36.
By identifying and investing early in a potential future economic star,
international firms can build brand loyalty and gain experience in that
country’s business practices.
TRUE
By identifying and investing early in a potential future economic star,
international firms may build brand loyalty and gain experience in that
country’s business practices.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
37.
First-mover advantages are the advantages that accrue to early entrants
into a market.
TRUE
First-mover advantages are the advantages that accrue to early entrants
into a market.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
38.
A country’s economic system and property rights regime are reasonably
good predictors of economic prospects.
TRUE
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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
39.
Countries with free market economies in which property rights are
protected tend to achieve lower economic growth rates than command
economies where property rights are poorly protected.
FALSE
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
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
40.
It may be more costly to do business in relatively primitive or undeveloped
economies because of the lack of infrastructure and supporting
businesses.
TRUE
It may be more costly to do business in relatively primitive or undeveloped
economies because of the lack of infrastructure and supporting businesses.
At the extreme, an international firm may have to provide its own
infrastructure and supporting business, which obviously raises costs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
41.
Economic risks are independent of political risk.
FALSE
Economic risks are not independent of political risk. Economic
mismanagement may give rise to significant social unrest and hence
political risk.
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
42.
One visible indicator of political risks tends to be a country’s inflation rate.
FALSE
One visible indicator of economic mismanagement tends to be a country’s
inflation rate. Another is the level of business and government debt in the
country.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
43.
The overall attractiveness of a country as a potential market or investment
site for an international business depends on balancing the benefits, costs,
and risks associated with doing business in that country.
TRUE
The overall attractiveness of a country as a potential market or investment
site for an international business depends on balancing the benefits, costs,
and risks associated with doing business in that country.
AACSB: Analytic
Blooms: Remember
Topic: Implications for Managers
Multiple Choice Questions
44.
GNI per person figures can be misleading because _____.
A.
they also include barter agreements
B.
they provide a dynamic picture of development
C.
they don’t consider differences in the cost of living
D.
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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
45.
Which of the following helps in adjusting GNI such that it accounts for the
differences in the cost of living?
A.
Purchasing power parity (PPP) adjustment
B.
Human Development Index
C.
Debt to GNI ratio
D.
Consumer Price Index
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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
46.
In some countries, the official GNI per capita measured at PPP data does
not reflect the actual the total annual income because:
A.
it doesn’t consider differences in the cost of living.
B.
it gives a static picture of development.
C.
it fails to include income earned from other countries in the form of
dividends.
D.
large amounts of economic activity may be in the form of barter
agreements.
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.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
47.
Which of the following is a measure that is developed by the United Nations
to measure the quality of life in different nations?
A.
Gross national income
B.
Human Development Index
C.
Purchasing power parity
D.
Gross domestic product
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
48.
The HDI is based on all of the following measures EXCEPT:
A.
life expectancy at birth.
B.
political freedom.
C.
educational attainment.
D.
whether average incomes are sufficient to meet the basic needs of life.
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
49.
_____, a Nobel Prize-winning economist, has argued that development is not
just an economic process, but it is a political one as well.
A.
Hernando de Soto
B.
Karl Marx
C.
Samuel Huntington
D.
Amartya Sen
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
50.
According to Amartya Sen, development should be:
A.
seen as a process of expanding the real freedoms that people
experience.
B.
seen as a non-political concept that focuses on the net income of a
country.
C.
should be viewed as a purely economic process.
D.
assessed by material output measures such as GNI per capita.
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
51.
Which of the following statement pertaining to innovation and
entrepreneurship is NOT true?
A.
They are the engines of growth.
B.
They require strong property rights.
C.
They require state ownership of means of production.
D.
They require a market economy.
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
52.
A market economy encourages innovation because _____.
A.
state ownership of enterprises reduces risks of innovation
B.
economic freedom leads to greater incentives for innovation
C.
government-owned and funded research centers become hubs of
innovation
D.
the prices of goods and services, including new products, are fixed by
government
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).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
53.
Stagnation can occur in planned economies because:
A.
entrepreneurial individuals have few economic incentives for innovation.
B.
private ownership of means of production leads to exploitation of
workers.
C.
prices of goods and services are fixed by market forces of demand and
supply.
D.
lack of barriers to trade results in increased competition for domestic
producers.
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).
54.
_____ is required for a business environment to be conducive to innovation
and entrepreneurial activity.
A.
State ownership of means of production
B.
Strong legal protection of property rights
C.
Barriers to foreign trade and investment
D.
Government regulation of the market
Strong legal protection of property rights is another requirement for a
business environment to be conducive to innovation, entrepreneurial
activity, and hence economic growth.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
55.
The state can expropriate the profits from innovation through legal means,
such as _____.
A.
bureaucratic kickbacks
B.
excessive taxation
C.
black market transactions
D.
privatization
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).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
56.
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 _____.
A.
they have political stability
B.
they invest in infrastructural development
C.
they have better defined and secure property rights
D.
they have adequate market regulation
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
57.
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?
A.
Detailed state planning
B.
Restricting direct investment by foreign enterprises
C.
Strong property rights
D.
Market regulation
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
58.
A free market economy in which property rights are protected leads to
subsequent economic growth, which often leads to the establishment of:
A.
a democratic regime.
B.
a planned economy.
C.
government owned enterprises.
D.
a socialist economy.
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.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
59.
The political economy of many of the world’s nation-states has changed
radically since the late 1980s. All of the following are trends that have been
evident EXCEPT:
A.
a wave of democratic revolutions has swept the world.
B.
totalitarian governments collapsed and have been replaced by
democratically elected governments.
C.
there has been a strong move away from centrally planned economies
toward free market economic models.
D.
mixed economies are fast replacing market economies.
There has been a strong move away from centrally planned and mixed
economies and toward a more free market economic model.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition