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D270 Final COPY > Chapter 4: Economic Environments Facing Businesses > Flashcards

Chapter 4: Economic Environments Facing Businesses Flashcards

1
Q

By 2050, how many of the world’s largest economies will be in greater Asia?

A

4 out of 6

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2
Q

In 2009, how much of total world GDP did emerging economies make up?

A

Over half

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3
Q

Which country was the most central trading power in the world in 2012?

A

China

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4
Q

What do changing economic environments indicate about the corresponding governments?

A

Government ambitions and highlight implications for economic freedom

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5
Q

What are some challenges of “the comeback” of emerging economies?

A
  • Distort traditional economic indicators
  • Greater competition for scarce resources –> increase price of commodities –> decrease price of manufactured goods
  • More people working worldwide, but poverty increases
  • More than 70% of world’s growth in next few years will be in emerging markets
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6
Q

Why is the assessment of economic environment more conditional than universal?

A
  • System complexity
  • Market dynamism
  • Market interdependence
  • Data overload
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7
Q

How should managers evaluate a country’s economy?

A
  • Level of economic freedom for investments/ops
  • Country’s economic system & current macro policies
  • Drivers of economic change
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8
Q

What is economic freedom?

A
  • Right of property ownership
  • Freedoms of movement for labor, capital, & goods
  • Absence of coercion or constraint of economic liberty beyond extent necessary for preservation of liberty
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9
Q

What is the economic freedom index?

A

Estimates extent to which government constrains free choice/enterprise for reasons that go beyond need to protect property, liberty, safety, and efficiency

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10
Q

What are some results of economic freedom?

A
  • Growth
  • Productivity
  • Financial prosperity
  • Economic stability
  • Higher standards of living
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11
Q

How did the global financial crisis affect perception of free markets?

A

Induced fear of freer markets

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12
Q

What is the market test?

A

Test used by managers to gauge economic freedom vs. state control. Includes how government…

  • Regulates economy
  • Protects property rights
  • Sets fiscal & monetary policies
  • Enforces anti-trust regulation
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13
Q

What are the characteristics of a market economy?

A
  • Individuals make most decisions
  • Capitalism
  • Mostly private ownership of resources
  • Bias towards entrepreneurial innovation
  • Applies invisible hand, laissez-faire
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14
Q

What are the characteristics of a command economy?

A
  • Government owns and controls most resources
  • Bias towards large-scale, capital-intenstive production
  • Applies visible hand of state, central planning, & collectivism
  • Communism
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15
Q

What are characteristics of a mixed economy?

A
  • Gov/private ownership of resources mixed
  • Goal of balancing economic efficiency but protecting against greed and self-interest
  • Socialism
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16
Q

What is state capitalism?

A

Economic system whereby political officials decide how assets are valued and when/where they are used

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17
Q

What are characteristics of state capitalism?

A
  • Government explicitly manipulates market outcomes for political purposes
  • Promote stability and growth
  • Does not stipulate ideological component
  • Promotes growth of particular industries
  • State favors local businesses over foreign ones
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18
Q

What is Gross National Income (GNI)?

A

Value of all production in domestic economy + income from other countries - payments to other countries

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19
Q

What is Gross National Product (GNP)?

A

Total value of all final goods/services produced within a nation in a particular year

20
Q

What is Gross Domestic Product (GDP)?

A

Total market value of goods/services produced by workers and capital within nation’s borders (Truest measure of economic activity)

21
Q

What adjustments must be taken into consideration when measuring a nation’s economy?

A
  • Growth rate of economy
  • Population
  • Local cost of living
22
Q

What is purchasing power parity (PPP)?

A

Method of measuring relative purchasing power of different countries’ currency for same basket of goods/services

23
Q

What is Net National Product?

A

Measures depletion of natural resources & degradation of environment that results from generating GNI

24
Q

What is the Genuine Progress Indicator (GPI)?

A

Adjusts GDP to account for environmental quality, population health, security, equity, free time, & education

25
Q

What is the Human Development Index (HDI)?

A

Measures physical, intellectual, and social standards that shape quality of life

26
Q

What does inflation measure?

A

Increase in cost of living

27
Q

What does deflation measure?

A

Decrease in general price level of goods/services

28
Q

What is the unemployment rate equation?

A

Jobless citizens seeking employment / total civilian labor force

29
Q

What is the misery index?

A

Country’s inflation + unemployment rates

30
Q

What is internal debt?

A

Denominated in country’s own currency and held by domestic residents

31
Q

What is external debt?

A

Owed to foreign creditors (in foreign currency)

32
Q

What are costs of the widening gap in income distribution?

A
  • Widening inequality threatens stability that supports growth
  • Fuels conflicts that create social divisions
  • Can erode country’s sense of identity
33
Q

What is the Gini coefficient?

A

indicates extent to which income share deviate from perfectly equal distribution

  • 0 = perfect equality
  • 1 = perfect inequality (1 person has all income)
34
Q

What is considered extreme poverty?

A

Living on less than $1.25 per day (1.3 billion people)

35
Q

What is considered moderate poverty?

A

Living on less than $2.00 per day (2.5 billion people)

36
Q

What is the distribution of wealth in the world population?

A

80% poor
10% middle income
10% rich

37
Q

What is the Base of the Pyramid and why are managers interested in it?

A
  • Largest, but poorest socioeconomic group in world

- 4 billion on less than $4 per day

38
Q

What will firms need to do to have success developing products for the Base of the Pyramid?

A
  • Think differently @ threats/complexity

- Develop affordable, easy to use, eco-sensitive products that work in harsh environments

39
Q

What is the Balance of Payments (BOP)?

A

Reports country’s trade and fiscal transactions with rest of world

40
Q

What is a current account transaction?

A

Tracks cross- border payments for goods/services

41
Q

What is a capital account transaction?

A

Tracks loans for cross-border payments for assets

42
Q

What is the Global Competitiveness Index (GCI)?

A

Summarizes performance of country based on competitive indicators such as financial market development, macroeconomic environment, technological readiness, market efficiency, and innovation

43
Q

What is the World Competitiveness Index (WCI)?

A
  • Assesses nation’s ability to create and maintain an environment in which enterprises (private or state-owned) can compete, prosper, and create wealth.
  • Four main factors: economic performance, government efficiency, business efficiency, and infrastructure
44
Q

What is the global Innovation Index (GII)?

A

Assesses nation’s competency in promoting technologies, expanding human capacities, streamlining organizational capabilities, and improving institutional responsiveness to changes in market

45
Q

What is the Where-To-Be-Born Index (WTBBI)?

A

Assesses how well a country provides opportunities for a safe, prosperous life

D270 Final COPY (3 decks)

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