Chapter 6 - Economic Environment

Question 1

Why is a universal assessment of economic environments difficult?

Answer 1

• it is difficult to find a definitive indicator to estimate the performance/potential of a country’s economy
• today’s measures = may not work tomorrow
• interdependencies complicate interpreting elements of an economic environment

Question 2

What factors affect international business operations?

Answer 2

• economic freedom
• economic systems
• economic indicators

Question 3

What is economic freedom?

Answer 3

the fundamental right of every human to control his or her own labor and property
- affects growth rates, productivity, income levels, inflation, employment rates, political openness

Question 4

What are economic systems?

Answer 4

refers to the mechanism that deals with the production, distribution, and consumption of goods and services

Question 5

Types of economic systems

Answer 5

1) market economy (individuals make most economic decisions, capitalism, laissez-faire = no gov. interference)
2) command economy (production, investment, prices, and incomes are determined by gov)
3) mixed economy (market driven & private ownership, socialism - focus on
social equality and a fair distribution of wealth)

Question 6

Developing countries

Answer 6

• largest number of countries
• low per capita income
  (Africa)

Question 7

Emerging economies

Answer 7

• fast growing, relatively prosperous
  (BRICS – Brazil, Russia, India, China and
  South Africa)

Question 8

Developed countries

Answer 8

high per capita income and standard of
living
(U.S., Japan, France, Australia)

Question 9

GNI (Gross National Income)

Answer 9

total value of all final goods and services
produced within a nation in a particular year,
(+ income earned by its citizens abroad - income earned by foreigners from domestic production)

Question 10

GDP (Gross Domestic Product)

Answer 10

the total market value of goods and services
produced by a domestic or foreign-owned
company within a nation’s border

Question 11

What should GNI data be adjusted for?

Answer 11

• the growth rate of the economy
• the number of people in a country
• the local cost of living

Question 12

Green economics

Answer 12

gauge economic performance in terms of the effect of current choices on long-term sustainability

Question 13

Sustainable development

Answer 13

meet the needs of the present without
compromising the ability of future generations to
meet their own needs

Question 14

Happynomics

Answer 14

importance of emotional prosperity in addition to financial prosperity

Question 15

What is human development index? (HDI)

Answer 15

emphasizes people and their capabilities
should be the ultimate criteria for assessing the
development of a country (not economic growth
alone)
3 dimensions: living a healthy life, being knowledgeable, standard of living

Question 16

What are the main features of an economy that managers should consider?

Answer 16

• inflation
• unemployment
• debt
• poverty

Question 17

Inflation vs deflation vs reflation

Answer 17

• a measure of the increase in the cost of living
• when prices for products go down not up
• increase money supply & reduce taxes to
  up economic activity

Question 18

Misery Index

Answer 18

sum of a country’s inflation and unemployment
rates

Question 19

What is debt and what are the two types?

Answer 19

total of gov. financial obligations (internal and external debt)

Question 20

Income distribution

Answer 20

estimates the proportion of the population that
earns various levels of income

Question 21

GNI coefficient

Answer 21

measures the extent to which the distribution
of resources deviates from a perfectly equal
distribution

Question 22

Extreme poverty vs Moderate Poverty

Answer 22

• less than $1.25 a day
• less than $2.00 a day

Question 23

The world pop. is ______ poor ______ middle income & ______ rich

Answer 23

80%, 10%, 10%

Question 24

Balance of payments

Answer 24

reports a country’s trade and financial
transactions with the rest of the world

Question 25

current account

Answer 25

tracks merchandise trade

Question 26

capital account

Answer 26

tracks loans given to foreigners and loans received by citizens