Quiz 2: Understanding Economics and How It Affects Business

America's business success is largely due to an economic and social climate that allows businesses to operate freely.

Global economics and politics have no significant influence on businesses in the United States.

The IMF has recently proposed a one-time global wealth tax to help bring the debt of nations closer to pre-recession levels.

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 sociology.

Economists study how people use resources to produce and distribute goods and services for consumption among competing groups and individuals.

Macroeconomics is the economic perspective that looks at the operation of a nation's economy as a whole.

Microeconomics focuses on the decisions and behavior of people and organizations in particular markets.

Resource development is concerned with finding the best way to utilize the fixed amount of resources a society has available.

Resource development is the study of how to increase resources and to create the conditions that will make better use of those resources.

Peace and prosperity will flourish if we can find the one best way to divide existing resources among nations.

Thomas Malthus believed that overpopulation was a major cause of poverty.

In developing nations of the world, population has leveled off and is not expected to increase dramatically in the future.

Studies about the effects of population growth on the economy are part of macroeconomics.

Economic progress can occur when business owners provide jobs and economic growth for their employees, their communities, and themselves.

Economist Adam Smith's important contribution was an inquiry as to why some nations are wealthy, while others remain poor.

Adam Smith believed the self-interest of businesspeople would lead them to create needed goods, services, and jobs.

The "invisible hand" in Adam Smith's theory turns self-directed gain into social and economic benefits for all.

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 would control a market for a particular good or service.

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.

Macroeconomics looks at long run economic problems while microeconomics examines short run economic problems.

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.

Adam Smith believed that since businesspeople are motivated to improve their own prosperity, their actions are unlikely to benefit society as a whole.

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.

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.

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.

Large educated populations can contribute to an economy by offering knowledge and entrepreneurship.

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.

As indicated by the Making Ethical Decisions box, activities that lead to corruption can destroy free economic opportunities because they interfere with the right to freely compete.

In capitalist countries, the government decides what to produce and how the goods and services will be produced.

Capitalism is the foundation of the U.S. economic system.

State capitalism is the combination of free markets and government control.

The most fundamental of all rights in capitalism is the right to private property.

Under capitalism, the government prohibits people and businesses from competing with each other.

A basic right under capitalism is the right of businesses to receive government funding.

Free-market capitalism has made it more difficult for individuals to gain wealth.

Due to the fundamental rights afforded to us by a free-market capitalistic system, people are more willing to take calculated risks.

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.

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.

Demand refers to the quantity of a good that consumers are willing and able to buy at different prices at a specific time.

At the equilibrium price, the quantity consumers desire to buy equals the quantity sellers desire to sell.

If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

If a shortage exists in a market for a good, the price of that good will tend to fall.

The point of intersection between the supply and demand curves is called the stress point.

In the long run, the market price tends to adjust toward the equilibrium point.

Countries that rely on a free market system are plagued by persistent shortages or surpluses of goods and services.

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.

In perfect competition, each firm produces a product that is clearly differentiated from the products of other firms in the same market.

A monopoly occurs when there is a single seller for a product or service.

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

Product differentiation is a key to success in monopolistic competition.

In the United States, laws prohibit the creation of most types of monopolies.

One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.

The greed of businesspeople represents one of the greatest dangers to the operation of a free market system.

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.

A surplus currently exists for a product called widgets. In a free market system, the government must step in and buy any widgets that consumers do not buy in order to eliminate the surplus and establish equilibrium.

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.

History shows that free-market capitalism leads to a fair and equitable distribution of wealth.

Sarah owns a bakery that specializes in cupcakes. Until recently, she charged a price of $5 for each treat. At this price Sarah's customers bought an average of 384 cupcakes each week. For the last few weeks, she has reduced her price to $3.95 per cake, and her customers have purchased an average of 596 cupcakes each week. These results are consistent with the economic concept of demand.

Monica notices that just a few big companies produce the vast majority of soft drinks. She would be correct in describing the soft drink industry as an oligopoly.

Glamour Gal, a popular women's cosmetics company is gaining popularity among younger women. Differentiating itself from the sea of companies that compete for the same business, it focuses on products for sensitive, youthful skin. Glamour Gal clearly operates in an oligopolistic environment.

Glamour Gal is a popular cosmetics company. Although it is gaining in popularity among younger women, its promotional strategy continues to focus on the shadow-free finish that it produces on almost any skin type. Due to the fact that its industry faces monopolistic competition, the company knows that it must continue to differentiate itself from the competition.

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.

Roundland is a nation with an economic system that closely approximates pure capitalism. While Roundland'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.

In the newspaper this morning, you read about the downfall of a multi-national entertainment business, and a report that the company's CEO enjoyed a 9% increase in his salary during the same year that the company's profits were down 35%. As you read further, you learn that the company's board of directors approved undeserved salary increases. Clearly, this is an example of how inequality and greed can infiltrate the free-market economic system.

As you scan the national news online, you read about the BXY Utility Company's latest problems. The story describes an expansive retaining wall that collapsed during a flood last week, spewing toxic coal ash, burying homes, and causing a few fatalities. An editorial claims that the company will not be held accountable to the same standards as the asbestos companies of a few years back 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.

The PowerHouse Utility Company recently built a nuclear power plant in a southern state and started competing against BXY 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 PowerHouse has made a sizeable capital investment, if it successfully grows market share, eventually prices for electricity may stabilize or fall.

Socialists believe that the primary economic function of the government is to promote rapid economic growth.

In socialist economies, the government owns some, if not most basic businesses such as telecommunications systems and utilities.

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.

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.

Socialists believe that wealth should be more evenly distributed than what actually occurs in a free-market capitalistic system.

Workers in socialist countries often get longer vacations and more social benefits than workers in free market economies.

Over the past decade, socialist economies have proven to be more successful at creating wealth and jobs than capitalist economies.

One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.

Brain drain is the loss of the best and brightest people to other countries.

High tax rates in socialist countries is a major reason these nations have experienced a brain drain.

Incentive to own and operate businesses is high in nations whose governments are proponents of socialistic practices.

One of the benefits of communism is that it allows individuals a great deal of freedom to make their own economic decisions.

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.

Most communist countries today are suffering from severe economic problems.

A major distinction between capitalism and socialism concerns the distribution of income.

Countries that wish to avoid shortages and surpluses of goods should adopt a communist system.

Workers in nations who are strong proponents of communism work much harder and longer hours.

In the small nation of Equalia, the government owns several of the key businesses and provides a wide range of social services. The government places a great deal of emphasis on eliminating large disparities in people's incomes. These features of Equalia's economy are consistent with a socialist economic system.

Marina left her native land in Eastern Europe in order to become a nanny for a family in a western suburb of Chicago, Illinois. One of the benefits of her arrangement was that she could attend the community college near her family's residence. When she arrived at her new job, she experienced the differences from a predominately socialist nation and a capitalist nation. Marina noted that public transportation in northern Illinois was limited and expensive, making it difficult to get to school. For a negligible fee, the government in her native country provided public transportation for everyone. Marina's native country's economic system was more characteristic of socialism.

Socialism and communism are both variations of a free-market economy.

In command economies, the government plays a major role in deciding which goods are produced and who will get them.

Governments that were predominantly capitalist are moving toward socialism, while governments that were predominantly socialist are moving toward capitalism.

Like most nations, the United States has a mixed economy.

Most countries throughout the world can be classified as either purely capitalist or purely socialist.

There is general agreement in the United States on the degree to which the government should be involved in the economy.

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.

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.

Although mixed economies tend to improve economic conditions, moral values prevent communist nations such as China and Vietnam from progressing in this direction. Overall, economic progress continues to be very slow in these nations.

According to the Reaching Beyond Our Borders box, Africa has been one of the fastest-growing regions in the 21^st century.

In a mixed economy, the government's goal is to grow the economy and maintain some measure of social equality.

Sweetland is a nation that publicly supports a free market economy with private ownership of businesses. Over time, the government of Sweetland has developed policies designed to help the needy and reduce the level of income inequality. It pays for these programs by levying relatively high taxes on businesses and workers. These arrangements suggest that the economy of Sweetland is trending toward pure capitalism.

Deanne is a vocal critic of socialism. She likes to point out that in recent years the governments in many socialistic nations have cut back on government services and have reduced taxes. Deanne believes that this trend will ultimately result in all nations adopting pure capitalistic ideals. Recent evidence suggests that Deanne's views are essentially correct.

Recently, Juanita Martinez, the Prime Minister of Vuvuzela announced that she is standing behind the concept of state owned utilities and public schools in her nation. Although not all industry is owned and managed by the government, her ideas would lead one to believe that he has a preference for socialism.

Most nations recognize that private enterprise is detrimental to business growth and what is best for consumers. Recently, a nation had the opportunity to sell its government-owned telecommunication 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.

We use indicators such as (1) the gross domestic product (GDP), (2) the interest rate, and (3) the price indexes to measure the health of our economy.

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).

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.

GDP figures do not include the value of illegal activities.

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.

Frictional unemployment occurs because the economy is experiencing a recession.

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.

Inflation refers to a general rise in the prices of goods and services over time.

Inflation refers to the persistent rise in the purchasing power of money.

Disinflation refers to a situation in which prices continue to rise, but not at the rate they were rising previously.

Deflation means prices are declining.

The consumer price index (CPI) measures what is happening to prices at the wholesale level.

The CPI measures the pace of inflation or deflation.

The CPI is based on the prices of a carefully selected market basket of goods, all of which consumers can purchase at a supermarket.

Some wages, tax brackets, interest rates, and government benefits are based on the CPI.

Core inflation figures omit healthcare prices, but not energy prices.

The producer price index measures what is happening to prices at the wholesale level.

Productivity of workers in the U.S. is helped by the use of better machinery.

The higher the measurement of productivity, the higher the likely costs of production.

An increase in productivity means that a worker is now able to produce more goods and services in the same amount of time.

As productivity increases, the cost of producing goods and services is likely to fall.

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.

Current measures of productivity in the service sector provide an accurate measure of changes in the quality of output.

An economy is said to be in a recession if GDP declines for two or more consecutive quarters.

A depression is a severe recession that is often accompanied by deflation.

A prediction that GDP will increase significantly over the next six months is bad news for most businesspeople.

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.

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.

A rising GDP, rising unemployment rate, and rising inflation rate signify a healthy economy.

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.

Danny was laid off from his job five months ago. At first, he looked for a new job every day. During the past six weeks, however, Danny became depressed about his employment status and quit trying to find a job. According to the criteria used by the government, Danny is a civilian whose job status is included in computing the national unemployment rate.

Larry and Moe are having an argument. Larry believes that over the past year, the economy is experiencing rapid inflation, while Moe says that the economy actually experienced disinflation during this period. The easiest way for Larry and Moe to settle their argument is to look at GDP figures for the past year.

Maureen is the office manager of a service company. She recently approved the installation of new computers and office equipment for all workers in her office. If Maureen's company is like most service companies, she will probably see a big jump in the productivity figures reported for workers in her office.

The government of Velovia made progress in its efforts to bring rapid inflation under control. Although prices are still rising, the rate of increase has slowed considerably. This suggests that Velovia is experiencing disinflation.

The nation of Desperia is reporting a significant decline in GDP for four consecutive years, with no relief in sight. With unemployment at record levels and businesses failing faster than at any time in the past century, Desperia is likely experiencing a depression.

Yesterday, Casey received a cable company ad for bundled TV, telephone, and Internet service that cost appreciably more than what she is currently paying. At the same time, she received a notice from her utility company that summer rates would be increasing. Her schoolbooks are costing almost twice what they cost last year, and yesterday, gasoline cost her 30 cents more per gallon than it did last week. As she ponders the situation, she can't help but wonder how prices could be rising when so many people have lost their jobs and are cutting back on expenditures. She is certain that this situation characterizes her economics professor's description of stagflation.

Sam is a recent college graduate with a lot of firsts: First professional job, first new car, first apartment, and first time making all of his own financial decisions. As he works on his monthly budget, he can't help but wonder why he is barely making ends meet. Each month, it takes his entire paycheck to pay his rent, his car payment, and buy food. Last month, he told his parents, "I'm sure I had more money when I was a starving student!" You recently learned about key economic indicators in your business class. You inform Sam that his problems are caused by severe deflation and lack of demand for products and services.

Robin just graduated from college and is seeking her first job. She received a degree in engineering at a prestigious university. Robin has several leads and has heard that the market for engineers is very strong, so she is convinced that she should locate a good job in the near future. Robin's current situation is an example of structural unemployment.

Fiscal policy refers to the federal government's efforts to keep the economy stable by controlling the amount of money in circulation.

Fiscal policy involves the federal government's efforts to stabilize the economy by increasing or decreasing taxes and/or government spending.

When the government attempts to stabilize the economy by changing taxes or government expenditures, it is using fiscal policy.

The national deficit is the difference between our nation's exports and its imports.

The size of the national debt increases when the federal government runs a deficit.

The U.S. national debt equals the sum of all recorded years of deficits.

The Federal Reserve Board is responsible for controlling the money supply.

Monetary policy is directly under the control of the U.S. Department of the Treasury.

One of the major ways the Fed influences economic conditions is through its control of interest rates.

High tax rates that put money into the government's coffers tend to slow spending, and ultimately slow the economy.

If the government wants to jump-start the economy resulting in more consumer spending, it will raise taxes.

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.

If the national debt is $14 trillion, the national deficit will be considerably higher.

Government spending on defense decreases the national deficit.

To jump-start the economy, the Fed is likely to lower interest rates, in order to encourage individuals and businesses to spend money.

The best way to avoid national budget deficits is to increase our exports and decrease our imports.

In order to restrict spending by businesses and households, the Fed would take measures designed to lower interest rates.

Senator Spendital made a speech deploring the continuous deficits in the federal budget. He is 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.

A professor of economics at a prominent university recently urged government policy makers to cut taxes and increase government spending in order to pull the economy out of its current downturn. The policy measures called for by the professor are examples of fiscal policy.

Joe and Tess McGreen are purchasing their first home in Durham, North Carolina. They are seeking pre-qualification on a home loan. The unemployment rate for North Carolina 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 Joe and Tess.

Katie owns a nail salon. She needs to update her shop with new customer massage chairs and work stations for her 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 determine that updating her shop would not increase or decrease her financial position.

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.

Nick wants to buy a new car, and is planning to borrow the money for his purchase from a bank. He read in the newspapers that the Federal Reserve is likely to implement policies in the next few weeks that are designed to stimulate the economy. Nick would probably get a lower interest rate on his car loan if he waits until after the Fed implements its new policies.

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.

__________ 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

___________ studies the operation of a nation's economy as a whole. A) Microeconomics B) Socioeconomics C) Econometrics D) Macroeconomics

____________ looks at the behavior of individual people and organizations in specific markets. A) Macroeconomics B) Finite economics C) Microeconomics D) Nanoeconomics

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.

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

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

Neo-Malthusians believe that the solution to poverty is: A) increasing the world population. B) increasing taxes on the rich and increasing social programs. C) birth control. D) educating poor people.

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.

_________ is considered by some to be the father of modern economics. A) John Maynard Keynes B) Adam Smith C) Thomas Carlyle D) Thomas Malthus

Which of the following is an important premise of 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.

Which of the following would be a topic emphasized in a macroeconomics course? A) Factors that determine how fast a nation's economy is growing. B) How a firm decides the amount it will charge for one of its products. C) How a consumer chooses which goods to buy. D) The determinants of the wage rate for labor in the auto industry.

Which of the following would be a topic emphasized in a microeconomics class? A) How a nation's GDP is computed. B) The reasons why the unemployment rate for the economy is rising or falling. C) How market conditions determine the price of a specific product. D) How the government can use fiscal and monetary policies to stabilize the economy.

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.

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.

Economics was known as the "Dismal Science" 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.

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.

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.

Sue is a gifted cook. She plans to open a restaurant in which she will be the head chef. Sue is willing to work long hours because she believes that her culinary talents and hard work will allow her business to succeed and earn her sizeable profits. Sue's efforts are most consistent with the economic theory developed by: A) Thomas Malthus. B) Karl Marx. C) Adam Smith. D) David Ricardo.

Jake considers himself to be a follower of Thomas Malthus. Which of the following statements would Jake 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.

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) Market economies are flawed because they put too much emphasis on economic growth and not enough on environmental problems. C) Overpopulation is the main danger confronting modern economies. D) If people are given the freedom to follow their own interests, theoretically their efforts will lead to economic growth that benefits society as a whole.

Fourteen years ago, Sergio noticed that a lot of people who bought personal computers did not know much about how to use them and frequently suffered system crashes and other aggravations. He decided he could earn a nice profit by starting a consulting business to help other people overcome their computer woes. Although the business struggled at first, it has experienced a good deal of success for the past five years. Sergio has many satisfied customers, and the business has grown to the point where he now employs several workers. Sergio'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.

For many years, Congressman Ricardo Perez has called for more government regulation of business. "After all," the Congressman said recently, "businesspeople are out to make a profit, not to create jobs or serve their customers. The government must pass more laws to require businesses to take the interests of consumers and workers into account." From these comments, it is clear that Congressman Perez: 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.

In the boxed material "Making Ethical Decisions," the textbook describes corruption practices in developing nations. These practices include payoffs to government officials in order to get an edge on competing better in one's industry. Which of the following statements best describes the ethical message explained in this box? A) Bribery is commonplace and necessary in socialistic nations. B) Bribery is acceptable if everyone is doing it. As a businessperson, you have to find the right balance in whatever nation you want to sell your products. C) Campaign contributions are not considered bribes, particularly if everyone in your industry is doing the same. D) Ethics plays an important role in a capitalistic system and in the freedom to compete. Corruption can hinder economic growth.

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 make use of extensive regulation to force businesses to behave in a socially desirable way. 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.

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 re-opened 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. Personal freedom is an important premise of wealth creation. Entrepreneurs, acting in their own self-interest need the personal freedom to own property and keep the earning from their hard work.

_________ 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

Under capitalism: A) most of the means of production and distribution are privately owned and operated for profit. B) T\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.

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."

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.

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.

The freedom of 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.

A free market is one in which decisions about what to produce and in what quantities are made by: A) the Fed B) the community C) the market D) the Congress

In a free market economic system, the mechanism of __________ 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

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.

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.

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.

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

A typical demand curve shows that: A) as people earn more income, they buy more of a 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.

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.

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.

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.

__________ 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

___________ exists when a large number of firms produce goods that are similar but are perceived by buyers as being different. A) Perfect competition B) Monopolistic competition C) Oligopoly D) A monopoly

__________ 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

An oligopoly is a market that is characterized by: A) one firm that totally dominates the supply of the product. B) a large number of small firms 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.

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.

When the market price of a good is below the equilibrium price, and all other determinants are unchanged: A) the quantity demanded will exceed 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.

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 exceed the quantity supplied. C) both the supply curve and the demand curve will shift to the right. D) a surplus will exist in the market.

The markets for laundry detergents, soft drinks, and automobiles are dominated by just a few sellers. Economists would classify these markets as examples of: A) monopolistic competition. B) perfect competition. C) oligopolies. D) monopolies.

In most large cities there are a large number of bakeries. These bakeries produce similar, but not identical, products. Some bakeries claim to have the best cheesecakes in town, while others brag about their cookies or specialty breads. The bakery market in a large city is an example of: A) monopolistic competition. B) perfect competition. C) an oligopoly. D) a monopoly.

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.

One of the benefits of a free market is that: A) businesses provide customers with quality products at fair prices. B) businesses all make the same amount of profit. C) businesses do better with more government regulation. D) the government dictates the number of competitors there are in each industry.

One of the greatest concerns associated with capitalism is that: A) it is not very successful at creating wealth. B) some businesspeople may let greed guide their behavior. C) the amount of economic freedom enjoyed by consumers is very limited. D) producers are unlikely to supply the goods and services that consumers value the most.

According to the box, Spotlight on Small Business, when Florida's orange crop was significantly affected by a dry spell and gnat swarms: A) the price of orange rose as much as 16% throughout 2014. B) the price of orange fell as much as 16% throughout 2014. C) the trees supplied more fruit than previous years and there was an orange juice surplus. D) no changes in the sale of oranges and orange juice occured.

Patrick lives in a nation whose government embraces capitalism. He owns his own home and car, as well as his own business and building. Patrick maintains ownership due to: A) eminent domain. B) the Freedom of choice. C) the right to own private property. D) the freedom of competition.

The market price of apples is currently rising. 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 shortage in the market for apples. C) the supply of money has decreased. D) the equilibrium price is lower than the market price.

A rare and scarce earth metal known as Neodymium is used in many consumer and military products including smart-phones, smart-bombs, laptop computer monitors, and electric/hybrid cars. In one year's time, the price of Neodymium has gone from $19/lb. to $129/lb. Under these circumstances and the fact that at least 1 kilogram is used in each electric car that is assembled, a graph of the supply and demand for this product would show: A) the current price of Neodymium to be below the equilibrium price for this rare earth metal. B) the price of Neodymium to be above the equilibrium price for this rare earth metal. C) the price of Neodymium to reflect the adjustment of quantity demanded and quantity supplied. D) consumer demand for a product such as electric cars to shift to the right indicating the desire to purchase the rare earth metal at any price.

The price of iPhones™ is falling. In a free-market economic system where everything else is equal, the most likely explanation is: A) suppliers are not producing enough product. 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.

Reality Entertainment, Inc is a major producer of reality TV programming. The company faces fierce competition from three other major producers of similar shows. Together, Reality Entertainment and its three rivals control almost the entire reality TV programming. Their market environment is called: A) an oligopoly. B) a duopoly. C) monopolistic competition. D) a quasi-monopoly.

On its website, Papa John's Pizza compares itself to the competition with the following message: "better ingredients, better pizza". The company wants to achieve: A) product differentiation. B) an equilibrium price. C) a monopoly. D) a perfectly competitive market.

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.

A major premise of a socialist system is: A) to make sure that those that 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.

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.

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

Under the __________ system the number of choices in the market is directly related to government involvement in markets. A) capitalist B) socialist C) communist D) mixed economy

There are some restrictions on freedom of assembly and freedom of speech under a ____________ system. A) capitalist B) socialist C) mixed economy D) communist

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.

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.

In recent years, countries with communist economic and political systems have: A) enjoyed periods of great prosperity. B) experienced severe 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.

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.

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) shortages abound due to the fact that the government cannot rely on good information.

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 want to achieve a more equal distribution of income and wealth, but under communism, the government takes more control over people's lives. 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.

Which of the following people would tend to favor a socialist economy? A) John wants to live in a country with low marginal tax rates. B) Robin wants to live in a country that encourages rapid economic growth. C) Liz wants to live in a country with limited government regulation. D) Fred prefers to live in a country that promotes social equality.

Which of the following people would tend to favor a communist economy? A) John wants to live in a country with low marginal tax rates. B) Robin wants to live in a country that encourages rapid economic growth. C) Liz wants to live in a country where the government makes almost all of the economic decisions. D) Fred prefers to live in a country with limited government regulation.

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.

Abby left her native land in Eastern Europe to become a nanny for a family in a western suburb of Chicago, Illinois. One of the benefits of her arrangement was that she could attend the community college near her family's residence. When she arrived at her new job, she experienced some immediate differences. Abby noted that public transportation in northern Illinois was limited and expensive, making it difficult to get to school. For a negligible fee, the government in her native country provided public transportation to everyone. The economic system in Abby's native country was more characteristic of ___________. A) pure capitalism. B) socialism. C) mercantilism. D) communism.

Jorge Martinez is a well-educated entrepreneur who operated a small business in his home country of Fiorentina. At the encouragement of his American relatives, Jorge recently immigrated to the United States and applied for U.S. citizenship. "In Fiorentina, tax rates were very high," Jorge complained. "The government used the taxes I paid to finance all sorts of social programs to help the less fortunate. While this is a noble goal, it has really undermined the profit incentive of individuals such as me. I really feel that these high taxes have stifled economic growth." Jorge's comments illustrate the reason many socialist countries are experiencing a(n): A) antitrust problem. B) depression. C) brain drain. D) budget surplus.

Recently, Juanita Martinez, the Prime Minister of Vuvuzela, announced that she is standing behind the concept of state owned utilities, public schools, and the communications industry of her nation. Although not all industry is owned and managed by the government, her ideas would lead one to believe that she has a preference for: A) a capitalistic state B) a socialistic state C) a communistic state D) a nationalistic state

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.

Both socialism and communism are variations of: A) command economies. B) competitive economies. C) free-market economies. D) plutocratic systems.

A major trend in 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.

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.

The social and economic goals of __________ include private ownership of land and business. A) capitalism B) socialism C) communism D) a mixed economy

During the recent recession, the administrations of Presidents George W. Bush and Barack Obama flooded several banking, financial services, and insurance firms with government funds in exchange (at least temporarily) for government ownership rights. The unprecedented move signaled the government's concern that the global banking system might collapse if these firms ended up in bankruptcy. The decision for active government involvement in the operations of these firms demonstrates: A) the unforgiving nature of capitalism. B) the desire for more individuals in the U.S. to live under a socialist system. C) the trend toward mostly capitalist nations to move toward socialism. D) the freedoms the U.S. government has under capitalism.

As the term "global" 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 (Cuba is the example) and for capitalist nations to trend toward socialism.

According to the Reaching Beyond Our Borders box, over the last decade six of the world's 10 fastest-growing countries were: A) Asian. B) African. C) South American. D) European.

Over the years, the government of Montivia has focused on implementing programs that promote equality. On the short-term, though, Montivia 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.

In an effort to promote rapid growth, the government of Goldinia has kept taxes low, done little to regulate 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. Which of the following statements is most accurate? Goldinia'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) a purely socialist approach to achieve its economics goals, and is likely to continue doing so in the future. C) a 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) a 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.

The prime minister of the nation of Urbania has called for Urbania's legislature to enact new legislation designed to shift his country away from socialism toward a more capitalistic system. The Prime Minister acknowledges that such a radical change will entail some hardships, and that some citizens will be unhappy with the 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.

The National Coalition on Healthcare Reform reports that nearly 18% of the U.S. population under the age of 65 is without healthcare. If this advocacy group succeeds in convincing the current administration and Congress 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.

Several years ago, the nation of Florentina had a government-owned telecommunication system that lagged far behind other nations. In several of its rural areas, there was only one phone for an entire village of people. Government 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 Florentina 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 phone line. This government decision and subsequent sale was: A) a move toward nationalism. B) a move toward communism. C) a move toward socialism. D) a move toward capitalism.

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.

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.

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) index of capital formation.

The four basic types of unemployment are frictional, structural, seasonal, and: A) cyclical. B) procedural. C) industrial. D) traditional.

__________ 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

__________ 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

__________ 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

__________ unemployment results when the demand for labor varies during the year. A) Frictional B) Structural C) Cyclical D) Seasonal

The _________ is a statistic used to compute the pace of inflation or deflation. A) consumer price index B) gross domestic product C) index of leading indicators D) index of inflationary trends

The measure used to report price changes at the wholesale level is the: A) gross domestic product (GDP). B) consumer price index (CPI). C) wholesale price index (WPI). D) producer price index (PPI).

_____________ refers to a general rise in the price level of goods and services over time. A) Acceleration B) Recession C) Inflation D) Escalation

__________ is a condition in which the price increases are slowing. A) Deflation B) Disinflation C) Stagflation D) Uniflation

__________ is a condition in which the average level of prices is actually falling. A) Deflation B) Disinflation C) Stagflation D) Uniflation

A __________ is a very severe recession that is usually accompanied by deflation. A) stagflation B) retraction C) depression D) dissolution

In recent years, U.S. manufacturing sector has experienced ___________ productivity. A) rising B) relatively stable C) falling slowly D) falling very rapidly

The next wave of marketable innovations may involve new ways to produce and conserve energy. If we can turn 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. The Department of Economic Development would document this surge by measuring the ______. A) gross domestic product B) consumer price index C) consumer marginal index D) number of workers who are frictionally employed

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.

____________ in the service sector has not shown the significant improvement that it has in the manufacturing sector. There are significant advances in the quality of service, but workers in this sector are unable to increase the number of persons served in a given time period. A) The CPI B) Technology C) Productivity D) The growth

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.

A collapse in Buldovia's banking system eventually led to companies unable to borrow money to run their businesses. Firms terminated employees. 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.

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.

The nation of Florentina is in the midst of a serious economic downturn. The nation's GDP has declined steadily for over five years and is now at its lowest level in over fifty years. Florentina's unemployment rate is at an all time high and the nation's CPI is falling. Florentina's economic condition is referred to as a: A) period of stagflation. B) balance of trade deficit. C) depression. D) retraction.

John complained to his buddy, Frank, that prices have increased a lot over the past year. Frank disagreed, saying 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. Frank feels that the average price of consumer goods hasn't changed. Frank and John can refer to the __________ to learn how government economists currently view the price situation. A) GDP B) CPI C) PPI D) MEW

Emily recently quit her job at a major corporation because she saw little chance for advancement. Although she is still searching for a new position, Emily believes the economy is healthy and she hears that several firms are hiring people with her qualifications. Which of the following statements about Emily's current situation is most accurate? Emily is: A) not considered unemployed because she voluntarily quit her job. B) an example of cyclical unemployment. C) an example of frictional unemployment. D) likely to find employment quickly if she seeks training in a different field.

Kathleen's company produces computer monitors and other peripheral devices for computers. About six months ago, Kathleen began to keep track of number of hours worked, and the resulting output at her particular work site. Comparing 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 increased significantly. 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.

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.

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.

Chase is a recent college graduate with a new job as an engineering trainee for a large defense company. Now that he is making good wages, he hopes to start saving for his first house and also contribute toward the company retirement plan. As he looks over his monthly bills, Chase is concerned about ever getting ahead of the game. His food bill, car payment, and mounting gasoline payments keep him in the "just making ends meet" category. As his mind wonders back to the good ol' 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) onditions of low demand. C) involuntary CPI. D) cyclical unemployment.

Gabby and Gus Malloy recently got pre-approved 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

Colin just landed a job working for a major online gaming company in Silicon Valley. 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 out of sight! Back at the hotel, he logs on to the Bureau of Labor Statistics to try to get a better picture of why the cost of housing is so high in this region of the U.S. Which factors may be causing the rise in the price of housing? A) Low unemployment rate and increasing GDP B) High consumer's marginal index and low PPI C) Low CPI and high state tax rate D) Decreasing Disruptive Technologies Index and high unemployment

At the onset of the recent economic slowdown, prices at the grocery stores continued to rise. In some cases, products such as milk and bread almost doubled in price. A Boston newspaper reported, "The price of eggs was up 40% and milk was up 26%." Consumers were already being hit with high energy costs, and now their confidence in the economy was further shaken with job cuts and a loss of discretionary income due to increases in food prices. The economy was slowing, but prices were rising, signifying the potential for ___________. A) deflation B) stagflation C) disinflation D) equalization

____________ refers to the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending. A) Monetary policy B) Incomes policy C) Fiscal policy D) Cyclical policy

Fiscal policy involves increases or decreases in: A) the money supply. B) interest rates. C) government spending and taxes. D) exports and imports.

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.

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.

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

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.

Efforts by the Federal Reserve Bank (the Fed) to control the money supply and interest rates are known as: A) fiscal policy. B) incomes policy C) monetary policy D) securities policy.

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.

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.

While scanning the movies section in your local online newspaper, you click on the business section by mistake. While you're there, you quickly scan a report that says government spending will again exceed tax revenues in the current year. This means that the: A) total national debt is likely to increase. B) national deficit is likely to decrease. C) rate of inflation is likely to fall. D) monetary policies pursued by the Fed need tightening.

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.

During the recent economic crisis, Presidents George W. Bush and Barack Obama increased government spending by trillions, in order to revive the ailing economy. Their strategy followed the economic theory known as: A) Malfusian B) Bernankeism C) Keynesian D) Greenspanian

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.

Senator Gong 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.

Your professor showed you an online video of the chair of the Federal Reserve Bank speaking to the American public. The message she is conveying indicates 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.

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.

Lance owns Lance Lawns Irrigation Systems, LLC, a company that installs and maintains underground lawn irrigation systems. Business is down due to new housing starts being negatively impacted by a deep recession. To make things worse, his bank called yesterday to inform him that his credit limit (interest fee of 12.5%) will be cut from $30,000 per year to $15,000 per year, unless he is willing to pay a higher interest rate of 20%. As Lance drives to the first job this morning, he knows that his last task of the day will be to reduce the hours for his two employees. He can't afford to work employees eight hours per day, with only a $15,000 line of credit. Which of the following strategies will help Lance's situation? A) Increase government spending on public parks. B) Decrease government spending so that banks can keep more reserves. C) Fed decreases interest rates D) Fed increases the federal funds rates to jump-start the economy.

In one of his weekly broadcasts, 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. He 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

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.

Discuss the views of economist Adam Smith. How does the "invisible hand" philosophy suggested by Smith benefit society as a whole?

Explain the significance of "price" in a free-market economic system.

Identify and describe the 4 basic rights that form the foundation of capitalism.

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.

Explain the difference between fiscal policy and monetary policy. Discuss how each of these approaches can be used to influence the state of the economy.

Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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. -Gig started Giganeers 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

Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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. -Gig's native country of Frinezia 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 Frinezia, many basic industries were owned and operated by the government. From this information, you would classify Frinezia's economic system as ___________. A) Capitalism. B) Socialism. C) Communism. D) Pluralism.

Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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. -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

Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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. -The broadcast 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.

Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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. -Gig recently heard a radio report that the Fed will try to help get the U.S. economy back on track. If the Fed takes action, Gig 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.