Global Economy
Chapter Exam Questions
Course Introduction
This course provides an in-depth examination of the global economy, exploring the interactions between national economies and the international institutions that shape them. Students will analyze key concepts such as trade, globalization, international finance, economic development, and the role of multinational corporations. The course investigates the historical evolution of the world economic system, the impact of policy decisions on global markets, and contemporary issues including inequality, financial crises, and globalizations influence on labor and the environment. Through real-world case studies and critical discussions, students gain a comprehensive understanding of how economic forces cross borders and influence global prosperity and challenges.
Recommended Textbook
Global Business Today 9Th Edition by Charles
W. L. Hill
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Chapter 1: Globalization
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Q1) The NAFTA was formed in 1994 between:
A)Canada, Mexico, and the United States.
B)the United States, Brazil, and Argentina.
C)Canada, Argentina, and Mexico.
D)Colombia, Venezuela, and Brazil.
E)Uruguay, Colombia, and Costa Rica.
Answer: A
Q2) What are some of the challenges faced by managers of an international business?
Answer: Managing an international business is challenging in many ways and involves a great deal of complexity. The managers of an international business must decide where in the world to site production activities to minimize costs and to maximize value added. They must decide whether it is ethical to adhere to the lower labor and environmental standards found in many less developed nations. Then they must decide how best to coordinate and control globally dispersed production activities. The managers in an international business also must decide which foreign markets to enter and which to avoid. They must choose the appropriate mode for entering a particular foreign country. These managers must also deal with government restrictions on international trade and investment. They must find ways to work within the limits imposed by specific governmental interventions.
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Chapter 2: National Differences in Political, Economic, and Legal Systems
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Q1) The fascist regimes that ruled Germany and Italy in the 1930s and 1940s had adopted:
A)right-wing totalitarianism.
B)theocratic totalitarianism.
C)representative democracy.
D)pure democracy.
E)totalitarian democracy.
Answer: A
Q2) Which of the following establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations?
A)Contracts for the International Sale of Goods
B)Bill of Exchange
C)United Nations Charter
D)International Forwarding Agent Contract
E)International Promissory Note
Answer: A
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Chapter 3: National Differences in Economic Development
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Q1) Which of the following statements is true about innovations and entrepreneurship?
A)A command economy creates greater incentives for innovation and entrepreneurship than a market economy.
B)If a country's economy is to sustain long-run economic growth, the business environment must restrict entrepreneurial activity.
C)A high level of entrepreneurial activity leads to a low level of innovation.
D)Innovations in production and business processes lead to an increase in the productivity of labor and capital.
E)Strong legal protection of property rights creates an unfavorable environment for innovation and entrepreneurship.
Answer: D
Q2) In Amartya Sen's view, development is solely an economic process, and not a political process.
A)True
B)False
Answer: False
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Chapter 4: Differences in Culture
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Q1) Rituals and symbols are the most visible manifestations of a culture and constitute the outward expression of deeper values.
A)True
B)False
Q2) In 1904, who theorized that there was a relationship between Protestantism and the emergence of modern capitalism?
A)Karl Marx
B)Alfred Schmidt
C)Max Weber
D)Abraham Maslow
E)Adam Smith
Q3) Max Weber argued that the ascetic principles embedded in Hinduism encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism.
A)True
B)False
Q4) The least rigid system of social stratification is a caste system.
A)True
B)False
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Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability
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Q1) Leon Sullivan argued that it was ethically justified for Western businesses to operate in South Africa so long as the companies obeyed the apartheid laws.
A)True
B)False
Q2) Ethical dilemmas are situations in which only one of the available alternatives seems ethically acceptable.
A)True
B)False
Q3) An organizational culture that requires all decisions to be purely economic allows unethical behavior to flourish and persist.
A)True
B)False
Q4) Discuss the concept of an ethical dilemma.
Q5) Discuss the utilitarian approach to business ethics and examine its weaknesses.
Q6) Describe the five-step process involved in ethical decision making.
Q7) What kind of an organization culture should a business develop in order to foster ethical behavior?
Page 7
Q8) What are grease payments?
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Chapter 6: International Trade Theory
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Q1) Which of the following theories began to emerge when economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade?
A)Comparative advantage
B)Heckscher-Ohlin
C)New trade
D)Product life-cycle
E)Absolute advantage
Q2) When the impact of differences of technology on productivity is controlled for, Heckscher-Ohlin theory gains predictive power.
A)True
B)False
Q3) According to the theory of comparative advantage, potential world production is greater with unrestricted free trade than it is with restricted trade.
A)True
B)False
Q4) Mercantilism viewed trade as a zero-sum game. Discuss Adam Smith's and David Ricardo's stand on this view. Also discuss the phenomenon of neo-mercantilism.
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Chapter 7: Government Policy and International Trade
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Q1) Which of the following identifies an attribute of tariffs?
A)Tariffs reduce the price of foreign goods for domestic consumers.
B)Tariffs reduce the overall efficiency of the world economy.
C)Tariffs increase exports from a sector.
D)Tariffs increase foreign competition for domestic producers.
E)Tariffs increase efficient utilization of resources.
Q2) Which of the following is the term for when a lower tariff rate is applied to imports within the quota than those over the quota?
A)Tariff rate quota
B)Voluntary import restraint
C)Import duty
D)Quota rent
E)Import quota
Q3) What are the issues that are at the forefront of the current agenda of the WTO?
Q4) Paul Krugman asserts that a strategic trade policy is almost certain to be captured by special-interest groups within the economy, who will distort it to their own needs.
A)True
B)False
Q5) What constitutes the revised case for free trade?
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Chapter 8: Foreign Direct Investment
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Q1) Which of the following indicates that a firm has a full outright stake in an acquisition?
A)Anderson Corporations acquires at least 75 percent of a company.
B)Sheffield Enterprises acquires at least 60 percent of a company.
C)Arthur Enterprises acquires 98 percent of a company.
D)Maximus Corporations acquires 100 percent of a company.
E)Dream Animax acquires at least 85 percent of a company.
Q2) Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?
A)It decreases the level of competition in the host country.
B)It tends to increase the prices of the products.
C)It leads to a high rate of unemployment in the long run.
D)When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.
E)When a foreign subsidiary sends its profits to its home country, it results in the depletion of gold reserves of the host country.
Q3) In the context of the internalization theory, explain why licensing may not be an attractive option.
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Page 10
Chapter 9: Regional Economic Integration
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Q1) Which of the following is a significant impact of the North American Free Trade Agreement (NAFTA)?
A)It led to decreased economic stability in Canada.
B)It led to a major trade deficit for Canada.
C)It helped create the background for increased political stability in Mexico.
D)It led to a trade surplus for all the three member nations.
E)It led to a reduction in purchasing power of consumers in America.
Q2) How is a common market different from an economic union?
Q3) Which of the following levels of economic integration involves the use of a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy?
A)Free trade area
B)Customs union
C)Common market
D)Economic union
E)Command economy
Q4) What are the two political factors that led to the creation of the European Union?
Q5) What were the objectives of the Single European Act?
Q6) What are the two impediments to regional economic integration?
Page 11
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Chapter 10: The Foreign Exchange Market
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Q1) The Fisher effect states that:
A)a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).
B)by comparing the prices of identical products in different currencies, it is possible to determine the "real" or purchasing power parity exchange rate that would exist if markets were efficient.
C)a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.
D)when the growth in a country's money supply is faster than the growth in its output, price inflation is fueled.
E)in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price.
Q2) Unlike the purchasing power parity theory, the international Fisher effect is a good predictor of short-run changes in spot exchange rates.
A)True
B)False
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Chapter 11: The International Monetary System
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Q1) Which of the following is a reason for the emergence of the gold standard?
A)Expansion in the volume of international trade due to the Industrial Revolution
B)Inability of governments to convert gold into paper currency on demand at a fixed rate
C)Widening gap between the developed and the developing nations
D)Failure of the Bretton Woods fixed exchange rate system
E)Failure of the U.S. dollar to act as a reference currency
Q2) As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system.
A)True
B)False
Q3) Which of the following is true of a banking crisis?
A)It leads to individuals and companies withdrawing their deposits from banks.
B)It results in a sharp appreciation in the value of the currency.
C)It happens due to a decline in domestic borrowing.
D)It occurs due to asset price deflation.
E)It results in low government deficits.
Q4) In terms of speculation, describe the arguments for a fixed exchange rate system.
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Page 13
Chapter 12: The Strategy of International Business
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Q1) Which of the following refers to a cooperative agreement between potential or actual competitors?
A)Tactical union
B)Strategic alliance
C)Political affiliation
D)Economic association
E)Nationalization
Q2) The value creation activities of a firm are categorized as:
A)primary activities and support activities.
B)strategic activities and functional activities.
C)ancillary functions and tertiary functions.
D)primary activities and core activities.
E)goal-oriented activities and organizational activities.
Q3) Which of the following is a primary activity in the operations of a firm?
A)Logistics function
B)Research and development
C)Information systems
D)Human resource function
E)Company infrastructure
Q4) Describe the global standardization strategy.
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Chapter 13: Entering Foreign Markets
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Sample Questions
Q1) How should a firm choose between a greenfield venture and an acquisition?
Q2) Axiom International, an Australian company, wants to expand its operations to China, a country that is politically, culturally, and economically different. The firm needs to select a mode of entry that would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which of the following modes of entry into foreign markets is most suitable for Axiom International?
A)Wholly owned subsidiary
B)Joint venture
C)Exporting
D)Greenfield investments
E)Licensing
Q3) What are the advantages and disadvantages of exporting as a mode of entry into foreign markets?
Q4) According to Christopher Bartlett and Sumantra Ghoshal, firms from developing countries cannot succeed in foreign markets in the presence of other established global competitors.
A)True
B)False
Q5) Describe the advantages and disadvantages of acquisitions.
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Chapter 14: Exporting, Importing, and Countertrade
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Q1) Countertrade is most likely to be used when:
A)the foreign currency is easily convertible.
B)the exporter has a letter of credit.
C)the conventional means of international trade transaction are difficult.
D)there is mutual trust between the exporter and the importer.
E)an export management company is used.
Q2) Which of the following is an advantage of having a letter of credit?
A)It allows payment for merchandise after its delivery.
B)It facilitates an exporter to obtain pre-export financing.
C)It allows an exporter to get a higher price for his or her goods.
D)It helps exporters incur lower shipping costs.
E)It does not require the importer to pay any fee.
Q3) Which of the following stands at the center of international commercial transactions and is issued by a bank at the request of an importer?
A)Bill of lading
B)Time draft
C)Letter of credit
D)Sight draft
E)Bill of exchange
Q4) What is the difference between a sight draft and a time draft?
Page 16
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Chapter 15: Global Production and Supply Chain Management
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Q1) Which of the following is true about firms using just-in-time (JIT) inventory system?
A)A company is more likely to have excess unsold inventory that it has to write off against earnings.
B)Parts enter the manufacturing process immediately; they are not warehoused.
C)It is difficult to spot and fix defective inputs.
D)The amount of working capital a company needs to finance inventory increases.
E)A firm has ample buffer stock of inventory.
Q2) Which of the following is a consequence of using flexible machine cells?
A)It fails to adapt to the production of different products.
B)It generally results in stockpiles of partly finished products.
C)It improves capacity utilization and reduces wastes.
D)It increases setup time for complex equipment.
E)It adds to the cost structure of a firm.
Q3) Which of the following is an objective of lean production?
A)Reducing the quality of a product to keep unit costs low
B)Reducing setup times for complex equipment
C)Replacing product variety with standardized output
D)Decreasing utilization of individual machines through scheduling
E)Increasing the level of minimum efficient scale of output
Page 17
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Chapter 16: Global Marketing and Rd
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Q1) Which of the following is a factor that determines the optimal distribution strategy?
A)Communication strategy
B)Country of origin effects
C)Channel quality
D)Noise levels
E)Source effects
Q2) If a firm prices low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially, what kind of strategy is it pursuing?
A)Experience curve pricing
B)Multipoint pricing
C)Economy pricing
D)Predatory pricing
E)Premium pricing
Q3) Briefly describe predatory pricing and multipoint pricing strategy.
Q4) What is meant by a marketing mix? Briefly describe how a firm configures its marketing mix.
Q5) Describe the differences in distribution systems in various countries in terms of channel exclusivity.
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Chapter 17: Global Human Resource Management
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Q1) The staffing policy that requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters, is called:
A)geocentric.
B)polycentric.
C)ethnocentric.
D)global.
E)transnational.
Q2) Which of the following staffing policies is followed by firms that can reduce the issue of compensation to that of how much home-country expatriates should be paid?
A)Polycentric
B)Ethnocentric
C)Geocentric
D)International
E)Global
Q3) What are the reasons for the failure of spouses to adjust to an expatriate's foreign posting?
Q4) Describe human resource management.
Q5) What is the purpose of cultural training before a foreign posting?
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