Deck 3: Political Economy and Economic Development

Question 1

GNI allows a more direct comparison of living standards in different countries.

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

Totalitarian states promote human freedom and human development, which facilitates economic progress.

Answer 3

False

Question 4

GNI per capita can be adjusted by purchasing power to account for differences in the cost of living.

Question 5

GNI and PPP data are useful because they provide a dynamic analysis of economic development.

Question 6

The economic freedom associated with a market economy creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy.

Question 7

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.

Question 8

Gross national income per-capita data take into account differences in the cost of living.

Question 9

Political freedom is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations.

Question 10

Some totalitarian regimes have fostered a market economy and strong property rights protection and have experienced rapid economic growth.

Question 11

Anecdotal comparisons suggest that the assertion that nations that invest more in education will have higher growth rates is true.

Question 12

Privatization refers to the process of hiring private management consultancy firms to manage state-owned enterprises.

Question 13

In Sen's view, development is an economic process that should be assessed by material output measures such as GNI per capita.

Question 14

If a country's economy is to sustain long-run economic growth, the business environment must be conducive to innovations and entrepreneurial activity.

Question 15

The base for the purchasing power parity adjustment of the GNI is the cost of living in the United States.

Question 16

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.

Question 17

The state can expropriate the profits from innovation through legal means.

Question 18

Most property in poor countries is owned legally by investors.

Question 19

Democracy is one of the consequences of economic growth and progress.

Question 20

In a planned economy, the means of production are owned by private individuals.

Question 21

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.

Question 22

For privatization to work, it must also be accompanied by a more general deregulation and opening of the economy.

Question 23

New information and communication technologies have enabled the spread of democratic ideals.

Question 24

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.

Question 25

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.

Question 26

A well-functioning market economy requires laws protecting private property rights and providing mechanisms for contract enforcement.

Question 27

Economic freedom necessarily equates with political freedom.

Question 28

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.

Question 29

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.

Question 30

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.

Question 31

Privatization reduces the incentive of business owners to increase productivity, enter new markets, and to exit losing ones.

Question 32

First-mover advantages are the advantages that accrue to early entrants into a market.

Question 33

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.

Question 34

In a command economy, the prices are determined by the free interplay of demand and supply.

Question 35

A market with a large number of consumers, with low living standards will have a relatively large market when measured in economic terms.

Question 36

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.

Question 37

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.

Question 38

Deregulation involves prohibiting private enterprises from operating in most sectors of the economy.

Question 39

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.

Question 40

In mixed economies, in certain sectors the state set prices, owned businesses, limited private enterprise, restricted investment by foreigners, and restricted international trade.

Question 41

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.

Question 42

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

Question 43

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

Question 44

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.

Question 45

____, 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

Question 46

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) they don't consider exchange rate

Question 47

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

Question 48

_____ 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

Question 49

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.

Question 50

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.

Question 51

One visible indicator of political risks tends to be a country's inflation rate.

Question 52

A country's economic system and property rights regime are reasonably good predictors of economic prospects.

Question 53

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

Question 54

Economic risks are independent of political risk.

Question 55

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

Question 56

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.

Question 57

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.

Question 58

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.

Question 59

It may be more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses.

Question 60

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

Question 61

Which of the following is a characteristic of a command economy?

A) Promotion of foreign direct investment
B) Allowing prices to be set by the interplay between demand and supply
C) Limited international trade
D) Restricted state-ownership of means of production

Question 62

Many states in Asia, Latin America, and Western Europe have shifted away from a mixed economy to a market-based economy. Which of the following measures is most likely to be promoted by such states?

A) State-ownership of enterprises
B) Fixing of prices by the government
C) Deregulation of the economy
D) Lowering competition

Question 63

_____ involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.

A) Deregulation
B) Trade certification
C) A product law
D) A liability law

Question 64

Sony was a pioneer in the portable music market segment. Sony's Walkman was an innovative product which created a new category altogether and made Sony a technological leader. This gave the company an edge over other consumer electronics brands that introduced portable music players for a very long time. In this example, Sony had the:

A) vertical integration advantage.
B) purchasing power parity advantage.
C) free-rider advantage.
D) first-mover advantage.

Question 65

Which of the following factors is NOT likely to make a country a more attractive location for international business?

A) Democratic regimes
B) Planned economies
C) Strong protection of property rights
D) Market-based economic policies

Question 66

Which of the following statements is true about Samuel Huntington?

A) Samuel Huntington argues that there is a universal civilization based on widespread acceptance of Western democratic ideals.
B) Samuel Huntington argues that the rise of Islamic fundamentalism is a response to the alienation produced by modernization.
C) Samuel Huntington argues that global terrorism is a product of the static nature of traditional values and religious systems.
D) Samuel Huntington argues that many societies, by adopting the material paraphernalia of the modern world, are becoming more Western.

Question 67

In many countries entrepreneurs and other business leaders, eager to protect their property rights and ensure the dispassionate enforcement of contracts, had pushed for ____. This contributed to a wave of democratic revolutions during the late 1980s and early 1990s.

A) state ownership of productive resources
B) regulated markets
C) democratic reforms
D) planned economies

Question 68

The finance minister of a country considers several large, state-owned iron manufacturing units to be inefficient and a source of corruption. To generate resources for public expenditure and promote economic growth, the government decides to auction an entire iron manufacturing plant to sell it to a strategic investor. This process exemplifies ____.

A) nationalization
B) industrialization
C) liberalization
D) privatization

Question 69

Which of the following is an example of deregulation?

A) A country that implements a simplified income tax filing system
B) A country that takes over a leading private bank to prevent it from filing for bankruptcy
C) A country that provides agricultural subsidies to farmers
D) A country that encourages foreign direct investment

Question 70

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.

Question 71

Which of the following is a step in the shift toward a market-based economic system?

A) Increasing trade barriers
B) Increasing price controls
C) Nationalization
D) Creation of a legal system to safeguard property rights

Question 72

The sale of state assets through an auction is most likely to lead to ____.

A) trade certification
B) privatization
C) nationalization
D) market regulation

Question 73

According to political scientist Samuel Huntington, the rise of Islamic fundamentalism is a response to ____.

A) the corruption prevalent in planned economies
B) the restricted access to formal education
C) the alienation produced by modernization
D) the restrictions associated with totalitarian regimes

Question 74

Paralleling the spread of democracy, since the 1980s there has been the transformation from:

A) free-market economies to socialist economies.
B) mixed economies to collectivist economies.
C) open economies to closed economies.
D) command economies to market-based economies.

Question 75

Political scientist Samuel Huntington argues that modernization in non-Western societies can result in a retreat toward the traditional. This is exemplified by ____.

A) the Islamic resurgence
B) the popularization of modern gadgets
C) the adoption of Western culture
D) the higher levels of literacy and education

Question 76

The benefits of doing business in a country are a function of all of the following EXCEPT:

A) the size of the market.
B) its present wealth.
C) its past growth.
D) its future growth prospects.

Question 77

Since the late 1980s, there has been a spread of democracy. This is because ____.

A) a state's ability to control access to uncensored information has increased
B) the socialist model failed to deliver economic progress to the vast bulk of their populations
C) in many countries the middle and working classes have become less powerful
D) in many countries state-ownership of firms has encouraged innovation and entrepreneurship

Question 78

Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms:

A) stop receiving subsidies from the government.
B) are completely owned by private individuals.
C) are sheltered from foreign competition.
D) are allowed to restructure their operations.

Question 79

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.

Question 80

For privatization to work, it must also be accompanied by:

A) an increase in trade barriers and tariffs.
B) an increase in government subsidies.
C) stronger barriers to foreign competition.
D) a general deregulation of the economy.