Economic Development Overview
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Questions and Answers

What was one outcome of the democratic revolutions of the late 1980s and early 1990s in transition economies?

  • Greater commitment to free market capitalism (correct)
  • A decline in free market capitalism
  • Totalitarian regimes gaining power
  • Increased central planning in economies

    • What trend in governance has been observed in some nations since 2005?

  • Expansion of civil liberties
  • Increased authoritarianism (correct)
  • Stronger democratic institutions
  • Emergence of new political parties

    • Which factor contributed to the spread of democracy according to the content?

  • Stronger government control over media
  • Increased military interventions
  • Failure of totalitarian regimes to deliver economic progress (correct)
  • Rise of authoritarian regimes

    • Freedom House classifies nations into how many broad categories?

    <p>Three</p> Signup and view all the answers

    What role do new information and communication technologies play in the spread of democracy?

    <p>Reduce state's control over uncensored information</p> Signup and view all the answers

    According to Francis Fukuyama, what characterizes the new world order?

    <p>Democratic regimes and free market capitalism</p> Signup and view all the answers

    What prediction does Samuel Huntington make regarding modernizing societies?

    <p>They may not become more Western</p> Signup and view all the answers

    What significant threat to world peace is highlighted by Colin Powell?

    <p>Terrorism</p> Signup and view all the answers

    What is a key factor that makes market-based economies more attractive to international businesses?

    <p>Democratic regimes</p> Signup and view all the answers

    What does the process of deregulation entail?

    <p>Removing legal restrictions to market operations</p> Signup and view all the answers

    What is privatization primarily concerned with?

    <p>Transferring ownership of state property to private individuals</p> Signup and view all the answers

    Which of the following is essential for a well-functioning market economy?

    <p>Laws to protect property rights</p> Signup and view all the answers

    What factor is NOT associated with economic growth in market-based economies?

    <p>Collectivism</p> Signup and view all the answers

    Why was the transition to market economies easier in mixed economies?

    <p>They had a vibrant private sector</p> Signup and view all the answers

    What is a major risk associated with investment in new market economies?

    <p>Return to totalitarian regimes</p> Signup and view all the answers

    What must accompany privatization for it to effectively drive economic growth?

    <p>General deregulation and opening of the economy</p> Signup and view all the answers

    What is a key trend that fosters greater economic development?

    <p>Democratic forms of government</p> Signup and view all the answers

    What measure reflects the total annual income received by residents of a nation?

    <p>Gross National Income (GNI)</p> Signup and view all the answers

    Which countries are noted for having a high GNI?

    <p>Japan and Sweden</p> Signup and view all the answers

    What does purchasing power parity (PPP) account for?

    <p>Differences in cost of living</p> Signup and view all the answers

    What concept did Amartya Sen contribute to assessing economic development?

    <p>Democratization of political communities</p> Signup and view all the answers

    Which factors are included in the Human Development Index (HDI)?

    <p>Life expectancy, educational attainment, and basic income needs</p> Signup and view all the answers

    What is a common misconception about GNI and PPP data?

    <p>They are static and do not account for growth rates</p> Signup and view all the answers

    According to Amartya Sen, what requires the removal to achieve economic development?

    <p>Poverty, tyranny, and poor economic opportunities</p> Signup and view all the answers

    What is a potential benefit of a first-mover in a market?

    <p>Ability to establish strong brand recognition</p> Signup and view all the answers

    Which factor is NOT likely to predict a country's economic prospects?

    <p>Foreign language proficiency</p> Signup and view all the answers

    What is one of the legal risks associated with doing business internationally?

    <p>Possibility of contract breaches</p> Signup and view all the answers

    Which aspect is a cost that can affect business decisions in a country?

    <p>High corruption rates</p> Signup and view all the answers

    What is a common government policy to encourage outward foreign direct investment (FDI)?

    <p>Government-backed insurance programs</p> Signup and view all the answers

    In what scenario might a country restrict inward foreign direct investment (FDI)?

    <p>To impose ownership restraints</p> Signup and view all the answers

    What overall factor affects the attractiveness of doing business in a country?

    <p>The benefit-cost-risk trade-off</p> Signup and view all the answers

    Which of the following is a drawback faced by late entrants in a market?

    <p>Established competition</p> Signup and view all the answers

    What is the primary role of entrepreneurs in an economy?

    <p>To commercialize innovative products and processes</p> Signup and view all the answers

    Which factor is essential for fostering innovation and entrepreneurship?

    <p>Strong property rights</p> Signup and view all the answers

    What is the relationship between economic freedom and economic growth?

    <p>There is a strong relationship; more freedom often leads to growth</p> Signup and view all the answers

    Which type of political system is likely more conducive to long-term economic growth?

    <p>Democratic regimes</p> Signup and view all the answers

    How can inadequate property protection in developing nations impact economic growth?

    <p>It limits innovation and potential profits</p> Signup and view all the answers

    What demographic factor can enhance a country's economic growth potential?

    <p>A young and growing population</p> Signup and view all the answers

    According to Jeffrey Sachs, what type of geography is conducive to higher economic development?

    <p>Favorable geography that encourages trade</p> Signup and view all the answers

    What is a likely outcome of economic growth in a country?

    <p>Establishment of democratic regimes</p> Signup and view all the answers

    Study Notes

    Economic Development

    • Gross National Income (GNI) measures the total annual income received by a nation's residents.
      • Japan, Sweden, Switzerland, and the U.S. have high GNI.
      • China and India have low GNI.
    • Purchasing Power Parity (PPP) adjusts GDP per capita to reflect cost of living differences.
    • Amartya Sen argues that development should be assessed based on people's capabilities and opportunities.
      • Development requires removing poverty, tyranny, and poor economic opportunities.
    • Human Development Index (HDI) measures the quality of human life in different nations, considering:
      • Life expectancy at birth
      • Educational attainment
      • Whether average incomes meet basic needs

    Macropolitical and Macroeconomic Changes

    • Innovation and Entrepreneurship are crucial for economic growth.
      • Requires a market economy where individuals can reap the benefits of their efforts.
      • Strong property rights are essential to protect innovations and profits.
    • Democracy is often considered conducive to economic growth.
      • However, some undemocratic countries like China, South Korea, Taiwan, Singapore, and Hong Kong have experienced economic growth.
      • Economic progress can also lead to the establishment of democratic regimes.

    Transition Economies

    • Political Economy is characterized by:
      • A shift towards free-market capitalism.
      • A move away from centrally planned economies.
      • A potential drift back towards authoritarianism in some nations.
    • The Spread of Democracy:
    • Many totalitarian regimes failed to deliver economic progress to their populations.
    • New communication technologies reduced state control over information.
    • Economic advances led to a prosperous middle class demanding democratic reforms.

    Market-Based Systems

    • Command and Mixed Economies failed to achieve sustained economic growth like market-based economies.
    • Shift to Market-Based Economies involves:
      • Deregulation (removing legal restrictions for businesses and markets).
      • Privatization (transferring state property to private individuals).
      • Establishing legal systems that safeguard property rights.

    Benefits, Costs, and Risks of Doing Business Internationally

    • Attractive Markets for international businesses are:
      • Politically stable.
      • Have free market systems.
      • Offer protection for property rights.
      • Provide economic growth, and a large market size, creating potential for profits.
    • Costs of doing business internationally include:
      • Corruption.
      • Lack of infrastructure.
      • Legal costs.
    • Risks of doing business internationally include:
      • Political risk (social unrest or anti-business trends).
      • Economic risk (economic mismanagement).
      • Legal risk (breaching contracts or expropriation of property rights).

    Government Policies and Foreign Direct Investment (FDI)

    • Home-Country Policies to encourage FDI:
      • Government-backed insurance programs.
      • Government loans
      • Elimination of double taxation.
      • Relaxing restrictions on foreign investment.
    • Home-Country Policies to restrict FDI:
      • Limiting capital outflows.
      • Manipulating tax rules.
      • Prohibiting investment for political reasons.
    • Host-Country Policies to encourage FDI:
      • Tax concessions.
      • Low-interest loans.
      • Grants or subsidies.
    • Host-Country Policies to restrict FDI:
      • Ownership restraints.
      • Performance requirements.

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    Description

    Explore the key concepts of economic development, including Gross National Income (GNI), Purchasing Power Parity (PPP), and the Human Development Index (HDI). Understand the insights of Amartya Sen on capabilities and the role of innovation and entrepreneurship in economic growth. This quiz covers critical indicators and frameworks used to assess the development of nations.

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