Chapter 3 Economic Systems

1 1.) political, economic, legal Answer: Differences in what 3 systems influence the level of economic development and its attractiveness for doing business (e.g., PESTEL variables) 2.) true Answer: T or F?: There has been a general move toward governments open to trade, market-based economic reforms, and adoption of legal systems that better enforce property rights 3.) market Answer: A country's level of economic development affects its attractiveness as a possible __________ or production location for firms 4.) gross national income, purchasing power parity Answer: A country's level of economic development affects its attractiveness as a possible market or production location for firms 2 common measures are... 5.) gross national income Answer: the sum of a nation's gross domestic product (GDP) and the net income (NI) it receives from overseas. GDP = C + Ig+ G + Xn 6.) purchasing power parity Answer: adjustment provides a more direct comparison of living standards in different countries 7.) capabilities, opportunities Answer: Broader Conceptions of Development:•According to Amartya Sen - development should be assessed less by material output and more by the wha two things that people enjoy ? 8.) human development index Answer: Reflects Sen's ideas and gauges a country's economic development and likely future growth rate - based on life expectancy, education attainment, and whether average incomes are sufficient to meet the basic needs of life in a country 9.) human development index Answer: - based on life expectancy, education attainment, and whether average incomes are sufficient to meet the basic needs of life in a country 10.) life expectancy, education, average income Answer: The Human Development Index is based on what 3 things? 11.) finland, norway, denmark, iceland, then US Answer: Which countries do you think are the happiest? 12.) Innovation and Entrepreneurship Answer: what 2 things are the Engines of Growth? 13.) innovation 1 2 Answer: new products, new processes, new organizations, new management practices, and new strategies 14.) entrepreneurs Answer: these people first commercialize innovative new products and processes 15.) true Answer: T or F?: For a country to sustain long term economic growth, the business environment needs to be conducive to innovation and entrepreneurial activity 16.) innovation Answer: the process of translating an idea or invention into a good or service that creates value or for which customers will pay. 17.) high economic growth, richer citizens Answer: Countries with high economic freedom have what 2 things? 18.) market Answer: Innovation and Entrepreneurship require what economy? 19.) economic freedom Answer: Countries that lack what also fail to achieve respectable economic growth? 20.) property rights Answer: Innovation and Entrepreneurship require Strong.... 21.) property rights Answer: theoretical socially-enforced constructs in economics for determining how a resource or economic good is used and owned. Resources can be owned by (and hence be the property of) individuals, associations or governments. 22.) profit Answer: Individuals and businesses must have the opportunity to gain what from innovative ideas? 23.) Hernando de Soto Answer: developing world will not benefit from capitalism until property rights are better defined and protected - The "Commanding Heights" of the global economy - Unlocking the "Mystery of Capital" 24.) dead capital Answer: A fundamental problem developing countries face is that a significant portion of their capital goods - or manufactured resources that may be used to produce other items in the future - is what economists call .... 25.) dead capital Answer: capital goods - or manufactured resources that may be used to produce other items in the future 26.) favorable geography Answer: facilitates trade which can promote economic growth (e.g., specialization) 2 3 27.) education levels Answer: investment in education promotes faster economic development (e.g., capital invest) 28.) 1980s Answer: Since the late ________, a wave of change has swept the world, including an opening of markets around the world 29.) free markets Answer: There has been a move away from centrally planned and mixed economies towards... 30.) china, india, latin america Answer: Markets are opening up due to technological and geopolitical revolutions: ________ (population of 1.3 billion) could be a bigger market than the U.S., the EU, and Japan combined __________ (population 1.2 billion) is also a prosperous and growing market _______ _______________ has 600 million potential consumers 31.) demanders and suppliers Answer: The Opening of Markets New information and communication technologies have allowed ______________ and ______________ to find each other easier 32.) middle and working classes Answer: The Opening of Markets Economic advances of the last quarter century have led to the emergence of increasingly prosperous .... 33.) deregulation Answer: Removing legal restrictions to the free play of markets Establishment of private enterprises Removing price controls 34.) privatization Answer: Transfers ownership of state property into the hands of private individuals 35.) legal systems Answer: Laws protecting private property rights and providing mechanisms for contract enforcement Without this in place, little incentive to engage in economic activity 36.) benefits, costs and risks Answer: The overall attractiveness of a country depends upon the balance between the likely _____________ of doing business in that country against the likely ____________. 37.) benefits of a market size 3 4 Answer: current and future consumer purchasing power May be able to gain first mover advantages, late entrants face late-mover disadvantages 38.) economic costs Answer: relate primarily to the sophistication of the economic system, including the infrastructure and supporting businesses 39.) political costs Answer: include the cost of paying bribes or lobbying for favorable or fair treatment, also political change in a country can have an impact 40.) legal costs Answer: can be higher in countries with dramatically different product, workplace, and pollution standards, or where there is poor legal protection for property rights 41.) political risk Answer: the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise 42.) economic risk Answer: the likelihood that economic mismanagement will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise 43.) legal risk Answer: the likelihood that a trading partner will opportunistically break a contract or expropriate property rights 44.) lower Answer: Generally, the costs and risks are __________ in economically developed and politically stable markets 45.) higher, higher return Answer: potential for growth may be_________ in less developed nations With greater risk, a potential ________ ___________ (or potential loss) 46.) c Answer: Gross national income (GNI) per person figures can provide an incomplete picture because they are only complied every decade. use different baskets of goods as a base measure. don't factor in the cost of living. don't consider GDP. 47.) b Answer: The GNI per capita of a country is $5,000, but the PPP per capita is $8,000. Which of the following can be inferred from the given data? 4 5 The cost of living is the same in that country as the United States. The cost of living is lower in that country than the United States. The cost of living is higher in that country than the United States. 48.) a Answer: The total annual income received by residents of a single nation is reflected in which official measure? Gross national income Human development index Gross national product Purchasing power parity 49.) australia, switzerland, sweden, japan Answer: Which four countries have high gross national income (GNI) per capita (based on 2017 data)? 50.) a Answer: One thing the Human Development Index does not assess but which Amartya Sen believes should be included to determine development is political freedoms demographics martial status cultural diversity 51.) false Answer: True or false: The PPP adjustment is used in business to balance credits and debits at the end of the accounting cycle. 52.) c Answer: The base used to make the purchasing power parity adjustment is the expected gross domestic product of the importing country. the current forward exchange rate. the cost of living in the United States. the tariff rate applied by the exporting country. 53.) d Answer: One positive aspect of innovation is that it usually increases the level of carbon footprint in a country. 5 6 lowers productivity of capital in a country. does not affect the labor opportunities in a country. increases the economic activity within a country. 54.) b Answer: Which economic system is MOST conducive to innovation and entrepreneurial activity? Mixed economies Market economies Command economies Planned economies 55.) between 0.5-0.8 Answer: Within the Human Development Index, for a country to have "medium" human development it must score 56.) legal Answer: It is _____________ (legal or illegal?) for the government to expropriate profits from innovation through excessive taxation. 57.) c Answer: In the past 40 years, China, South Korea, Taiwan, Singapore, and Hong Kong had the fastest-growing economies. These nations also had ______ in place. free markets systems secure property rights undemocratic governments democratic governments 58.) d Answer: Innovators and entrepreneurs flourish most in a _____ because _____. mixed economy; it provides more incentives for businesses and entrepreneurs to develop innovations than any other economic system. planned economy; any individual who has an innovative idea is free to try to make money out of that idea by starting a business. command economy; established businesses and individual entrepreneurs can reap rewards in the form of high profits owing to innovation. market economy; it grants existing businesses and entrepreneurs the freedom to improve their operations through innovation 59.) false 6 7 Answer: True or False: The recent fast-paced economic growth in some Asian economies can be attributed to their adoption of more totalitarian forms of government. 60.) a Answer: Jeffrey Sachs argued that the ______ of a nation can have an impact on economic development. geography education religion sociology 61.) b Answer: To foster innovation in the business environment, it is important that strong legal protection of property rights is in place. Inadequately enforced property rights can lead to an increase in the incentives for entrepreneurial activities. risk of expropriation of profits. rate of economic growth. levels of foreign direct investment. 62.) d Answer: Property rights are only truly secure when a _____ exists. totalitarian regime demand economy planned economy mature democratic state 63.) b Answer: Which of these situations relates to Sachs's view on a country's economic development? Country C decides to stop production of computer technology after another country steals its intellectual property. Country A has the benefit of nutrient-rich soil which provides a competitive advantage for the country's tobacco industry. Country B has implemented a policy in which all children receive a paid college education. Country D denies civil liberties to its citizens and controls all business production.a 64.) a Answer: One change in the political systems of nations since the late 1980s is that 7 8 totalitarian governments failed and were replaced by democratically elected governments usually supportive of free market capitalism. there has been a strong move away from free market economies toward a more planned economic model. there has been a strong move away from free market economies toward a more mixed economic model. countries with totalitarian governments collapsed and were replaced by socialists who were typically committed to command-based economic systems.b 65.) b Answer: In many nations, which social class has benefited from economic advances and seen the emergence of prosperity? Upper class Middle class Under class Capitalist class 66.) d Answer: In the past 40 years, China, South Korea, Taiwan, Singapore, and Hong Kong had the fastest-growing economies. These nations also had ______ in place. secure property rights democratic governments free markets systems undemocratic governments 67.) b Answer: Which trend has been seen in the political systems of nations since the late 1980s? There has been a strong move away from free market economies and a move toward a more free mixed economic model. Rationale: There has been a move toward a more free market model not a free mixed model. There is more emphasis on the free market economy approach and less on centrally planned and mixed economic models. Democratically elected governments are being replaced by totalitarian governments who are committed to free market capitalism than democracies. Totalitarian governments are typically more committed to free market capitalism than democratically elected governments. 68.) a Answer: One reason for the spread of democracy across the globe is the 8 9 failure of totalitarian regimes to provide economic progress to the majority of their citizens political rivalry among parties in a nation absence of sophistication in a country's economy failure of free market economies to deliver economic progress to the vast bulk of their populations 69.) a Answer: How does Samuel Huntington's argument about the new world order differ from the view of Fukuyama? Huntington believed the world would be split into different civilizations with their own ideology. Huntington believed in the triumph of Westernized thought. Huntington believed that a universal liberal democracy would occur. Huntington believed in a harmonious world that emphasized free market capitalism. 70.) a Answer: Economic progress often leads to adoption of a democratic government. adoption of a totalitarian regime. higher growth rates in a command economy. higher growth rates in a planned economy. 71.) taxation rules, Foreign investment regulations, Labor freedom, Trade policy Answer: The Heritage Foundation index of economic freedom is based on ten indicators. Which of these four are included in that index? (Check all that apply.) Education policy Societal scale Taxation rules Foreign investment regulations Labor freedom Trade policy 72.) d Answer: ______ involves removing or reducing government regulations, typically in the economic sphere. Containment 9 10 Logistics Isolationism Deregulation 73.) false Answer: True or false: Market-based economic systems have failed to produce the same high level of economic performance that command and mixed economies have. 74.) b Answer: ______ is one of the steps necessary for a country to shift toward a market-based economic system. Adoption of a totalitarian approach Privatization Nationalization of private enterprises Isolationism 75.) c Answer: What economic tactic was used when former communist countries removed price controls and allowed prices to be set as the result of supply and demand? isolationism privatization deregulation purchasing parity 76.) d Answer: Privatization became a worldwide practice starting in the 2000s. 1940s. 1960s. 1980s. 77.) c Answer: The government of a foreign nation had controlled the oil and gas industry for many years but recently transferred the business into the hands of several small businesses. These companies are now motivated to increase productivity and enter new markets to achieve greater profits. What tactic did this nation use to help it move toward a market-based economic system? diversification 10 11 isolationism privatization deregulation 78.) a Answer: With the collapse of communism in eastern Europe, many countries didn't have a legal structure in place to protect property rights because all property had previously been held by the state. the majority of citizens rejected the idea of a state legal system. individual businesses were required to provide their own legal support. the existing free market economy didn't require it. 79.) b Answer: The privatization movement was started in the Soviet Union during the Cold-war era with the sale of state-owned enterprises. Great Britain in the 1980s with the sale of British Telecom. the Czech Republic during the Velvet Revolution with the sale of state-owned enterprises. Brazil during the industrial revolution with the sale of Telebrás Brazil. 80.) a Answer: What risk is associated with a change in the political economy? A multipolar world, controlled by a number of civilizations, could replace the bipolar world. The bipolar world of the Cold War era is likely to return. The totalitarian dictatorship of the communist variety is likely to return. Complete stabilization of the economy is imminent. 81.) c Answer: South Korea was considered an impoverished country in 1960. Yet in 2017, it was the world's 11th largest economy. International businesses must consider the present wealth of customers as well as the physical characteristics of consumers. cultural diversity of consumers. likely future wealth of the consumers. 11 12 nature of the consumers. 82.) c Answer: When discussing the changes in the political and economic systems of the world, it can be said that totalitarian dictatorships have ceased to exist. command economies have ceased to exist. the battle between the ideologies of collectivism and individualism is less distinct today. countries always favor a planned economy and oligarchy as they move forward. 83.) a Answer: When comparing early and late entrants into a market, it can be said that early entrants build brand loyalty and gain experience in a country's business practices. late entrants build brand loyalty required to achieve a significant presence in the market. early entrants fail to reap the benefits of foreign direct investment policies. late entrants reap substantial benefits and experience necessary to achieve a significant presence in the market. 84.) d Answer: An international firm, entering a country's market early, may achieve a significant payback if that country converts to a command economy. protects its domestic industries. experiences an economic slowdown. achieves sustained high economic growth rates. 85.) d Answer: When assessing the legal factors that determine the cost of doing business in a country, it's important to know that it is often less expensive to do business in nations that lack established laws for regulating business practice and fail to protect property rights. it can be cost-effective to do business in a country where the absence of a cap on damage awards has meant spiraling liability insurance rates. the cost of doing business is less in totalitarian states since governments are held accountable by their citizens and are unlikely to accept bribes. it can be more costly to do business in a country where local laws and regulations set strict standards with regard to product safety. 86.) false 12 13 Answer: true or False: Economic risks are independent of political risks. 87.) b Answer: One indicator of economic mismanagement in a country is the nationality of citizens. rate of inflation. extent of "fault lines" between civilizations. extent to which competing ideologies battle for political control. 88.) d Answer: When assessing country attractiveness, the costs might include _____. climate size of economy source availability corruption 89.) b Answer: In which of these countries is the cost-benefit-risk trade-off likely to be MOST favorable? A politically unstable country A country with a free market system A country in which speculative financial bubbles have led to excess borrowing A country with a command-based economic system