D) have a large portion of the world’s unutilized or underutilized resources and hence profit
potential.
39) When lenders are unable to get good information about the worthiness of a project the lender
has the problem of
A) adverse selection.
B) adverse hazard.
C) moral hazard.
D) moral selection.
40) The potential for recipients of a loan to engage in riskier behavior after receiving the
financing is called
A) adverse selection.
B) moral hazard.
C) moral selection.
D) adverse hazard.
41) If high level of corruption in a country deters foreign investment in worthy projects, this is
known as
A) dead capital investment.
B) moral hazard.
C) foreign direct investment.
D) adverse selection.
42) When a foreign company engages in riskier behavior after it has received international
investment funds, it is known as
A) portfolio investment.
B) moral hazard.
C) foreign direct investment.
D) adverse selection.