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Testing. Study Guide The Economic Environment

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Chapter 4 Study Guide The Economic Environment

1) The recent global economic financial crises have led to proposals of more or less regulations?

2) Income, purchasing power, market size, and market type are all key elements of the political or the economic environment?

3) From the 1980s to the most recent global economic crisis, did countries turn away from the principles and practices of free markets or adopt the principles and practices of free markets?

4) There is no universal scheme to assess the performance and potential of a country’s economic environment due to three conditions. What are they?

5) Gross national income (GNI), the broadest measure of economic activity for a country, is defined as ______.

6) In computing GNI, the value of a Ford car that is manufactured in Mexico using capital from the United States would be added to the GNI of which: United States or Mexico?

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 ________.

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?

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.

10) The United Nations’ ________ measures life expectancy, educational attainment, and the standard of living in a given country.

11) The Human Development Index measures the average achievements in a country on three basic dimensions of human development, including ________.

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.

13) A worrisome outcome of chronic inflation is that it tends to ________.

14) ________ is a general, sustained rise in prices measured against a standard level of purchasing power.

15) In order to reduce or control inflation, a government would most likely do which of the following?

16) ________ can occur when demand declines and supply grows.

17) In the United States, U3 is the official unemployment rate. This rate provides a measure of ______.

18) The so-called “misery
index” is the sum of a country’s ________.

20) A country’s debt has two parts: internal and external. Internal debt results when ________; external debt results when ________.

21) Why is extremely uneven income distribution a problem?

23) The World Bank reports that roughly ________ percent of the world’s population is poor.

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.

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 ________.

26) The two main categories in the balance of payments are the ________.

27) The ________ tracks all trade activity in merchandise.

28) The fundamental notion of balance means that all balance of payment transactions ________.

29) An economic system is the set of structures and processes that ________ in a country.

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 ________.

31) Capitalism is a free-market system built on ________.

32) Communism champions a ________ system built on state ownership of all economic factors of production and control of all economic activity.

33) In a market economy, the patterns of resource allocation are most directly influenced by ________.

34) A system in which individuals, rather than the government, make the majority of economic decisions is commonly referred to as a ________.

35) Consumer sovereignty refers to ________.

36) Market economies are characterized minimal governmental participation or high levels of government intervention?

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 ________.

38) In a centrally planned economy, the government sets goals and determines the price and quantity of what is produced or each enterprise sets its goals, and then reports them to the central government?

39) In a ________, all
dimensions of economic activity, including pricing and production decisions, are determined by a central government plan.

40) In a command economy most products are usually in short supply. Why?

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.

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.

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 ________.

44) By and large, governments are better able to instill ________ in the economy more effectively than the devices of the free market are.

45) Since the late 1980s, the growing emergence of freer markets has been powered by the realization that ________.

46) People in ________ have greater economic freedom than those in ________.

47) In the Economic Freedom Index, ________ exhibit high economic freedom whereas ________ exhibit little to no economic freedom.

48) The Economic Freedom Index indicates that the economic freedom is positively correlated with

49) The recent global credit crisis has interrupted the trend of economies ________.

50) History suggests that if the economic crisis worsens, we are likely to see more people question ________.

51) Critics of freer markets are most likely to claim _____.

52) Which of the following countries is the best example of a mixed economic model?

53) Trends in which market indicate movement toward increasing economic freedom?

54) The transition to a different economic system follows a(n) ________ process in every country.

55) Consistent protection of property rights means investors and entrepreneurs, not (the) ________, will directly prosper from their hard work.

56) Adopting free market principles requires that a government apply strict fiscal and monetary policies, namely ________.

57) The process of economic transformation in the former command economies ________.

58) ________ involves the sale and legal transfer of government-owned resources to private interests.

59) When one company is able to control a product’s supply and, therefore, its price, the company is considered a(n) ________.

60) In general, transition toward a free market economy involves ________.

True or false:
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.

62) When analyzing the key elements of a country’s economic environment, it is best to apply a systems perspective. 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.

64) A car manufactured in the U.S. by Toyota would be included in the calculation of the GDP for the United States. 65) The calculation of GNI per capita takes into account the differences in the cost of living from one country to another.

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.

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.

68) Inflation occurs because aggregate demand is growing as fast as aggregate supply.

69) Inflation affects interest rates, exchange rates, the cost of living, general economic confidence, and the stability of the current political system.

70) The so-called “misery index” is the sum of a country’s inflation and unemployment rates.

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.

72) Uneven income distribution is largely a problem confined to poorer nations. 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.

74) The balance of trade records is a record of a country’s international transactions that take place among companies, governments, or individuals.

75) In a country’s balance of payments, the current account and the capital account represent equal values.

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.

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. 7

8) 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.

79) A market economy is one in which resources are primarily owned and controlled by individuals and companies. 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.

81) The government considers itself a better judge of resource allocation than businesses or citizens in a market economy.

82) In a mixed economy, all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan.

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.

84) There is a positive correlation between economic freedom and economic growth.

85) The collapse of communism in the late 1980s and early 1990s led to a more widespread adoption of the principles of capitalism.

86) In response to the global credit crisis, the United States government took actions intervening in the economy that increased economic freedom.

87) Until the recent global credit crisis, the trend for decades had been the adoption of aspects of the free market model.

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.

89) Economic transition from a command to market economy requires developing market-oriented instruments for macroeconomic stabilization.

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.

91) In principle, regulations prevent companies from maximizing efficiency.


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