International Business, 14e (Daniels et al.)
Chapter 4 The Economic Environments Facing Businesses
1) The recent global economic 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
2) 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.
3) 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?
4) 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) Mexico
B) Hong Kong
C) Venezuela
D) North Korea
5) 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
6) 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
7) The recent global credit 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
8) 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
9) According to research, which of the following countries is the strongest supporter of free markets?
A) China
B) India
C) France
D) Ukraine
10) 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
11) 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
12) 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
13) 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
14) 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
15) 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
16) 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
17) 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
18) 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.
19) 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
20) 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
21) 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
22) Which of the following countries is the best example of a mixed economic model?
A) United States
B) France
C) United Kingdom
D) Australia
23) 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
24) 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
25) 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
26) 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
27) 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)
28) 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
29) 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
30) 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
31) 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
32) 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
33) ________ is a general, sustained rise in prices measured against a standard level of purchasing
power.
A) Deflation
B) Inflation
C) Expansion
D) Reflation
34) 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
35) 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
36) In most cases, governments ________ in order to regulate inflation.
A) lower interest rates
B) increase taxes
C) raise interest rates
D) decrease taxes
37) ________ typically results when demand decreases and supply increases.
A) Inflation
B) Chronic inflation
C) Reflation
D) Deflation
38) In the U.S., 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
39) 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
40) A government increases its internal debt for all of the following reasons EXCEPT which of the
following reasons EXCEPT ________.
A) The tax system is so poorly run that the government cannot collect all the revenues it expects.
B) Government costs such as security and social programs exceed total tax revenues.
C) The government borrows money from international financial institutions.
D) State-owned enterprises run large deficits.
41) Country X has a significant amount of external debt. Which of the following is the most likely
cause?
A) The government of Country X borrowed money from local banks.
B) The government of Country X borrowed money from other governments.
C) The government of Country X spent more than it collected in revenues.
D) The government of Country X received short-term credits from selling bonds.
42) 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
43) 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 U.S. has the largest inequality gap between rich and poor.
D) Income inequality between metropolitan and rural areas threatens a country’s social stability.
44) The World Bank reports that approximately ________ percent of the world’s population is poor.
A) 50
B) 75
C) 80
D) 95
45) The Gini coefficient estimates a country’s ________.
A) gross national product
B) economic development
C) political and legal risk
D) income inequality
46) 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
47) 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
48) 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
49) 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
50) 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
51) 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
52) 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