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Exam 2: Understanding Economics and How It Affects Business

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Question 101

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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

E) A) and C)
F) A) and B)

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Question 102

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

A) True
B) False

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Question 103

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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:

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

Adapting to changes in demand is easy for businesses to do.

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:

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

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

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.

One way to lessen the U.S. government budget deficit is to:

The CPI measures the pace of inflation or deflation.

As of 2009, total GDP in the United States was around $14 trillion.

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

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.

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 "right-wing" political 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.

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.

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:

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

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:

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