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Exam 2: Understanding Economics and How It Affects Business

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Question 41

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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.

E) B) and C)
F) B) and D)

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Question 42

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

A) True
B) False

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Question 43

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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.

The Federal Reserve Bank operates:

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.

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 school books 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.

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

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.

The freedom of people to buy, sell, and use land, buildings, machinery, and inventions are basic capitalist rights under:

Jorge Martinez is a well-educated entrepreneur who operated a small business in his home country of Florentina. At the encouragement of his American relatives, Jorge recently immigrated to the United States and applied for U.S. citizenship. "In Florentina, 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) :

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.

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

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

The price of iPhones™ is falling. In a free-market economic system where everything else is equal, the most likely explanation is:

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

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.

Mike spends a lot of time blogging. Yesterday, he left the following comment on a site where participants were discussing the pros and cons of healthcare: "If you think healthcare is expensive now, wait until it is free. The problem with free rides is, eventually everyone piles on the bus and no one is left to push it. Then the system collapses." He was responded to by Martha, who added, "Universal healthcare is not a dirty word. It's the salvation for many people. If I have to pay a little more in taxes and know that my neighbor's kids have good pre-school and can see the doctor when needed, it's worth it to me." Mike and Martha are discussing the benefits and drawbacks of:

At the onset of the 2008 economic slowdown, prices at the grocery stores continued to rise. In some cases, products such as milk and bread almost doubled in price. In March 2008, 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 .

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 .

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