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Better Business (Poatsy) [Testbank A]
Chapter 2 Economics and Banking
1) ________ is a concept that determines how goods are priced and exchanged.
A) Give and take
B) Buyer and seller
C) Supply and demand
D) Product and producer
Answer: C
Diff: 1
Page Ref: 31
Objective: What is economics, and what are the different types of economic systems?
2) The basic activity of economics is
A) the exchange of products and services.
B) the estimation of value of intangible goods.
C) the accumulation of wealth.
D) establishing a commercial empire.
Answer: A
Explanation: A) Economics is the study of how decisions are made to best fit the wants and
needs of people in society. To do this, economists study the exchange of
products and services in the marketplace, and ifs effect on the economy at
large.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
3) The goal of the study of economics is to find ways to
A) meet an infinite demand with an infinite supply.
B) meet a limited demand with an infinite supply.
C) meet an infinite demand with a limited supply.
D) meet a limited demand with a limited supply.
Answer: C
Explanation: C) The basic goal of economics is to determine how best to meet the wants and
needs of society. Economists try to determine how to balance the demand for
a good or service with the actual supply available.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
4) The two basic studies of economics are
A) communism and socialism.
B) microeconomics and macroeconomics.
C) market economies and mixed economies.
D) traditional economies and planned economies.
Answer: B
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
1
5) Yves took a class in macroeconomics, which meant that he was studying
A) individual businesses.
B) limited resources.
C) the overall economy.
D) individual purchasing decisions.
Answer: C
Explanation: C) Macroeconomics is the study of the overall economy, so Yves will be
studying a large holistic approach to the economy, studying how everything
works together. Individual businesses, limited resources, and purchasing
decisions are all specific parts of the economy, so they are a part of
microeconomics.
Diff: 3
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Objective: What is economics, and what are the different types of economic systems?
6) Microeconomics is the study of how
A) businesses, households, and consumers make decisions about how to spend their
money.
B) governments control their countries' economies by watching how much small
businesses contribute to it.
C) unemployment, interest rates, and inflation affect price levels.
D) a country's economy is chosen and developed based on how small businesses are able
to sustain it.
Answer: A
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
7) A microeconomist working for a toy manufacturer might study
A) census data on the number of families with children ages 5-12 in higher economic
classes.
B) prices of similar toys made by competitors.
C) recent changes in the unemployment rate of parents of children ages 5–12.
D) a drop in the inflation rate at the beginning of December.
Answer: B
Explanation: B) Microeconomics focuses on the allocation of resources specific to the
business product or service.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
2
8) From the point of view of a macroeconomist, which of these conditions has a significant
impact on the price of tomatoes?
A) An impromptu supermarket survey indicated more tomatoes are purchased on the
weekends.
B) The price of fuel went up 10 cents per gallon in the past week.
C) This month's harvest figures for tomatoes in farms outside the city are lower than last
month's figures.
D) As part of national health month, the city sponsored a tomato festival.
Answer: B
Explanation: B) Macroeconomics analyzes economy-wide occurrences such as changes in
price levels of fuel and how such a change affects the industries that
purchase and use fuel.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
9) In a market economy, the focus of production is on
A) fair and equal distribution.
B) efficiency and profitability.
C) quality over quantity.
D) supplying an infinite demand.
Answer: B
Explanation: B) In a market economy, production focuses on making a profit in the most
efficient manner. Individuals and firms determine how production is made,
and look for the best ways to increase productivity as a way to maximize
profitability.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
10) Planned economies are also called
A) controlled economies.
B) organized economies.
C) designed economies.
D) governed economies.
Answer: A
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
11) In a planned economy, production is determined by
A) consumer needs and wants.
B) government or a centralized group.
C) individuals and private firms.
D) both individuals and the government.
Answer: B
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
3
12) In a market economy, ________ control(s) purchasing decisions.
A) a centralized group
B) business owners
C) scarcity of resources
D) individual income
Answer: D
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
13) Sasha decides to purchase health insurance. Based on her annual income, she can only afford
the minimum package. Which type of economy typically reflects Sasha's situation?
A) Planned economy
B) Mixed economy
C) Market economy
D) Traditional economy
Answer: C
Explanation: C) In market economies, individual income determines what a consumer can
buy. In Sasha's case, her income only allows her to buy the minimum health
care package.
Diff: 3
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Objective: What is economics, and what are the different types of economic systems?
14) One characteristic of a traditional economy is
A) it is based on a strong social network.
B) it is composed of publicly owned businesses.
C) the state collects all earnings from businesses.
D) the state supports citizens by offering social services.
Answer: A
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
15) Which situation would a macroeconomist look at?
A) How a change in prices help generate sales
B) How a change in the market affects the overall economy
C) How consumers use their limited resources in exchange of goods
D) How the number of products already in the market would affect business
Answer: B
Explanation: B) Macroeconomists would look at the bigger picture rather than the decisions
of individual businesses, households, and consumers.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
4
16) In which type of economic system does the government control resources, pay wages, and
provide all services?
A) Socialism
B) Capitalism
C) Communism
D) Democracy
Answer: C
Explanation: C) In a communist economic system. the government takes control of
everything so that they can equally and adequately redistribute the wealth
among its citizens.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
17) Which type of economy grants individuals the freedom to make their own economic
decisions?
A) Traditional economy
B) Planned economy
C) Market economy
D) Mixed economy
Answer: C
Explanation: C) In a market economy, it is the individual who makes their economic
decision, usually based upon the individual's income.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
18) An originator of communist principles and co-author of The Communist Manifesto is
A) Fidel Castro.
B) Joseph Stalin.
C) Karl Marx.
D) Mao Zedong.
Answer: C
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
19) Which country has a communist-based economy?
A) United States
B) Denmark
C) France
D) North Korea
Answer: D
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
5
20) The conversion of government-owned production and services to privately owned, profitseeking enterprises is
A) transference.
B) accreditation.
C) privatization.
D) market reversal.
Answer: C
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
21) Diminishing motivation for workers in a true socialist system is the result of
A) steep prices of goods and services.
B) poor or inadequate social services.
C) high tax rates and low salaries.
D) the state collecting all earnings and profits.
Answer: D
Explanation: D) When the state collects all earnings and profits, motivation decreases
because there is no incentive for the workers in a socialist system to work
hard.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
22) What is a defining feature of a free market economy?
A) Distribution of social services by the government
B) Choices for both buyers and sellers
C) Government-controlled businesses and services
D) State-owned resources to produce all market goods
Answer: B
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
23) What is a plausible reason for communist-based economies to convert to market economies
or mixed economies?
A) The state fails to deliver goods and services equally and/or adequately.
B) The state runs out of workers due to diminishing motivation.
C) The state cannot compete with privately owned businesses.
D) The state cannot sustain free tertiary-level education for citizens.
Answer: A
Explanation: A) Because communist-based economies must ensure that all consumers receive
the goods and services they need, any instances where they do not
adequately fulfil those needs means that consumers are more likely to want
mixed or market economies. In these kinds of economies, consumers have
more control over the goods and services they receive.
Diff: 2
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Objective: What is economics, and what are the different types of economic systems?
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24) In a socialist economy, how is the government able to provide services for its people?
A) The government collects money from their officials.
B) The government incurs debts from other countries.
C) The government gives these services for free.
D) The government charges higher tax rates.
Answer: D
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
25) Which economic system has become a major influence in the Western world's economic
system?
A) Socialism
B) Capitalism
C) Communism
D) Privatization
Answer: B
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
26) ________ make up the majority of economic systems today.
A) Market economies
B) Mixed economies
C) Planned economies
D) Traditional economies
Answer: B
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
27) The United States economy is closest to a ________ economy, but there is still some
government intervention.
A) communist
B) traditional
C) capitalist
D) socialist
Answer: C
Diff: 1
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Objective: What is economics, and what are the different types of economic systems?
28) What is the unit of exchange for the transfer of goods and services?
A) Supply
B) Demand
C) Currency
D) Bartering
Answer: C
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
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29) The ________ of an item is based on how much it is worth against a consistent standard.
A) value
B) service
C) product
D) commodity
Answer: A
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
30) What determines the value of each good or service in a bartering exchange?
A) Needs
B) Power
C) Wealth
D) Desires
Answer: A
Explanation: A) Based on how much someone need a particular good or service, value
changes. The greater the need, the greater the value.
Diff: 2
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Objective: What are the principles of supply and demand and the factors that affect each principle?
31) What do economists call an instance where factors are ignored to examine the fundamentals
of a process?
A) All else held constant
B) Plausible deniability
C) Slightly correct assumption
D) Weaving through the basic
Answer: A
Explanation: A) Economists say "all else held constant" as a way to focus on a specific factor
without taking into account all the other possible factors that might affect a
process. By keeping these factors constant, the economist can see how the
factor he or she is focusing on figures into the process.
Diff: 2
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Objective: What are the principles of supply and demand and the factors that affect each principle?
32) The price at which everyone who wants the item can get it without anyone wanting more or
without any of the item being left over is
A) ideal price.
B) fixed price.
C) market price.
D) absolute price.
Answer: C
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
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33) A man trades milk from his cow for eggs from his neighbor's chicken. What is this
transaction called?
A) Bartering
B) Auctioning
C) Substituting
D) Buying and selling
Answer: A
Explanation: A) In a bartering system, both parties trade something of equal value so that
both go home with what they need or want. In this case, the man gets eggs,
while his neighbor gets milk.
Diff: 3
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Objective: What are the principles of supply and demand and the factors that affect each principle?
34) What is the name of the process in which bidders state a price they are willing to pay for a
certain item based purely on supply and demand?
A) Bartering
B) Auctioning
C) Haggling
D) Buying
Answer: B
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
35) Prices become higher when a unique and highly desirable item is auctioned
A) because the supply and demand are equal.
B) because the demand is higher than the supply.
C) because the supply is higher than the demand.
D) because the demand and supply are kept unknown.
Answer: B
Explanation: B) When demand is higher than supply, people will be willing to spend more
money to get that item. In auctioning, there is a very limited supply, so
prices will quickly rise if the item is highly desirable.
Diff: 2
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Objective: What are the principles of supply and demand and the factors that affect each principle?
36) Why was currency developed?
A) To make transactions more legitimate and easier to handle
B) To make transactions more professional and less time-consuming
C) To make the exchange of goods and services more consistent and equitable
D) To make the exchange of goods and services more comfortable and convenient
Answer: C
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
9
37) The amount of a product or service that is available for purchase at any given time is called
A) price.
B) supply.
C) demand.
D) commodity.
Answer: B
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
38) What is the law of supply?
A) The amount supplied remains the same as the price decreases.
B) The amount supplied increases as the price increases.
C) The amount supplied decreases as the price increases.
D) The amount supplied increase as the price decreases.
Answer: B
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
39) All of the following are supply resources EXCEPT
A) land.
B) labor.
C) capital.
D) country.
Answer: D
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
40) A real-world example of the auction process is
A) eBay.
B) Amazon.
C) McDonald's.
D) Starbucks.
Answer: A
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
41) The supply curve illustrates the incentive to supply more of an item as the
A) price decreases.
B) price fluctuates.
C) price increases.
D) price stays the same.
Answer: C
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
10
42) ________ refers to the amount of a product or service that people are willing to buy at any
given time.
A) Price
B) Supply
C) Demand
D) Commodity
Answer: C
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
43) A ________ is a graph used by economists to illustrate the relationship between demand and
price.
A) price curve
B) demand curve
C) price bell chart
D) demand bell chart
Answer: B
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
44) What do you call a supply that is not used up?
A) Surplus
B) Collateral
C) Excess supply
D) Overabundance
Answer: A
Explanation: A) Supply that is not used up is called surplus. Surplus often happens when the
supply of a good or service is higher than the demand.
Diff: 2
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Objective: What are the principles of supply and demand and the factors that affect each principle?
45) When the demand is greater than the supply, what is most likely to occur?
A) A shortage
B) Bankruptcy
C) Panic buying
D) A demand scare
Answer: A
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
46) Factors that can create a change in supply are known as ________ of supply.
A) sums
B) fractions
C) alterations
D) determinants
Answer: D
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
11
47) A shift of the supply curve to the right implies a ________ on supply.
A) standstill
B) regression
C) positive impact
D) negative impact
Answer: C
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
48) What is illustrated in a supply-and-demand curve?
A) Trade balance
B) Absolute equality
C) Perfect intersection
D) Equilibrium price
Answer: D
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
49) What is a producer's best guess at the future price of a good called?
A) Fiscal hint
B) Cost hypothesis
C) Value anticipation
D) Price expectation
Answer: D
Explanation: D) Price expectation is a producer's estimate of how much a future good will
cost. This estimate is based on current demand as well as supply and
production capabilities.
Diff: 2
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Objective: What are the principles of supply and demand and the factors that affect each principle?
50) There once was only one grocery store in Robin's town, but now there are several places she
can go to for food. What logically follows when the number of competitors increases?
A) The supply of a product or service increases.
B) The demand of a product or service increases.
C) Ownership of a product or service becomes the paramount concern.
D) The leading competitor maintains the monopoly of a product or service.
Answer: A
Explanation: A) As the number of competitors rise, the supply will also rise as these stores
open for business. Because there is a greater supply, food prices might
decrease as supply increases.
Diff: 3
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Objective: What are the principles of supply and demand and the factors that affect each principle?
51) What do you call products or services that go with each other and are consumed together?
A) Matching accents
B) Complementary goods
C) Single value for a double
D) Two-in-one commodities
Answer: B
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
12
52) Although sales have been consistently high for booksellers in the past, the demand for some
goods and services has decreased for almost a year in all of the stores around town. What is
happening to the economy?
A) Recession
B) Resolution
C) Secession
D) Succession
Answer: A
Explanation: A) A recession is taking place. Recessions are two or more quarters when there
is a decline in the GDP.
Diff: 2
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Objective: What are the principles of supply and demand and the factors that affect each principle?
53) Which of the following most likely affects population demand for vacation rentals in resort
communities?
A) Fashion trends
B) Seasonal changes
C) Aggressive campaigns
D) Celebrity endorsement
Answer: B
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
54) Demand for a product based on what is currently popular is called
A) popular trend.
B) illogical demand.
C) bandwagon effect.
D) consumer preference.
Answer: D
Diff: 1
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Objective: What are the principles of supply and demand and the factors that affect each principle?
55) Stores often offer a generic brand that is cheaper than name-brand products. What kinds of
goods are these generic brands?
A) Substitute goods
B) Exchanged trades
C) Replacement values
D) Alternate commodities
Answer: A
Explanation: A) Substitute goods are goods that can be used in place of another good. The
generic good is basically the same as the name brand good, but is a cheaper
alternative.
Diff: 3
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Objective: What are the principles of supply and demand and the factors that affect each principle?
13
56) Which market structure occurs when there is only one provider of a service or product, and
no substitutes for the product exist?
A) Communism
B) Monopoly
C) Oligopoly
D) Socialism
Answer: B
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
57) Which institution reviews mergers between large competitors to determine whether the
combined firm would result in a monopolistic situation?
A) Department of the Treasury
B) Federal Trade Commission
C) Internal Revenue Service
D) Securities and Exchange Commission
Answer: B
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
58) Which of the following are often permitted to operate as regulated monopolies?
A) Appliance companies
B) Insurance companies
C) Textile companies
D) Utility companies
Answer: D
Explanation: D) Utility companies are often permitted to operate as regulated monopolies
because they deal with limited supplies of resources like water. However,
although they are allowed to run as monopolies, the government will
regulate their prices to ensure that they do not inflate the price to exorbitant
amounts.
Diff: 2
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Objective: What are the four degrees of competition, and how does competition affect supply?
59) Natural monopolies are permitted in the United States
A) to conserve natural resources.
B) to provide better service.
C) to generate more taxes.
D) to supply high-quality products.
Answer: A
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
60) How does the government monitor natural monopolies?
A) It imposes higher taxes.
B) It imposes lower taxes.
C) It regulates their prices.
D) It asks for annual reports.
Answer: C
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
14
61) In a monopoly, where only one seller supplies a product or service,
A) demand may be lower.
B) demand may vary.
C) supply may be abundant.
D) supply may be limited.
Answer: D
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
62) Pure H2O is a company that provides water to consumers and operates as a water
distribution monopoly. Why is the company permitted to operate as a monopoly?
A) Pure H2O is permitted to operate as a natural monopoly in an effort to conserve
natural resources.
B) Pure H2O is permitted to operate as a natural monopoly because it pays its taxes
annually.
C) Pure H2O is permitted to operate as a natural monopoly because of its campaign to
promote water conservation.
D) Pure H2O is permitted to operate as a natural monopoly in an effort to provide
consumers with the best service.
Answer: A
Explanation: A) Pure H2O is an example of a utility company. This type of company is
permitted by the government to operate as a monopoly.
Diff: 3
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Objective: What are the four degrees of competition, and how does competition affect supply?
63) The Nook is the only bookstore in George's neighborhood. Which market structure is this an
example of?
A) Communism
B) Monopoly
C) Oligopoly
D) Socialism
Answer: B
Explanation: B) The Nook would be considered a monopoly since it is the only provider of
books, and no substitutes for the product exist in the area.
Diff: 3
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Objective: What are the four degrees of competition, and how does competition affect supply?
64) Which of the following determines the level of competition in a given market?
A) The amount of substitutes for a certain product or service
B) The amount of value attached to the cost of labor
C) The degree of government intervention in the market
D) The level of consumption for a given product
Answer: A
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
15
65) A new aircraft manufacturer opened in Claire's neighborhood. Now Claire's business has the
choice of whether to buy parts from their existing local supplier or from the new
manufacturer in town. What type of market structure is her neighborhood experiencing?
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Perfect competition
Answer: C
Explanation: C) Since a few sellers already exist, the current local supplier doesn't have the
monopoly of the market anymore. In oligopoly, each seller has a fairly large
share of the market.
Diff: 3
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Objective: What are the four degrees of competition, and how does competition affect supply?
66) Which market structure occurs when there are only a few sellers?
A) Communism
B) Monopoly
C) Oligopoly
D) Socialism
Answer: C
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
67) What MOST likely happens when there are few sellers in a given market?
A) Each seller has a fairly large share of the market.
B) Each seller has to double its marketing strategy.
C) Each seller has to come up with innovations.
D) Each seller has to look for possible mergers.
Answer: A
Explanation: A) In oligopolies, only a few sellers exist, and each seller has a fairly large share
of the market. Therefore, it is most likely that each seller will gain more
profit than if more sellers were operating in the market.
Diff: 2
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Objective: What are the four degrees of competition, and how does competition affect supply?
68) All of the following are industries where oligopolies likely exist EXCEPT
A) airline companies.
B) automobile companies.
C) tobacco companies.
D) utility companies.
Answer: D
Explanation: D) Utility companies are most likely examples of companies establishing
natural monopolies.
Diff: 2
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Objective: What are the four degrees of competition, and how does competition affect supply?
16
69) Which of the following reasons BEST describes why competition is strong in an oligopoly?
A) Because there is little difference between products
B) Because the market emphasizes consumption
C) Because the demand for products is very high
D) Because the supply of products is very low
Answer: A
Explanation: A) Because there is little differentiation between products, competition is strong
in an oligopoly, and prices differ only slightly, if at all, between the few
suppliers.
Diff: 2
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Objective: What are the four degrees of competition, and how does competition affect supply?
70) When competition is strong in an oligopoly, which of the following would MOST likely
happen?
A) Prices would differ slightly.
B) Consumers would buy a lot.
C) Prices would go up fast.
D) Consumers would complain.
Answer: A
Explanation: A) Prices differ slightly in an oligopoly because if one company cuts prices, its
action is usually matched quickly by the competition. Competition in an
oligopoly is centered on product differentiation more than on price.
Diff: 3
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Objective: What are the four degrees of competition, and how does competition affect supply?
71) Competition in an oligopoly is specifically centered on
A) consumers' needs.
B) marketing strategies.
C) product differentiation.
D) quality assurance.
Answer: C
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
72) Which of the following statements describes product differentiation?
A) Making one product stand out from another
B) Increasing prices for products that are in demand
C) Lowering prices for products that are not in demand
D) Supplying different products in the market
Answer: A
Diff: 1
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Objective: What are the four degrees of competition, and how does competition affect supply?
17
73) Which of the following does NOT occur when there is monopolistic competition?
A) There are many buyers and sellers.
B) There are many buyers but no sellers.
C) There is perceived difference of products among consumers.
D) There is little differentiation between the products themselves.
Answer: A
Explanation: A) In a monopolistic competition, there are many buyers and sellers.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
74) What makes monopolistic competition different from an oligopoly?
A) The added choice of a perceived superior product
B) Little differentiation between products
C) Demonstration of an imperfect competition
D) The nature of government sanctions
Answer: A
Explanation: A) In both monopolistic competition and oligopoly, there is little differentiation
between products. The added choice of a perceived superior product by the
consumers makes monopolistic competition different from oligopoly.
Diff: 3
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
75) Tony's used to be the only used car dealership near campus until ReRevved Engines opened
a few months ago. The competition between dealerships is a(n)
A) monopoly.
B) market competition.
C) oligopoly.
D) perfect competition
Answer: C
Explanation: C) An oligopoly is a market structure in which only a few companies offer a
service or product. In this situation, Tony's monopoly over used cars turned
into an oligopoly when a competitor came into the picture.
Diff: 3
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
76) What takes place in a scenario in which consumers favor one product offering over another?
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Perfect competition
Answer: B
Diff: 1
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
18
77) Barnes & Noble establishes a branch in George's neighborhood. Suppose that the perception
among the residents in George's neighborhood is that Barnes & Noble offers the best
selection of books compared to the other bookstores in town. What type of market structure
is this?
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Perfect competition
Answer: B
Explanation: B) The added choice of a perceived superior product creates monopolistic
competition. Even though they are not the only bookstore in town, they still
hold an edge over the competitors, making the market seem like more of a
monopoly.
Diff: 3
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
78) In most cases, how does one product differ from another in a monopolistic competition?
A) Availability in the market
B) Price
C) Quality
D) Demand from world market
Answer: B
Diff: 1
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
79) What happens when there are many buyers and sellers of products that are virtually
identical, and any seller can easily enter and exit the market?
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Perfect competition
Answer: D
Diff: 1
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
80) If the competition for digital cameras moved from a monopoly to an oligopoly, what would
happen to the supply of digital cameras?
A) Supply would decrease.
B) Supply would increase.
C) Supply would stay the same.
D) Supply would go up and down.
Answer: B
Explanation: B) In a monopoly, only one company would be providing the product and
therefore supply would be limited. With an oligopoly, there is an increase
suppliers, and therefore supply would increase as well.
Diff: 3
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
19
81) A number of stores on Faulkner Street sell fresh fruits and vegetables. The products appear
to be identical and the prices differ little, if at all. What type of market structure is this?
A) Monopoly
B) Monopolistic competition
C) Oligopoly
D) Perfect competition
Answer: D
Explanation: D) In perfect competition, there are many sellers, and no single seller can set the
price for products. In monopolies, there is only one company selling
something, and in oligopolies, there are a few companies, but they set
competitive prices against one another.
Diff: 3
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
82) The overall market value of final goods and services produced in a country in a year is called
the
A) gross domestic product.
B) gross internal product.
C) gross capital product.
D) gross national product.
Answer: A
Diff: 1
Page Ref: 45
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
83) Only those goods that are ________ are counted in the country's gross domestic product.
A) electronic in nature
B) made from raw materials
C) imported from another country
D) actually produced in the country
Answer: D
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
84) Christine's, a popular sportswear manufacturer, has a factory in Louisiana and another in
Thailand. Which value of the sportswear should be counted in the United States' gross
domestic product?
A) The value of sportswear produced in Louisiana
B) The value of sportswear produced in Thailand
C) The average value of sportswear produced in both in Louisiana and Thailand
D) The total value of sportswear produced both in Louisiana and Thailand
Answer: A
Explanation: A) Only the goods that are actually produced in the country are included in the
country's GDP. Other goods fall into separate categories, even though they
are made for consumers in the United States.
Diff: 3
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
20
85) Which of the following is the most widely used indicator of economic growth by most
countries?
A) Consumer price index
B) Gross national product
C) Gross domestic product
D) Producer price index
Answer: C
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
86) A continuous decrease in prices over time is called
A) inflation.
B) deflation.
C) disinflation.
D) inflammation.
Answer: B
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
87) A decrease in the rate of inflation is
A) deflation.
B) disinflation.
C) de-inflation.
D) deflection.
Answer: B
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
88) The ________ measures price changes by creating a "market basket" of a specified set of
goods and services that represent the average buying pattern of urban households.
A) consumer price index
B) producer price index
C) gross domestic product
D) gross national product
Answer: A
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
89) The value of the market basket is determined by
A) the amount of profit made from selling goods plus taxes.
B) the profit made in selling goods and services minus the amount used to produce them.
C) the price of goods and services compared to the amount used to produce them.
D) the combined prices of goods and services compared to its value in a previous period.
Answer: D
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
21
90) Who evaluates the basket of goods and services to ensure that it reflects consumer buying
habits?
A) the Department of Treasury
B) the Internal Revenue Service
C) the Bureau of Labor Statistics
D) the Federal Bureau of Investigation
Answer: C
Explanation: B) The Bureau of Labor Statistics evaluates the market basket as a way to track
spending habits of many different families and thus get a better idea of what
people are spending money on. This helps determine how the economy is
doing, and how inflation rates are affecting spending habits in specific areas
of the economy.
Diff: 2
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
91) The cost of living is the average monetary cost of
A) a house and a car that a person in any country needs.
B) services the government can afford to give citizens at no charge.
C) the goods and services required to maintain a particular standard of living.
D) taxes for citizens of a particular country.
Answer: C
Diff: 1
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
92) The producer price index tracks the average change in
A) the number of new producers in a month.
B) the amount of a producer's profit.
C) the types of products that come out.
D) prices at the wholesale level.
Answer: D
Diff: 1
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
93) The producer price index excludes the price of
A) raw materials.
B) energy and services.
C) finished goods sold to retailers.
D) product components that still need to be processed.
Answer: B
Diff: 1
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
22
94) The unemployment rate measures the number of workers who are 16 years old and older
who
A) have been unable to find a job within the past four weeks.
B) do not want to work and are currently unemployed.
C) are currently working but expect to lose their jobs within the next four weeks.
D) are employed but would like to change jobs within the next four weeks.
Answer: A
Diff: 1
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
95) ________ measures temporary unemployment in which workers move between jobs, careers,
and locations.
A) Structural unemployment
B) Frictional unemployment
C) Cyclical unemployment
D) Seasonal unemployment
Answer: B
Diff: 1
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
96) Robert was laid off when his company switched most of their work to computer-based
industry, and moved their remaining jobs overseas. What kind of unemployment is Robert
facing?
A) Frictional unemployment
B) Cyclical unemployment
C) Structural unemployment
D) Seasonal unemployment
Answer: C
Explanation: C) Robert is facing structural unemployment because the industry in which he
worked has changed. Because computers have taken over the work, people
like Robert are no longer needed.
Diff: 3
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
97) People who become unemployed due to structural unemployment should
A) receive additional training to find new jobs.
B) sue their former employers for discrimination.
C) file for bankruptcy.
D) protest to the government.
Answer: A
Diff: 1
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
23
98) Cyclical unemployment is caused by
A) trends in products and services.
B) the standing of the country's government.
C) lack of demand for those who want to work.
D) changes in the business structure and management.
Answer: C
Diff: 1
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
99) The rate of cyclical unemployment ________ the economy.
A) is inversely proportional to
B) is directly proportional to
C) is not related to
D) is slightly influenced by
Answer: A
Explanation: A) The rate of cyclical unemployment becomes smaller as the economy grows
stronger.
Diff: 2
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
100) Which of the jobs below is affected by seasonal unemployment?
A) A night guard at the mall
B) A part-time lifeguard
C) A mathematics teacher
D) A crime scene investigator
Answer: B
Explanation: B) A lifeguard faces seasonal unemployment because people do not normally
go swimming all year long, only during the summer. So, when swimming
season is in session, he or she would have a job, but when the pool closed for
the season, the lifeguard would be out of work.
Diff: 3
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
101) A high unemployment rate results in an increase in government spending on social
programs. These programs include all of the following EXCEPT
A) Temporary Assistance for Needy Families.
B) Social Security.
C) Medicare.
D) the Red Cross.
Answer: D
Diff: 1
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
24
102) The Temporary Assistance for Needy Families program used to be known as
A) welfare.
B) charity.
C) a volunteer organization.
D) a food bank.
Answer: A
Diff: 1
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
103) In a declining economy, how do businesses prefer to reduce their workforce?
A) Through retirement and natural attrition
B) By giving incentives to workers for them to resign
C) By laying off workers and rehiring when they need more
D) By hiring temporary and contractual employees
Answer: A
Explanation: A) Companies prefer to reduce their workforce naturally through retirement
and attrition, even though this requires planning on the company's part.
Sudden unemployment and high unemployment rates can cause mental and
physical stress, which is bad for employee morale and could potentially
affect productivity.
Diff: 2
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
104) What measures the quantity of goods and services that human and physical resources can
produce in a given time period?
A) Output
B) Profit
C) Production rate
D) Productivity
Answer: D
Diff: 1
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
105) An increase in productivity indicates that workers are
A) satisfied with their working environment and their jobs.
B) producing more goods or services in the same amount of time.
C) taking fewer breaks.
D) well-trained in their jobs and responsibilities.
Answer: B
Explanation: B) Productivity is how much of a product someone can create in a specific
amount of time. So, if workers can produce more goods in the same amount
of time, their productivity has increased.
Diff: 2
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
25
106) Companies re-invest the economic benefits of productivity growth through all of the
following EXCEPT
A) increasing wages.
B) improving working conditions.
C) decreasing shareholder value.
D) increasing tax revenue to the government.
Answer: C
Diff: 1
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
107) How can the economic benefits of productivity affect the entire country?
A) By increasing prices for customers
B) By reducing tax revenue for the government
C) By improving working conditions for workers
D) By improving the gross domestic product
Answer: D
Diff: 1
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
108) Which of the following demonstrates the periodic increase and decrease in economic
growth?
A) Consumer price index
B) Business cycle
C) Market expansion
D) Open market operations
Answer: B
Diff: 1
Page Ref: 50
Objective: What are the four stages of the business cycle?
109) There has been a recession in the Westwood community. Businesses are closing, and people
are losing jobs. What is happening when prices have been steadily falling as well?
A) Expansion
B) Inflation
C) Deflation
D) Depression
Answer: C
Explanation: C) Deflation is the steady falling of prices over a period of time. It's possible
that the recession will turn into a depression, but the steady falling of prices
is a sign of deflation.
Diff: 3
Page Ref: 50
Objective: What are the four stages of the business cycle?
26
110) A decrease in stock prices during a recession is caused by
A) the government purchasing more stocks.
B) the government purchasing fewer stocks.
C) major stocks being sold in large selling sessions.
D) fewer and smaller selling sessions of stocks.
Answer: C
Diff: 1
Page Ref: 50
Objective: What are the four stages of the business cycle?
111) After a period of loss, sales in the electronics industry have started picking up again. What is
this part of the business cycle called?
A) Recession
B) Recovery
C) Resuscitation
D) Restoration
Answer: B
Explanation: B) Recovery is when businesses begin to recover after taking losses and starts
making a profit once more.
Diff: 2
Page Ref: 51
Objective: What are the four stages of the business cycle?
112) All of the following are government actions related to fiscal policy EXCEPT
A) changing income taxes.
B) funding infrastructures improvements.
C) minting coins and bills.
D) increasing education budgets.
Answer: C
Diff: 1
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
113) The ________ sets the policies of the Federal Reserve, including monetary policies.
A) Federal Open Market Committee
B) United States Department of the Treasury
C) Federal Reserve Policy Committee
D) Federal Reserve Board of Governors
Answer: A
Diff: 1
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
27
114) Which of the following is likely the result of increased government spending?
A) Infrastructure improvements
B) Creation of additional jobs
C) Increase in educational benefits
D) All of the above
Answer: D
Explanation: D) The U.S. government spends money on projects that help defense,
education, and medical care in order to stimulate the economy. All of these
changed situations are a result of government spending.
Diff: 2
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
115) All of the following are functions of the Federal Reserve System EXCEPT
A) trading in foreign exchange markets.
B) buying and selling government securities.
C) changing certain interest rates.
D) controlling tax and spending levels.
Answer: D
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
116) The combined amount of money available within the economy is referred to as
A) the gross national product.
B) M-1.
C) the money supply.
D) currency.
Answer: C
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
117) Which of the following is classified as an M-1 asset?
A) Savings deposits
B) Money market accounts
C) Certificates of deposit
D) Checking accounts
Answer: D
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
28
118) ________ are U.S. dollars deposited in banks outside the United States.
A) Foreign exchange
B) Bearer bonds
C) Eurodollars
D) Foreign assets
Answer: C
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
119) Certificates of deposit greater than $100,000 are classified as
A) M-1.
B) M-2.
C) M-3.
D) M-4.
Answer: C
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
120) What constitutes M-3 assets?
A) savings deposits, money market accounts
B) certificates of deposits less than $100,000
C) coins, traveler's checks, checking accounts
D) M-1 and M-2 assets plus other less liquid funds
Answer: D
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
121) All of the following can increase the money supply EXCEPT
A) increase in demand for labor.
B) increase in consumer spending.
C) increase in supply of goods.
D) increase in prices of goods.
Answer: C
Explanation: C) An increase in the supply of goods increases what is available to buy, but
does not actually put more money into circulation. New labor will give
people jobs and therefore wages; an increase in spending and prices means
that consumers are spending more money, which all puts money back into
the money supply.
Diff: 3
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
29
122) Disinflation is also known as
A) reduced inflation.
B) decreased spending.
C) reverse deflation.
D) decreased money supply.
Answer: A
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
123) All of the following are tools used by the Federal Reserve to affect money supply EXCEPT
A) discount rate.
B) consumer price index.
C) open market operations.
D) reserve requirement.
Answer: B
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
124) All of these are actions the Federal Reserve Bank can perform to offset deflation EXCEPT
A) creating securities.
B) buying securities.
C) lowering discount rate.
D) increasing discount rate.
Answer: C
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
125) Carl and Stella plan to get a mortgage loan for a new house. However, they are waiting for
the best time to get a loan with a low interest rate. Which of these economic indicators will
tell them that it is a good time to take out a loan?
A) The Federal Reserve sells securities.
B) The Federal Reserve buys securities.
C) The Federal Funds rate increases.
D) The discount rate increases.
Answer: B
Explanation: B) When the Federal Reserve buys securities, it's likely that interest rates for
mortgage loans will decrease. The lower interest rates are meant to increase
consumer spending, and thus stimulate the economy.
Diff: 3
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
30
126) What is the primary tool that the Federal Reserve uses to alter money supply?
A) Discount rate
B) Federal Funds rate
C) Open market operations
D) Reserve requirement
Answer: C
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
127) When there is an increase in the Federal Funds rate, all of the following can happen to the
money supply EXCEPT
A) excess reserves dwindle.
B) interest rates soar.
C) lending is limited.
D) money becomes "easy" to get.
Answer: D
Explanation: D) When there is an increase in the Federal Funds rate, it means that the
government is regulating money to keep the system balanced. Money is only
"easy" when interest rates are down and the government is buying securities,
Diff: 2
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
128) In an open market operation, the Federal Reserve does all of the following EXCEPT
A) place transactions with a particular dealer.
B) change the level of reserve in the banking system.
C) add reserves to the system.
D) affect interest rates.
Answer: A
Explanation: A)
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
129) Which of the following is an economic condition in which there is an overall increase of
prices?
A) Disinflation
B) Deflation
C) Inflation
D) None of the above
Answer: C
Explanation: C) Inflation occurs when the demand for a product is high and greater than the
supply of a good or service. When this happens, the price increases, which
causes inflation.
Diff: 2
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
31
130) Lower interest rates stimulate the economy by
A) increasing the demands for loans.
B) encouraging people to save.
C) causing banks to borrow from other banks.
D) hastening government spending.
Answer: A
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
131) When the economy is robust, the Federal Reserve ________ the discount rate, discouraging
banks from borrowing.
A) lowers
B) increases
C) reports
D) waives
Answer: B
Diff: 1
Page Ref: 54
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
132) The ________ is the minimum amount of money banks must hold in reserve to cover
deposits.
A) discount rate
B) money supply
C) reserve requirement
D) equilibrium price
Answer: C
Diff: 1
Page Ref: 54
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
133) What is the name of the interest rate that banks charge other banks when they borrow funds
overnight from one another?
A) Discount rate
B) Federal Agency rate
C) Federal Funds rate
D) Security rate
Answer: C
Diff: 1
Page Ref: 54
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
32
134) Banks make loans to all of the following EXCEPT
A) people.
B) foreign banks.
C) small businesses.
D) corporations.
Answer: B
Diff: 1
Page Ref: 55
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
135) Which of the following contributed to bank runs at the beginning of the Great Depression?
A) People were nervous that the banks would not be able to cover their deposits.
B) People were wary of the shady practices of several well-known banks.
C) People learned that the Federal Reserve Bank has no control over some banks.
D) People withdrew their deposits to take advantage of low mortgage rates.
Answer: A
Explanation: A) One of the reasons banks failed during the Great Depression was because
they did not have the money to back up the loans they were making. When
people learned that the banks would not be able to cover their deposits, they
panicked, trying to withdraw all of their money from the banks.
Diff: 2
Page Ref: 55
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
136) In economics, the demand for a product or service is the sole determinant of the price or
value of the product.
Answer: FALSE
Explanation: Many factors are figured into the price and value of a product or service. Demand
is important, but so are supply, price, and consumer needs.
Diff: 2
Page Ref: 31
Objective: What is economics, and what are the different types of economic systems?
137) The study of economics acknowledges that, in the real world, supply is limited and demand
is infinite.
Answer: TRUE
Diff: 1
Page Ref: 31
Objective: What is economics, and what are the different types of economic systems?
138) The inflation of the dollar is a vital concern for macroeconomists.
Answer: TRUE
Diff: 1
Page Ref: 32
Objective: What is economics, and what are the different types of economic systems?
139) An example of microeconomics in practice is a price increase in wheat that impacts the food
industry.
Answer: FALSE
Explanation: The increase in price of wheat has significant impact not only on individual
businesses, but in the whole food industry and even in other areas of the
economy.
Diff: 2
Page Ref: 32
Objective: What is economics, and what are the different types of economic systems?
33
140) In a planned economy, individuals are able to make their own economic decisions.
Answer: FALSE
Diff: 1
Page Ref: 32
Objective: What is economics, and what are the different types of economic systems?
141) In a mixed economy, resources can be privately owned or government-controlled.
Answer: TRUE
Diff: 1
Page Ref: 32
Objective: What is economics, and what are the different types of economic systems?
142) Agrarian communities in the 19th century sustained free market economies.
Answer: FALSE
Diff: 1
Page Ref: 32
Objective: What is economics, and what are the different types of economic systems?
143) In a market economy, the buyer has the freedom of choice, not the seller.
Answer: FALSE
Explanation: In a market economy, both the seller and the buyer have the freedom of choice.
There is no economy where the buyer can choose things, but not the seller.
Diff: 2
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
144) In socialist economic systems, the high tax rates people pay are balanced out by the
multitude of social services that the government delivers.
Answer: TRUE
Diff: 1
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
145) Cuba has a capitalist economy.
Answer: FALSE
Diff: 1
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
146) True socialism gives workers incentives and motivation to excel or diversify in their craft.
Answer: FALSE
Explanation: In a socialist economy, there is little incentive for the workers to work hard,
because they will be given an equal share of the wealth, regardless of how much
or how little they do.
Diff: 2
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
147) Cuba is the only country to achieved Karl Marx's vision of workers in a communist economy
taking over the government's responsibilities and providing services.
Answer: FALSE
Diff: 1
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
148) Many socialist and communist countries are beginning to change their economies into a free
market economy through the practice of privatization.
Answer: TRUE
Diff: 1
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
34
149) National unemployment rates are of no concern to business owners who want to expand
their business.
Answer: FALSE
Explanation: As an example, the owner of a chain of convenience stores can view an increase in
the local unemployment rate as a chance to hire new staff and open up new stores.
Diff: 2
Page Ref: 34
Objective: What is economics, and what are the different types of economic systems?
150) The economy of the United States is not manipulated in any way by the U.S. government.
Answer: FALSE
Diff: 1
Page Ref: 34
Objective: What is economics, and what are the different types of economic systems?
151) Bartering is the ideal way to exchange goods and services.
Answer: FALSE
Diff: 1
Page Ref: 35
Objective: What are the principles of supply and demand and the factors that affect each principle?
152) Currency provides a consistent standard based on an underlying commodity.
Answer: TRUE
Diff: 1
Page Ref: 35
Objective: What are the principles of supply and demand and the factors that affect each principle?
153) Supply and demand determine the price for a product or service in a free market.
Answer: TRUE
Diff: 1
Page Ref: 35
Objective: What are the principles of supply and demand and the factors that affect each principle?
154) The availability of the item is called demand, and the need for an item is called supply.
Answer: FALSE
Explanation: The demand is the need of an item, and the supply is the item's availability.
Diff: 2
Page Ref: 36
Objective: What are the principles of supply and demand and the factors that affect each principle?
155) Supply is dependent on resources required to produce the product or offer the service.
Answer: TRUE
Diff: 1
Page Ref: 36
Objective: What are the principles of supply and demand and the factors that affect each principle?
156) As much as people are willing to buy what they need when they need it, sometimes they
have limited resources and they prefer to buy in bulk in order to get a lower price.
Answer: TRUE
Explanation: Buying in bulk will keep prices lower for some people, even if that means that
they will have a surplus for goods. It might be more cost effective in the long run
to buy in bulk.
Diff: 2
Page Ref: 36
Objective: What are the principles of supply and demand and the factors that affect each principle?
35
157) Improvements in technology can discourage suppliers from producing goods or services
with fewer costs.
Answer: FALSE
Diff: 1
Page Ref: 38
Objective: What are the principles of supply and demand and the factors that affect each principle?
158) The greater the number of suppliers, the greater the cost of the goods and services.
Answer: FALSE
Diff: 1
Page Ref: 39
Objective: What are the principles of supply and demand and the factors that affect each principle?
159) A positive change in any of the determinants of demands shifts the demand curve to the left.
Answer: FALSE
Diff: 1
Page Ref: 39
Objective: What are the principles of supply and demand and the factors that affect each principle?
160) An increase in spending is a sign of an improving economy.
Answer: TRUE
Diff: 1
Page Ref: 40
Objective: What are the principles of supply and demand and the factors that affect each principle?
161) iPod and iTunes are examples of supplementary goods.
Answer: FALSE
Diff: 1
Page Ref: 40
Objective: What are the principles of supply and demand and the factors that affect each principle?
162) Rising income levels allow people to buy more products, which shifts the demand curve to
the left.
Answer: FALSE
Explanation: Increased spending means that there is an increased demand. Increased demand
shifts the demand curve to the right, not the left.
Diff: 2
Page Ref: 40
Objective: What are the principles of supply and demand and the factors that affect each principle?
163) The demand curve for complementary goods remains on the right as long as the items are
popular.
Answer: TRUE
Diff: 1
Page Ref: 40
Objective: What are the principles of supply and demand and the factors that affect each principle?
164) Substitute goods are goods that can be used in place of other goods.
Answer: TRUE
Diff: 1
Page Ref: 41
Objective: What are the principles of supply and demand and the factors that affect each principle?
165) The four degrees of competition are monopoly, oligopoly, monopolistic competition, and
perfect competition.
Answer: TRUE
Diff: 1
Page Ref: 42
Objective: What are the four degrees of competition, and how does competition affect supply?
36
166) A monopoly occurs when there is only one provider of a service or product and no
substitutes for the product exist.
Answer: TRUE
Diff: 1
Page Ref: 42
Objective: What are the four degrees of competition, and how does competition affect supply?
167) The number of substitutes for a certain product or service determines the level of
competition.
Answer: TRUE
Diff: 1
Page Ref: 42
Objective: What are the four degrees of competition, and how does competition affect supply?
168) If Allan's Pizzeria is the only place where people can get pizza in the neighborhood, then we
can say that Allan has an oligopoly.
Answer: FALSE
Explanation: Allan's Pizzeria is a monopoly because it is the only place where people can get
pizza. If a few more businesses moved into the neighborhood, then it would be an
oligopoly.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
169) An oligopoly is a form of competition in which only a few sellers exist.
Answer: TRUE
Diff: 1
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
170) In an oligopoly, one seller's business usually fails because of the competition.
Answer: FALSE
Explanation: In an oligopoly, there are few competitors. Competition is tough, but prices are
generally about the same, and products are also very similar to one another.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
171) Competition in an oligopoly is centered more on product differentiation than on price.
Answer: TRUE
Diff: 1
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
172) Typically, oligopolies occur in industries in which there is a high capital investment to enter.
Answer: TRUE
Diff: 1
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
173) The added choice of a perceived superior product creates monopolistic competition.
Answer: TRUE
Diff: 1
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
37
174) Monopolistic competition happens very rarely.
Answer: FALSE
Explanation: Monopolistic competition is very common. Large chain stores like Barnes &
Nobles or Dunkin Donuts are often like a monopoly in their communities because
the are seen as having superior products to other, similar stores.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
175) Monopolistic competition occurs when two businesses catering to different services compete
with each other in the same market.
Answer: FALSE
Explanation: Monopolistic competition is when there are many different companies in the same
market, but there is one particular brand that is preferred above the others.
Dunkin Donuts and Starbucks are both examples of monopolistic competition.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
176) Supplies may decrease with an oligopoly.
Answer: FALSE
Diff: 1
Page Ref: 43
Objective: What are the four degrees of competition, and how does competition affect supply?
177) Perfect competition occurs when there are many buyers and sellers of products that are
virtually identical and any seller can easily enter and exit the market.
Answer: TRUE
Diff: 1
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
178) In a perfect competition, no single supplier can influence the price.
Answer: TRUE
Diff: 1
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
179) The United States government allows monopolies by big U.S. business.
Answer: FALSE
Explanation: The U.S. government allows utility companies to have monopolies because the
supply of the product they sell is limited. However, the monopolies are regulated
by the government so that prices do not get out of control.
Diff: 2
Page Ref: 44
Objective: What are the four degrees of competition, and how does competition affect supply?
180) The gross domestic product measures economic activity—that is, the overall market value of
final goods and services produced in a country in a year.
Answer: TRUE
Diff: 1
Page Ref: 45
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
38
181) Even imported goods are counted in a country's gross domestic product.
Answer: FALSE
Diff: 1
Page Ref: 45
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
182) The gross national product attributes earnings to the country both where the firm is owned
and where the product is manufactured.
Answer: FALSE
Explanation: The gross national profit only includes products that are produced in that
country. The GNP does not include products that were made outside of the
country, even if the product was made by a national company.
Diff: 2
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
183) GNP means gross national product.
Answer: TRUE
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
184) When the gross domestic product goes up, the indication is that the economy is in a positive
state.
Answer: TRUE
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
185) There are two price indexes used as economic indicators: the individual business price index
and the large business price index.
Answer: FALSE
Explanation: The two indexes used to evaluate the economy are consumer and producer
indexes. Consumer indexes track changes in prices at the consumer level, while
producer indexes track prices at the wholesale level.
Diff: 2
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
186) Inflation is a dip in the general level of prices over time.
Answer: FALSE
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
187) A decrease in the rate of inflation is disinflation.
Answer: TRUE
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
39
188) The monthly consumer price index tracks changes in the prices of goods and services
purchased by households.
Answer: TRUE
Diff: 1
Page Ref: 46
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
189) Medical care and transportation are two of the eight major groups of expenditure items.
Answer: TRUE
Diff: 1
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
190) The consumer price index measures changes in prices of consumer goods only.
Answer: TRUE
Diff: 1
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
191) During periods of increasing prices, reflected by the consumer price index, the purchasing
power of a dollar decreases.
Answer: TRUE
Explanation: As prices increase, this means that consumers must pay more for the same items.
This means that the dollar amount has decreased, because the new price requires
that people pay more for the same item.
Diff: 2
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
192) The producer price index tracks the prices of goods that sellers use to create their products
or services, such as raw materials.
Answer: TRUE
Diff: 1
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
193) Frictional unemployment measures those out of work during the off-season.
Answer: FALSE
Explanation: Frictional unemployment is temporary or unexpected unemployment. Seasonal
unemployment is unemployment during the off-season.
Diff: 2
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
194) Higher productivity numbers often result in lower costs and lower prices.
Answer: TRUE
Diff: 1
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
40
195) A boom or peak occurs when the economy is at its most robust point.
Answer: TRUE
Diff: 1
Page Ref: 50
Objective: What are the four stages of the business cycle?
196) A depression is a decline in the gross domestic product for two or more successive quarters
of a year.
Answer: FALSE
Explanation: A recession is a decline in the GDP for two or more successive quarters. A
depression is much longer and more severe than a recession.
Diff: 2
Page Ref: 50
Objective: What are the four stages of the business cycle?
197) Over time, the economy naturally goes through periodic increases and decreases, which
economists refer to as the business cycle.
Answer: TRUE
Diff: 1
Page Ref: 50
Objective: What are the four stages of the business cycle?
198) Eventually, after a recession or even a depression, the economy begins to grow again.
Answer: TRUE
Diff: 1
Page Ref: 51
Objective: What are the four stages of the business cycle?
199) The period that comes after a recession or depression is called the expansionary or recovery
phase.
Answer: TRUE
Diff: 1
Page Ref: 51
Objective: What are the four stages of the business cycle?
200) Eventually, recovery will reach its peak and the business cycle begins again.
Answer: TRUE
Diff: 1
Page Ref: 51
Objective: What are the four stages of the business cycle?
201) To combat rising inflation, a decrease in taxes is necessary so that fewer consumers spend
money on businesses and save it in banks instead.
Answer: FALSE
Explanation: When taxes are lowered, it is in the hope that consumers will then spend more
money and therefore stimulate the economy.
Diff: 2
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
202) The amount of money entering into the system is dependent only on the decrease in taxes.
Answer: FALSE
Diff: 1
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
41
203) Government spending increases cash flow to the economy faster than increasing taxes.
Answer: TRUE
Diff: 1
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
204) During periods of high economic growth, the government will likely increase its spending to
create more jobs, boosting the growth even more.
Answer: FALSE
Explanation: The government will increase its spending when the economy is lagging, not
when the economy is doing well. Government spending is one way that the
government works to boost the economy, and does not increase spending when
the economy is doing well on its own.
Diff: 2
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
205) To help fuel a lagging economy, the government may spend money on projects, such as
infrastructures improvements and programs that benefit defense, education, and health care.
Answer: TRUE
Diff: 1
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
206) Tax increases would have a greater effect slowing down the economy than tax cuts would
have attempting to stimulate the economy.
Answer: TRUE
Diff: 1
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
207) The Federal Reserve System is the central banking system of the world's largest nations.
Answer: FALSE
Explanation: The Federal Reserve System is the central banking system for the United States.
There is no centralized world-wide banking system.
Diff: 2
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
208) The Federal Reserve uses a monetary policy to control inflation.
Answer: TRUE
Diff: 1
Page Ref: 52
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
209) Open market operations are when the Federal Reserve buys and sells United States Treasury
and federal agency bonds in the "open market."
Answer: TRUE
Diff: 1
Page Ref: 53
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
42
210) Patty travelled to Denmark for a year, and while she was there, she worked in a bookshop.
When she received her first paycheck, she was surprised at how high her tax rates were.
However, she noticed that people weren't really bothered by high taxes. Her Danish friends
told her they were satisfied with their quality of living, because most of their necessities-education, health care, and retirement--were provided by the government. What kind of
economic system does Denmark have?
Answer: Denmark has a socialist economic system because the government provides many
social services for its citizens, which are paid through taxes.
Explanation: In socialist economic systems, governments traditionally run social services such
as education, health care, and retirement. In order to finance these services, the
government charges high tax rates.
Diff: 2
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
211) Tony lives in a country in which the economic system is based on the market. The demand
in the market determines the prices of goods and services that private companies provide.
However, as goods become scarce, the demand rises and prices become so high that Tony
can no longer afford to buy his basic necessities. What can Tony's country do to help citizens
like him afford basic necessities?
Answer: Tony's country can adapt a mixed economy, wherein the government provides and
regulates basic goods that the citizens can afford. At the same time, private companies
can still exist and provide other goods and services for the people.
Explanation: Market economies lack control over the regulation of prices because it is based on
the demand of the people. With a mixed economy, the government can help
people afford basic necessities, but does not necessarily have control over the
whole economic system.
Diff: 2
Page Ref: 33
Objective: What is economics, and what are the different types of economic systems?
212) Rachel has decided to sell cupcakes at a local fair. She has 20 chocolate cupcakes that she is
selling for $2 each and 10 vanilla cupcakes that she is selling for $1 each. When she gets to
the fair, she only sells 5 chocolate cupcakes, but she immediately sells out of the vanilla
cupcakes. How should Rachel compromise to keep up with the demand and avoid excess
supply?
Answer: Rachel must figure out the equilibrium price of her cupcakes, the price where
customers are willing to buy and Rachel can supply.
Explanation: Rachel had a lot of chocolate cupcakes, but customers were only willing to buy a
few of them because they were expensive. Because the supply curve and demand
curve go in opposite directions, Rachel has to find out where they meet so that
both the supply and demand will be equal.
Diff: 3
Page Ref: 38
Objective: What are the principles of supply and demand and the factors that affect each principle?
43
213) Roger is a supplier of photography equipment such as cameras, films, lights, and stands. His
film cameras and lenses used to sell very well; but as technology changed, digital cameras
became more popular and his sales slowed. Roger, and other similar suppliers, discontinued
their old stock and began selling digital cameras. What determinant of supply was involved
in this situation?
Answer: The number of suppliers is the determinant of supply involved in the situation.
Because film cameras started to become obsolete, the number of people supplying
them has lessened.
Explanation: Because of technological changes, certain goods have been substituted by more
advanced and innovative products. The popularity of a product affects its supply
in the market.
Diff: 2
Page Ref: 39
Objective: What are the principles of supply and demand and the factors that affect each principle?
214) Hannah wanted to buy a house, but her low-income job made it difficult for her to save
enough money for a down payment. She decided to quit her job and open up a bakery in her
neighborhood. It didn't take long before her bakery became a neighborhood favorite. Now
that Hannah has a successful business, she can finally afford a down payment on a house.
What determinant of demand was involved in this situation?
Answer: The determinant of demand involved in the situation was changes in income levels.
Before, Hannah only had the demand to buy a house, but after she opened her own
business, she was able to afford one.
Explanation: With changes in one's income levels, people have the ability to buy more goods
and services. This would, in effect, increase the demand of goods and services in
the market.
Diff: 2
Page Ref: 40
Objective: What are the principles of supply and demand and the factors that affect each principle?
215) Marie owns a limousine service and is looking to add several cars to her business. She only
knows of a few companies that produce the kind of limousine she needs. What kind of
competition exists in this situation?
Answer: Oligopoly exists in this situation because limousines are a highly specialized kind of
car, and only a few vendors sell the kind of limousine that Marie needs.
Explanation: Oligopoly is the kind of competition in which there are only a few sellers of a
certain product in the market. Because they are few, they each have a large share
in the market.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how
does competition affect supply?
216) Nick is planning a date with his girlfriend, and he is trying to decide where he should take
her for dinner. He knows his girlfriend loves pizza, so he decides to take her to a local
pizzeria. However, he hears about another pizzeria in town, Angelino's, and thinks it would
be a better choice. What kind of competition is shown in this situation?
Answer: This situation shows monopolistic competition because although both restaurants
serve similar products, Nick feels one is superior to the other.
Explanation: Monopolistic competition exists when sellers have similar products, but one is
perceived as being superior to the other.
Diff: 2
Page Ref: 43
Objective: What are the four degrees of competition, and how
does competition affect supply?
44
217) Lea owns a small boutique that sells handmade bags, necklaces, and other accessories. She
has workers who help make the products and suppliers who provide her with raw
materials. Because of increasing competition, Lea has to be careful when she raises or lowers
her prices. What would help Lea make future decisions regarding her business?
Answer: Lea can keep track of the producer price index, which would indicate whether the cost
of making her bags and accessories has risen or fallen. This way, she would know if
she can raise or lower the price of her products.
Explanation: The producer price index is used to track changes in prices in the raw materials
used to make products and services. Sellers need this to determine whether they
will be able to supply more or their products in the market.
Diff: 3
Page Ref: 47
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
218) John is a student at a university. To earn extra income, he works as a lifeguard at a local
beach. He is busy in spring and summer, but he is rarely called for work during fall and
winter. What measurement of unemployment is shown in John's situation?
Answer: John's situation shows seasonal unemployment, because his beach-related job has a
peak and an off-season.
Explanation: Seasonal unemployment measures those out of work during the off-season.
Diff: 2
Page Ref: 48
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
219) Wilson runs a construction firm and is happy because his business is booming. New
companies are being established and high-rise buildings are being built. Wilson is so busy,
he has had to hire more people to help cope with the demand. What stage of the business
cycle is Wilson experiencing?
Answer: He is at the boom or peak stage. Wilson is so busy that he cannot keep up with the
demand, so he must hire more workers.
Explanation: The boom or peak is the stage where the economy is at its most robust point, as
illustrated in the situation.
Diff: 2
Page Ref: 50
Objective: What are the four stages of the business cycle?
220) Nadia ran a successful bookstore in a small town. However, a storm flooded the town and
destroyed many of the homes and stores. As a result, money has become scarce, and very
few people in the town have the ability to buy basic necessities. What can the government do
to help the economy rise again?
Answer: The government can solve this problem through their fiscal policy, where they can
raise or decrease taxes, and through their monetary policy, where the supply of
money is controlled.
Explanation: Factors like weather can affect the economy and slow a country's progress. To
avoid this, governments keep control of the business cycle through their fiscal and
monetary policies.
Diff: 3
Page Ref: 51
Objective: What are the four stages of the business cycle?
45
221) Olive owns a restaurant and like many other businesses in town, she is about to close
because the economy is experiencing a depression. How can the government use its fiscal
policy to solve this problem?
Answer: Olive's government can help stimulate the economy through government spending.
The government can start projects building infrastructure and spending more money
on education and health care.
Explanation: Government spending is one tactic that can stimulate the economy. This tactic is
more effective than decreasing taxes because it injects money into the economy
faster than a tax cut and can create additional jobs for people.
Diff: 2
Page Ref: 51
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
222) Andy and Linda have been saving up for their children's education. Over the course of many
years, they have deposited a substantial amount of money into their bank. When they heard
a news story about another bank going bankrupt, they suddenly feared that their savings
might have the same fate. What should Andy and Linda look at in their bank to make sure
that their deposit will not be lost?
Answer: Andy and Linda can look for the reserve requirement of the bank. This would assure
them that the bank has enough money reserved so that their deposit can be returned
to them when they need it.
Explanation: The reserve requirement is imposed by the Federal Reserve to ease and tighten the
money supply when necessary. This acts as a precaution so banks have enough
cash available to customers if they decide to make withdrawals.
Diff: 3
Page Ref: 55
Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
223) Economics is the study of how businesses and people make decisions to satisfy each other's
needs and wants through limited resources. If you are a businessman or an entrepreneur,
how do you think the study of economics helps you run a business?
Answer: Economics can help a business because it provides the necessary knowledge about
factors that may or may not affect the sales of product or services. Economics also
teaches people how to maximize their limited resources and how to be able to attain
maximum profit. Furthermore, it explains why prices rise and fall, how the
government intervenes in certain situations, and how the relationship of supply and
demand works. Using all of these parts of the study of economics will help you
maintain an orderly and efficient business and can help you anticipate any changes
that might occur. Understanding the principles of economics is a basic necessity for
any business that hopes to succeed.
Diff: 3
Page Ref: 34
Objective: What is economics, and what are the different types of economic systems?
46
224) When you start up a business, the chance of having a competitor is high. Assuming that
your business is involved in monopolistic competition, what can you do to beat the
competition?
Answer: Monopolistic competition occurs when businesses have similar products for sale. One
way to beat the competition is to show that your business offers superior products or
services at reasonable prices. The only advantage you can have is to show that your
products are better than the competition's. You can also try to advertise more than
your competitors, and offer promotions to create interest in your products. By
showing your business's credibility and making your product seem better than your
competitors', consumers will trust your product and be more loyal to it, even if a new
competitor comes up.
Diff: 3
Page Ref: 43
Objective: What are the four degrees of competition, and how
does competition affect supply?
225) How do economic indicators help a struggling business get back in shape and increase
profits?
Answer: A business can avoid a bad situation by constantly keeping an eye on economic
indicators. The consumer price index and the producer price index help determine
whether prices need to be increased or decreased, and whether a business should buy
supplies now or later. Unemployment and productivity are also helpful in deciding
whether to lay off employees or train them for another position. Struggling businesses
must keep on top of the situation if they're to survive, and monitoring their operations
is a key part of their survival. By keeping an eye on these indicators, businesses can be
more confident in their future decisions.
Diff: 3
Page Ref: 49
Objective: How do economic indicators particularly the gross domestic product (GDP), price indexes,
the unemployment rate, and productivity reflect economic health?
226) Large investments such as cars, houses, and businesses can have a great impact on the
economy. If you are running a business, how can the business cycle and the government's
fiscal and monetary policies help you make business decisions?
Answer: Whenever you take out a loan to make a big purchase for your business, you should
be aware of the current state of the economy and the government because interest
rates for loans are greatly affected by them. By keeping up with the economic
situation, you'll know when the government is increasing taxes or when the Federal
Reserve is buying securities. Understanding these factors can help you decide the best
time to take out a loan or enter the market. You can use what you know about the
business cycle and the current government policies to plan your business accordingly
and to anticipate any changes that will affect your business. In this way, you'll ensure
that your company is prepared for any unexpected situations that might occur.
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Objective: How does the government use both fiscal policy and monetary policy to control swings in the
business cycle?
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