Chapter 4 ib

Chapter 4 – The Economic Environment

Multiple Choice Questions

23.    Countries that are high in economic freedom have more control in the _______________ than the _______________ sector.

a.       private; public

b.       public; private

c.       public; commercial

d.       commercial; public

24.    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.       democracy

d.      command economy

28.    _______________ occurs because aggregate demand is growing faster than aggregate supply.

a.       Inflation

b.       Deflation

c.       Expansion

d.       Retention

30.    In general, the higher the inflation in a country, the more likely:

a.       that country’s currency will rise.

b.       people’s culture will change.

c.       that country’s currency will fall.

d.       the currency will not be affected.

32.    The _______________ records a country’s international transactions.

a.       balance of payments

b.       surplus of payments

c.       deficit of payments

d.       payments in arrears

42.    In general, transition implies all of the following EXCEPT:

a.       increasing government subsidies to protect locally owned and operated enterprises

b.       liberalizing economic activity, prices, and market operations

c.       developing indirect, market-oriented instruments for macroeconomic stabilization

d.       achieving effective enterprise management and economic efficiency

45.    _______________ reduces debt by removing the need of the government to subsidize the state-owned enterprises.

a.       Commercialization

b.      Privatization

c.       Universalism

d.       Communism

Essay Questions

48.    List the issues related to economic forces in the international arena.

         Answer

         Economic forces include such issues as the general economic framework of a country, economic stability, the existence and influence of capital markets, factor endowments, the size of the market, and the availability of a good economic infrastructure, such as transportation and communications.

        

49.    What are the key economic forces affecting business operations?

        

Answer

         Economic forces include such issues as the general economic framework of a country, economic stability, the existence and influence of capital markets, factor endowments, the size of the market, and the availability of good economic infrastructure, such as transportation and communications.  Managers need to understand the nature of the world’s economies if they are going to make wise investment decisions.

        

51.    What are meant by the quality of demand and the quantity of demand?

        

Answer

         Demand conditions include three dimensions:  the composition of home demand, the size and pattern of growth, and the internalization of demand.  The composition of demand is known as the quality of demand, and the size is known as the quantity of demand.

        

54.    In a short essay, describe the World Bank and list the various programs used by the World Bank to assist underdeveloped countries.

         Answer

The World Bank is a multilateral lending agency that uses per-capita GNI as a basis for its lending policies. The World Bank Group was founded in 1944 by the United Nations. It consists of five closely held institutions: the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Multilateral Guarantee Agency, and the International Center for Settlement of Investment Disputes. The World Bank’s major objective is to provide development assistance to countries, especially the poorest of the poor.

         The programs of the World Bank include:

a.      investing in people, particularly through basic health and education.

b.      protecting the environment.

c.      supporting and encouraging private business development.

d.      strengthening the ability of the governments to deliver quality services, efficiently and transparently.

e.      promoting reforms to create a stable macroeconomic environment, conducive to investment and long-term planning.

f.       focusing on social development, inclusion, governance, and institution building as key elements of poverty reduction.

55.    What are the functions of the World Bank?

         Answer

The activities of the World Bank are important to MNEs, because they build infrastructure and promote economic growth and stability, improving the quality and quantity of demand.  In particular, the World Bank is most interested in eliminating poverty and its demand-reducing influences.