Chapter 03Political Economy and Economic Development True / False Questions 1. The purchasing power parity for different countries is adjusted (up or down) depending upon whether the cost of living is lower or higher than in the United States. True False 2. Although countries such as China and India are currently relatively poor, their economies are already large in absolute terms and growing more rapidly than those of many advanced nations. True False 3. In Amartya Sen’s view, development is solely an economic process, and not a political process. True False 4. The Gross national income (GNI) per capita comes much closer to Amartya Sen’s conception of how development should be measured than narrow economic measures such as Human Development Index (HDI). True False 5. Economists who argue that innovation and entrepreneurial activity are the engines oflong-run economic growth, define innovation broadly to include not just new productsbut also new processes, new organizations, new management practices, and new strategies. True False 6. If a country’s economy is to sustain long-run economic growth, the business environment must be conducive to the consistent production of product and process innovations and to entrepreneurial activity. True False 3-1© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.7. Entrepreneurial individuals have fewer economic incentives to develop valuable new innovations in market economies than in planned economies. True False 8. Strong legal protection of property rights is a requirement for a business environmentto be conducive to innovation, entrepreneurial activity, and hence economic growth. True False 9. The Peruvian development economist Hernando de Soto has argued that much of thedeveloping world will fail to reap the benefits of capitalism until they relax the property rights offered by their legal systems. True False 10. Five of the fastest growing economies of the past 30 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: democratic governments. True False 11. Totalitarian states that limit human freedom are highly conducive to progress in terms of innovation, entrepreneurship, and economic growth. True False 12. A strong belief that economic progress leads to adoption of a totalitarian regime underlies the fairly permissive attitude that many Western governments have adopted toward human rights violations in China. True False 13. According to the influential economist Jeffrey Sachs, tropical regions have a more extensive division of labor than temperate regions. True False 14. During the late 1980s and early 1990s, totalitarian governments collapsed and were replaced by democratically elected governments. True False 15. According to Freedom House, all democracies are free countries in terms of political and civil liberties. True False 3-2© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.16. New information and communication technologies have increased a state’s ability to control access to uncensored information. True False 17. Many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations. True False 18. The late Influential political scientist Samuel Huntington predicted that the universalization of Western liberal democracy will be the final form of human government. True False 19. Author Francis Fukuyama envisioned a world split into different civilizations, each of which has its own value systems and ideology. True False 20. In Samuel Huntington’s thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology. True False 21. When a nation shifts away from a market-based economy, the state-owned businesses are sold to private investors. True False 22. In general, command and mixed economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systems. True False 23. Economic freedom does not necessarily equate with political freedom. True False 24. The shift toward deregulation has been easier for former command economies than for mixed economies. True False 3-3© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.25. In China, state-owned companies still dominate the banking, energy, telecom, health care, and technology sectors. True False 26. If newly privatized firms are protected from foreign competition by barriers to international trade and foreign direct investment, they continue to act like state monopolies. True False 27. A well-functioning market economy does not require laws to protect private property rights and mechanisms for contract enforcement. True False 28. Without a legal system that protects property rights, and without the machinery to enforce that system, the incentive to engage in economic activity can be reduced substantially by private and public entities. True False 29. In most eastern European nations, the title to urban and agricultural property is oftenuncertain because of incomplete and inaccurate records, multiple pledges on the same property, and unsettled claims resulting from demands for restitution from owners in the pre-Communist era. True False 30. Although free markets and democracy can still be found around the world, the tide has been running in favor of command economies and totalitarian dictatorships. True False 31. By identifying and investing early in a potential future economic star, international firms build brand loyalty and gain experience in that country’s business practices. True False 32. A country’s economic system and property rights regime do not influence the