International Business, 13e (Global Edition) (Daniels/Radebaugh/Sullivan)Chapter 4 The Economic Environment

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 Answer: A Diff: 2 Page Ref: 179 Skill: Concept Objective: STUDY QUESTION 4.1: What are the benefits of international economic analysis?

2) Income, purchasing power, market size, and market type are all key elements of a(n) ________. A) political environment B) cultural environment C) economic environment D) legal environment Answer: C Diff: 1 Page Ref: 180 Skill: Concept Objective: STUDY QUESTION 4.1: What are the benefits of international economic analysis?

3) From the 1980s to the most recent global economic crisis, which of the following was the economic trend? A) governments intervening more in economic affairs B) governments increasing the isolation of their nations' economies C) countries turning away from the principles and practices of free markets D) countries adopting the principles and practices of free markets Answer: D Diff: 2 Page Ref: 179 Skill: Concept Objective: STUDY QUESTION 4.1: What are the benefits of international economic analysis?

4) There is no universal scheme to assess the performance and potential of a country's economic environment due to three conditions. Which of the following is one of those conditions? A) the difficulty of identifying a definitive set of predictive economic indicators B) the static nature of the marketplace C) the isolation of most markets from each other D) the lack of reliable economic data from developed economies Answer: A Diff: 2 Page Ref: 188 Skill: Concept Objective: STUDY QUESTION 4.1: What are the benefits of international economic analysis?

5) Gross national income (GNI), the broadest measure of economic activity for a country, is defined as ________. A) the total of all consumption and investment that takes place in a national economy B) the income generated in one country, regardless of who owns the productive assets C) the total of all economic activity in one country less services, such as government administration, health services, and education D) the income generated by both total domestic production and the international production activities of national companies Answer: D Diff: 1 Page Ref: 181 Skill: Concept Objective: STUDY QUESTION 4.2: What are GNI and GDP?

6) 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 the GNI 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 Answer: D Diff: 3 Page Ref: 181 Skill: Application Objective: STUDY QUESTION 4.2: What are GNI and GDP? AACSB: Analytic Skills

7) 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 commonly referred to as the ________. A) net national product (NNP) B) gross national product (GNP) C) gross domestic product (GDP) D) gross national income (GNI) Answer: C Diff: 1 Page Ref: 182 Skill: Concept Objective: STUDY QUESTION 4.2: What are GNI and GDP?

8) 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 (PPP) D) degree of human development Answer: B Diff: 2 Page Ref: 184 Skill: Concept Objective: STUDY QUESTION 4.2: What are GNI and GDP?

9) Some argue that gross national income, and its expression in terms of per capita, growth rate, or PPP refinements, focuses too much on ________, thereby only partially representing the scale and scope of a country's level of development. A) regional differences B) monetary indicators C) market demographics D) cultural factors Answer: B Diff: 2 Page Ref: 186 Skill: Concept Objective: STUDY QUESTION 4.3: What is the implication of the Human Development Index for measuring economic development?

10) The United Nations' ________ measures life expectancy, educational attainment, and the standard of living in a given country. A) Human Development Index B) Gross National Happiness C) Genuine Progress Indicator D) Happy Planet Index Answer: A Diff: 1 Page Ref: 186-187 Skill: Concept Objective: STUDY QUESTION 4.3: What is the implication of the Human Development Index for measuring economic development?

11) 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) preservation of the natural environment Answer: C Diff: 2 Page Ref: 187 Skill: Concept Objective: STUDY QUESTION 4.3: What is the implication of the Human Development Index for measuring economic development?

12) 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) Green Net National Product C) Genuine Progress Indicator D) Human Development Index Answer: C Diff: 2 Page Ref: 188 Skill: Concept Objective: STUDY QUESTION 4.3: What is the implication of the Human Development Index for measuring economic development?

13) 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 expectations D) lead to lower demand, triggering lower prices and eventually lower employment Answer: A Diff: 2 Page Ref: 191 Skill: Concept Objective: STUDY QUESTION 4.4: What do we mean by inflation? How does it affect the business environment?

14) ________ is a general, sustained rise in prices measured against a standard level of purchasing power. A) Deflation B) Inflation C) Expansion D) Reflation Answer: B Diff: 1 Page Ref: 188 Skill: Concept Objective: STUDY QUESTION 4.4: What do we mean by inflation? How does it affect the business environment?

15) In order to reduce or control inflation, a government would most likely do which of the following? A) increase interest rates B) increase taxes C) decrease interest rates D) decrease taxes Answer: ADiff: 2 Page Ref: 191 Skill: Concept Objective: STUDY QUESTION 4.4: What do we mean by inflation? How does it affect the business environment?

16) ________ can occur when demand declines and supply grows. A) Inflation B) Chronic inflation C) Reflation D) Deflation Answer: D Diff: 1 Page Ref: 191 Skill: Concept Objective: STUDY QUESTION 4.4: What do we mean by inflation? How does it affect the business environment?

17) In the United States, U3 is the official unemployment rate. This rate provides a measure of which of the following? A) those who are not working but are willing and able to work for pay, currently available to work, and actively searching for work B) those who have stopped looking for work because current economic conditions lead them to believe no work is available C) those who want to work full-time but are only able to find part-time employment due to economic conditions D) all of the above Answer: A Diff: 2 Page Ref: 192-193 Skill: Concept Objective: STUDY QUESTION 4.5: What do we mean by unemployment and debt? How do both affect the business environment?

18) The so-called "misery index" is the sum of a country's ________. A) external and internal debt B) inflation and unemployment rates C) unemployment level and total debt D) trade deficit and inflation rate Answer: B Diff: 2 Page Ref: 192 Skill: Concept Objective: STUDY QUESTION 4.5: What do we mean by unemployment and debt? How do both affect the business environment?

19) A government's internal debt can be incurred for any EXCEPT which of the following reasons? 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. Answer: C Diff: 2 Page Ref: 194 Skill: Concept Objective: STUDY QUESTION 4.5: What do we mean by unemployment and debt? How do both affect the business environment?

20) A country's debt has two parts: internal and external. Internal debt results when ________; external debt results when ________. A) the government spends more than it collects in revenues; a government borrows money from foreign lenders B) the government collects more than it spends in revenues; a government borrows money from local units of foreign banks C) the government spends more than it generates in revenues; a government lends money to foreigners D) the government saves more than it collects in revenues; a government receives short-term credits from foreign lenders Answer: A Diff: 2 Page Ref: 194 Skill: Concept Objective: STUDY QUESTION 4.5: What do we mean by unemployment and debt? How do both affect the business environment?

21) 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 Answer: A Diff: 2 Page Ref: 195 Skill: Concept Objective: STUDY QUESTION 4.6: What do we mean by income distribution and poverty? How do they affect the business environment? AACSB: Multicultural and Diversity

22) All of the following are true in reference to income equality EXCEPT which one? A) The richest 1 percent of the world's people claims as much income as the bottom 57 percent. B) Dramatic income inequality is not a modern phenomenon. C) Among industrialized nations, the United States has the largest inequality gap between rich and poor. D) There is a weak relationship between skewed income distributions and the split between those who live in urban settings versus those who live in rural areas. Answer: B Diff: 3 Page Ref: 195 Skill: Concept Objective: STUDY QUESTION 4.6: What do we mean by income distribution and poverty? How do they affect the business environment? AACSB: Multicultural and Diversity

23) The World Bank reports that roughly ________ percent of the world's population is poor. A) 50 B) 75 C) 80 D) 90 Answer: C Diff: 2 Page Ref: 196 Skill: Concept Objective: STUDY QUESTION 4.6: What do we mean by income distribution and poverty? How do they affect the business environment? AACSB: Multicultural and Diversity

24) 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) Bottom of the Pyramid B) Hierarchy of Needs C) Happy Planet Index D) Gini score Answer: A Diff: 2 Page Ref: 197 Skill: Concept Objective: STUDY QUESTION 4.6: What do we mean by income distribution and poverty? How do they affect the business environment? AACSB: Multicultural and Diversity

25) The statement that summarizes all economic transactions between a country and the rest of the world during a given period of time is the ________. A) balance of trade B) balance of international transactions C) balance on goods, services, and investments D) balance of payments Answer: D Diff: 1 Page Ref: 198 Skill: Concept Objective: STUDY QUESTION 4.7: What is the balance of payments? What is the current account component of the balance of payments? What is the capital account component of the balance of payments?

26) The two main categories in the balance of payments are the ________. A) merchandise exchange account and the services account B) income receipts and payments on assets account and the unilateral transfers account C) current account and the capital account D) merchandise trade account and the capital account Answer: C Diff: 2 Page Ref: 199 Skill: Concept Objective: STUDY QUESTION 4.7: What is the balance of payments? What is the current account component of the balance of payments? What is the capital account component of the balance of payments?

27) The ________ tracks all trade activity in merchandise. A) capital account B) current account C) payment account D) deficit account Answer: B Diff: 2 Page Ref: 199 Skill: Concept Objective: STUDY QUESTION 4.7: What is the balance of payments? What is the current account component of the balance of payments? What is the capital account component of the balance of payments?

28) The fundamental notion of balance means that all balance of payment transactions ________. A) have an offsetting receipt B) ignore unilateral transfers C) measure only a small share of total transactions D) overly emphasize the balance of trade Answer: A Diff: 2 Page Ref: 199 Skill: Concept Objective: STUDY QUESTION 4.7: What is the balance of payments? What is the current account component of the balance of payments? What is the capital account component of the balance of payments?

29) 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 Answer: A Diff: 1 Page Ref: 101 Skill: Concept Objective: STUDY QUESTION 4.8: What is meant by an economic system?

30) Spectrum analysis gives a sense of the range of economic systems in the world today. One end of the spectrum is anchored by the idea of ________, the other by the idea of ________. A) socialism; liberalism B) capitalism; communism C) communism; liberalism D) socialism; capitalism Answer: B Diff: 2 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.8: What is meant by an economic system?

31) Capitalism is a free-market system built on all of the following notions EXCEPT ________. A) private ownership of assets B) the right to earn a profit in return for individual effort C) arbitrary property rights D) private control of investment Answer: C Diff: 2 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.8: What is meant by an economic system?

32) Communism champions a ________ system built on state ownership of all economic factors of production and control of all economic activity. A) publicly planned B) competitively planned C) market-planned D) centrally planned Answer: D Diff: 1 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.8: What is meant by an economic system?

33) 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 C) alliances among key consumer groups that negotiate with companies to improve the quality of the purchasing process D) consumers who "vote" by their personal decision to buy or not buy products Answer: D Diff: 2 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.9: Identify the fundamental features of a market economy.

34) 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) centrally planned economy D) mixed economy Answer: B Diff: 1 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.9: Identify the fundamental features of a market economy. AACSB: Multicultural and Diversity

35) Consumer sovereignty refers to ________. A) consumers' freedom to influence production by exercising their power of choice regarding purchases B) the power granted to individuals through the right to vote C) the idea central to the proper functioning of command economies D) consumers' need for public goods as well as private goods from companies Answer: A Diff: 2 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.9: Identify the fundamental features of a market economy.

36) Market economies are characterized by ________. A) heavy government spending and high taxation to pay for a range of social services B) formal cooperation among government, companies, and workers to achieve stable growth and full employment C) minimal governmental participation D) high levels of government intervention Answer: C Diff: 2 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.9: Identify the fundamental features of a market economy. AACSB: Multicultural and Diversity

37) 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 Answer: A Diff: 1 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.10: Identify the fundamental features of a command economy. AACSB: Multicultural and Diversity

38) In a centrally planned economy, ________. A) businesses and consumers are assumed to be better judges of how resources should be allocated than is the government B) the government sets goals and determines the price and quantity of what is produced C) different economic sectors coordinate the activities of the central government D) each enterprise sets its goals, and then reports them to the central government Answer: B Diff: 1 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.10: Identify the fundamental features of a command economy. AACSB: Multicultural and Diversity

39) In a ________, all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan. A) market economy B) mixed economy C) command economy D) democracy Answer: C Diff: 1 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.10: Identify the fundamental features of a command economy. AACSB: Multicultural and Diversity

40) Which of the following is most typical of a command economy? A) The prices of goods and services frequently change. B) Quality of products and services tends to be consistent. C) Consumers have choices of many substitutes for any given product. D) Most products are usually in short supply. Answer: D Diff: 2 Page Ref: 203 Skill: Concept Objective: STUDY QUESTION 4.10: Identify the fundamental features of a command economy.

41) 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 Answer: D Diff: 1 Page Ref: 203 Skill: Concept Objective: STUDY QUESTION 4.11: Identify the fundamental features of a mixed economy. AACSB: Multicultural and Diversity

42) A ________ is one in which the state plays a significant role in directing the investment activities of private enterprise and in otherwise regulating business activity in accordance with national goals. A) market economy B) state-directed economy C) mixed economy D) command economy Answer: C Diff: 2 Page Ref: 203 Skill: Application Objective: STUDY QUESTION 4.11: Identify the fundamental features of a mixed economy. AACSB: Reflective Thinking

43) 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 needed to ________. A) destabilize poverty rates B) achieve low unemployment C) harness economic growth D) inequitably distribute wealth Answer: B Diff: 2 Page Ref: 203 Skill: Concept Objective: STUDY QUESTION 4.11: Identify the fundamental features of a mixed economy. AACSB: Multicultural and Diversity

44) By and large, governments are better able to instill ________ in the economy more effectively than the devices of the free market are. A) egalitarianism B) competition C) innovation D) efficiency Answer: A Diff: 2 Page Ref: 203 Skill: Concept Objective: STUDY QUESTION 4.11: Identify the fundamental features of a mixed economy.

45) 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 Answer: A Diff: 2 Page Ref: 204 Skill: Application Objective: STUDY QUESTION 4.12: Describe the idea of economic freedom and what it means to the economic development of a country. AACSB: Analytic Skills

46) People in ________ have greater economic freedom than those in ________. A) South America; North America B) North America; Asia C) South America; Europe D) Asia; Europe Answer: B Diff: 2 Page Ref: 206-207 Skill: Concept Objective: STUDY QUESTION 4.12: Describe the idea of economic freedom and what it means to the economic development of a country. AACSB: Multicultural and Diversity

47) 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 Answer: C Diff: 2 Page Ref: 205-206 Skill: Application Objective: STUDY QUESTION 4.12: Describe the idea of economic freedom and what it means to the economic development of a country. AACSB: Analytic Skills

48) The Economic Freedom Index indicates that the economic freedom is positively correlated with all of the following EXCEPT which one? A) life expectancy B) literacy C) environmental sustainability D) diversity Answer: D Diff: 2 Page Ref: 206 Skill: Concept Objective: STUDY QUESTION 4.12: Describe the idea of economic freedom and what it means to the economic development of a country.

49) The recent global credit crisis has interrupted the trend of 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 Answer: B Diff: 2 Page Ref: 206 Skill: Concept Objective: STUDY QUESTION 4.13: How has the role of the state changed in response to the global credit crisis?

50) History suggests that if the economic crisis worsens, we are likely to see more people question ________. A) the legitimacy of communism B) the legitimacy of capitalism C) the practicality of mixed economies D) the correlation between economic freedom and environmental stability Answer: B Diff: 2 Page Ref: 208 Skill: Concept Objective: STUDY QUESTION 4.13: How has the role of the state changed in response to the global credit crisis? AACSB: Multicultural and Diversity

51) Critics of freer markets are most likely to claim which of the following? A) Freer markets are not correlated with higher growth rates. B) A freer market skews income distribution and fosters inequality. C) A freer market does not lead to higher per capita incomes. D) Freer markets do not encourage the accumulation of powerful self-interests. Answer: B Diff: 2 Page Ref: 210 Skill: Concept Objective: STUDY QUESTION 4.13: How has the role of the state changed in response to the global credit crisis?

52) Which of the following countries is the best example of a mixed economic model? A) the United States B) France C) the United Kingdom D) Australia Answer: B Diff: 2 Page Ref: 210 Skill: Concept Objective: STUDY QUESTION 4.13: How has the role of the state changed in response to the global credit crisis? AACSB: Multicultural and Diversity

53) Trends in which of the following markets indicate movement toward increasing economic freedom? A) China B) the United States C) Japan D) Germany Answer: A Diff: 2 Page Ref: 211 Skill: Concept Objective: STUDY QUESTION 4.14: What are the means of a transition to a market economy? AACSB: Multicultural and Diversity

54) The transition to a different economic system follows a(n) ________ process in every country. A) identical B) different C) systematic D) random Answer: B Diff: 2 Page Ref: 211 Skill: Concept Objective: STUDY QUESTION 4.14: What are the means of a transition to a market economy? AACSB: Multicultural and Diversity

55) Consistent protection of property rights means investors and entrepreneurs, not (the) ________, will directly prosper from their hard work. A) government B) stakeholders C) companies D) consumers Answer: A Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.14: What are the means of a transition to a market economy?

56) Adopting free market principles requires that a government apply strict fiscal and monetary policies, namely ________. A) relying on administratively oriented instruments for macroeconomic stabilization B) setting soft, flexible budget limits C) using industry-based preferences to manage the money supply D) using market-based policies to manage the money supply Answer: D Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.14: What are the means of a transition to a market economy?

57) The process of economic transformation in the former command economies ________. A) typically follows the same process from country to country B) is usually accompanied by violent political change C) involves privatization of many or all of the factors of production D) must be accompanied by high economic growth rates Answer: C Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.15: What is privatization? How does it work?

58) ________ involves the sale and legal transfer of government-owned resources to private interests. A) Privatization B) Antitrust legislation C) Deregulation D) Renationalization Answer: A Diff: 1 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.15: What is privatization? How does it work?

59) When one company is able to control a product's supply and, therefore, its price, the company is considered a(n) ________. A) private enterprise B) unregulated industry C) antitrust market D) monopoly Answer: D Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.15: What is privatization? How does it work?

60) In general, transition toward a free market economy involves all of the following EXCEPT which one? A) increasing government subsidies to protect locally owned and operated enterprises B) liberalizing economic activity, prices, and market operations C) developing market-oriented instruments for macroeconomic stabilization D) improving economic efficiency Answer: A Diff: 2 Page Ref: 212-213 Skill: Application Objective: STUDY QUESTION 4.15: What is privatization? How does it work? AACSB: Analytic Skills

61) In the aftermath of the recent worldwide credit crisis, there has been a dropping off in the level of government involvement in economic affairs. Answer: FALSE Diff: 2 Page Ref: 179 Skill: Concept Objective: STUDY QUESTION 4.1: What are the benefits of international economic analysis?

62) When analyzing the key elements of a country's economic environment, it is best to apply a systems perspective. Answer: TRUE Diff: 2 Page Ref: 188 Skill: Concept Objective: STUDY QUESTION 4.1: What are the benefits of international economic analysis?

63) Gross domestic product is the value of production that takes place within a nation's border, without regard to whether the production is done by domestic or foreign factors of production. Answer: TRUE Diff: 1 Page Ref: 182 Skill: Concept Objective: STUDY QUESTION 4.2: What are GNI and GDP?

64) A car manufactured in the U.S. by Toyota would be included in the calculation of the GDP for the United States. Answer: TRUE Diff: 2 Page Ref: 182 Skill: Application Objective: STUDY QUESTION 4.2: What are GNI and GDP? AACSB: Reflective Thinking

65) The calculation of GNI per capita takes into account the differences in the cost of living from one country to another. Answer: FALSE Diff: 2 Page Ref: 182 Skill: Concept Objective: STUDY QUESTION 4.2: What are GNI and GDP?

66) Economic indicators such as GNI, and its expression in terms of per capita, growth rate, and PPP, are not sufficient to develop a clear picture of the overall quality of life in a country. Answer: TRUE Diff: 2 Page Ref: 193 Skill: Application Objective: STUDY QUESTION 4.3: What is the implication of the Human Development Index for measuring economic development? AACSB: Analytic Skills

67) The Human Development Index measures the average achievements in a country on three basic dimensions of human development: mortality, knowledge, and standard of living. Answer: TRUE Diff: 2 Page Ref: 187 Skill: Concept Objective: STUDY QUESTION 4.3: What is the implication of the Human Development Index for measuring economic development?

68) Inflation occurs because aggregate demand is growing as fast as aggregate supply. Answer: FALSE Diff: 2 Page Ref: 188 Skill: Concept Objective: STUDY QUESTION 4.4: What do we mean by inflation? How does it affect the business environment?

69) Inflation affects interest rates, exchange rates, the cost of living, general economic confidence, and the stability of the current political system. Answer: TRUE Diff: 1 Page Ref: 188 Skill: Concept Objective: STUDY QUESTION 4.4: What do we mean by inflation? How does it affect the business environment?

70) The so-called "misery index" is the sum of a country's inflation and unemployment rates. Answer: TRUE Diff: 2 Page Ref: 192 Skill: Concept Objective: STUDY QUESTION 4.5: What do we mean by unemployment and debt? How do both affect the business environment?

71) External debt results when the government spends more than it collects in revenues, whereas internal debt results when a government borrows money from foreign lenders. Answer: FALSE Diff: 2 Page Ref: 194 Skill: Concept Objective: STUDY QUESTION 4.5: What do we mean by unemployment and debt? How do both affect the business environment?

72) Uneven income distribution is largely a problem confined to poorer nations. Answer: FALSE Diff: 2 Page Ref: 195 Skill: Concept Objective: STUDY QUESTION 4.6: What do we mean by income distribution and poverty? How do they affect the business environment? AACSB: Multicultural and Diversity

73) There is a strong relationship between skewed income distributions and the split between those who live in urban settings versus those who live in rural areas. Answer: TRUE Diff: 2 Page Ref: 195 Skill: Concept Objective: STUDY QUESTION 4.6: What do we mean by income distribution and poverty? How do they affect the business environment? AACSB: Multicultural and Diversity

74) The balance of trade records is a record of a country's international transactions that take place among companies, governments, or individuals. Answer: FALSE Diff: 1 Page Ref: 198 Skill: Concept Objective: STUDY QUESTION 4.7: What is the balance of payments? What is the current account component of the balance of payments? What is the capital account component of the balance of payments?

75) In a country's balance of payments, the current account and the capital account represent equal values. Answer: FALSE Diff: 2 Page Ref: 198 Skill: Concept Objective: STUDY QUESTION 4.7: What is the balance of payments? What is the current account component of the balance of payments? What is the capital account component of the balance of payments?

76) An economic system is the set of structures and processes that guides the allocation of resources and shapes the conduct of business activities within a country. Answer: TRUE Diff: 1 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.8: What is meant by an economic system?

77) The range of economic systems in the world today, when represented on a spectrum, has one end anchored by the idea of capitalism, the other with that of socialism. Answer: FALSE Diff: 2 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.8: What is meant by an economic system?

78) A market economy gives individuals the freedom to decide where to work doing what, how to spend or save money, and whether to consume now or later. Answer: TRUE Diff: 1 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.9: Identify the fundamental features of a market economy. AACSB: Multicultural and Diversity

79) A market economy is one in which resources are primarily owned and controlled by individuals and companies. Answer: TRUE Diff: 1 Page Ref: 201 Skill: Concept Objective: STUDY QUESTION 4.9: Identify the fundamental features of a market economy. AACSB: Multicultural and Diversity

80) 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 all planned by the government. Answer: TRUE Diff: 1 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.10: Identify the fundamental features of a command economy. AACSB: Multicultural and Diversity

81) The government considers itself a better judge of resource allocation than businesses or citizens in a market economy. Answer: FALSE Diff: 2 Page Ref: 202 Skill: Concept Objective: STUDY QUESTION 4.10: Identify the fundamental features of a command economy.

82) In a mixed economy, all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan. Answer: FALSE Diff: 1 Page Ref: 203 Skill: Concept Objective: STUDY QUESTION 4.11: Identify the fundamental features of a mixed economy. AACSB: Multicultural and Diversity

83) A mixed economy is a system where economic decisions are largely market driven and ownership is largely private, but the government intervenes in many private economic decisions. Answer: TRUE Diff: 1 Page Ref: 203 Skill: Concept Objective: STUDY QUESTION 4.11: Identify the fundamental features of a mixed economy. AACSB: Multicultural and Diversity

84) There is a positive correlation between economic freedom and economic growth. Answer: TRUE Diff: 2 Page Ref: 205 Skill: Application Objective: STUDY QUESTION 4.12: Describe the idea of economic freedom and what it means to the economic development of a country. AACSB: Analytic Skills

85) The collapse of communism in the late 1980s and early 1990s led to a more widespread adoption of the principles of capitalism. Answer: TRUE Diff: 2 Page Ref: 204 Skill: Concept Objective: STUDY QUESTION 4.12: Describe the idea of economic freedom and what it means to the economic development of a country. AACSB: Multicultural and Diversity

86) In response to the global credit crisis, the United States government took actions intervening in the economy that increased economic freedom. Answer: FALSE Diff: 2 Page Ref: 208 Skill: Application Objective: STUDY QUESTION 4.13: How has the role of the state changed in response to the global credit crisis? AACSB: Reflective Thinking

87) Until the recent global credit crisis, the trend for decades had been the adoption of aspects of the free market model. Answer: TRUE Diff: 2 Page Ref: 206 Skill: Concept Objective: STUDY QUESTION 4.13: How has the role of the state changed in response to the global credit crisis? AACSB: Multicultural and Diversity

88) As countries in transition from a command to a market economy move to control expenditures and reduce their budget deficits, one important strategy to pursue is privatization of state-owned enterprises. Answer: TRUE Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.14: What are the means of a transition to a market economy?

89) Economic transition from a command to market economy requires developing market-oriented instruments for macroeconomic stabilization. Answer: TRUE Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.14: What are the means of a transition to a market economy?

90) One example of a move toward privatization is the United States government spending billions of dollars for a 60 percent equity position in General Motors. Answer: FALSE Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.15: What is privatization? How does it work?

91) In principle, regulations prevent companies from maximizing efficiency. Answer: TRUE Diff: 2 Page Ref: 212 Skill: Concept Objective: STUDY QUESTION 4.15: What is privatization? How does it work?