Question 1

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B) totalitarian governments collapsed and have been replaced by democratically elected governments.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.

Accepted Answer

There has been a strong move away from centrally planned and mixed economies and toward a more free market economic model.

Question 2

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

Accepted Answer

One visible indicator of economic mismanagement tends to be a country's inflation rate. Another is the level of business and government debt in the country.

Question 3

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.

Accepted Answer

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 4

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

Accepted Answer

Many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations. In looking for alternatives to the socialist model, the populations of these countries could not have failed to notice that most of the world's strongest economies were governed by representative democracies.

Question 5

Economic risks are independent of political risk.

Accepted Answer

Economic risks are not independent of political risk. Economic mismanagement may give rise to significant social unrest and hence political risk.

Question 6

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

Accepted Answer

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).

Question 7

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

Accepted Answer

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.

Question 8

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

Accepted Answer

Sen's influential thesis has been picked up by the United Nations, which has developed the Human Development Index (HDI) to measure the quality of human life in different nations.

Question 9

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.

Accepted Answer

The lack of economic freedom and incentives for innovation occurred in many mixed economies in those sectors where the state had a monopoly. This stagnation provided the impetus for the widespread privatization of state-owned enterprises that was witnessed in many mixed economies during the mid-1980s and is still going on today.

Question 10

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.

Accepted Answer

In some countries the "official" figures do not tell the entire story because large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. Estimates suggest that in India it may be around 50 percent of GDP, which implies that the Indian economy is half as big again as the officially reported figures.

Question 11

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

Accepted Answer

One common measure of economic development is a country's gross national income (GNI) per head of population. GNI per person figures can be misleading because they don't consider differences in the cost of living.

Question 12

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.

Accepted Answer

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. According to Sen, development should be seen as a process of expanding the real freedoms that people experience.

Question 13

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.

Accepted Answer

While it is possible to argue that democracy is not a necessary precondition for a free market economy in which property rights are protected, subsequent economic growth often leads to establishment of a democratic regime.

Question 14

_____ 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

Accepted Answer

Strong legal protection of property rights is another requirement for a business environment to be conducive to innovation, entrepreneurial activity, and hence economic growth.

Question 15

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.

Accepted Answer

The lack of economic freedom and incentives for innovation was probably a main factor in the economic stagnation of many former communist states and led ultimately to their collapse at the end of the 1980s. Similar stagnation occurred in many mixed economies in those sectors where the state had a monopoly (such as coal mining and telecommunications in Great Britain).

Question 16

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.

Accepted Answer

The HDI comes much closer to Amartya Sen's conception of how development should be measured than narrow economic measures such as GNI per capita-although Sen's thesis suggests that political freedoms should also be included in the index, and they are not.

Question 17

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

Accepted Answer

The economic freedom associated with a market economy creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy. In a market economy, any individual who has an innovative idea is free to try to make money out of that idea by starting a business (by engaging in entrepreneurial activity).

Question 18

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

Accepted Answer

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.

Question 19

_____,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

Accepted Answer

The Nobel Prize-winning economist Amartya Sen has argued that development is not just an economic process, but it is a political one too, and to succeed requires the "democratization" of political communities to give citizens a voice in the important decisions made for the community.

Question 20

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

Accepted Answer

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.

Quiz 3: National Differences in Economic Development

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:

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

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.

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

Economic risks are independent of political risk.

The state can expropriate the profits from innovation through legal means,such as _____.

Which of the following helps in adjusting GNI such that it accounts for the differences in the cost of living?

Which of the following is a measure that is developed by the United Nations to measure the quality of life in different nations?

Which of the following statement pertaining to innovation and entrepreneurship is NOT true?

In some countries,the official GNI per capita measured at PPP data does not reflect the actual the total annual income because:

GNI per person figures can be misleading because _____.

According to Amartya Sen,development should be:

A free market economy in which property rights are protected leads to subsequent economic growth,which often leads to the establishment of:

_____ is required for a business environment to be conducive to innovation and entrepreneurial activity.

Stagnation can occur in planned economies because:

The HDI is based on all of the following measures EXCEPT:

A market economy encourages innovation because _____.

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 Nobel Prize-winning economist,has argued that development is not just an economic process,but it is a political one as well.

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 _____.