Ch2 Understanding Economics And How It Exam Questions - Understanding Business 12e Complete Test Bank by William Nickels. DOCX document preview.
Understanding Business, 12e (Nickels)
Chapter 02 Understanding Economics and How It Affects Business
1) America's business success is largely due to an economic and social climate that allows businesses to operate freely.
2) Global economics and politics have significant influence on businesses in the United States.
3) The study of how society chooses to employ resources to produce goods and services and to distribute them for consumption among various competing groups and individuals is known as demographics.
4) Economists study how people use resources to produce and distribute goods and services for consumption among competing groups and individuals.
5) Microeconomics is the economic perspective that looks at the operation of a nation's economy as a whole.
6) Microeconomics focuses on the decisions and behavior of people and organizations in particular markets.
7) Resource development is concerned with finding the best way to utilize the fixed amount of resources a society has available.
8) Resource development is the study of how to increase resources and to create the conditions that will make better use of those resources.
9) Peace and prosperity will flourish if we can find the one best way to divide existing resources among nations.
10) Thomas Malthus believed that overpopulation was a major cause of poverty.
11) In developing nations of the world, population has leveled off and is not expected to increase dramatically in the future.
12) Economic progress can occur when business owners provide jobs and economic growth for their employees, their communities, and themselves.
13) Economist Adam Smith's important contribution was an inquiry as to why some nations are wealthy, while others remain poor.
14) Adam Smith believed the self-interest of businesspeople would lead them to create needed goods, services, and jobs.
15) The "invisible hand" in Adam Smith's theory turns self-directed gain into social and economic benefits for all.
16) According to Adam Smith, the "invisible hand" refers to the government's effort to always keep a check on the wealth creation of individuals, so that no one business could control a market for a particular good or service.
17) Studies about the effects of population growth on the economy are part of macroeconomics.
18) An economist is examining how consumers in the automobile market have responded to recent price increases by car manufacturers. He is examining a microeconomic situation.
19) Macroeconomics looks at long-run economic problems while microeconomics examines short-run economic problems.
20) Thomas Malthus believed that people in most countries would never be able to achieve high standards of living unless the problems of overpopulation were addressed.
21) Adam Smith believed that since businesspeople are motivated to improve their own prosperity, their actions are unlikely to benefit society as a whole.
22) Adam Smith believed that an economic system couldn't truly prosper unless people were taught to value the welfare of others above their own personal gain.
23) The concept of the invisible hand begins with the assumption that the primary motivation of entrepreneurs is that they will prosper from their own hard work.
24) Adam Smith's research focused on determining the best way to distribute a fixed amount of resources, rather than on how to create more wealth.
25) Large educated populations can contribute to an economy by offering knowledge and entrepreneurship.
26) As indicated by the "World Population is Popping" box, the predicted population increase in some of the world's poorest countries will present economic challenges.
27) Adam Smith believed that incentives to seek personal gain would create wealth, but that the government must then step in to make sure that this wealth is equitably distributed.
28) In capitalist countries, the government decides what to produce and how the goods and services will be produced.
29) Capitalism is the foundation of the U.S. economic system.
30) State capitalism is the combination of freer markets and some government control.
31) The most fundamental of all rights in capitalism is the right to private property.
32) Under capitalism, the government prohibits people and businesses from competing with each other.
33) A basic right under capitalism is the right of businesses to receive government funding.
34) Free-market capitalism has made it more difficult for individuals to gain wealth.
35) Due to the fundamental rights afforded to us by a free-market capitalistic system, people are more willing to take calculated risks.
36) A free-market economic system is one in which the market of buyers and sellers decides what is produced, how much is produced, and how it is distributed.
37) Under the basic principle of supply, as the price goes down, manufacturers and suppliers of a product tend to supply less of the product to the market.
38) Demand refers to the quantity of a good that consumers are willing and able to buy at different prices at a specific time.
39) At the equilibrium price, the quantity consumers desire to buy equals the quantity sellers desire to sell.
40) If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.
41) If a shortage exists in a market for a good, the price of that good will tend to fall.
42) The point of intersection between the supply and demand curves is called the stress point.
43) In the long run, the market price tends to adjust toward the equilibrium point.
44) Countries that rely on a free market system are plagued by persistent shortages or surpluses of goods and services.
45) One of the drawbacks of free markets is the fact that competition in such markets undermines the ability of price to adjust to its equilibrium value in the long run.
46) In perfect competition, each firm produces a product that is clearly differentiated from the products of other firms in the same market.
47) A monopoly occurs when there is a single seller for a product or service.
48) Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.
49) Product differentiation is a key to success in monopolistic competition.
50) In the United States, laws prohibit the creation of most types of monopolies.
51) One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.
52) The greed of businesspeople represents one of the greatest dangers to the operation of a free market system.
53) In a free market economic system, the lack of government control and regulation means that businesses find it easy to take advantage of customers by offering poor-quality products at high prices.
54) History shows that free-market capitalism leads to a fair and equitable distribution of wealth.
55) A surplus currently exists for fidget spinners. In a free-market economic system, the government must step in and buy any spinners that consumers do not buy in order to eliminate the surplus and establish equilibrium.
56) Sarah owns a candle shop. She had been charging $5 for each scented jar candle. At this price her customers bought an average of 421 jars each week. For the last few weeks, she has reduced her price to $3.95 per candle, and her customers have purchased an average of 695 jar candles each week. These results are consistent with the economic concept of demand.
57) Fatima resides in a country where the economic system is primarily based on free-market capitalism. Fatima is likely to have the freedom to buy and sell property.
58) Meredith notices that just a few big companies produce most of the flavored teas she sees in the grocery store. She would be correct in describing the flavored tea industry as an oligopoly.
59) Shimmer Sisters, a popular nail polish and cosmetics company, is gaining popularity among teens and young professionals. Differentiating itself from the sea of companies that compete for the same business, it focuses on creating products using trending color palettes and the finest ingredients. Shimmer Sisters clearly operates in an oligopolistic environment.
60) Glittering Gems is a popular fashion jewelery company. Although it is gaining in popularity among younger women, its promotional strategy continues to focus on the tarnish-free finish that is applied to every earring, necklace, and ring. Due to the fact that its industry faces monopolistic competition, the company knows that it must continue to differentiate itself from the competition.
61) As you drive to school in the morning, you will probably flip through several radio stations before deciding to settle on one for the duration of the drive. For instance: you can listen to a "fair and balanced" talk show; an "intelligent talk" program; an interactive "call-in" talk show; a "self-improvement" talk show; and, even an "all sports" talk show. With so much monopolistic competition in radio programming, radio stations focus on offering you something just a little different.
62) The nation of Winstone's economic system closely approximates pure capitalism. While Winstone's economy is likely to generate a great deal of wealth, it may do a poor job of providing an acceptable level of income for the elderly or disabled.
63) This morning on Facebook, you clicked a link to an article about the downfall of a multinational entertainment company. The report shows that despite profits plummeting 35%, the company's CEO received a 9% raise. As you read on, you learn that the company's board of directors approved undeserved salary increases. This is an example of how inequality and greed can infiltrate the free-market economic system.
64) You read the Electricity City Utility Company has problems. Its headquarters had an expansive retaining wall collapse during a flood last week. This led to toxic coal ash flows that buried homes and even caused a few fatalities. An editorial claims that the company will not be held accountable to the same standards as the asbestos companies that paid severe fines and even went out of business due to their lack of attention to environmental clean-up. You agree with the writer because you recently studied about the various competitive markets and utility companies clearly fall under monopolistic competition.
65) The PowerPlus Utility Company recently built a nuclear power plant in a southern state and started competing against Electricity City Utility Company that has served customers in that region for 65 years. Due to deregulation, consumers now have a choice among utility companies in this area. Although PowerPlus has made a sizeable capital investment, if it successfully grows market share, eventually prices for electricity may stabilize or fall.
66) Socialists believe that the primary economic function of the government is to promote rapid economic growth.
67) In socialist economies, the government owns some, if not most, basic businesses such as telecommunications systems and utilities.
68) The top tax rate on personal income in most socialist economies is usually lower than the top tax rate on personal income in capitalist economies.
69) The major benefit of socialism is that it creates strong incentives to work hard and take the risks associated with starting and operating a business.
70) Socialists believe that wealth should be more evenly distributed than what actually occurs in a free-market capitalistic system.
71) Workers in socialist countries often get longer vacations and more social benefits than workers in free-market economies.
72) Over the past decade, socialist economies have proven to be more successful at creating wealth and jobs than capitalist economies.
73) One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.
74) Brain drain is the loss of the best and brightest people from their home countries to other countries.
75) High tax rates in socialist countries are a major reason these nations have experienced a brain drain.
76) Incentive to own and operate businesses is high in nations whose governments are proponents of socialistic practices.
77) One of the benefits of communism is that it allows individuals a great deal of freedom to make their own economic decisions.
78) Communism is an economic and political system in which the state makes almost all economic decisions and owns almost all the major factors of production.
79) Most communist countries today are suffering from severe economic problems.
80) A major distinction between capitalism and socialism concerns the distribution of income.
81) Countries that wish to avoid shortages and surpluses of goods should adopt a communist system.
82) Workers in nations who are strong proponents of communism work much harder and longer hours.
83) In the small nation of Evensplitalia, the government owns several of the key businesses and provides a wide range of social services. The government strongly emphasizes income equality and eliminating the great income disparities among its citizens. These features of Evensplitalia's economy are consistent with a socialist economic system.
84) Mariska left her home country to become a nanny for a family in a suburb of San Diego, California. One of the benefits of her new job is she can attend the community college near her family's home. However, when she arrived, she experienced the differences from a predominately socialist nation and a capitalist nation. Mariska noted that public transportation in California was limited and expensive, making it difficult to get to school. For a negligible fee, the government in her home country provided public transportation for everyone. Mariska's home country's economic system was more characteristic of socialism.
85) Socialism and communism are both variations of a free-market economy.
86) In free-market economies, the government plays a major role in deciding which goods are produced and who will get them.
87) Governments that were predominantly capitalist are moving toward socialism, while governments that were predominantly socialist are moving toward capitalism.
88) Like most nations, the United States has a mixed economy.
89) Most countries throughout the world can be classified as either purely capitalist or purely socialist.
90) There is general agreement in the United States on the degree to which the government should be involved in the economy.
91) Subtle differences, such as the right to one's religious preference, make the command economic system known as communism more like a mixed economy than a socialistic system.
92) In the past, socialist nations have realized that some of the government-run businesses do not grow as quickly as businesses that operate for a profit.
93) Although mixed economies tend to improve economic conditions, moral values prevent communist nations such as North Korea and Vietnam from progressing in this direction. Overall, economic progress continues to be very slow in these nations.
94) In a mixed economy, the government's goal is to grow the economy and maintain some measure of social equality.
95) Cashland is a nation that supports a free-market economy with private ownership of businesses. But lately, the government of Cashland has developed policies designed to help the needy and lessen the level of income inequality. These programs are funded by relatively high taxes on businesses and workers. These arrangements suggest that the economy of Cashland is trending toward pure capitalism.
96) Serena is a vocal critic of socialism. She often points out that governments in many socialistic countries have cut back on government services and have thusly reduced taxes. Serena believes that this trend will ultimately result in every country adopting pure capitalistic ideals. Recent evidence shows that her views are essentially correct.
97) Recently the government of Evensplitia announced that it is standing behind the concept of state-owned utilities and public schools in the nation. Although not all its industries are owned and managed by the government, this would lead one to believe that Evensplitia has a preference for socialism.
98) Most nations recognize that private enterprise is detrimental to business growth and what is best for consumers. Recently, Evensplitia had the opportunity to sell its government-owned telecommunications system to a private firm. Instead it realized that it would be better off if it raised taxes so that it could maintain the status quo.
99) We use indicators such as the gross domestic product (GDP), the interest rate, and the price indexes to measure the health of our economy.
100) The total value of a country's output of final goods and services in a given year is known as the gross domestic product (GDP).
101) The measurement of total sales volume at all stages of production is called the gross domestic product (GDP).
102) Any output produced by U.S. firms is included in the value of U.S. GDP, even if the output was produced in a foreign country.
103) GDP figures do not include the value of illegal activities.
104) To be classified as unemployed, a person must be at least 16 years old and trying to find a job within the past four weeks.
105) Frictional unemployment occurs because the economy is experiencing a recession.
106) Structural unemployment refers to unemployment caused by the restructuring of firms or by a mismatch between the skills or location of job seekers and the requirements or location of available jobs.
107) Inflation refers to a general rise in the prices of goods and services over time.
108) Inflation refers to the persistent rise in the purchasing power of money.
109) Disinflation refers to a situation in which prices continue to rise, but not at the rate they were rising previously.
110) Deflation means prices are declining and is an indication that economic conditions are deteriorating.
111) The consumer price index (CPI) measures what is happening to prices at the wholesale level.
112) The CPI measures the pace of inflation or deflation.
113) The CPI is based on the prices of a carefully selected market basket of goods, all of which consumers can purchase at a supermarket.
114) Some wages, tax brackets, interest rates, and government benefits are based on the CPI.
115) Core inflation figures omit healthcare prices, but not energy prices.
116) The producer price index measures what is happening to prices at the wholesale level.
117) Productivity of workers in the U.S. is helped by the use of better machinery.
118) The higher the measurement of productivity, the higher the likely costs of production.
119) An increase in productivity means that a worker is now able to produce more goods and services in the same amount of time.
120) As productivity increases, the cost of producing goods and services is likely to fall.
121) In the service sector of the economy, the influx of machinery such as computers increases output per worker, but does little to improve the quality of services.
122) An economy is said to be in a recession if GDP declines for two or more consecutive quarters.
123) A depression is a severe recession that is often accompanied by deflation.
124) A prediction that GDP will increase significantly over the next six months is bad news for most businesspeople.
125) Although changes in the CPI provide interesting insights into the overall performance of the economy, these changes have little practical impact on the lives of ordinary people.
126) It is understandable that productivity is rising faster in the service sector because service businesses have newer technologies than the manufacturing sector and fewer laborers.
127) A rising GDP, rising unemployment rate, and rising inflation rate signify a healthy economy.
128) A problem with the CPI is that it measures the price changes of only food and clothing, while ignoring what happens to the prices of such important items as medical care and energy.
129) Willow was laid off from her job 7 months ago. At first, she looked for a new job nearly every day. However, in the last 6 weeks, Willow has become depressed about not finding a job and quit looking. Based on the criteria used by the government, Willow is a civilian whose job status is included in computing the national unemployment rate.
130) Michael and Casey are having an argument. Casey believes that over the past year, the economy is experiencing rapid inflation, while Michael says that the economy actually experienced disinflation during this period. The easiest way for Michael and Casey to settle their argument is to look at GDP figures for the past year.
131) Aubrey is the office manager of a service company. Recently, she approved the request for new computers and office equipment for the entire office. If Aubrey's company is like most service companies, she will probably see a big jump in the productivity figures reported for workers in her office.
132) 140. The government of Ativa has made great progress in its efforts to control its rapid inflation. Although prices are still on the rise, the rate of increase has slowed considerably. This suggests that Ativa is experiencing disinflation.
133) The nation of Forlornistan is reporting a decline in GDP for the fourth consecutive year, with no relief in sight. With unemployment at record levels and businesses failing faster than at any time in the past century, Forlornistan is likely experiencing a depression.
134) Sean received an ad for bundled television, phone, and Internet service that cost substantially more than he is currently paying. At the same time, he received a notice from his utility company that summer rates would be increasing. His textbooks are costing twice as much as they did last year, and yesterday, gas cost 30 cents more per gallon than it did last week. He can't help but marvel at how prices are rising when so many people have lost their jobs and are cutting back on expenditures. He is certain that this situation is an example of stagflation.
135) Brianne graduated from college and is looking for her first job. She received a degree in nursing from a well-regarded local university. Brianne has several leads and has heard the nursing market is still strong, so she is convinced that she will locate a good job in the near future. Brianne's current situation is an example of structural unemployment.
136) Fiscal policy refers to the federal government's efforts to keep the economy stable by controlling the amount of money in circulation.
137) Fiscal policy involves the federal government's efforts to stabilize the economy by increasing or decreasing taxes and/or government spending.
138) When the government attempts to stabilize the economy by changing taxes or government expenditures, it is using fiscal policy.
139) The national deficit is the difference between our nation's exports and its imports.
140) The size of the national debt increases when the federal government runs a deficit.
141) The U.S. national debt equals the sum of government deficits over time,.
142) The Federal Reserve Bank is responsible for controlling the money supply.
143) Monetary policy is directly under the control of the U.S. Department of the Treasury.
144) One of the major ways the Fed influences economic conditions is through its control of interest rates.
145) High tax rates that put money into the government's funds tend to slow spending, and ultimately slow the economy.
146) If the government wants to jump-start the economy resulting in more consumer spending, it will raise taxes.
147) Monetary policy is implemented to ease the up and down swings of business cycles, while fiscal policy is implemented to create swings when the cycle is stalled in an economic boom.
148) If the national debt is $20 trillion, the national deficit will be considerably higher.
149) Government spending on defense decreases the national deficit.
150) To jump-start the economy, the Fed is likely to lower interest rates, in order to encourage individuals and businesses to spend money.
151) The best way to avoid national budget deficits is to increase our exports and decrease our imports.
152) In order to restrict spending by businesses and households, the Fed would take measures designed to lower interest rates.
153) Senator Spendital recently made a speech condemning the continuous deficits in the federal budget. He is now proposing an increase in tax rates to raise more revenue for the government and thus gradually reduce the size of the national debt over a period of several years. The strategy Senator Spendital is proposing is a common type of monetary policy.
154) Prestigious economics professor, Tom Ruland, recently urged government policy makers to cut taxes and increase government spending in order to pull the economy out of a downturn. The policy measures called for by the professor are examples of fiscal policy.
155) Dan and Susan Greene are purchasing their first home in Savannah, Georgia. They are seeking pre-qualification on a home loan. The unemployment rate for Georgia is 10.2% and GDP is declining. Chances are pretty good that the Fed will raise interest rates in order to loosen the supply of money, resulting in a more expensive loan for Dan and Susan.
156) Quinn owns a local salon. She wants to update her shop with new customer massage chairs and work stations for her nail technicians. If the Fed were to lower interest rates by 1.5 percentage points, at the same time that the government increased the tax rate by 1.5%, she could immediately conclude that updating her shop would not increase or decrease her financial position.
157) The Fed is concerned that the economy is growing too rapidly. Given these concerns, it is likely to pursue policies to restrict the supply of money and raise interest rates.
158) Kyle O'Donnell needs a new car and he is planning to borrow the money from a nearby bank. The other day, he read online that the Federal Reserve is likely to implement policies in the next few weeks that are designed to stimulate the economy. If he waits until after the Fed implements its new policies, Kyle would probably get a lower interest rate on his car loan.
159) Economics is the study of how a society ________.
A) invests wisely in the stock market.
B) employs resources to produce goods and services and distribute them among competing groups and individuals.
C) employs statistical techniques to make predictions about the evolution of society over the long run.
D) governs itself for the good of its citizens.
160) ________ is the study of how a society employs its limited resources to produce goods and services and how it distributes them among competing groups and individuals.
A) Economics
B) Capitalism
C) Marketing
D) Socialism
161) ________ studies the operation of a nation's economy as a whole.
A) Microeconomics
B) Socioeconomics
C) Econometrics
D) Macroeconomics
162) ________ looks at the behavior of individual people and organizations in specific markets.
A) Macroeconomics
B) Finite economics
C) Microeconomics
D) Nanoeconomics
163) Resource development is
A) the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.
B) the study of how to increase the amount of available resources and create conditions that will make better use of these resources.
C) the part of economics that looks at the operation of a nation's economy as a whole.
D) the part of economics that looks at particular markets.
164) The study of how to increase the amount of available resources and create conditions that will make better use of these resources is known as
A) human resource management.
B) microeconomics.
C) econology.
D) resource development.
165) Economist Thomas Malthus believed that ________ would limit economic progress.
A) depletion of gold reserves
B) overpopulation
C) the tendency of governments to levy high tax rates
D) the inability of workers in developed nations to compete against cheap foreign labor
166) A key to economic growth and development is to
A) locate more deposits of gold and other precious metals.
B) emphasize a fair and equitable distribution of income.
C) provide people with better education.
D) allow government planning to guide the allocation of resources.
167) ________ is considered by some to be the father of modern economics.
A) John Maynard Keynes
B) Adam Smith
C) Thomas Piketty
D) Thomas Malthus
168) Which of the following is an important premise of Adam Smith's conclusions about economic prosperity?
A) Individual freedom is necessary if a society is to prosper.
B) Understanding the concept of survival of the fittest will lead to prosperity.
C) Determining what motivates people will lead to prosperity.
D) Command economies and structured markets must be in place before we can work toward prosperity.
169) Which of the following would be a topic emphasized in a macroeconomics course?
A) The factors that determine how fast a nation's economy is growing
B) How a company decides the amount it will charge for one of its products
C) How a consumer chooses which goods to buy
D) The factors that determine the wages for labor in the mining industry
170) Which of the following would be a topic emphasized in a microeconomics class?
A) How a nation's GDP is computed
B) The nation's unemployment rate
C) How market conditions determine the price of a specific product
D) How the government can provide adequate healthcare
171) The main goal of resource development is to find ways to
A) increase the amount of resources and create conditions that will make better use of those resources.
B) allocate existing resources more efficiently among competing uses.
C) find the right balance between policies that promote economic growth and policies designed to promote other goals such as a fair distribution of income.
D) promote the central planning of resource utilization so that resources can be allocated to the uses that will benefit society the most.
172) Thomas Malthus was pessimistic about the ability of a society to achieve high standards of living for most of its citizens because he believed that
A) government has a natural tendency to run deficits that would eventually bankrupt a nation.
B) significant population growth would result in shortages of food and resources.
C) owners of businesses would deliberately exploit their employees in an attempt to earn greater profits, and this would ultimately lead to a worker's revolt.
D) high tax rates would eventually undermine people's incentives to work hard and create wealth.
173) Economics was called the "Dismal Science" by Thomas Carlyle because
A) too many people would result in food shortages and shortages of other resources.
B) it was a very complex area of study based on mathematics.
C) the world population was growing slower than expected in the 1700s, leading economists to call it a dismal period of time.
D) there were too many old people and not enough young people to care for them.
174) How is it that people working in their own self-interest produce goods, services, and wealth for others?
A) By taking advantage of a vast supply of labor, people working in their own self-interest could hire others at very low wages.
B) In order to earn money and produce goods that improve lives, self-directed gain would provide jobs, and subsequently wages for others.
C) The government pays entrepreneurs in the U.S. to produce goods, services, and wealth for others.
D) Entrepreneurs tend to include themselves in a group of people who need charitable support. A portion of the entrepreneur's profit (as required by law) goes to the charity of one's choice to support the less fortunate.
175) Adam Smith believed that countries would prosper if businesspeople were free to start and run their own businesses. Businesspeople would make a profit by providing the goods, services, and ideas that others in the economy wanted, and they would hire others to help increase those profits, leading to social and economics benefits for many. This idea was called the
A) kinked demand theory.
B) invisible hand.
C) spending multiplier.
D) demand accelerator.
176) In the box "World Population is Popping," the textbook describes how the world's population is growing at an incredible rate and discusses the challenges that will face different countries. Which of the following statements best illustrates the challenges that can arise?
A) Europe's population is expected to grow by 12% in 2050. With so many children, there will not be enough schools or teachers to provide an adequate education.
B) North American growth will slow down and there will be fewer businesspeople to provide the services we have become accustomed to.
C) China and India will remain the two most populated countries and will not need to make any changes.
D) Nigeria will experience the world's fastest growth and though its continent has the world's fastest growing middle class, combating hunger and poverty, providing healthcare, and expanding education will pose a challenge.
177) Louisa is a gifted baker. She plans to open a small café in which she will be the head pastry chef. Louisa is willing to work the long hours because she believes that hard work will allow her business to succeed and earn her sizeable profits. Louisa's efforts are most consistent with the economic theory developed by
A) Thomas Malthus.
B) Karl Marx.
C) Adam Smith.
D) Thomas Piketty.
178) Brendan considers himself to be a follower of Thomas Malthus. Which of the following statements would he be most likely to make?
A) The key to economic growth is to keep taxes and government regulations to a minimum.
B) Command economies are more likely to encourage economic growth than free-market economies.
C) Allowing people to follow their self-interest is the best way to generate economic growth and prosperity.
D) A society will not experience sustainable economic progress unless it accepts the need to limit population growth.
179) Which of the following statements would a follower of Adam Smith most likely make?
A) The federal government should use its ability to spend and tax to guide the decisions of businesses and consumers.
B) The federal government puts too much emphasis on economic growth instead of aiding in social issues.
C) The federal government should help in alleviating overpopulation.
D) The federal government should give people the freedom to follow their own interests; theoretically their efforts will lead to economic growth that benefits society as a whole.
180) Marco has noticed that as older adults purchase tablets, they do not know much about how to use them and are frequently aggravated. He decided he could earn a nice profit by developing courses and offering one-on-one help to aid his customers in overcoming their deficiencies. Although the business struggled at first, he is experiencing a good deal of success now. Marco has many satisfied customers, and the business has grown to the point where he now employs several workers, some of whom were previous clients. Marco's experience is an example of
A) socialism at work.
B) the principle of comparative advantage.
C) the invisible hand concept.
D) the multiplier principle.
181) For many years, Senator Juliana Higdon has called for more government regulation of business. "After all," the senator said recently, "businesses are out to make a profit, not to create jobs or serve their customers. The government needs to pass more laws to require businesses to take the interests of consumers and workers into account." From these comments, it is clear that Senator Higdon
A) agrees with the ideas of Thomas Malthus.
B) does not accept the "invisible hand" idea brought forth by Adam Smith.
C) is unaware of the fact that most businesses in the United States are owned by the government.
D) does not realize that government regulation is already the main determinant of business decisions in capitalist economies.
182) According to the invisible hand concept, the best way for a society to encourage the creation of jobs and the production of the products most wanted by consumers would be to
A) permit government-owned industries, such as telecommunications, transportation, and energy, and operate these firms as nonprofit organizations.
B) allow private ownership of businesses, but use extensive regulations to force businesses to behave as the government wishes.
C) allow entrepreneurs personal freedom to follow their own self-interest.
D) impose high taxes on individuals, and use the revenue to subsidize businesses to encourage them to produce the maximum rate of output.
183) A young couple living in rural west-central Missouri heard about the closing of a local grocery store. Although a small operation, it served a small community that would now have to travel another 20 miles to the nearest grocery store. With help from a local realtor and banker, the couple purchased the store, remodeled it, and reopened it. As new storeowners, they had to carefully watch cash flow. As their customer base began to grow, they began offering hot food, and hired others to help with the operation. The economic benefit created in this story is called:
A) an economic intervention.
B) an economic crisis control.
C) the invisible hand.
D) the deliberate process.
184) ________ is the name of a free-market economic system in which most of the factors of production and distribution -- such as land, factories, railroads, and stores -- are owned by individuals.
A) Socialism
B) Capitalism
C) Communism
D) Marginalism
185) Under capitalism,
A) most of the means of production and distribution are privately owned and operated for profit.
B) the primary function of the government is to distribute wealth more evenly.
C) utilities, health care, education, and other important services are operated by the government.
D) markets operate to carry out the decisions made by central planners.
186) The foundation of the U.S. economic system is based on
A) capitalism.
B) the ideas of Thomas Malthus.
C) equality.
D) the saying, "from each according to ability, to each according to need."
187) Which of the following is a basic right under capitalism?
A) Freedom of collusion
B) Freedom from taxation
C) The right to vote
D) The right to compete
188) The freedom of people to decide where they want to work and live, and what they want to buy or sell are basic capitalist rights under
A) eminent domain.
B) freedom of expression.
C) freedom of choice.
D) freedom of competition.
189) The freedom for people to buy, sell, and use land, buildings, machinery, and inventions are basic capitalist rights under
A) the right to own private property.
B) freedom of expression.
C) freedom of choice.
D) freedom of competition.
190) A free market is one in which decisions about what to produce and in what quantities are made by
A) the Fed.
B) the president.
C) the market.
D) Congress.
191) In a free-market economic system, ________ is the key determinant used to signal to producers what to produce and how much to produce.
A) the market curve
B) trend
C) price
D) quantity
192) The quantity of a good or service that producers are willing to sell at different prices during a specific time period is known as the
A) supply of that product or service.
B) demand for that product or service.
C) elasticity of that product or service.
D) utility of that product or service.
193) A simple supply curve shows that an increase in the price of a good will cause the quantity supplied to
A) decrease.
B) increase.
C) remain constant.
D) fluctuate randomly around its equilibrium value.
194) A simple supply curve shows a relationship between the
A) amount of labor a firm hires and the amount of output it can produce.
B) amount of time required to produce a good and the relevant production costs.
C) price of a good and the quantity of that good sellers are willing to offer for sale at a specific point in time.
D) amount of a good a firm produces and the amount demanded by consumers.
195) A(n) ________ curve shows the relationship between the price of a good and the quantity of that good people are willing and able to buy in a given time period.
A) demand
B) supply
C) utility
D) equilibrium
196) A typical demand curve shows that
A) as people earn higher wages, they buy more of a specific good.
B) as supply increases, the amount purchased decreases.
C) people tend to buy more of a good than they really want.
D) people tend to buy more of a good when its price decreases.
197) When the supply curve and demand curve for a particular good are shown together on a single graph, the point at which the two curves intersect identifies the
A) total profit earned by producers.
B) total amount of labor that will be employed in that market.
C) amount of time it takes to bring together the buyers and sellers of the good.
D) equilibrium price of the good.
198) When prices are free to adjust over time, in the long run, the market price of a good tends to
A) rise above the equilibrium price in the long run.
B) equal the equilibrium price.
C) fall below the equilibrium price in the long run.
D) have no specific relationship to the equilibrium price.
199) If a shortage exists for a good in a free-market economy, the
A) price of the good will rise.
B) price of the good will fall.
C) government will order suppliers to increase the production of that good.
D) government must establish a rationing system to make sure that the good is fairly distributed.
200) ________ is the market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product.
A) Oligopoly
B) Monopolistic competition
C) Perfect competition
D) Microeconomic competition
201) ________ exists when a large number of firms produce goods that are similar but customers believe there is a difference.
A) Perfect competition
B) Monopolistic competition
C) Oligopoly
D) A monopoly
202) ________ exists when the entire supply of a good is controlled by a single seller.
A) Perfect competition
B) Oligopoly
C) Pure capitalism
D) A monopoly
203) An oligopoly is a market that is characterized by
A) one seller that totally dominates the supply of the product.
B) a large number of small companies all producing very similar products.
C) a few large sellers who dominate the market.
D) several small firms that compete primarily by differentiating their products.
204) Which of the following statements about capitalism is the most accurate?
A) In capitalist economies, most resources are owned by the government.
B) A strength of capitalism is its ability to deal with environmental problems.
C) Capitalism is characterized by unequal distribution of wealth and income.
D) A drawback of capitalism is that people have little freedom to pursue their own goals.
205) When the market price of a good is below the equilibrium price, and all other determinants are unchanged
A) the quantity demanded will be greater than the quantity supplied.
B) the supply curve will be to the right of the demand curve.
C) a surplus will exist in the market.
D) the government will regulate the price of the good to ensure equilibrium is attained.
206) When the market price of a good is above its equilibrium value, and all other determinants are unchanged
A) a shortage will exist in the market.
B) the quantity demanded will be greater than the quantity supplied.
C) the government will regulate the price of the good to ensure equilibrium is attained.
D) a surplus will exist in the market.
207) Just a few sellers dominate the markets for laundry detergents, soft drinks, and automobiles. Economists would classify these markets as
A) monopolistic competition.
B) perfect competition.
C) oligopolies.
D) monopolies.
208) There's a large number of bakeries in the United States and each of these bakeries produces similar, but not identical, products. Some bakeries will claim to have the best cupcakes in town, while others will brag about other items like cookies or specialty breads. The bakery market is an example of
A) monopolistic competition.
B) perfect competition.
C) an oligopoly.
D) a monopoly.
209) The presence of competition in free markets
A) is undesirable because it results in unnecessary duplication of efforts.
B) usually results in better quality and lower prices.
C) is rare, since most markets eventually evolve into monopolies.
D) is undesirable, because one big firm can usually produce goods more efficiently than a large number of small firms.
210) A benefit of a free market can be that
A) businesses provide customers with quality products at fair prices.
B) businesses all make the same amount of profit.
C) all businesses do better with more government regulation.
D) the government dictates the number of competitors there are in each industry.
211) One of the greatest concerns associated with capitalism is that
A) it rarely creates wealth.
B) some people may let greed guide their behavior.
C) there is very little economic freedom for consumers.
D) producers are unlikely to supply the goods and services that consumers value the most.
212) Which of the following statements most accurately identifies a limitation of the free-market economic system?
A) Free-market economies offer little opportunity for the poor to work their way out of poverty.
B) Free-market economies have been unable to create wealth as rapidly as other types of economic systems.
C) Free-market economies are generally plagued by shortages of needed consumer goods.
D) Free-market economies tend to result in unequal distribution of wealth.
213) According to the box, "Bad Medicine for Consumers?" the hypothetical pharmaceutical firm you work for recently increased the price of a chemotherapy drug from $300 to $3,000! What concern associated with capitalism best illustrates this ethical dilemma?
A) Some businesspeople may let greed guide guide their behavior.
B) Through the lack of quality healthcare, the number of cancer patients has increased and the demand for chemotherapy drugs is greater than the supply.
C) Thanks to many different kinds of chemotherapy drugs, there is now a surplus and prices need to increase to make a profit.
D) The government regulates pharmaceutical costs and can raise or lower the price as it sees fit.
214) Colin lives in a nation whose government embraces capitalism. He owns his own home and car, as well as his own business and building. Colin maintains ownership due to
A) eminent domain.
B) the freedom of choice.
C) the right to own private property.
D) the freedom of competition.
215) The market price of corn is falling. In a free-market economy, the most likely explanation of this price change is that:
A) the government has decided to set a higher price so that firms competing in the market make an adequate profit.
B) there is a surplus in the market for apples.
C) the supply of money has decreased.
D) the equilibrium price is lower than the market price.
216) An incredibly rare stone known as Diamontite is used in many consumer products, including watch faces, smartphones, computer monitors, and tablets. In one year, the price of Diamontite has gone from $8/lb. to $107/lb. Under these circumstances and the fact that more companies are looking to use Diamontite in their products, a graph of the supply and demand for this product would show
A) the current price of Diamontite to be below the equilibrium price for this rare gem.
B) the price of Diamontite to be above the equilibrium price for this rare gem.
C) the price of Diamontite to reflect the adjustment of quantity demanded and quantity supplied.
D) consumer demand for any products using Diamontite to shift to the right indicating the desire to purchase the rare gem at any price.
217) The price of the Samsung Galaxy Tablet is falling. In a free-market economic system where everything else is equal, the most likely explanation is
A) there is a Galaxy Tablet shortage in the United States.
B) sellers cannot keep up with market demand.
C) the government determined that the product was not worth the price tag that the producer was asking.
D) the product has competition at the equilibrium price.
218) Reality, Inc. is a major producer of reality television shows. The company faces fierce competition from three other major producers of similar shows. Together, Reality, Inc. and its three rivals control almost all of reality television. Their market environment is called
A) an oligopoly.
B) a duopoly.
C) monopolistic competition.
D) a quasi-monopoly.
219) On its website, Papa John's Pizza compares itself to the competition with the following message: "better ingredients, better pizza." The company is looking to achieve
A) product differentiation.
B) an equilibrium price.
C) a monopoly.
D) a perfectly competitive market.
220) A major premise of a socialist system is
A) to make sure that the people who create wealth are allowed to keep that wealth.
B) to reduce the inequality in the distribution of wealth.
C) to create incentives to encourage entrepreneurs to create jobs and economic growth.
D) to keep tax rates extremely low so that businesses do not need to support government projects.
221) A major benefit of socialism is the
A) ability to stimulate rapid economic growth.
B) ability to keep taxes low.
C) emphasis on social equality.
D) emphasis on private enterprise instead of public ownership.
222) Under the ________ system there is very little incentive to work hard or to produce quality goods or services.
A) capitalist
B) socialist
C) communist
D) mixed economy
223) Brain drain has occurred in many socialistic nations because
A) socialism encourages an unequal distribution of income, leaving many without medical and social services.
B) the government does little to protect the natural environment.
C) workers tend to have to work longer hours and receive fewer benefits under socialism.
D) tax rates on well-respected professionals such as doctors tend to be very high.
224) Communism is an economic system in which
A) the government and private citizens own equal shares of the economic resources.
B) almost all of the productive resources are owned by private businesses.
C) the government makes almost all of the major economic decisions.
D) individual consumers make all economic decisions.
225) In recent years, countries with communist economic and political systems have
A) enjoyed periods of great prosperity.
B) experienced economic depression.
C) placed even more importance on individual ownership of businesses.
D) grown very slowly, but have avoided the severe problems that have plagued some capitalist economies in Asia and Europe.
226) The economic and political system in which the government owns almost all the major factors of production is called
A) communism.
B) capitalism.
C) ethnocentrism.
D) socialism.
227) Communist values are disappearing because
A) people in communist nations are tired of the strong religious teachings of the system.
B) communist businesses have grown too quickly and they cannot keep up with demand.
C) communist leaders are all militaristic.
D) food and other product shortages overwhelm citizens since the government must guess what citizens need.
228) Which of the following statements provides the most accurate comparison of socialism and communism?
A) Under socialism, the government owns most businesses, while under communism the church owns most businesses.
B) Both socialism and communism strive to achieve a more equal distribution of income and wealth, but under communism, the government takes greater control.
C) Socialism strives for an equal distribution of income but communism wants income to go primarily to those who own and operate private businesses.
D) Communism believes that the government should always strive to balance its budget, while socialism accepts deficit spending as the price of achieving true equality.
229) Which of the following people would tend to favor a socialist economy?
A) Fred prefers to live in a country with low marginal tax rates.
B) Lizzie prefers to live in a country that encourages rapid economic growth.
C) Kara prefers to live in a country with limited government regulation.
D) Bryan prefers to live in a country that promotes social equality.
230) Which of the following people would tend to favor a communist economy?
A) Fred prefers to live in a country with low marginal tax rates.
B) Lizzie prefers to live in a country that encourages rapid economic growth.
C) Kara prefers to live in a country where the government makes almost all of the economic decisions.
D) Bryan prefers to live in a country with limited government regulation.
231) One of the most significant problems faced by communist nations is
A) inequality in the distribution of wealth and income.
B) severe inflationary pressures due to rapid economic growth.
C) too little government regulation of economic activity.
D) persistent shortages of basic goods such as food and clothing.
232) Javier left his home country to become a gardener for a family in a suburb of San Francisco, California. One of the benefits of his new job is he can attend the community college near the family's home. However, when he arrived, he experienced the differences from a predominately socialist nation and a capitalist nation. Javier was dismayed to learn that public transportation in California was limited and expensive, making it difficult to get to school. For a negligible fee, the government in his home country provided public transportation for everyone. Javier's home country's economic system was more characteristic of ________.
A) pure capitalism.
B) socialism.
C) mercantilism.
D) communism.
233) Sasha is a well-educated entrepreneur who operated a small business in her home country of Evensplitia. At the encouragement of American relatives, Sasha recently immigrated to the United States and applied for citizenship. "In Evensplitia, tax rates were very high," Sasha complained. "The government used my taxes to finance all sorts of social programs to help the less fortunate. While I want to help, it has really undermined the profit incentive of individuals such as me. I feel those high taxes have stunted economic growth." Sasha's comments illustrate the reason many socialist countries are experiencing a(n)
A) antitrust problem.
B) depression.
C) brain drain.
D) budget surplus.
234) Recently, the government of Evensplitia announced that it is standing behind the concept of state-owned utilities, public schools, and the communications industry of the nation. Although not all industry is owned and managed by the government, these ideas would lead one to believe that the nation has a preference for a ________ state.
A) capitalist
B) socialist
C) communist
D) nationalist
235) Today, the economic systems of most nations could most accurately be classified as
A) pure capitalism.
B) pure socialism.
C) command economies.
D) mixed economies.
236) Both socialism and communism are variations of
A) command economies.
B) competitive economies.
C) free-market economies.
D) plutocratic systems.
237) A major trend around the world today is that
A) free-market economies are moving more toward socialism and socialist economies are moving more toward capitalism.
B) productivity in the service sector is increasing much more rapidly than productivity in agriculture and manufacturing.
C) governments in socialist economies are increasing their use of social programs and relying on higher tax rates to finance these programs.
D) governments in countries with capitalist economies are paying less attention to environmental concerns and issues involving social equality.
238) A command economic system is characterized by
A) reliance on the forces of supply and demand to determine what is produced.
B) reliance on the government to determine what is produced and who gets the output.
C) an extremely rapid rate of economic growth.
D) freedom of choice and freedom of competition.
239) The social and economic goals of ________ include private ownership of land and business.
A) capitalism
B) socialism
C) communism
D) a mixed economy
240) During the a recession, the government of Cashland flooded several banking, financial services, and insurance firms with government funds in exchange (at least temporarily) for government ownership rights. This move signaled the government's concern that the global banking system might collapse if these firms ended up in bankruptcy. This decision for government involvement in these firms demonstrates
A) the unforgiving nature of capitalism.
B) the desire for more individuals in the Cashland to live under a socialist system.
C) the trend of mostly capitalist nations to move toward socialism.
D) the freedoms the Cashland government has under capitalism.
241) As "global" trends become "local," and as we see more opportunities to compete in the global market,
A) the long-term trend is for most nations to operate as mixed economies.
B) disagreements about the best economic system to embrace will cause many nations to close their doors to outside commerce.
C) the only industries that governments will want to own are the ones that are profitable.
D) the forecast is for socialist nations to trend toward communism and for capitalist nations to trend toward socialism.
242) Over the years, the government of Evensplitia has focused on implementing programs that promote equality. In the short term, though, Evensplitia's legislators are concerned about the very slow rate of growth that has plagued its national economy. In order to address this problem, the government is likely to
A) take control of more major industries.
B) reduce taxes and cut back on some social programs.
C) make sure to balance its budget.
D) avoid the use of fiscal policies and reduce the supply of money in circulation.
243) In an effort to promote rapid growth, the government of Cashland has kept taxes low, offered little regulation of business activities, and implemented only modest social programs. The government is now facing political pressure to do more to clean up the environment and to reduce the inequalities of income and wealth. Cashland's government is currently taking a
A) purely capitalist approach to achieve its economic goals, and is likely to continue doing so in the future.
B) purely socialist approach to achieve its economics goals, and is likely to continue doing so in the future.
C) predominately socialist approach to achieving economic goals, but the current pressures it faces suggest it is likely to adopt a more capitalist approach in the future.
D) predominately capitalist approach toward achieving economic goals, but the current pressures it faces suggest it is likely to adopt a more socialist approach in the future.
244) The prime minister of Equalia has called for the nation's legislators to enact new legislation designed to shift the country away from socialism toward a more capitalistic system. The prime minister acknowledges that some citizens will be unhappy with the radical changes. The most likely source of dissatisfaction with a move toward capitalism is
A) decrease in wealth.
B) people will have less economic freedom.
C) tax rates will have to increase.
D) a trend toward unequal distribution of wealth.
245) If nearly 28% of Cashland's citizens under the age of 65 are without healthcare and an advocacy group convinces its current administration to vote for basic healthcare for everyone, which of the following is likely to occur?
A) More rapid economic growth
B) Higher taxes than in past years
C) Increasing reliance on markets to determine economic outcomes
D) An increase in the number of insurance companies
246) Several years ago, the nation of Equalia had a government-owned telecommunication system that lagged far behind other nations. In several rural areas, there was only a single landline phone for an entire village. The taxes collected for the purpose of maintaining the telephone system were very meager, so the notion of expanding service was almost impossible. The government of Equalia decided to sell the phone company to a private firm. The private firm expanded rapidly. It reported that even poor consumers were willing to pay for a private landline. This government decision and subsequent sale demonstrates move toward
A) nationalism.
B) communism.
C) socialism.
D) capitalism.
247) The U.S. economic system relies on
A) the private sector to measure its economic well-being.
B) industries that produce capital equipment to determine how well things are going.
C) frictional unemployment statistics as the sole measure of economic health.
D) key economic indicators such as GDP, to measure economic progress.
248) The total value of final goods and services produced within a nation's borders in a given year is known as that nation's
A) aggregate production quota.
B) aggregate domestic output.
C) index of aggregate economic output.
D) gross domestic product.
249) Three important economic indicators of the United States are the unemployment rate, the price indices, and the
A) debt to equity ratio (DER).
B) gross resource utilization index (GRUI).
C) gross domestic product (GDP).
D) gross output (GO).
250) The four basic types of unemployment are frictional, structural, seasonal, and
A) cyclical.
B) procedural.
C) industrial.
D) traditional.
251) ________ unemployment refers to persons who purposefully quit their jobs and have not yet found a new job.
A) Frictional
B) Structural
C) Cyclical
D) Seasonal
252) ________ unemployment refers to unemployment caused by the restructuring of firms or by a mismatch between the skills of job seekers and the requirements of available jobs.
A) Frictional
B) Structural
C) Cyclical
D) Seasonal
253) ________ unemployment refers to loss of jobs due to a recession or a similar downturn in the economy.
A) Frictional
B) Structural
C) Cyclical
D) Seasonal
254) ________ unemployment results when the demand for labor varies during the year.
A) Frictional
B) Structural
C) Cyclical
D) Seasonal
255) The ________ is a statistic used to measure the pace of inflation or deflation.
A) consumer price index
B) gross domestic product
C) index of leading indicators
D) index of inflationary trends
256) The measure used to report price changes at the wholesale level is the
A) gross domestic product (GDP).
B) consumer price index (CPI).
C) gross output (GO).
D) producer price index (PPI).
257) ________ refers to a general rise in the price level of goods and services over time.
A) Acceleration
B) Recession
C) Inflation
D) Escalation
258) ________ is a condition characterized by slowing price increases.
A) Deflation
B) Disinflation
C) Stagflation
D) Uniflation
259) ________ is a condition in which the average level of prices is actually falling.
A) Deflation
B) Disinflation
C) Stagflation
D) Uniflation
260) A ________ is a severe recession that is usually accompanied by deflation.
A) stagflation
B) retraction
C) depression
D) dissolution
261) In recent years, U.S. manufacturing sector has experienced ________ productivity.
A) rising
B) relatively stable
C) falling slowly
D) falling very rapidly
262) There are innovations involving new ways to produce and conserve energy. If we can turn this new technology into marketable products and services that produce energy to run our businesses and homes, the U.S. could see a surge in output of goods and services. What would be measured to document this surge?
A) Gross domestic product
B) Consumer price index
C) Consumer marginal index
D) Number of workers who are frictionally employed
263) One reason the CPI is monitored very closely by government, businesses, and workers is that
A) it indicates whether we are running a budget surplus or a deficit.
B) some wages, interest rates, tax rates, and government benefits are tied to changes in the value of the CPI.
C) it is the best measure of worker productivity in the service sector.
D) the gross domestic product is computed from the reported increases in the CPI.
264) The U.S. strongly relies on GDP data. However, it is only the total value of finished goods produced by the country. Officials are looking to measure total sales volume at all stages of production. What statistic would be most useful to them?
A) Consumer price index
B) Producer price index
C) Gross output
D) Productivity
265) Which of the following indicators provides the clearest indication that an economy is experiencing deflation?
A) A decrease in the unemployment rate
B) A decrease in GDP
C) An increase in the PPI
D) A decrease in the CPI
266) Which of the following statements about business cycles in the U.S. is most accurate?
A) Business cycles occur precisely every 5 years.
B) Long-term business cycles have only two phases—boom and bust.
C) Seasonal business cycles occur within a year.
D) Business cycles are based on theories.
267) Which of the following statements about productivity in the service sector of the U.S. economy is most accurate?
A) Productivity in the service sector has increased much more rapidly than productivity in the manufacturing sector.
B) Improving productivity in the service sector is much less important than improving productivity in the manufacturing sector, because the service sector does not really produce anything.
C) Productivity in the service sector is easier to measure than productivity in agriculture.
D) Measures of productivity in the service sector do a poor job of taking quality improvements into account.
268) Cashland's banking system recently crashed. This eventually led to companies being unable to borrow money to run their businesses and employees needed to be terminated. These circumstances cut into consumer's purchasing power, causing a severe decline in the prices of goods and services, better known as ________.
A) disinflation.
B) deflation.
C) contra inflation.
D) overproduction.
269) Which of the following strategies may have a net effect on inflation?
A) Decreasing interest rates and decreasing taxes
B) Proportionately increasing wages and increasing prices
C) Decreasing prices and decreasing taxes
D) Proportionately increasing prices and decreasing wages
270) Forlornistan is a country in the midst of a serious economic downturn. Forlornistan's GDP has declined steadily for over three years and is now at its lowest level in over sixty years. Forlornistan's unemployment rate is at an all-time high and the nation's CPI is falling. Forlornistan's economic condition is referred to as a
A) period of stagflation.
B) balance of trade deficit.
C) depression.
D) retraction.
271) Over dinner with his friend Nathan, Dominic complained about how prices have increased a great deal over the past year. Nathan disagreed and said that the prices of some goods have gone up a bit, but other prices have declined, noting that you can get some good buys on houses right now. Nathan feels that the average price of consumer goods hasn't changed. Nathan and Dominic can refer to the ________ to learn how government economists currently view the price situation.
A) GDP
B) CPI
C) PPI
D) MEW
272) Olivia recently left her job at a large corporation because she saw little chance for advancement. Although she is still searching for a new position, she believes the economy is healthy and she hears that several firms are hiring people with her qualifications. Which of the following statements about Olivia's current situation is most accurate?
A) Olivia is not considered unemployed because she voluntarily quit her job.
B) Olivia is an example of cyclical unemployment.
C) Olivia is an example of frictional unemployment.
D) Olivia is likely to find employment quickly if she seeks training in a different field.
273) Shelly's company produces computers, phones, and tablets. About six months ago, Shelly began to keep track of number of hours worked at the company, and the resulting output. When she compared the results, she found that the number of workers (and the hours they worked) remained relatively steady over the past six months; however, the work site's output improved considerably. This indicates that
A) productivity at the work site has increased.
B) the work site sold off some of its excess inventory.
C) the company's prices have increased faster than the wages paid to workers.
D) the company should hire more workers.
274) Colby is a new college graduate who just started a job as an engineering trainee for a sizeable defense company. Now that he is earning good money, he hopes to start saving for his first house and also make contributions to his retirement plan. As he looks over his monthly bills, Colby is concerned that he'll never get ahead of the game. His grocery bill, car payment, and mounting gas payments keep him in the "just making ends meet" group. As his mind wonders back to his college days, he reflects on a time when gas and food seemed a lot more reasonable. Chase is experiencing the effects of
A) inflation.
B) conditions of low demand.
C) involuntary CPI.
D) cyclical unemployment.
275) Gabby and Gus Malloy recently got preapproved on a loan for their first house purchase. They are speculating on how much they should bid on their number one choice—a small, three-bedroom bungalow near a major college town. Which of the following indicators may be an important factor in whether they are able to successfully put in a low bid?
A) The federal tax rate in that area
B) The unemployment rate in that area
C) The producer's price index in that area
D) The CMI - consumer's marginal index
276) Patrick just landed a job working for an up and coming online gaming company in Palo Alto, California. In a lot of ways, this is his dream job come true—the chance to work for a company that makes gaming software and live in California at the same time. As his plane lands at San Jose International, he pictures a snazzy apartment with a palm tree right outside the front door. A few hours later, as he meets a property manager of a large apartment complex, his heart sinks. The price of apartments is outrageous! Back at the hotel, he checks the Bureau of Labor Statistics site to try to get a better picture of why the cost of housing is so high in this region of the country. Which factors may be causing the rise in the price of housing?
A) A low unemployment rate and increasing GDP
B) A high consumer's marginal index and low PPI
C) A low CPI and high state tax rate
D) A decreasing Disruptive Technologies Index and high unemployment
277) ________ policy refers to the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending.
A) Monetary
B) Incomes
C) Fiscal
D) Cyclical
278) Fiscal policy involves increases or decreases in
A) the money supply.
B) interest rates.
C) government spending and taxes.
D) exports and imports.
279) When the federal government's collection of tax revenues is less than what it spends in a given year, it results in a
A) Federal Reserve allowance.
B) GDP deflator.
C) balance of payments deficit.
D) national deficit.
280) When the government runs a continual budget deficit, it increases the
A) national debt.
B) balance of payments deficit.
C) federal capital account.
D) money supply.
281) In the U.S., the ________ has the role of managing the money supply and interest rates.
A) United States Treasury
B) Federal Reserve Bank
C) State Department
D) Federal Deposit Insurance Corporation
282) One way to lessen the U.S. government budget deficit is to
A) cut spending.
B) increase spending.
C) call in government savings bonds.
D) increase government social programs such as welfare, food stamps, and Medicare.
283) Efforts by the Federal Reserve Bank (the Fed) to control the money supply and interest rates are known as ________ policy.
A) fiscal
B) income
C) monetary
D) securities
284) The Federal Reserve Bank operates
A) as a semi-private organization not under the direct control of the government.
B) under the direct control of the executive branch of the government.
C) under the direction of the Banking Oversight Committee of Congress.
D) as a special agency of the U.S. Treasury.
285) Which of the following statements about government deficit spending is most accurate?
A) The federal government violates the law by running deficits because the U.S. Constitution requires the government to balance its budget each year.
B) Although the government used to run big deficits, it has consistently run surpluses since the late 1980s.
C) The government has used deficit spending to lower the national debt.
D) One reason the government has a hard time reducing deficits is that there is a great deal of pressure on the government to expand its spending each year.
286) As you're checking out the online edition of your local newspaper, you quickly scan a report in the business section that says government spending will again exceed tax revenues in the current year. What does this mean for the economy?
A) The total national debt is likely to increase.
B) The national deficit is likely to decrease.
C) The rate of inflation is likely to fall.
D) The monetary policies pursued by the Fed need tightening.
287) Which of the following statements about the Federal Reserve Bank (the Fed) is most accurate?
A) The Fed is an agency of the U.S. Treasury Department that has the responsibility of collecting tax receipts for the IRS.
B) The Fed manages the U.S. money supply and interest rates.
C) The Fed is the primary government agency involved in carrying out our nation's fiscal policies.
D) The Fed is the agency of the government that ensures the U.S. maintains enough gold reserves to pay any foreign debts that result from international trade.
288) Keynesian economic theory suggests
A) reducing government involvement in the free-market economy.
B) proposing long-term solutions in order to create wider swings in the business cycle.
C) a more permanent government involvement in the banking system, even creating a national banking system that owns and operates most of the global and regional banks.
D) short-term increases in government spending to stimulate the economy.
289) Senator Shulei Lee is alarmed at the state of the economy. Unemployment is high and GDP is low. Senator Lee has called for Congress to take action to increase government spending and cut taxes in order to stimulate the economy. The actions called for by Senator Lee are examples of
A) monetary policy.
B) fiscal policy.
C) discretionary income policy.
D) social investment policy.
290) The chair of the Federal Reserve Bank spoke to the American public. The message she conveyed is that Fed economists are worried about inflation and believe the best course of action would be to slow the economy. Which of the following policies is the Fed most likely to pursue?
A) Increase taxes
B) Decrease interest rates
C) Restrict the money supply and increase interest rates
D) Devalue the dollar on international currency exchanges
291) Ben recently lost his job at a major U.S. auto plant in one of the rust belt states. After looking unsuccessfully for work in a similar industry for several months, he plans to start interviewing with road and bridge repair companies. He speculates that if the government begins to contract with companies that repair highways and bridges, he may find steady work, at least in the short term. Which of the following statements best describes the strategy behind his thoughts?
A) The best way for the government to reign in on too much money floating around the system is to hire people and pay them wages.
B) Ben doesn't understand the causes of unemployment. We obviously don't need any more autos on the roads if the plant has closed. Repairs will slow down rather than increase.
C) If the current administration asks the Fed to raise interest rates, it will do more than if the current administration begins contracting with road repair companies.
D) By increasing government spending through road and bridge repair and construction, the government will intervene in the free-market economic system to help jump-start a weak economy.
292) In one of her weekly live videos, the Federal Reserve Chairman remarked that inflation had begun to tick upward. However, unemployment in the U.S was still quite high and economic growth had slowed. With short-term interest rates close to 0 (zero), the Chair did not visualize that ________ policy would be able to do anything for the high unemployment problem. She felt that ________ policy would be more useful for bolstering employment, but that would require local and state governments and the federal government to provide tax breaks for corporations.
A) federal; state
B) fiscal; monetary
C) monetary; fiscal
D) fiscal; federal
293) The nation of Forlornia is in the middle of a severe financial crisis. The prime minister has increased government spending by trillions, in order to revive the ailing economy. Her strategy followed the economic theory known as
A) Malfusian.
B) Bernankeism.
C) Keynesian.
D) Greenspanian.
294) If businesses are producing at capacity, and the nation is experiencing almost full employment (a very low rate of unemployment—less than 2%), the Fed may decide to
A) lower interest rates.
B) raise taxes.
C) lower taxes.
D) increase interest rates.
295) Discuss the views of economist Adam Smith. How does the "invisible hand" philosophy suggested by Smith benefit society as a whole?
296) Explain the significance of "price" in a free-market economic system.
297) Identify and describe the 4 basic rights that form the foundation of capitalism.
298) When describing the state of the U.S. economy, reporters often refer to the nation's GDP, its unemployment rate, and the CPI. Explain what each of these terms means and why each measure is significant.
299) Compare and contrast fiscal policy and monetary policy. Discuss how each of these approaches can be used to influence the state of the economy.
Mini-Case
Cooper Collins is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Evensplitia. Cooper was discouraged by the high tax rates in Evensplitia, so he immigrated to the United States seven years ago. Soon after moving to the U.S., Cooper again tried his hand at entrepreneurship and opened Coop's Consulting. The company struggled at first, and almost went bankrupt midway through its second year. However, Cooper never lost faith, the company survived, and eventually developed a great reputation in the community. Coop's Consulting began experiencing sustained growth early in its fourth year. In fact, Cooper hired additional employees to keep up with the increasing workload. His company, which started with only Cooper and two other full-time workers, now provides jobs for 43 full-time employees as well as many part-time workers and interns.
Despite these past successes, business ownership is not without complications. The company suffered its first drop in business since its very early years. Cooper is convinced that the problem is not with his company, but rather due to a downturn in the U.S. economy. He heard a national broadcast last week reporting that the value of the total output of final goods and services in the U.S. declined over the last quarter. The anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Cooper is concerned that he will have to lay off some of his employees if the economy doesn't improve. He hopes that the government does something soon to put the economy back on track.
300) Cooper created Coop's Consulting to earn a profit, but by working hard and increasing his market share, he was able to create jobs for others. This is an example of the ________ concept.
A) circular flow
B) invisible hand
C) equitable income
D) social dividend
301) Cooper's native country of Evensplitia was much different from the United States. In addition to its higher tax rates, the government offered more extensive social programs that were designed to redistribute income and reduce inequality. Although small businesses were privately owned and operated in Evensplitia, many basic industries were owned and operated by the government. From this information, you would classify Evensplitia's economic system as ________.
A) capitalism.
B) socialism.
C) communism.
D) pluralism.
302) The broadcast that reported a decline in total output for the United States probably got some of its information from the government's measurement of ________.
A) GDP
B) CPI
C) federal deficit
D) balance of payments
303) The newscast cited forecasts that national output might continue to fall in the future. If total output shows decline for two consecutive quarters, economists would classify this as a ________.
A) depression
B) retraction.
C) period of stagflation.
D) recession.
304) Cooper recently saw a report online that the Fed will try to help get the U.S. economy back on track. If the Fed takes action, Cooper would likely see
A) lower interest rates.
B) an increase in the size of the government's budget deficit.
C) lower government spending.
D) an increase in the minimum wage.
305) Besides a slowdown in the general economy, Coop's Consulting faces threats of competition from several other companies that provide engineering consulting services. In order to gain more business, Cooper tries to convince potential clients that his company offers better service than the competition. He has advertised heavily in professional magazines, often quoting some of his highly satisfied clients. The market Coop's Consulting operates in is an example of
A) perfect competition.
B) monopoly.
C) oligopoly.
D) monopolistic competition.