International Business UNIT #2

Question 1

What are the type of governments?

Answer 1

THEOCRACY
A form of government in which a god or deity is recognized as the state’s supreme civil ruler.
Ex. Vatican city
MONARCHY
Is a form of government in which all political power is with an individual, known as a monarch (“single ruler”), or king or queen.
Ex. Saudi Arabia

TOTALITARIANISM
Similar to an autocracy
One ruling party
Ex. North Korea, 1984

Question 2

Democratic vs. Autocratic governments

Answer 2

Democracy: Rule by the people, either directly or through elected representatives. Example: United States.
AUTOCRACY/AUTHORITARIANISM: A state governed by a single individual or a small group of people with unlimited power. Example: Cuba

Question 3

What is a mixed economy?

Answer 3

A mixed economic system combines elements of both market and centrally planned economies.
EX: United States, Canada, and Germany.

Question 4

Developing vs. Developed countries (characteristics)

Answer 4

Developed:
Nations that are characterized by a high per capita income or strong gross domestic product (GDP). Example: Japan
Developed countries are also referred to as “industrialized” or first-world countries.
1. A reliance on secondary and predominantly tertiary industries, rather than primary industries 2. High standards of living 3. High literacy rates 4. Major advancements in health care and technology 5. World leaders in international business 6. Have formed strong trade alliances, agreements and organizations 7.Strong correlation between these countries and democratic political systems.
Developing:
Are in the beginning stages of industrial development and have low per capita incomes Example: Haiti
Severe poverty and substandard living conditions, Economies are predominantly agricultural or resource-based, Lack social services (health care, education) and have poor infrastructure, Low levels of literacy and limited access to technology.

Question 5

4 stages of the business cycle (characteristics)

Answer 5

1. Recession: two consecutive quarters of negative GDP, the economy slows down, there is a decline in consumer purchasing, an increase in unemployment, Business revenues will decline, forcing more cutbacks in production and more layoffs, businesses contract or close, 2008-2009
2. Trough: the bottom of the cycle, production and unemployment reach their lowest levels,a deep trough is known as a depression, the economy completes the recession and turns towards prosperity, consumers can only postpone the purchase of some items for so long
3. Expansion: the economy begins to grow again, increase in the level of consumption of products and sevices, employment, wages, production, and profits expand, investments are strong, new businesses are created, 2001-2007
4. Peak: top of the business cycle, the economy stops expanding and begins contracting, Increase in producers competing for capital funds puts pressure on interest rates, making consumers less likely to borrow money, Demand starts to decline

Question 6

Command, market and mixed economy (profit, competition, private property)

Answer 6

YOU KNOW THIS!!!

Question 7

Absolute vs comparative advantage (theory NOT calculations!)

Answer 7

Absolute:
When a country can produce more of a good or service compared to another country.
Comparative:
When a country can produce a good or service at a lower opportunity cost compared to another country.

Question 8

Leading, lagging, and coincident indicators (examples of)

Answer 8

Leading:
Predict where the economy is headed. These indicators adjust before the economy experiences a change and predict where the economy is going. These indicators help guide investors, businesses and governments to act according to what is about to happen
Examples: Housing starts (# of new houses on which construction is starting) and construction contracts(People are unlikely to purchase a new house if they believe the economy will decline) and Retail sales(Strong retail sales increase GDP and strengthen the currency = higher employment rates)

Lagging:
Do not adjust until after the economy has experienced a change. It may take two or three quarters of economic change to influence a lagging indicator.
Examples: Employment rate(Once the economy starts to improve, it may take six months for the employment rate to increase), Interest Rates, Corporate Profits

Coincident:
Move in conjunction with the business cycle.
Examples: International trade(When economies are slumping, countries do not import as many goods and services, When the economy is strong, countries are able to purchase more goods from other countries), Change in GDP (Real Wages (adjusted after inflation)