2 - Economic Environment

Question 1

True/False: Capital movements have replaced trade as the driving force of the world economy

Answer 1

True

Question 2

True/False: Individual countries are the dominating factor behind capital movements and production.

Answer 2

False, the world economy is the dominating factor.

Question 3

True/False: Production has become uncoupled from employment within the world economy

Answer 3

True

Question 4

Name the four main types of economic systems (matrix based on resource allocation and resource ownership)

Answer 4

Market capitalism (private ownership, market allocation)
Centrally planned capitalism (private ownership, command allocation)
Market socialism (state ownership, market allocation)
Centrally planned socialism (state ownership, command allocation)

Question 5

Properties of market capitalism

Answer 5

Driven by consumers
Individuals/firms allocate resources
Gov’s role is to promote competition, ensure consumer protection

Question 6

Properties of centrally planned socialism

Answer 6

State holds broad powers, decides what’s provided, quantities of provisions, allocations of provisions.
Demand typically higher than supply.

Question 7

Factors affecting consumer purchasing power and spending patterns

Answer 7

Level of economic development
Consumer income levels and distributions
Exchange rates

Question 8

Characteristics of low-income countries

Answer 8

Limited industrialization
High % farmers, high birth rates
Low literacy
Dependence on foreign aid
Political instability
Ex: Sub-Saharan Africa

Question 9

Characteristics of lower-middle income countries

Answer 9

Rapidly expanding consumer markets
Cheap labor
Mature, standardized, labor-intensive industries
Ex: China & India

Question 10

Characteristics of upper-middle income countries

Answer 10

Rapidly industrializing, urbanizing
Rising wages, high literacy rates, education
“Newly industrializing economies” (NIEs)
Ex: Brazil, Russia, Malaysia, Hungary, Mexico

Question 11

Characteristics of high-income countries

Answer 11

Advanced, developed, post-industrial
Sustained economic growth through disciplined innovation
Service sector is more than 50% of GNI
Households have high ownership levels of basic products

Question 12

A current account is…?

Answer 12

The record of all recurring trade in merchandise and services, and humanitarian aid

Question 13

A capital account is…?

Answer 13

The record of all long-term direct investment, portfolio investment, and capital flows

Question 14

The balance of payments is…?

Answer 14

The record of all economic transactions between the residents of a country and the rest of the world