Chapter 4

Question 1

generally have high income levels, advanced technologies, sophisticated infrastructure, high living standards, but slowing growth.

Answer 1

Developed economies

Question 2

generally have low incomes, limited industrialization, basic infrastructure, challenging living standards, and chronic civil difficulties.

Answer 2

Developing (traditional) economies

Question 3

is the largest, but poorest socioeconomic group in the world.

Answer 3

The Base of the Pyramid

Question 4

economies in transition, emerging markets, frontier markets, or newly industrializing countries.

Answer 4

Emerging economies

Question 5

exhibit improving productivity, rising income, and growing prosperity, particularly relative to slower growing developing economies.

Answer 5

Emerging economies

Question 6

holds that one has the right to work, produce, consume, save, and invest in the way that one prefers.

Answer 6

Economic freedom

Question 7

measures the absence of government constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty.

Answer 7

Economic freedom

Question 8

Rule of Law components

Answer 8

Property Rights
Government Integrity
Judicial Effectiveness

Question 8

Limited Government components

Answer 8

Fiscal Health
Government Spending
Tax Burden

Question 9

Regulatory Efficiency components

Answer 9

Labour Freedom
Business Freedom
Monetary Freedom

Question 10

Open Markets components

Answer 10

Trade Freedom
Investment Freedom
Financial Freedom

Question 11

Property Rights

Answer 11

Ability of individuals to accumulate, use, trade, and sell private property, protected and safeguarded by clear, specific, and explicit laws that are fully and fairly enforced by the state.

Question 12

Government Integrity

Answer 12

How does corruption, in forms such as cronyism, extortion, graft, bribery, patronage, nepotism, and self-dealing, by creating insecurity, coercion, uncertainty, and opportunism subvert economic transactions, activities, and relationships.

Question 13

Judicial Effectiveness

Answer 13

Degree that the judicial system impartially interprets the legal framework and justly applies the law in order to sustain the public’s confidence that the legal system operates with an absence of bias against parties.

Question 14

Fiscal Health

Answer 14

Extent that a government institute systematic policies that manage taxation, public revenues, and public debt to support and sustain stable economic conditions.

Question 15

Government Spending

Answer 15

The burden imposed on the economic system by the monies spent by government agents in acquiring goods, providing services, and transferring income payments to its citizens.

Question 16

Tax Burden

Answer 16

The portion of total income and profits that residents and companies pay, in the form of taxes such as income, payroll, consumption, tariff, sales, and property, to the local, state, regional, and federal government.

Question 17

Labour Freedom

Answer 17

The legal codes and regulatory policies that influence workers’ rights in the workplace on matters such as occupational safety and health, wages and hours of work, collective bargaining, and employment discrimination.

Question 18

Business Freedom

Answer 18

The legal, regulatory, infrastructure contexts that influence and enterprise’s efficient management of matter such as the ease of starting, operating, and closing a business.

Question 19

Monetary Freedom

Answer 19

Measure of price stability and scale and scope of price controls in terms of their support and distortion of market activity.

Question 20

Trade Freedom

Answer 20

The openness of an economy to the export and imports of goods and service as moderated by the scale and scope of tariff and nontariff barriers applied by the government to regulate trade.

Question 21

Investment Freedom

Answer 21

The absence of investment restrictions, such as burdensome bureaucracy, private property regulation, and foreign exchange controls, that complicate of control and individual’s choicve to allocate resources to activities and opportunities.

Question 22

Financial Freedom

Answer 22

The independence an individual or company attains that buffers, defends, and protects them from interference by government agents, officials, and policies.

Question 23

The track record of economic freedom in countries worldwide

Answer 23

indicates a direct relationship with higher productivity, greater prosperity, and less poverty.

Question 24

Richer countries

Answer 24

typically regulate business activities less.

Question 25

Poorer countries

Answer 25

typically regulate business activities more.

Question 26

Paradoxically, despite the benefits of economic freedom,

Answer 26

just six countries out of 180 rank as a “free” economy.

Question 27

Managers watch key events to gauge the contest between economic freedom and state control. These include how the government:

Answer 27

• regulates the economy,
• protects property rights,
• sets fiscal and monetary policies,
• promotes transparent decision making

Question 28

Economic System

Answer 28

whether it is a market, mixed, or command economy clarifies the drivers of supply and demand, the role of price as a signaling device, the efficiency of resource allocation, and the degree of economic freedom.

Question 29

An economic system

Answer 29

organizes the production, distribution, and consumption of goods and services.

Question 30

Capitalism

Answer 30

and its advocacy of the private ownership of the factors of production anchors a market economy.

Question 31

A market economy

Answer 31

endorses the ideals of economic freedom, the doctrine of capitalism, and the principle of the invisible hand.

Question 32

In the command economy,

Answer 32

the visible hand of the state supersedes the invisible hand of the market.

Question 33

The mixed economic system

Answer 33

combines elements of the market and command economic systems; both government and private enterprise influence production, consumption, investment, and savings.

Question 34

The market economy

Answer 34

is anchored in capitalism.

Question 35

The command economy

Answer 35

is anchored in communism.

Question 36

The mixed economy

Answer 36

is anchored in socialism.

Question 37

Gross national income (GNI)

Answer 37

among monetary aggregates, GNI provides the broadest measure of a country’s economic performance.

Question 38

Gross domestic product (GDP)

Answer 38

is the total market value of goods and services produced by workers and capital within a nation’s borders; it provides the truest measure of a nation’s economic activity.

Question 39

Gross national product (GNP)

Answer 39

is the total value of all final goods and services produced within a nation in a particular year.

Question 40

Managers improve the usefulness of economic indicators by adjusting for the

Answer 40

• growth rate of the economy
• the nation’s population
• local cost of living

Question 41

Purchasing power parity (PPP)

Answer 41

controls for differences in the relative cost of living between countries.

Question 42

Shadow Economy (black market)

Answer 42

includes extralegal activities (e.g. driving an unlicensed shuttle, covert payoffs, travel-visa-violations, under-the-table activity, unregistered day-care centres, etc) and illegal activities (e.g. drug slinging, prostitution, illicit gambling, cigarette & alcohol smuggling, product piracy) that fall beyond the official statistics

Question 43

Green economics

Answer 43

advocates assessing economic performance in terms of the effect of current choices on long-term sustainability.

Question 44

Net national product (NNP)

Answer 44

measures the depletion of natural resources and degradation of the environment that can result from making and consuming products.

Question 45

Genuine progress indicator (GPI)

Answer 45

unlike GDP, GPI counts voluntary and unpaid household work as paid labor and subtracts the costs linked to crime, pollution, and family stress.

Question 46

Human development index (HDI)

Answer 46

primary components: Longevity, measured by life expectancy at birth; Knowledge, measured by the adult literacy rate and the combined primary, secondary, and tertiary gross enrollment ratio; and Standard of Living, measured by GNI per capita (PPP).

Question 47

Sustainability and stability perspectives

Answer 47

hold that the objective of economic activity is to create an environment for people to enjoy long, healthy, and happy lives.

Question 48

Green economics

Answer 48

argues that fully measuring growth, progress, and prosperity calls for assessing the consequences of economic choice on sustainability and stability.

Question 49

An economy’s competitiveness is determined by

Answer 49

its productivity, namely its efficiency in converting inputs into useful outputs.

Question 50

Economic freedom

Answer 50

has a direct relationship with a country’s relative competitiveness and innovation performance.