Chapter 03 Political Economy and Economic Development
1.
GNI per capita can be adjusted by purchasing power to account for
differences in the cost of living.
TRUE
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: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
2.
The base for the purchasing power parity adjustment of the GNI is the cost
of living in the United States.
TRUE
Referred to as a purchasing power parity (PPP) adjustment, it allows for a
more direct comparison of living standards in different countries. The base
for the adjustment is the cost of living in the United States.
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
3.
GNI and PPP data are useful because they provide a dynamic analysis of
economic development.
FALSE
The GNI and PPP data give a static picture of development. They tell us, for
example, that China is much poorer than the United States, but they do not
tell us if China is closing the gap.
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
4.
In Sen’s view, development is an economic process that should be assessed
by material output measures such as GNI per capita.
FALSE
The Nobel Prize-winning economist Amartya Sen has argued that
development should be assessed less by material output measures such as
GNI per capita and more by the capabilities and opportunities that people
enjoy. In Sen’s view, development is not just an economic process, but it is
a political one too.
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
5.
Life expectancy at birth is one of the measures used by the Human
Development Index (HDI) to measure the quality of human life in different
nations.
TRUE
The HDI is based on three measures: life expectancy at birth (a function of
health care), educational attainment (measured by a combination of the
adult literacy rate and enrollment in primary, secondary, and tertiary
education), and whether average incomes, based on PPP estimates, are
sufficient to meet the basic needs of life in a country (adequate food,
shelter, and health care).
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
6.
Political freedoms is one of the measures used by the Human Development
Index (HDI) to measure the quality of human life in different nations.
FALSE
The HDI is based on three measures: life expectancy at birth (a function of
health care), educational attainment (measured by a combination of the
adult literacy rate and enrollment in primary, secondary, and tertiary
education), and whether average incomes, based on PPP estimates, are
sufficient to meet the basic needs of life in a country (adequate food,
shelter, and health care).
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
7.
If a country’s economy is to sustain long-run economic growth, the business
environment must be conducive to innovations and entrepreneurial activity.
TRUE
Innovations in production and business processes lead to an increase in the
productivity of labor and capital, which further boosts economic growth
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
8.
In a planned economy, the means of production are owned by private
individuals.
FALSE
In a planned economy, the state owns all means of production.
Consequently, entrepreneurial individuals have few economic incentives to
develop valuable new innovations, because it is the state, rather than the
individual, that captures most of the gains.
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
9.
The economic freedom associated with a market economy creates greater
incentives for innovation and entrepreneurship than either a planned or a
mixed economy.
TRUE
It has been argued that the economic freedom associated with a market
economy creates greater incentives for innovation and entrepreneurship
than either a planned or a mixed economy.
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
10.
Privatization refers to the process of hiring private management
consultancy firms to manage state-owned enterprises.
FALSE
Privatization refers to the process of selling state-owned enterprises to
private investors.
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
11.
The state can expropriate the profits from innovation through legal means.
TRUE
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
12.
Peruvian development economist Hernando de Soto has argued that the
chronic inability of property owners to establish legal title to the property
they own is a key problem for innovation, and entrepreneurial activity in
developing nations.
TRUE
The influential Peruvian development economist Hernando de Soto has
argued that much of the developing world will fail to reap the benefits of
capitalism until property rights are better defined and protected. His
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
13.
Some totalitarian regimes have fostered a market economy and strong
property rights protection and have experienced rapid economic growth.
TRUE
Some totalitarian regimes have fostered a market economy and strong
property rights protection and have experienced rapid 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
14.
Totalitarian states promote human freedom and human development, which
facilitates economic progress.
FALSE
Totalitarian states, by limiting human freedom, also suppress human
development and therefore are detrimental to progress.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
15.
Democracy is one of the consequences of economic growth and progress.
TRUE
Several of the fastest-growing Asian economies adopted more democratic
governments during the past three decades, including South Korea and
Taiwan. Thus, although democracy may not always be the cause of initial
economic progress, it seems to be one consequence of that progress.
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
16.
Anecdotal comparisons suggest that the assertion that nations that invest
more in education will have higher growth rates is true.
TRUE
Education emerges as another important determinant of economic
development. The general assertion is that nations that invest more in
education will have higher growth rates because an educated population is
a more productive population.
17.
Since the late 1980s, there has been a strong move away from a more free
market economic model and toward a more centrally planned and mixed
economies.
FALSE
The political economy of many of the world’s nation-states has changed
radically since the late 1980s. There has been a strong move away from
centrally planned and mixed economies and toward a more free market
economic model.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
18.
Many totalitarian regimes were able to deliver economic progress to the
vast bulk of their populations, which curbed the spread of democracy during
the late 1980s.
FALSE
One of the causes for the spread of democracy is that many totalitarian
regimes failed to deliver economic progress to the vast bulk of their
populations.
Topic: States in Transition
19.
New information and communication technologies have enabled the spread
of democratic ideals.
TRUE
New information and communication technologies have created new
conduits for the spread of democratic ideals and information from free
societies. Today, the Internet is allowing democratic ideals to penetrate
closed societies as never before.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
20.
One of the reasons for the spread of democracy is the emergence of
increasingly prosperous middle and working classes who have pushed for
democratic reforms.
TRUE
In many countries the economic advances of the past quarter century have
led to the emergence of increasingly prosperous middle and working
classes who have pushed for democratic reforms.
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
21.
Political scientist Samuel Huntington predicts that there will be a more
harmonious world dominated by a universal civilization characterized by
democratic regimes and free market capitalism.
FALSE
Huntington sees a world that is split into different civilizations, each of
which has its own value systems and ideology.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
22.
According to political scientist Samuel Huntington’s thesis, global terrorism
is a product of the tension between civilizations and the clash of value
systems and ideology.
TRUE
In Huntington’s thesis, global terrorism is a product of the tension between
civilizations and the clash of value systems and ideology.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
23.
Transformation from centrally planned command economies to market-
based economies can be attributed to the fact that command and mixed
economies failed to deliver the sustained economic performance achieved
by countries adopting market-based systems.
TRUE
Command and mixed economies failed to deliver the kind of sustained
economic performance that was achieved by countries adopting market-
based systems, such as the United States, Switzerland, Hong Kong, and
Taiwan. As a consequence, even more states have gravitated toward the
market-based model.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
24.
Economic freedom necessarily equates with political freedom.
FALSE
Economic freedom does not necessarily equate with political freedom.
25.
In a command economy, the prices are determined by the free interplay of
demand and supply.
FALSE
Before the collapse of communism, the governments in most command
economies exercised tight control over prices and output, setting both
through detailed state planning.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
26.
Deregulation involves prohibiting private enterprises from operating in most
sectors of the economy.
FALSE
Deregulation involves removing legal restrictions to the free play of markets,
the establishment of private enterprises, and the manner in which private
enterprises operate.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
27.
In mixed economies, in certain sectors the state set prices, owned
businesses, limited private enterprise, restricted investment by foreigners,
and restricted international trade.
TRUE
In mixed economies, the role of the state was more limited; but here too, in
certain sectors the state set prices, owned businesses, limited private
enterprise, restricted investment by foreigners, and restricted international
trade.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
28.
Privatization reduces the incentive of business owners to increase
productivity, enter new markets, and to exit losing ones.
FALSE
Privatization is seen as a way to stimulate gains in economic efficiency by
giving new private owners a powerful incentive—the reward of greater
profits—to search for increases in productivity, to enter new markets, and to
exit losing ones.
Topic: The Nature of Economic Transformation
29.
Studies of privatization in central Europe have shown that the process often
fails to deliver predicted benefits if the newly privatized firms continue to
receive subsidies from the state and if they are protected from foreign
competition.
TRUE
Studies of privatization in central Europe have shown that the process often
fails to deliver predicted benefits if the newly privatized firms continue to
receive subsidies from the state and if they are protected from foreign
competition by barriers to international trade and foreign direct investment.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
30.
For privatization to work, it must also be accompanied by a more general
deregulation and opening of the economy.
TRUE
For privatization to work, it must also be accompanied by a more general
deregulation and opening of the economy.
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
31.
The government of a country takes over the airport security industries
following a major terrorist attack, to improve airport security. This is an
example of privatization.
FALSE
Privatization transfers the ownership of state property into the hands of
private individuals, frequently by the sale of state assets through an
auction.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
32.
A well-functioning market economy requires laws protecting private
property rights and providing mechanisms for contract enforcement.
TRUE
Without a legal system that protects property rights, and without the
machinery to enforce that system, the incentive to engage in economic
activity can be reduced substantially by private and public entities, including
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
33.
When communism collapsed, many of the communist countries lacked the
legal structure required to protect property rights because all the property
was earlier held by the state.
TRUE
When communism collapsed, many of these countries lacked the legal
structure required to protect property rights, all property having been held
by the state. Although many nations have made big strides toward
instituting the required system, it will be many more years before the legal
system is functioning as smoothly as it does in the West.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
34.
A market with a large number of consumers, with low living standards will
have a relatively large market when measured in economic terms.
FALSE
While some markets are very large when measured by number of
consumers (e.g., China and India), low living standards may imply limited
purchasing power and therefore a relatively small market when measured in
economic terms.
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
35.
The long-run monetary benefits of doing business in a country are a
function of the size of the market, the present wealth of consumers in that
market, and the likely future wealth of consumers.
TRUE
The long-run monetary benefits of doing business in a country are a
function of the size of the market, the present wealth (purchasing power) of
consumers in that market, and the likely future wealth of consumers.
AACSB: Analytic