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Exam 2: Understanding Economics and How It Affects Business

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Question 111

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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.

E) A) and B)
F) B) and D)

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Question 112

Multiple Choice

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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

E) A) and D)
F) All of the above

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Question 113

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An oligopoly is a market that is characterized by:

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:

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

A command economic system is characterized by:

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

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

(p. 43 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:

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.

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

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.

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

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.

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

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.

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 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.

As the term "global" become "local", and as we see more opportunities to compete in the global market,