Shared Flashcard Set

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Understanding Business
Study set for Intro to Business class based on the book by Nickels Chapter2
149
Business
02/15/2012

Additional Business Flashcards

 


 

Cards

Term
__________ 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.
Definition

 

Economics

Term

___________ studies the operation of a nation's economy as a whole.

Definition

Macroeconomics

Term

____________ looks at the behavior of individual people and organizations in specific markets.

Definition

Microeconomics

Term

The study of how to increase the amount of available resources and create conditions that will make better use of these resources.

Definition

Resource development

Term

Economist Thomas Malthus believed that ______________ would limit economic progress.

Definition

overpopulation

Term

Neo-Malthusians (followers of Thomas Malthus) believe that the solution to poverty is:

Definition

Birth control

Term

A key to economic growth and development is to:

Definition

Provide people with better education

Term

_________ is considered by some to be the father of modern economics.

Definition

Adam Smith

Term

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.

Definition
A
Term
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.
Definition
supply
Term

Which of the following would be a topic emphasized in a microeconomics class?

Definition

How market conditions determine the price of a specific product.

Term

Economics was known as the "Dismal Science" because

Definition

Too many people would result in food shortages and shortages of other resources

Term

How is it that people working in their own self-interest produce goods, services, and wealth for others?

Definition

In order to earn money and produce goods that improve lives, self-directed gain would provide jobs, and subsequently wages for others.

Term

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 __________.

Definition

invisible hand.

Term

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:

Definition

Adam Smith.

Term

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.

Definition
D
Term

Which of the following statements would a follower of Adam Smith be most likely to 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.

Definition
D
Term

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:

Definition

The invisible hand.

Term

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:

Definition

Does not accept the "invisible hand" idea brought forth by Adam Smith.

Term

In the boxed material "Making Ethical Decisions," the textbook describes corruption practices in nations such as Mexico and the United States. 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 of this boxed material?

Definition

 

Ethics plays an important role in a capitalistic system and the freedom to compete.

 

Term

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:

Definition

Allow entrepreneurs personal freedom to follow their own self-interest.

Term

_________ 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.

Definition

Capitalism

Term

Under capitalism: 
A. Most of the means of production and distribution are privately owned and operated for profit.
B. The primary function of the government is to distribute wealth more evenly.
C. Utilities, health care, education, and other important services are operated by the government.
D. Markets operate to carry out the decisions made by central planners.

Definition
A
Term

 The foundation of the U.S. economic system is based on:

Definition

Capitalism.

Term

Under a capitalistic system, decisions such as what goods and services to produce, what to charge, and how much to import or export are made by:

Definition

Individuals.

Term

Which of the following is a basic right under capitalism?

Definition

The right to compete.

Term

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:

Definition

Freedom of choice

Term

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

Definition

The right to own private property.

Term

A free market is one in which decisions about what to produce and in what quantities are made by:

Definition

the market

Term
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.
Definition
price
Term
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:
Definition
supply for that product or service.
Term
A simple supply curve shows that an increase in the price of a good will cause the quantity supplied to:
Definition
Increase.
Term
A simple supply curve shows a relationship between the:
Definition
Price of a good and the quantity of that good sellers are willing to offer for sale at a specific point in time.
Term
A typical demand curve shows that:
Definition
People tend to buy more of a good when its price decreases
Term

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

Definition

Equilibrium price of the good.

Term

 When prices are free to adjust over time, in the long run, the market price of a good tends to:

Definition

Equal the equilibrium price

Term

If a shortage exists for a good in a free-market economy, the:

Definition

Price of the good will rise.

Term

__________ 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.

Definition

Perfect competition

Term

___________ exists when a large number of firms produce goods that are similar but are perceived by buyers as being different.

Definition

Monopolistic competition

Term

__________ exists when the entire supply of a good is controlled by a single seller.

Definition

A monopoly

Term

An oligopoly is a market that is characterized by:

Definition

A few large sellers who dominate the market.

Term

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.

Definition
C
Term

Due to the rights and freedoms afforded under capitalism: 
A. people feel safe and don't feel the need to take added risks by starting businesses.
B. people are motivated to take calculated risks.
C. people don't have to choose where they will work.
D. the prices of necessities are always very low.

Definition
B
Term

When the market price of a good is below the equilibrium price, and all other determinants are unchanged:

Definition

the quantity demanded will exceed the quantity supplied.

Term

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.

Definition
A
Term

The markets for laundry detergents, soft drinks, and automobiles are dominated by just a few sellers. Economists would classify these markets as examples of:

Definition

Oligopolies.

Term

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:

Definition

. Monopolistic competition.

Term

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.

Definition
B
Term

 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.

Definition
A
Term

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.

Definition
B
Term

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:

Definition

The right to own private property.

Term

The "Spotlight on Small Business" box in Chapter 2 is titled, "The Key to Capitalism is Capital." Which of the following statements best describes the message of this story? 
A. This box explains that the only important factor of production for most businesses is capital.
B. This story explains that loans for large capital investments come with sizeable interest rates, but usually produce better results.
C. Corruption has prevented good will institutions from making large capital investments in developing countries.
D. Micro-lending has proven to lift impoverished entrepreneurs to a better standard of living.

Definition
D
Term

The market price of apples is currently rising. In a free-market economy, the most likely explanation of this price change is that:

Definition

There is a shortage in the market for apples.

Term

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

Definition

The product has competition at the equilibrium price.

Term

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:

Definition

An oligopoly

Term

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:

Definition

Product differentiation

Term

Which of the following statements most accurately identifies a limitation of the free-market economic system?

Definition

Free-market economies tend to result in unequal distribution of wealth.

Term

Going green, as described in the boxed material titled, Thinking Green, describes the green revolution. The auto industry is participating in this revolution. Farmers are participating in this revolution. By promoting the fact that they sell "green" products, or that they utilize "green" techniques to produce the products and services that they sell, firms who fall under a _______________ type market may have opportunity to differentiate themselves from the competition.

Definition

monopolistic competition

Term

A major premise of a socialist system is:

Definition

To reduce the inequality in the distribution of wealth.

Term

A major benefit of socialism is the:

Definition

Emphasis on social equality

Term
Under the __________ system there is very little incentive to work hard or to produce quality goods or services.
Definition

socialist

Term

Under the __________ system the number of choices in the market is directly related to government involvement in markets.

Definition

communist

Term

There are some restrictions on freedom of assembly and freedom of speech under a ____________ system.

Definition

communist

Term

Brain drain has occurred in many socialistic nations because:

Definition

Tax rates on well-respected professionals such as doctors tend to be very high.

Term

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.

Definition
C
Term

In recent years, countries with communist economic and political systems have:

Definition

Experienced severe economic depression.

Term

The economic and political system in which the government owns almost all the major factors of production is called:

Definition

Communism.

Term

Communist values are disappearing because:

Definition

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

Term

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.

Definition
B
Term

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.

Definition
D
Term

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.

Definition
C
Term

One of the most significant problems faced by communist nations is:

Definition

Persistent shortages of basic goods such as food and clothing.

Term

 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 ___________.

Definition

socialism

Term

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):

Definition

Brain drain

Term

Recently, Hugo Chavez, the Prime Minister of Venezuela, announced that he is standing behind the concept of state owned utilities, public schools, and the communications industry of his nation. Although not all industry is owned and managed by the government, his ideas would lead one to believe that he has a preference for:

Definition

A communistic state

Term

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:

Definition

Healthcare under socialism

Term

Today, the economic systems of most nations could most accurately be classified as:

Definition

Mixed economies

Term

Both socialism and communism are variations of:

Definition

Command economies

Term

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.

Definition
A
Term

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.

Definition
B
Term

The social and economic goals of __________ include private ownership of land and business.

Definition

capitalism

Term

The "Reaching Beyond Our Borders" box in Chapter 2, explains the changing business climate in other nations. What kinds of experiences are U.S. based companies facing abroad? 
A. Companies are only benefitting when they set-up business in a nation with a similar economic and/or political system as the home-based business.
B. Companies such as
U.S. based General Motors is competing well in Japan, but having a difficult time in Mexico.
C. For some food franchisors such as Yum Brands, the economic and political systems are not preventing them from growing the business abroad.
D. Differentiating oneself abroad is detrimental because socialist nations seek equality, even in food products and advertising.

Definition
C
Term

During the recession of 2008-2009, 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.

Definition
C
Term

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.

Definition
A
Term

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.

Definition
 B
Term

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.

Definition
D
Term

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.

Definition
D
Term

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.

Definition
B
Term

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.

Definition
D
Term

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.

Definition
D
Term

The total value of final goods and services produced within a nation's borders in a given year is known as that nation's:

Definition

gross domestic product

Term

Three important economic indicators of the United States are the unemployment rate, the price indices, and the:

Definition

gross domestic product (GDP).

Term

The four basic types of unemployment are frictional, structural, seasonal, and:

Definition

cyclical

Term

__________ unemployment refers to persons who purposefully quit their jobs and have not yet found a new job.

Definition

Frictional

Term

 __________ 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.

Definition

Structural

Term

__________ unemployment refers to loss of jobs due to a recession or a similar downturn in the economy.

Definition

Cyclical

Term

__________ unemployment results when the demand for labor varies during the year.

Definition

Seasonal

Term

The _________ is a statistic used to compute the pace of inflation or deflation. 

Definition

consumer price index

Term

The measure used to report price changes at the wholesale level is the:

Definition

producer price index (PPI).

Term

_____________ refers to a general rise in the price level of goods and services over time.

Definition

Inflation

Term

__________ is a condition in which inflation is increasing, at a decreasing rate.

Definition

Disinflation

Term

__________ is a condition in which the average level of prices is actually falling.

Definition

Deflation

Term

A __________ is a very severe recession that is usually accompanied by a decline in the average level of prices.

Definition

 depression

Term

In recent years, U.S. manufacturing has experienced ___________ productivity.

Definition

rising

Term

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 ______.

Definition

Gross Domestic Product

Term

 One reason the CPI is monitored very closely by government, businesses, and workers is that:

Definition

Some wages, interest rates, tax rates, and government benefits are tied to changes in the value of the CPI.

Term

____________ 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.

Definition

Productivity

Term

. If consumers see a measurable increase in the price of coffee, they are likely to change their consumption to less expensive tea. These substitutions would show-up in the ____________.

Definition

Chained Consumer Price Index

Term

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.

Definition
D
Term

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 _______.

Definition

Deflation.

Term

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:

Definition

Depression.

Term

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.

Definition

 GDP

Term
Definition
Term

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.

Definition
C
Term

 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.

Definition
A
Term

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.

Definition
C
Term

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.

Definition
D
Term

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:

Definition

Inflation

Term

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

Definition
C
Term

Patrick 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

Definition
A
Term

. 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 ___________.

Definition

stagflation

Term

John is creating a presentation on the consumer price index, for his business class. He wants students to understand that food and energy prices have risen more rapidly than other market items that the government traditionally measures for inclusion in the CPI calculation. He will show students that the core inflation figure will be _______ than the CPI. He will then inform the class that if consumers begin substituting, for example: If the prices at full service hair styling salons get too exorbitant, consumers may substitute by going to cheaper hair cutting salons. This will make the ___________ calculation lower. 
A. higher; C-
CPI
B. lower; C-
CPI
C. lower, PPI
D. higher, PPI

Definition
B
Term

Recently the U.S. national debt was a little more than: 
A. $10 trillion.
B. $25 trillion.
C. $560 billion.
D. $380 billion.

Definition
A
Term

____________ refers to the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending.

Definition

Fiscal policy

Term

Fiscal policy involves increases or decreases in:

Definition

Government spending and taxes.

Term

When the federal government's collection of tax revenues is less than what it spends in a given year, it results in a:

Definition

National deficit

Term

When the government runs a continual budget deficit, it increases the:

Definition

National debt

Term

In the U.S., the __________ has the role of managing the money supply and interest rates.

Definition

Federal Reserve Bank

Term

On average, what percentage of the GDP does the U.S. government collect through taxes? 
A. 50%
B. 10.5%
C. 28.2%
D. 33.33%

Definition
C
Term

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.

Definition
A
Term

Efforts by the Federal Reserve Bank (the Fed) to control the money supply and interest rates are known as:

Definition

monetary policy

Term

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.

Definition
A
Term

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.

Definition
D
Term

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.

Definition
A
Term

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.

Definition
B
Term

During the economic crisis of 2008-2009, Presidents George W. Bush and Barack Obama increased government spending by $2 trillion, in order to revive the ailing economy. Their strategy followed the economic theory known as:

Definition

Keynesian

Term

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.

Definition
D
Term

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:

Definition

Fiscal policy

Term

Your professor showed you an Internet video of the chair of the Federal Reserve Bank speaking to the American public. The message he 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.

Definition
C
Term

 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.

Definition
D
Term

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.

Definition
C
Term

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.

Definition
D
Term

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.

Definition

invisible hand

Term

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 ___________.

Definition

Socialism.

Term

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 ___________.

Definition

GDP

Term

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 _____________.

Definition

recession.

Term

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.

Definition
A
Term

Besides the slowdown in the general economy, Giganeers faces threats of competition from several other companies that provide engineering consulting services. In order to gain more business, Gig tries to convince potential clients that his company offers better service than the competition. He has advertised heavily in professional magazines, often quoting some of his highly satisfied clients. The market Giganeers operates in is an example of:

Definition
monopolistic competition
Term
Definition