Question 1

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.

Accepted Answer

A recession occurs when GDP (the nation's total output) declines for two consecutive quarters.

Question 2

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.

Accepted Answer

The existence of relatively high tax rates and the emphasis on government programs to redistribute income are hallmarks of socialism. Under socialism, governments frequently own some, if not most, basic businesses. However, socialism, unlike communism, does allow at least some private ownership of businesses as well.

Question 3

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

Accepted Answer

GDP is the total value of output produced by a nation's economy.

Question 4

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.

Accepted Answer

The Fed is concerned with monetary policy. The Fed achieves its goals by bringing about changes in the supply of money and interest rates. During recessions the Fed normally pursues policies to reduce interest rates in order to stimulate additional spending. The Fed is not directly involved in changing the level of government spending or taxes (and thus does not directly affect the size of the deficit). It is Congress, not the Fed, which would enact legislation needed to increase in the minimum wage.

Question 5

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.

Accepted Answer

Monopolistic competition is characterized by many firms competing by offering differentiated products. Coop's Consulting use of advertising indicates that it is trying to differentiate its product from the many competitors it faces in the market.

Quiz 2: Understanding Economics and How It Affects Business

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 ________.

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 ________.

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