Download Module 5 Practice Exam and Glossary V14

Module 5 Practice Exam and Glossary V14
Term
Definition
Absolute advantage
The ability of an individual, firm, or country to produce more of a good or service than
competitors, using the same amount of resources.
Adam Smith
As a supporter of Smith’s theories you are most likely to feel the government should not
drastically change its policies when faced with an economic crisis and that, eventually, the
problems will resolve themselves through market forces (supply and demand).
Arguments to ban trade
National Security, prices, domestic businesses, domestic jobs, and consumer confidence.
Arguments to ban trade:
Consumer Confidence
Avoid drops in market demand because of quality, safety, or ethical concerns arising from
foreign products.
Arguments to ban trade:
Domestic Businesses
Avoid competition of low pay for foreign workers or recognition of a foreign brand.
Arguments to ban trade:
Domestic jobs
Avoid sweatshops, child labor, forced labor, and other undesirable working conditions that
attract companies to employ foreign workers.
Arguments to ban trade:
National Security
Avoid dependence on imports for items critical to defense.
Arguments to ban trade:
Price
Avoid oversupply of cheap foreign products forcing domestic producers to lower prices.
Balance of trade
A country’s exports value minus imports value.
Barriers to Trade
Quotas, Tariffs, Embargos, Regulation, & Impact.
Command Economy
Economy revolves around government decisions. The government chooses the goods and
services to produce, production quantities, and prices to charge. Leaders also determine
training, education, employment opportunities, and wages. Most closely aligned to Karl
Marx.
Comparative advantage
When a country has a lower opportunity cost than another country to produce a particular
good or service.
Consumer Price Index CPI
Total price for a sample of consumer goods; changes in the CPI month to month indicate
the rate of inflation.
Deflation
If the inflation rate is a negative number, that means overall prices are falling. Though you
might think this is a positive for the consumer, falling prices means businesses are losing
profits and they may reduce worker pay. Rather than growing, the economy is shrinking.
Economic Freedom of the
World Index
Several attempts to measure economic freedom objectively, EFW index based on 42
components and has member research institutes contributing from around the world.
Efficiency
Maximizing the use of resources in a society’s production.
Embargo
An embargo is the complete refusal to import a good or even all goods from a particular
country. It can create a black market for those goods and hurts the political relationship
with the country that has been banned. It could also potentially hurt the economy of one
or both countries.
Equity
Extent to which citizens of a society have equal opportunities to share in the country’s
overall wealth.
Exchange Rates
Rate at which people may trade one currency for another.
Fluctuations in rates
Changes in housing or motor vehicle sales.
Free Market Economy
Economy revolves around individuals and business firms, who determine the goods and
services to provide. Individuals and business firms seek to earn profits. In a true market
economy, the government would not involve itself in the economy in any way. Most
closely aligned with Adam Smith.
Freedom
Extents of personal choice, extent of ability to enter, compete, and exchange in markets,
protection of personal property.
Geographic Features in
Trade
The geographic features of a country can affect its ability to trade globally.
Globalization
Refers to the way that the individual nations of the world are becoming more connected to
each other and in the process, interdependent. It makes it more likely that inflation in one
country will affect another country.
Gross Domestic Product GDP
A monetary value based on production of goods and services within a country’s borders.
Growth
Increasing overall output of the country’s economic goods over time and increasing
standard of living.
High human
development
High human development countries have an HDI of 0.8 or above. These countries have an
average life expectancy of 77 years and a GDP per capita of just over $23,000 U.S. Dollars.
Human development
index
The United Nations divides countries into 3 groups based on their human development
index: High human development, Medium human development, Low human development
countries.
Hyperinflation
The rate of inflation rises quickly and faster than a rise in income.
Impact
Impact limits consumer access to goods that are considered to be of poor quality or do not
meet social expectations.
Income gap
Difference in income between rich and poor.
Inflation
General rise in prices over time. American economists view yearly inflation rates between
two and four percent as acceptable.
Jobless claims
Number of weekly applications for unemployment benefits.
John Maynard Keynes
As a supporter of Keynes’ theories you are most likely to support the government
borrowing money and spending tax dollars on programs that will help put people to work
and keep businesses in operation. Likely, you would also support government policies that
put some restrictions on banks and other businesses to prevent major swings in the
economy.
Karl Marx
As a supporter of Marx’s theories you are most likely to feel it is the government’s job to
make all the economic decisions to promote stability. You would likely think it unfair for
the owners of a corporation to share the profits of their business without sharing them
with everyone who works for the company.
Low human development
countries
Low human development countries have HDIs lower than 0.5. Their average life
expectancy is 49 years and their average GDP per capita is about $1,200 U.S. Dollars. 30
out of the 34 low development countries are in sub-Saharan Africa.
Medium human
development
Medium human development countries have a Human Development Index of 0.5 and 0.8.
Their average life expectancy is 67 years and their average GDP per capita is about $4,000
U.S. Dollars.
Mixed Economy
The majority of the world’s countries are mixed economies—somewhere between
command and free market. These countries’ leaders seek to combine individual initiative
and progress with the protection of government intervention. Most closely aligned to John
Maynard Keynes.
National Goals
Countries organize their economies in different ways but most seek the goals of efficiency,
security, freedom, growth, and equity.
Outsourcing
Purchasing the labor of another company to cut costs, typically referring to foreign
companies.
Per Capita
Per person.
Poverty rate
Percentage of families earning less than the official poverty level.
Quotas
A quota sets a maximum amount of a product for import. With less product available,
quantity supplied decreases and price increases.
Regulation
A regulation is a safety and quality standard. It may result in the ban of specific ingredients
proven to be hazardous. If a product includes these ingredients, it is not allowed to enter
the country. A regulation also serves as a standard for environmental or ethical impact.
Representation statistics
Statistics showing similar representation proportions among various age, gender, or ethnic
groups, like in higher education or career fields.
Security
Extent to which citizens of a society are able to provide their own material well-being even
in time of crisis.
Specialization
Focusing on specific products for production in higher quantities. Allows a country to
produce higher quality products and potentially enter into trade agreements with other
countries. Those countries, in turn, specialize in their own goods and services. Each
country specializes in certain products and trade to obtain other products.
Tariff
A tariff is a tax on imported goods. It is added onto the selling price when it enters the
country and increases the price of import goods, thus decreasing the quantity demanded.
In addition, it provides more tax revenue to the government.
Traditional Economy
Economy revolves around individual and family unit activity, usually agriculture or a trade
like shoemaking. Local leaders are most significant in the village or town life. Another
name for this is a subsistence economy.
Types of Economies
The types covered in the lesson are Command, Traditional, Free Market, and Mixed.
Unemployment rate
Percentage of workers over age 16 unable to find work.
Module 5 Practice Exam V14
1. Keynes would most likely oppose a plan for
A. defining safety standards for all new American-built automobiles
B. government control of all the manufacturing companies
C. increasing government spending to support economic growth
D. a corporate tax for all private schools that charge tuition for their students
2. How is a command economy different from a mixed economy?
A. A command economy depends largely on the government, whereas a mixed economy
involves individuals and businesses, too.
B. A command economy depends on a combination of government and businesses, whereas a
mixed economy involves individuals, too.
C. A command economy depends on individuals and businesses, whereas a mixed economy
involves the government, too.
D. A command economy depends on individuals and family units, whereas a mixed economy
involves only the government.
3. In a traditional economy, who determines what to produce?
A. Government
B. Special interests
C. Community
D. Stockowners
4.
What factor may contribute to Saudi Arabia having a low UN Human Development ranking?
A. Population size
B. Per capita income
C. GDP
D. Type of economy
5. Country X can cut, prepare, and export lumber using fewer worker hours than Country Y.
Country Y can produce lumber but produces cars more efficiently than it produces lumber. It
also produces cars more efficiently than Country X. Which of these statements is accurate?
A. Country X will import Country Y's lumber due to absolute advantage
B. Country X will import Country Y's lumber due to comparative advantage
C. Country Y will import Country X's lumber due to comparative advantage
D. Country Y will import Country Y's lumber due to absolute advantage
6. U.S. companies have made fewer manufacturing contracts with China in the last few years,
preferring other countries in the region. Which of the following is a potential reason?
A. China's standard of living has increased, and workers are requesting more pay.
B. China has most-favored-nation trade status with the United States.
C. China has large reserves of cheap labor and can produce inexpensive goods.
D. Shipping costs from China over the Pacific Ocean have decreased.
7.
Which of the following best completes the table?
A. Food shipments from radiation-affected areas in Japan
B. Inexpensive sugar grown in the Caribbean
C. Customs duties paid on jewelry made in Mexico
D. Raw materials from communist North Korea
8. Which of these results from inflation in the United States?
A. Foreign currency values remain unchanged
B. Investors buy products in other countries
C. The price of goods in the United States falls
D. The value of the U.S. dollar increases
9. Workers and businesses together benefit from inflation when
A. increased profits lead to increased wages
B. increased profits lead to decreased production
C. decreased profits lead to increased prices
D. decreased profits lead to increased purchasing power
10. Karl Marx would most likely agree with a plan for
a.
b.
c.
d.
reducing taxes on the largest corporations
government bailouts for failing corporations
eliminating barriers to trade with other countries
decreased government involvement in wages
11. Who is most closely associated with this quote?
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better
buy it of them with some part of the produce of our own industry employed in a way in which we have
some advantage.”
a.
b.
c.
d.
Adam Smith
John Maynard Keynes
Karl Marx
Milton Friedman
12. Income taxes based on the ability to pay would be most closely associated with what economist?
a. Adam Smith
b. David Ricardo
c. John Maynard Keynes
d. Karl Marx
13. What factor below is not an indicator of a developed country?
a. High per capita income
b. Low unemployment
c. Elevated GDP
d. Large income gap
14. Which of the following does not describes a developing nation?
a. A command economy with a low Human Development Index
b. A high gross domestic product and a low per capita income
c. A low gross domestic product and a high standard of living
d. A market economy with a high GDP
e. A traditional economy with a low standard of living
15. New Zealand has a GDP of $122.2 billion and a per capita GDP of $27,668. Life expectancy is
80.9 years. Which of these additional factors would most support the conclusion that New
Zealand has a developed rather than an emerging economy?
a. New Zealand exports more than it imports.
b. New Zealand has a free-market economy.
c. New Zealand has a low population density.
d. New Zealand's unemployment rate is 9.6 percent.
16. The United States is a mixed economy with free-market leanings. Cuba has an absolute
command economy. Both want to increase gold exports. What could Country A do that that
Country B would most likely not?
a. Artificially lower the price of gold
b. Legislate higher production quotas
c. Lower taxes on gold mining
d. Impose stricter divisions of labor
17. Which of the following economic goals focuses on equal opportunities for women?
a. Equity
b. Freedom
c. Growth
d. Security
18. The government institutes a new job-training program to prepare citizens for higher-paying,
technologically advanced jobs in computer coding. If successful, this action benefits the goal of
security by
a. decreasing unemployment
b. helping minimize the education gap
c. raising government spending
d. reducing the income gap
Use the chart to answer the following two questions.
Hours to Produce One Unit
Worker hours to
Worker hours to
Additional worker hours to
produce coffee
produce sugar
produce coffee instead of sugar
Developed
36
40
?
Country A
Developing
36
43
?
Country B
19. Given the data in the chart above, which of the following statement is true?
a. Developing Country B has an absolute advantage in producing sugar
b. Developing Country B has an absolute advantage in producing coffee
c. Developed Country A has an absolute advantage in producing sugar
d. Developed Country A has an absolute advantage in producing coffee
20. Which of the follow is true of the trade relationship between Developed Country A and Developing
Country B?
a. Developed Country A has a comparative advantage to Developing Country B in
producing coffee
b. Developed Country A has an absolute advantage in producing sugar and coffee
c. Developing Country B has a comparative advantage to Developed Country A in
producing coffee
d. Developing Country B has an absolute advantage in producing sugar and coffee
Worker hours to produce one
Worker hours to produce one unit of oil
unit of natural gas
Columbia
4
9
Chile
2
10
Honduras
3
7
United States
1
6
21. According to the chart above, which country has an absolute advantage in natural gas?
a. Chile
b. Columbia
c. Honduras
d. United States
22. According to the chart above, which country has the comparative advantage in oil production?
a. Chile
b. Columbia
c. Honduras
d. United States
23. Two countries produce wheat and dairy products efficiently. Neither has an absolute advantage.
However, India exports wheat to Russia, and India imports cotton from Russia. Which of the
following can be deduced?
a. The opportunity cost of producing wheat is lower for India.
b. The opportunity cost of producing cotton is higher for Russia.
c. Russia has a natural resource advantage in wheat.
d. India has a natural resource advantage in cotton.
24. The United States enjoys certain economic advantages. Which is not one of those economic
advantages?
a. Expansive territory
b. Fertile farmland
c. Highly educated population
d. Inexpensive labor force
25. What kind of trade barrier would be used by a country if it raises taxes on imported machinery
items?
a. Embargo
b. License
c. Quota
d. Tariff
26. Canada, Mexico and the United States belong to NAFTA. How can this affect the United States?
a. Cost of trade increases
b. Exports decrease
c. Imports decrease
d. Trade increases
27. Because the United States has an embargo on North Korea,
a. the United States regularly increases the taxes on North Korea imports
b. North Korea exports the majority of North Korea products to American companies
c. virtually no North Korea products are legally available in the United States
d. North Korea must sell products directly to state governments in the United States
28. How would a strong Saudi riyal ($) impact the trade of oil produced in Saudi Arabia?
a. Saudi Arabia oil exports decrease
b. Saudi Arabia oil exports increase
c. Saudi Arabia oil imports decrease
d. Saudi Arabia oil imports stagnate
29. High inflation in one country does not
a. create a significant rise in the price of goods
b. haves a negative impact on that countries currency exchange rate
c. reduce the demand for the countries goods in global trade
d. result in an individuals income increasing
30. Which economist would most likely support the government announcing plans to open twenty
Federally-Run grocery stores?
A. John Keynes
B. Adam Smith
C. Karl Marx
D. Henry George
31. If the inflation rate increases faster then your income, you will most likely
A. stop spending money.
B. get more goods and services for less money.
C. spend a higher percentage of your income on basic needs.
D. spend a lower percentage of your income on basic needs.
32. Which of the following reason would describe why Brazil is a developing country?
A. A market economy with a high Human Development Index
B. A market economy with a high per capita income
C. A mixed economy with a low Human Development Index
D. A market economy with a high GDP
33. Draw conclusions as to why some US companies pay oversees labor to make products instead of
paying labor here in the US.
A.
B.
C.
D.
High unemployment rate in the US
Low unemployment in outside country
Lower labor costs in outside country
Lower labor costs in the US
34. Which economist believes that the 3 economic questions should be answered by the individuals
and not the government?
a. John Maynard Keynes
b. Adam Smith
c. Karl Marx
35. How can comparative advantage help a country become more efficient with the resources that
they have available?
a. Comparative advantage will allow the country to focus on the product that they have
the lowest opportunity cost to produce.
b. Comparative advantage will allow the country to focus on the product that they have
the highest opportunity cost to produce
c. Comparative advantage will allow the country to produce items at a much slower rate
which in return workers will make less mistakes. In the end this country will have
absolute advantage.
d. Comparative advantage will allow the country to explore the possibility of having
absolute advantage.
36. John Maynard Keynes would favor which type of economic system?
a. Traditional
b. Market
c. Command
d. Mixed
37. A nation has a high Human Development Index and a per capita income. Which of the following
factors might also fortify your conclusion that this country is a developed nation and not a
developing one?
a) A command economy
b) A high per capita income
c) Low productivity
d) Standard of living ranked 120th out of 150 countries
China
Canada
Japan
United States
Hours to produce one
compact car
Hours to produce one
computer
4
2
3
1
9
10
7
6
Additional hours
needed to produce
computers instead of
cars
38. According to the chart, which country has a comparative advantage in producing computers?
(Hint, fill in the last column before making a determination.)
a) China
b) Canada
c) Japan
d) United States
39. Are the areas highlighted in green on the map
a) Mostly developing
b) Mostly developed
c) Command economies
d) Trade partners of China