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Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 1) Which of the following concepts determines how goods are priced? a. give and take Incorrect: Understanding the need for an item (demand) and the availability of that item (supply) determines the pricing of the item. b. buyer and seller Incorrect: Understanding the need for an item (demand) and the availability of that item (supply) determines the pricing of the item. c. supply and demand Correct: Understanding the need for an item (demand) and the availability of that item (supply) determines the pricing of the item. d. product and producer Incorrect: Understanding the need for an item (demand) and the availability of that item (supply) determines the pricing of the item. Answer: c Diff: 1 Type: MC Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 2) What is the basic activity of economics? a. the exchange of products and services Correct: 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 its effect on the economy at large. b. the estimation of value of intangible goods Incorrect: 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 its effect on the economy at large. c. the accumulation of wealth Incorrect: 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 its effect on the economy at large. d. establishing a commercial empire Incorrect: 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 its effect on the economy at large. Answer: a Diff: 2 Type: MC Page Reference: 32 Objective: 2.1 Define economics and describe the different types of economic systems. 3) What is the goal of the study of economics? ScholarStock 1 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking a. to find ways to meet an infinite demand with an infinite supply Incorrect: 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. b. to find ways to meet a limited demand with an infinite supply Incorrect: 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. c. to best meet the demands of a society with a limited supply Correct: 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. d. to find ways to meet a limited demand with a limited supply Incorrect: 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. Answer: c Diff: 2 Type: MC Page Reference: 28 Objective: 2.1 Define economics and describe the different types of economic systems. 4) _________ are the two basic studies of economics. a. Communism and socialism Incorrect: The two basic studies of economics are microeconomics and macroeconomics. b. Microeconomics and macroeconomics Correct: The two basic studies of economics are microeconomics and macroeconomics. c. Market economies and mixed economies Incorrect: The two basic studies of economics are microeconomics and macroeconomics. d. Traditional economies and planned economies Incorrect: The two basic studies of economics are microeconomics and macroeconomics. Answer: b Diff: 1 Type: MC Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. 5) Yves took a class in macroeconomics, which meant that he was studying ___________. a. individual businesses Incorrect: 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. ScholarStock 2 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking b. limited resources Incorrect: 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. c. the overall economy Correct: 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. d. individual purchasing decisions Incorrect: 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. Answer: c Diff: 3 Type: MC Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. 6) Microeconomics is defined as the study of how _________. a. businesses, households, and consumers make decisions about how to spend their money Correct: Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their limited resources in the exchange of goods and services. b. governments control their countries’ economies by watching how much small businesses contribute to it Incorrect: Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their limited resources in the exchange of goods and services. c. unemployment, interest rates, and inflation affect price levels Incorrect: Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their limited resources in the exchange of goods and services. d. a country’s economy is chosen and developed based on how small businesses are able to sustain it Incorrect: Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their limited resources in the exchange of goods and services. Answer: a Diff: 1 Type: MC ScholarStock 3 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Page Reference: 29 Objective: 2.1 Define economics and describe 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 to 12 in higher economic classes Incorrect: Microeconomics focuses on the allocation of resources specific to the business product or service. b. prices of similar toys made by competitors Correct: Microeconomics focuses on the allocation of resources specific to the business product or service. c. recent changes in the unemployment rate of parents of children ages 5 to 12 Incorrect: Microeconomics focuses on the allocation of resources specific to the business product or service. d. a drop in the inflation rate at the beginning of December Incorrect: Microeconomics focuses on the allocation of resources specific to the business product or service. Answer: b Diff: 2 Type: MC Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. 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. Incorrect: 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. b. The price of fuel went up five cents per litre in the past week. Correct: 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. c. This month’s harvest figures for tomatoes in farms outside the city are lower than last month’s figures. Incorrect: 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. d. As part of national health month, the city sponsored a tomato festival. Incorrect: 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. Answer: b Diff: 3 Type: MC Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. ScholarStock 4 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 9) In a market economy, which of the following is the focus of production? a. fair and equal distribution Incorrect: 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. b. efficiency and profitability Correct: 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. c. quality over quantity Incorrect: 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. d. supplying an infinite demand Incorrect: 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. Answer: b Diff: 2 Type: MC Page Reference: 28 Objective: 2.1 Define economics and describe the different types of economic systems. 10) Planned economies are also called ____________. a. controlled economies Correct: Economic models include traditional, planned or controlled, market and mixed economies. b. organized economies Incorrect: Economic models include traditional, planned or controlled, market and mixed economies. c. designed economies Incorrect: Economic models include traditional, planned or controlled, market and mixed economies. d. governed economies Incorrect: Economic models include traditional, planned or controlled, market and mixed economies. Answer: a Diff: 1 Type: MC Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 11) In a planned economy, production is determined to a greater extent by __________. ScholarStock 5 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking a. consumer needs and wants Incorrect: In a planned economic system, the government plays a greater role in determining the goods and services provided and how they are produced and distributed. b. government or a centralized group Correct: In a planned economic system, the government plays a greater role in determining the goods and services provided and how they are produced and distributed. c. individuals and private firms Incorrect: In a planned economic system, the government plays a greater role in determining the goods and services provided and how they are produced and distributed. d. both individuals and the government Incorrect: In a planned economic system, the government plays a greater role in determining the goods and services provided and how they are produced and distributed. Answer: b Diff: 1 Type: MC Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 12) 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 Incorrect: 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. b. mixed economy Incorrect: 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. c. market economy Correct: 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. d. traditional economy Incorrect: 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. Answer: c Diff: 3 Type: MC Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 13) Which of the following would a macroeconomist study? a. how a change in prices helps generate sales Incorrect: Macroeconomists would look at the bigger picture rather than the decisions of individual businesses, households, and consumers. ScholarStock 6 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking b. how a change in the market affects the overall economy Correct: Macroeconomists would look at the bigger picture rather than the decisions of individual businesses, households, and consumers. c. how consumers use their limited resources in exchange of goods Incorrect: Macroeconomists would look at the bigger picture rather than the decisions of individual businesses, households, and consumers. d. how the number of products already in the market would affect business Incorrect: Macroeconomists would look at the bigger picture rather than the decisions of individual businesses, households, and consumers. Answer: b Diff: 2 Type: MC Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. 14) In which type of economic system does the government control resources, pay wages, and provide all services? a. socialist Incorrect: In a communist economic system, the government takes control of everything so that it can equally and adequately redistribute the wealth among its citizens. b. capitalist Incorrect: In a communist economic system, the government takes control of everything so that it can equally and adequately redistribute the wealth among its citizens. c. communist Correct: In a communist economic system, the government takes control of everything so that it can equally and adequately redistribute the wealth among its citizens. d. democratic Incorrect: In a communist economic system, the government takes control of everything so that it can equally and adequately redistribute the wealth among its citizens. Answer: c Diff: 2 Type: MC Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 15) Which type of economy grants individuals the freedom to make their own economic decisions? a. traditional economy Incorrect: In a market economy, it is the individual who makes economic decisions, usually based upon the individual’s income. b. planned economy Incorrect: In a market economy, it is the individual who makes economic decisions, usually based upon the individual’s income. c. market economy ScholarStock 7 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: In a market economy, it is the individual who makes economic decisions, usually based upon the individual’s income. d. mixed economy Incorrect: In a market economy, it is the individual who makes economic decisions, usually based upon the individual’s income. Answer: c Diff: 2 Type: MC Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 16) Which country has a communist-based economy? a. United States Incorrect: Existing communist countries include North Korea and Cuba, while China, most former Soviet republic states, and Eastern European countries are changing to a market economy. b. Denmark Incorrect: Existing communist countries include North Korea and Cuba, while China, most former Soviet republic states, and Eastern European countries are changing to a market economy. c. France Incorrect: Existing communist countries include North Korea and Cuba, while China, most former Soviet republic states, and Eastern European countries are changing to a market economy. d. North Korea Correct: Existing communist countries include North Korea and Cuba, while China, most former Soviet republic states, and Eastern European countries are changing to a market economy. Answer: d Diff: 1 Type: MC Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 17) The conversion of government-owned production and services to privately owned, profit-seeking enterprises is called ___________. a. transference Incorrect: Privatization is the conversion of government-owned production and services to privately owned, profit-seeking enterprises. b. accreditation Incorrect: Privatization is the conversion of government-owned production and services to privately owned, profit-seeking enterprises. c. privatization ScholarStock 8 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: Privatization is the conversion of government-owned production and services to privately owned, profit-seeking enterprises. d. market reversal Incorrect: Privatization is the conversion of government-owned production and services to privately owned, profit-seeking enterprises. Answer: c Diff: 1 Type: MC Page Reference: 31 Objective: 2.1 Define economics and describe the different types of economic systems. 18) What is a defining feature of a free market economy? a. distribution of social services by the government Incorrect: Freedom of choice for both the buyer and seller defines a free market economy. b. freedom of choice for both buyers and sellers Correct: Freedom of choice for both the buyer and seller defines a free market economy. c. government-controlled businesses and services Incorrect: Freedom of choice for both the buyer and seller defines a free market economy. d. state-owned resources to produce all market goods Incorrect: Freedom of choice for both the buyer and seller defines a free market economy. Answer: b Diff: 1 Type: MC Page Reference: 31 Objective: 2.1 Define economics and describe the different types of economic systems. 19) Which economic system has become a major influence in the Western world? a. socialism Incorrect: Capitalism has become a major influence in the Western world’s economic system. b. capitalism Correct: Capitalism has become a major influence in the Western world’s economic system. c. communism Incorrect: Capitalism has become a major influence in the Western world’s economic system. d. privatization Incorrect: Capitalism has become a major influence in the Western world’s economic system. Answer: b ScholarStock 9 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Diff: 1 Type: MC Page Reference: 31 Objective: 2.1 Define economics and describe the different types of economic systems. 20) ________ make up the majority of economic systems today. a. Market economies Incorrect: Today, most economic systems are mixed economies, meaning a blend of market and planned economies. b. Mixed economies Correct: Today, most economic systems are mixed economies, meaning a blend of market and planned economies. c. Planned economies Incorrect: Today, most economic systems are mixed economies, meaning a blend of market and planned economies. d. Traditional economies Incorrect: Today, most economic systems are mixed economies, meaning a blend of market and planned economies. Answer: b Diff: 1 Type: MC Page Reference: 31 Objective: 2.1 Define economics and describe the different types of economic systems. 21) What is the unit of exchange for the transfer of goods and services? a. supply Incorrect: Currency is a unit of exchange for the transfer of goods and services, provides a consistent and equitable standard, the value of which is based on an underlying commodity, such as gold. b. demand Incorrect: Currency is a unit of exchange for the transfer of goods and services, provides a consistent and equitable standard, the value of which is based on an underlying commodity, such as gold. c. currency Correct: Currency is a unit of exchange for the transfer of goods and services, provides a consistent and equitable standard, the value of which is based on an underlying commodity, such as gold. d. bartering Incorrect: Currency is a unit of exchange for the transfer of goods and services, provides a consistent and equitable standard, the value of which is based on an underlying commodity, such as gold. Answer: c Diff: 1 Type: MC ScholarStock 10 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 22) The ________ of an item is based on how much it is worth against a standard like currency. a. value Correct: In a system using currency, items such as milk, eggs, and chickens are assigned a price, or a value, based on how much the item is worth against the standard. b. service Incorrect: In a system using currency, items such as milk, eggs, and chickens are assigned a price, or a value, based on how much the item is worth against the standard. c. product Incorrect: In a system using currency, items such as milk, eggs, and chickens are assigned a price, or a value, based on how much the item is worth against the standard. d. commodity Incorrect: In a system using currency, items such as milk, eggs, and chickens are assigned a price, or a value, based on how much the item is worth against the standard. Answer: a Diff: 1 Type: MC Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 23) What determines the value of each good or service in a bartering exchange? a. needs Correct: Based on how much someone needs a particular good or service, value changes. The greater the need, the greater the value. b. power Incorrect: Based on how much someone needs a particular good or service, value changes. The greater the need, the greater the value. c. wealth Incorrect: Based on how much someone needs a particular good or service, value changes. The greater the need, the greater the value. d. desires Incorrect: Based on how much someone needs a particular good or service, value changes. The greater the need, the greater the value. Answer: a Diff: 2 Type: MC Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. ScholarStock 11 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 24) What do economists call an instance where factors are ignored to examine the fundamentals of a process? a. all else held constant Correct: 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. b. plausible deniability Incorrect: 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. c. slightly correct assumption Incorrect: 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. d. weaving through the basic Incorrect: 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. Answer: a Diff: 2 Type: MC Page Reference: 34 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 25) 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 the ____________. a. ideal price Incorrect: The price at which supply equals demand is the equilibrium price, or market price. b. fixed price Incorrect: The price at which supply equals demand is the equilibrium price, or market price. c. market price Correct: The price at which supply equals demand is the equilibrium price, or market price. d. absolute price Incorrect: The price at which supply equals demand is the equilibrium price, or market price. ScholarStock 12 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Answer: c Diff: 1 Type: MC Page Reference: 35 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 26) A man trades milk from his cow for eggs from his neighbour’s chicken. What is this transaction called? a. bartering Correct: 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 neighbour gets milk. b. auctioning Incorrect: 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 neighbour gets milk. c. substituting Incorrect: 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 neighbour gets milk. d. buying and selling Incorrect: 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 neighbour gets milk. Answer: a Diff: 3 Type: MC Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 27) 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 Incorrect: In an auction process, bidders state the price they are willing to pay for a particular item. b. auctioning Correct: In an auction process, bidders state the price they are willing to pay for a particular item. c. haggling Incorrect: In an auction process, bidders state the price they are willing to pay for a particular item. d. buying ScholarStock 13 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: In an auction process, bidders state the price they are willing to pay for a particular item. Answer: b Diff: 1 Type: MC Page Reference: 33 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 28) Explain why prices become higher when a unique and highly desirable item is auctioned. a. because the supply and demand are equal Incorrect: 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. b. because the demand is higher than the supply Correct: 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. c. because the supply is higher than the demand Incorrect: 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. d. because the demand and supply are kept unknown Incorrect: 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. Answer: b Diff: 2 Type: MC Page Reference: 33 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 29) The amount of a product or service that is available for purchase at any given time is called a. price Incorrect: Supply refers to how much of a product or service is available for purchase at any given time. b. supply Correct: Supply refers to how much of a product or service is available for purchase at any given time. c. demand ScholarStock 14 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: Supply refers to how much of a product or service is available for purchase at any given time. d. commodity Incorrect: Supply refers to how much of a product or service is available for purchase at any given time. Answer: b Diff: 1 Type: MC Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 30) What is the law of supply? a. The amount supplied remains the same as the price decreases. Incorrect: The law of supply states that the amount supplied will increase as the price increases; if the price is lower, less of the product is supplied. b. The amount supplied increases as the price increases. Correct: The law of supply states that the amount supplied will increase as the price increases; if the price is lower, less of the product is supplied. c. The amount supplied decreases as the price increases. Incorrect: The law of supply states that the amount supplied will increase as the price increases; if the price is lower, less of the product is supplied. d. The amount supplied increases as the price decreases. Incorrect: The law of supply states that the amount supplied will increase as the price increases; if the price is lower, less of the product is supplied. Answer: b Diff: 1 Type: MC Page Reference: 33 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 31) The closest real-world example of determining a market price that is based on pure supply and demand is the auction process, like that found on ___________. a. eBay Correct: eBay uses an auction process for the exchange of products at its website. b. Amazon Incorrect: eBay uses an auction process for the exchange of products at its website. c. McDonald’s Incorrect: eBay uses an auction process for the exchange of products at its website. d. Starbucks Incorrect: eBay uses an auction process for the exchange of products at its website. Answer: a ScholarStock 15 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Diff: 1 Type: MC Page Reference: 33 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 32) A ________ is a graph used by economists to illustrate the relationship between demand and price. a. price curve Incorrect: Economists illustrate the relationship between demand and price with a graph that they call a demand curve. b. demand curve Correct: Economists illustrate the relationship between demand and price with a graph that they call a demand curve. c. price bell chart Incorrect: Economists illustrate the relationship between demand and price with a graph that they call a demand curve. d. demand bell chart Incorrect: Economists illustrate the relationship between demand and price with a graph that they call a demand curve. Answer: b Diff: 1 Type: MC Page Reference: 34 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 33) When the demand is greater than the supply, what is most likely to occur? a. a shortage Correct: A shortage occurs when sellers do not produce enough of a product to satisfy demand. b. bankruptcy Incorrect: A shortage occurs when sellers do not produce enough of a product to satisfy demand. c. panic buying Incorrect: A shortage occurs when sellers do not produce enough of a product to satisfy demand. d. a demand scare Incorrect: A shortage occurs when sellers do not produce enough of a product to satisfy demand. Answer: a Diff: 1 Type: MC Page Reference: 35 ScholarStock 16 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 34) Factors that can create a change in supply are known as ________ of supply. a. sums Incorrect: Factors known as the determinants of supply create a change in supply. b. fractions Incorrect: Factors known as the determinants of supply create a change in supply. c. alterations Incorrect: Factors known as the determinants of supply create a change in supply. d. determinants Correct: Factors known as the determinants of supply create a change in supply. Answer: d Diff: 1 Type: MC Page Reference: 35 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 35) What is illustrated in a supply-and-demand curve? a. trade balance Incorrect: The equilibrium price is illustrated in a supply-and-demand curve, when demand and supply curves intersect. b. absolute equality Incorrect: The equilibrium price is illustrated in a supply-and-demand curve, when demand and supply curves intersect. c. perfect intersection Incorrect: The equilibrium price is illustrated in a supply-and-demand curve, when demand and supply curves intersect. d. equilibrium price Correct: The equilibrium price is illustrated in a supply-and-demand curve, when demand and supply curves intersect. Answer: d Diff: 1 Type: MC Page Reference: 35 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 36) What is a producer’s best guess at the future price of a good called? a. fiscal hint Incorrect: 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. b. cost hypothesis ScholarStock 17 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: 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. c. value anticipation Incorrect: 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. d. price expectation Correct: 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. Answer: d Diff: 2 Type: MC Page Reference: 35 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 37) There once was only one grocery store in Robin’s town, but now there are several places she can go to buy food. What logically follows when the number of competitors increases? a. The supply of a product or service increases. Correct: 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. b. The demand of a product or service increases. Incorrect: 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. c. Ownership of a product or service becomes the paramount concern. Incorrect: 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. d. The leading competitor maintains the monopoly of a product or service. Incorrect: 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. Answer: a Diff: 3 Type: MC Page Reference: 36 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 38) 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? ScholarStock 18 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking a. recession Correct: A recession is taking place. Recessions are two or more quarters when there is a decline in the GDP. b. resolution Incorrect: A recession is taking place. Recessions are two or more quarters when there is a decline in the GDP. c. secession Incorrect: A recession is taking place. Recessions are two or more quarters when there is a decline in the GDP. d. succession Incorrect: A recession is taking place. Recessions are two or more quarters when there is a decline in the GDP. Answer: a Diff: 2 Type: MC Page Reference: 36 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 39) Demand for a product based on what is currently popular is called __________. a. popular trend Incorrect: Demand for a product can change based on what is “cool” or “popular” at any given moment. b. illogical demand Incorrect: Demand for a product can change based on what is “cool” or “popular” at any given moment. c. bandwagon effect Incorrect: Demand for a product can change based on what is “cool” or “popular” at any given moment. d. consumer preference Correct: Demand for a product can change based on what is “cool” or “popular” at any given moment. Answer: d Diff: 1 Type: MC Page Reference: 37 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 40) Which market structure occurs when there is only one provider of a product, and no substitutes for the product exist? a. communism Incorrect: A monopoly occurs when there is only one provider of a product and no substitutes for the product exist. ScholarStock 19 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking b. monopoly Correct: A monopoly occurs when there is only one provider of a product and no substitutes for the product exist. c. oligopoly Incorrect: A monopoly occurs when there is only one provider of a product and no substitutes for the product exist. d. socialism Incorrect: A monopoly occurs when there is only one provider of a product and no substitutes for the product exist. Answer: b Diff: 1 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 41) Which of the following are often permitted to operate as regulated monopolies? a. appliance companies Incorrect: 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. b. insurance companies Incorrect: 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. c. textile companies Incorrect: 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. d. utility companies Correct: 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. Answer: d Diff: 2 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. ScholarStock 20 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 42) How does the government monitor natural monopolies? a. It imposes higher taxes. Incorrect: The government regulates the prices for these goods and services. b. It imposes lower taxes. Incorrect: The government regulates the prices for these goods and services. c. It regulates their prices. Correct: The government regulates the prices for these goods and services. d. It asks for annual reports. Incorrect: The government regulates the prices for these goods and services. Answer: c Diff: 1 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 43) In a monopoly, where only one seller supplies a product or service, ___________. a. demand may be lower Incorrect: A monopoly occurs when there is only one provider of a service or product and no substitutes for the product exist. b. demand may vary Incorrect: A monopoly occurs when there is only one provider of a service or product and no substitutes for the product exist. c. supply may be abundant Incorrect: A monopoly occurs when there is only one provider of a service or product and no substitutes for the product exist. d. supply may be limited Correct: A monopoly occurs when there is only one provider of a service or product and no substitutes for the product exist. Answer: d Diff: 1 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 44) 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. Correct: Pure H2O is an example of a utility company. This type of company is permitted by the government to operate as a monopoly. b. Pure H2O is permitted to operate as a natural monopoly because it pays its taxes annually. ScholarStock 21 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: Pure H2O is an example of a utility company. This type of company is permitted by the government to operate as a monopoly. c. Pure H2O is permitted to operate as a natural monopoly because of its campaign to promote water conservation. Incorrect: Pure H2O is an example of a utility company. This type of company is permitted by the government to operate as a monopoly. d. Pure H2O is permitted to operate as a natural monopoly in an effort to provide consumers with the best service. Incorrect: Pure H2O is an example of a utility company. This type of company is permitted by the government to operate as a monopoly. Answer: a Diff: 3 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 45) The Nook is the only bookstore in George’s neighbourhood. Which market structure is this an example of? a. communism Incorrect: The Nook would be considered a monopoly since it is the only provider of books, and no substitute for the product exists in the area. b. monopoly Correct: The Nook would be considered a monopoly since it is the only provider of books, and no substitute for the product exists in the area. c. oligopoly Incorrect: The Nook would be considered a monopoly since it is the only provider of books, and no substitute for the product exists in the area. d. socialism Incorrect: The Nook would be considered a monopoly since it is the only provider of books, and no substitute for the product exists in the area. Answer: b Diff: 3 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 46) Which of the following determines the level of competition in a given market? a. the number of substitutes for a certain product or service Correct: The number of substitutes for a certain product or service determines the degree (level) of competition. b. the amount of value attached to the cost of labour ScholarStock 22 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: The number of substitutes for a certain product or service determines the degree (level) of competition. c. the degree of government intervention in the market Incorrect: The number of substitutes for a certain product or service determines the degree (level) of competition. d. the level of consumption for a given product Incorrect: The number of substitutes for a certain product or service determines the degree (level) of competition. Answer: a Diff: 1 Type: MC Page Reference: 40 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 47) A new aircraft manufacturer opened in Claire’s neighbourhood. Now Claire’s business has the choice of whether to buy parts from the existing local supplier or from the new manufacturer in town. What type of market structure is her neighbourhood experiencing? a. monopoly Incorrect: Since a few sellers already exist, the current local supplier doesn’t have the monopoly of the market anymore. In an oligopoly, each seller has a fairly large share of the market. b. monopolistic competition Incorrect: Since a few sellers already exist, the current local supplier doesn’t have the monopoly of the market anymore. In an oligopoly, each seller has a fairly large share of the market. c. oligopoly Correct: Since a few sellers already exist, the current local supplier doesn’t have the monopoly of the market anymore. In an oligopoly, each seller has a fairly large share of the market. d. perfect competition Incorrect: Since a few sellers already exist, the current local supplier doesn’t have the monopoly of the market anymore. In an oligopoly, each seller has a fairly large share of the market. Answer: c Diff: 3 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 48) Which market structure occurs when there are only a few sellers? a. communism ScholarStock 23 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: An oligopoly may be formed when another company enters a monopoly. An oligopoly is a form of competition in which only a few sellers exist. b. monopoly Incorrect: An oligopoly may be formed when another company enters a monopoly. An oligopoly is a form of competition in which only a few sellers exist. c. oligopoly Correct: An oligopoly may be formed when another company enters a monopoly. An oligopoly is a form of competition in which only a few sellers exist. d. socialism Incorrect: An oligopoly may be formed when another company enters a monopoly. An oligopoly is a form of competition in which only a few sellers exist. Answer: c Diff: 1 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 49) Which of the following reasons BEST describes why competition is strong in an oligopoly? a. There is little difference between products. Correct: 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. b. The market emphasizes consumption. Incorrect: 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. c. The demand for products is very high. Incorrect: 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. d. The supply of products is very low. Incorrect: 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. Answer: a Diff: 2 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 50) When competition is strong in an oligopoly, which of the following would MOST likely happen? a. Prices would differ slightly. ScholarStock 24 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: 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 centred on product differentiation more than on price. b. Consumers would buy a lot. Incorrect: 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 centred on product differentiation more than on price. c. Prices would go up fast. Incorrect: 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 centred on product differentiation more than on price. d. Consumers would complain. Incorrect: 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 centred on product differentiation more than on price. Answer: a Diff: 3 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 51) Which of the following statements describes product differentiation? a. making one product stand out from another Correct: Product differentiation is best described as making one product stand out from another. b. increasing prices for products that are in demand Incorrect: Product differentiation is best described as making one product stand out from another. c. lowering prices for products that are not in demand Incorrect: Product differentiation is best described as making one product stand out from another. d. supplying different products in the market Incorrect: Product differentiation is best described as making one product stand out from another. Answer: a Diff: 1 Type: MC Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 52) What makes monopolistic competition different from an oligopoly? a. the added choice of a product that consumers perceive to be superior ScholarStock 25 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: In both monopolistic competition and oligopoly, there is little differentiation between products. Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who favour one product offering over another. b. little differentiation between products Incorrect: In both monopolistic competition and oligopoly, there is little differentiation between products. Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who favour one product offering over another. c. demonstration of an imperfect competition Incorrect: In both monopolistic competition and oligopoly, there is little differentiation between products. Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who favour one product offering over another. d. the nature of government sanctions Incorrect: In both monopolistic competition and oligopoly, there is little differentiation between products. Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who favour one product offering over another. Answer: a Diff: 3 Type: MC Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 53) 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 Incorrect: 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. b. market competition Incorrect: 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. c. oligopoly Correct: 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. d. perfect competition Incorrect: 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. Answer: c ScholarStock 26 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Diff: 3 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 54) What happens when there are many sellers who offer similar products but buyers perceive one product as favourable to the others? a. a monopoly Incorrect: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who favour one product offering over another. b. monopolistic competition Correct: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. c. an oligopoly Incorrect: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. d. perfect competition Incorrect: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. Answer: b Diff: 1 Type: MC Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 55) Chapters Indigo establishes a branch in George’s neighbourhood. Suppose that the perception among the residents in George’s neighbourhood is that Chapters Indigo offers the best selection of books compared with the other bookstores in town. What type of market is this? a. monopoly Incorrect: The added choice of a perceived superior product creates monopolistic competition. Even though Chapters Indigo is not the only bookstore in town, it still holds an edge over the competitors, making the market seem like more of a monopoly. b. monopolistic competition Correct: The added choice of a perceived superior product creates monopolistic competition. Even though Chapters Indigo is not the only bookstore in town, it still holds an edge over the competitors, making the market seem like more of a monopoly. c. oligopoly ScholarStock 27 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: The added choice of a perceived superior product creates monopolistic competition. Even though Chapters Indigo is not the only bookstore in town, it still holds an edge over the competitors, making the market seem like more of a monopoly. d. perfect competition Incorrect: The added choice of a perceived superior product creates monopolistic competition. Even though Chapters Indigo is not the only bookstore in town, it still holds an edge over the competitors, making the market seem like more of a monopoly. Answer: b Diff: 3 Type: MC Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 56) In most cases, how does one product differ from another in a monopolistic competition? a. availability in the market Incorrect: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. b. price Correct: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. c. quality Incorrect: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. d. demand from world market Incorrect: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. Answer: b Diff: 1 Type: MC Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 57) What happens when there are many sellers of products that are virtually identical, and any seller can easily enter and exit the market? a. monopoly Incorrect: Perfect competition occurs when there are many sellers with little difference between their products, and any seller can easily enter and exit the market. ScholarStock 28 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking b. monopolistic competition Incorrect: Perfect competition occurs when there are many sellers with little difference between their products, and any seller can easily enter and exit the market. c. oligopoly Incorrect: Perfect competition occurs when there are many sellers with little difference between their products, and any seller can easily enter and exit the market. d. perfect competition Correct: Perfect competition occurs when there are many sellers with little difference between their products, and any seller can easily enter and exit the market. Answer: d Diff: 1 Type: MC Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 58) 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. Incorrect: In a monopoly, only one company would be providing the product and therefore supply would be limited. With an oligopoly, there is an increase in suppliers, and therefore supply would increase as well. b. Supply would increase. Correct: In a monopoly, only one company would be providing the product and therefore supply would be limited. With an oligopoly, there is an increase in suppliers, and therefore supply would increase as well. c. Supply would stay the same. Incorrect: In a monopoly, only one company would be providing the product and therefore supply would be limited. With an oligopoly, there is an increase in suppliers, and therefore supply would increase as well. d. Supply would go up and down. Incorrect: In a monopoly, only one company would be providing the product and therefore supply would be limited. With an oligopoly, there is an increase in suppliers, and therefore supply would increase as well. Answer: b Diff: 3 Type: MC Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 59) 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? ScholarStock 29 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking a. monopoly Incorrect: 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. b. monopolistic competition Incorrect: 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. c. oligopoly Incorrect: 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. d. perfect competition Correct: 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. Answer: d Diff: 3 Type: MC Page Reference: 41-42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 60) The overall market value of final goods and services produced in a country in a year is called the ___________. a. gross domestic product Correct: The gross domestic product (GDP) measures economic Activity—the overall market value of final goods and services produced in a country in a year—while the gross national product (GNP) attributes earnings to the country where a firm was owned, not where a product was manufactured. b. gross internal product Incorrect: The gross domestic product (GDP) measures economic Activity—the overall market value of final goods and services produced in a country in a year—while the gross national product (GNP) attributes earnings to the country where a firm was owned, not where a product was manufactured.c. gross capital product Incorrect: The gross domestic product (GDP) measures economic Activity—the overall market value of final goods and services produced in a country in a year—while the gross national product (GNP) attributes earnings to the country where a firm was owned, not where a product was manufactured.d. gross national product Incorrect: The gross domestic product (GDP) measures economic Activity—the overall market value of final goods and services produced in a country in a year—while the ScholarStock 30 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking gross national product (GNP) attributes earnings to the country where a firm was owned, not where a product was manufactured. Answer: a Diff: 1 Type: MC Page Reference: 44 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 61) Only those goods that are ________ are counted in the country’s gross domestic product. a. electronic in nature Incorrect: The gross domestic product (GDP) measures economic activity—the overall market value of final goods and services produced in a country in a year. b. made from raw materials Incorrect: The gross domestic product (GDP) measures economic activity—the overall market value of final goods and services produced in a country in a year. c. imported from another country Incorrect: The gross domestic product (GDP) measures economic activity—the overall market value of final goods and services produced in a country in a year. d. actually produced in the country Correct: The gross domestic product (GDP) measures economic activity—the overall market value of final goods and services produced in a country in a year. Answer: d Diff: 1 Type: MC Page Reference: 44 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 62) Which of the following is the most widely used indicator of economic growth by most countries? a. consumer price index Incorrect: The broadest measure of the health of any country’s economy is the gross domestic product (GDP). b. gross national product Incorrect: The broadest measure of the health of any country’s economy is the gross domestic product (GDP). c. gross domestic product Correct: The broadest measure of the health of any country’s economy is the gross domestic product (GDP). d. producer price index Incorrect: The broadest measure of the health of any country’s economy is the gross domestic product (GDP). ScholarStock 31 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Answer: c Diff: 1 Type: MC Page Reference: 44 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 63) A continuous decrease in prices over time is called ___________. a. inflation Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. b. deflation Correct: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. c. disinflation Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. d. inflammation Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. Answer: b Diff: 1 Type: MC Page Reference: 45 Objective: Identify how economic indicators such as the gross domestic product (GDP), price indexes, the 2.4 unemployment rate, and productivity reflect economic health. 64) A decrease in the rate of inflation is ____________. a. deflation Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. b. disinflation Correct: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. c. de-inflation Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. d. deflection Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. Answer: b Diff: 1 Type: MC Page Reference: 45 ScholarStock 32 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Objective: Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 65) 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 Correct: The consumer price index (CPI) is a benchmark used to track changes in prices over time. The CPI measures price changes by creating a “market basket” of a specified set of goods and services (including taxes) that represent the average buying pattern of urban households. b. producer price index Incorrect: The consumer price index (CPI) is a benchmark used to track changes in prices over time. The CPI measures price changes by creating a “market basket” of a specified set of goods and services (including taxes) that represent the average buying pattern of urban households. c. gross domestic product Incorrect: The consumer price index (CPI) is a benchmark used to track changes in prices over time. The CPI measures price changes by creating a “market basket” of a specified set of goods and services (including taxes) that represent the average buying pattern of urban households. d. gross national product Incorrect: The consumer price index (CPI) is a benchmark used to track changes in prices over time. The CPI measures price changes by creating a “market basket” of a specified set of goods and services (including taxes) that represent the average buying pattern of urban households. Answer: a Diff: 1 Type: MC Page Reference: 46 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 66) The value of the market basket is determined by _____________. a. the amount of profit made from selling goods plus taxes Incorrect: The value of the market basket is determined by the combined prices of these goods and services, which is then compared with its value in a previous period (generally a month), and the change is noted. b. the profit made in selling goods and services minus the amount used to produce them Incorrect: The value of the market basket is determined by the combined prices of these goods and services, which is then compared with its value in a previous period (generally a month), and the change is noted. c. the price of goods and services compared with the amount used to produce them Incorrect: The value of the market basket is determined by the combined prices of these goods and services, which is then compared with its value in a previous period (generally a month), and the change is noted. ScholarStock 33 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking d. the combined prices of goods and services compared with its value in a previous period Correct: The value of the market basket is determined by the combined prices of these goods and services, which is then compared with its value in a previous period (generally a month), and the change is noted. Answer: d Diff: 1 Type: MC Page Reference: 46 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 67) The producer price index excludes the price of __________. a. raw materials Incorrect: The producer price index (PPI) tracks the average change in prices at the wholesale level while it excludes energy prices and prices for services. b. energy and services Correct: The producer price index (PPI) tracks the average change in prices at the wholesale level while it excludes energy prices and prices for services. c. finished goods sold to retailers Incorrect: The producer price index (PPI) tracks the average change in prices at the wholesale level while it excludes energy prices and prices for services. d. product components that still need to be processed Incorrect: The producer price index (PPI) tracks the average change in prices at the wholesale level while it excludes energy prices and prices for services. Answer: b Diff: 1 Type: MC Page Reference: 46 Objective: 2.3 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 68) The unemployment rate measures the number of workers who are at least 15 years old and who ______________. a. are currently unemployed and looking for a job Correct: The unemployment rate measures the number of people who are at least 15 years old, are seeking work, and are currently unemployed. b. do not want to work and are currently unemployed Incorrect: The unemployment rate measures the number of people who are at least 15 years old, are seeking work, and are currently unemployed. c. are currently working but expect to lose their jobs within the next four weeks Incorrect: The unemployment rate measures the number of people who are at least 15 years old, are seeking work, and are currently unemployed. d. are employed but would like to change jobs within the next four weeks ScholarStock 34 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: The unemployment rate measures the number of people who are at least 15 years old, are seeking work, and are currently unemployed. Answer: a Diff: 1 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 69) ___________ measures temporary unemployment in which workers move between jobs, careers, and locations. a. Structural unemployment Incorrect: Frictional unemployment measures temporary unemployment in which workers move between jobs, careers, and locations. b. Frictional unemployment Correct: Frictional unemployment measures temporary unemployment in which workers move between jobs, careers, and locations. c. Cyclical unemployment Incorrect: Frictional unemployment measures temporary unemployment in which workers move between jobs, careers, and locations. d. Seasonal unemployment Incorrect: Frictional unemployment measures temporary unemployment in which workers move between jobs, careers, and locations. Answer: b Diff: 1 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 70) Robert was laid off when his company switched most of their work to computerbased industry, and moved their remaining jobs overseas. What kind of unemployment is Robert facing? a. frictional unemployment Incorrect: 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. b. cyclical unemployment Incorrect: 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. c. structural unemployment ScholarStock 35 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: 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. d. Seasonal unemployment Incorrect: 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. Answer: c Diff: 3 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 71) People who become unemployed due to structural unemployment should ____________. a. receive additional training to find new jobs Correct: In structural unemployment, many workers who lost jobs due to declines in those industries can learn new skills or receive additional training in an effort to keep their jobs or find new ones. b. sue their former employers for discrimination Incorrect: In structural unemployment, many workers who lost jobs due to declines in those industries can learn new skills or receive additional training in an effort to keep their jobs or find new ones. c. file for bankruptcy Incorrect: In structural unemployment, many workers who lost jobs due to declines in those industries can learn new skills or receive additional training in an effort to keep their jobs or find new ones. d. protest to the government Incorrect: In structural unemployment, many workers who lost jobs due to declines in those industries can learn new skills or receive additional training in an effort to keep their jobs or find new ones. Answer: a Diff: 1 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 72) Cyclical unemployment is caused by ______________. a. trends in products and services Incorrect: Cyclical unemployment is the result of businesses not having enough demand for labour to employ those who want to work. Companies cut back their workforce when ScholarStock 36 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking there is a downturn in the business cycle. Once the demand for goods and services increases, companies begin to hire again. b. the standing of the country’s government Incorrect: Cyclical unemployment is the result of businesses not having enough demand for labour to employ those who want to work. Companies cut back their workforce when there is a downturn in the business cycle. Once the demand for goods and services increases, companies begin to hire again. c. lack of demand for those who want to work Correct: Cyclical unemployment is the result of businesses not having enough demand for labour to employ those who want to work. Companies cut back their workforce when there is a downturn in the business cycle. Once the demand for goods and services increases, companies begin to hire again. d. changes in the business structure and management Incorrect: Cyclical unemployment is the result of businesses not having enough demand for labour to employ those who want to work. Companies cut back their workforce when there is a downturn in the business cycle. Once the demand for goods and services increases, companies begin to hire again. Answer: c Diff: 1 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 73) The rate of cyclical unemployment ________ the economy. a. is inversely proportional to Correct: The rate of cyclical unemployment becomes smaller as the economy grows stronger. b. is directly proportional to Incorrect: The rate of cyclical unemployment becomes smaller as the economy grows stronger. c. is not related to Incorrect: The rate of cyclical unemployment becomes smaller as the economy grows stronger. d. is slightly influenced by Incorrect: The rate of cyclical unemployment becomes smaller as the economy grows stronger. Answer: a Diff: 2 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. ScholarStock 37 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 74) Which of the jobs below is affected by seasonal unemployment? a. a night guard at the mall Incorrect: An outdoor pool lifeguard faces seasonal unemployment because people go swimming outside only during the summer. So, when swimming season is in session, he or she would have a job, but when the pool closes for the season, the lifeguard would be out of work. b. An outdoor pool lifeguard Correct: An outdoor pool lifeguard faces seasonal unemployment because people go swimming outside only during the summer. So, when swimming season is in session, he or she would have a job, but when the pool closes for the season, the lifeguard would be out of work. c. a mathematics teacher Incorrect: An outdoor pool lifeguard faces seasonal unemployment because people go swimming outside only during the summer. So, when swimming season is in session, he or she would have a job, but when the pool closes for the season, the lifeguard would be out of work. d. a crime scene investigator Incorrect: An outdoor pool lifeguard faces seasonal unemployment because people go swimming outside only during the summer. So, when swimming season is in session, he or she would have a job, but when the pool closes for the season, the lifeguard would be out of work. Answer: b Diff: 3 Type: MC Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 75) An increase in productivity indicates that workers are _____________. a. satisfied with their working environment and their jobs Incorrect: 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. b. producing more goods or services in the same amount of time Correct: 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. c. taking fewer breaks Incorrect: 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. d. well-trained in their jobs and responsibilities Incorrect: 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. ScholarStock 38 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Answer: b Diff: 2 Type: MC Page Reference: 45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 76) How can the economic benefits of productivity affect the entire country? a. by increasing prices for customers Incorrect: When the GDP goes up, the indication is that the economy is in a positive state. Goods and services are being produced and businesses are doing well. b. by reducing tax revenue for the government Incorrect: When the GDP goes up, the indication is that the economy is in a positive state. Goods and services are being produced and businesses are doing well. c. by improving working conditions for workers Incorrect: When the GDP goes up, the indication is that the economy is in a positive state. Goods and services are being produced and businesses are doing well. d. by improving the gross domestic product Correct: When the GDP goes up, the indication is that the economy is in a positive state. Goods and services are being produced and businesses are doing well. Answer: d Diff: 1 Type: MC Page Reference: 45 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 77) _____________ is the periodic increase and decrease in economic growth. a. The consumer price index Incorrect: The economy naturally fluctuates, which means it goes through periods of increased growth (expansion) and decreased growth (contraction). Economists refer to these increases and decreases as the business cycle. b. The business cycle Correct: The economy naturally fluctuates, which means it goes through periods of increased growth (expansion) and decreased growth (contraction). Economists refer to these increases and decreases as the business cycle. c. Market expansion Incorrect: The economy naturally fluctuates, which means it goes through periods of increased growth (expansion) and decreased growth (contraction). Economists refer to these increases and decreases as the business cycle. d. An open market Incorrect: The economy naturally fluctuates, which means it goes through periods of increased growth (expansion) and decreased growth (contraction). Economists refer to these increases and decreases as the business cycle. ScholarStock 39 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Answer: b Diff: 1 Type: MC Page Reference: 48 Objective: 2.5 List and describe the four stages of the business cycle. 78) 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 Incorrect: 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. b. inflation Incorrect: 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. c. deflation Correct: 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. d. depression Incorrect: 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. Answer: c Diff: 3 Type: MC Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 79) A decrease in stock prices during a recession is caused by _____________. a. the government purchasing more stocks Incorrect: In recessionary times, corporate profits decline, unemployment increases, and the stock market reacts with large selling sessions that result in decreasing stock prices. b. the government purchasing fewer stocks Incorrect: In recessionary times, corporate profits decline, unemployment increases, and the stock market reacts with large selling sessions that result in decreasing stock prices. c. major stocks being sold in large selling sessions Correct: In recessionary times, corporate profits decline, unemployment increases, and the stock market reacts with large selling sessions that result in decreasing stock prices. d. fewer and smaller selling sessions of stocks Incorrect: In recessionary times, corporate profits decline, unemployment increases, and the stock market reacts with large selling sessions that result in decreasing stock prices. ScholarStock 40 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Answer: c Diff: 1 Type: MC Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 80) 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 Incorrect: Recovery is when businesses begin to recover after taking losses and starts making a profit once more. b. recovery Correct: Recovery is when businesses begin to recover after taking losses and starts making a profit once more. c. resuscitation Incorrect: Recovery is when businesses begin to recover after taking losses and starts making a profit once more. d. restoration Incorrect: Recovery is when businesses begin to recover after taking losses and starts making a profit once more. Answer: b Diff: 2 Type: MC Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 81) Which of the following is likely the result of increased government spending? a. infrastructure improvements Incorrect: The government spends money on projects that benefit military, education, and health care in order to stimulate the economy. All of these changed situations are a result of government spending. b. creation of additional jobs Incorrect: The government spends money on projects that benefit military, education, and health care in order to stimulate the economy. All of these changed situations are a result of government spending. c. increase in educational benefits Incorrect: The government spends money on projects that benefit military, education, and health care in order to stimulate the economy. All of these changed situations are a result of government spending. d. all of the above ScholarStock 41 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: The government spends money on projects that benefit military, education, and health care in order to stimulate the economy. All of these changed situations are a result of government spending. Answer: d Diff: 2 Type: MC Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 82) The combined amount of money available within the economy is referred to as _____________. a. the gross national product Incorrect: The money supply is the combined amount of money available within the economy, but there are different ways to measure it. b. M1+ Incorrect: The money supply is the combined amount of money available within the economy, but there are different ways to measure it. c. the money supply Correct: The money supply is the combined amount of money available within the economy, but there are different ways to measure it. d. currency Incorrect: The money supply is the combined amount of money available within the economy, but there are different ways to measure it. Answer: c Diff: 1 Type: MC Page Reference: 50 Objective: 2.5 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 83) Which constitutes M1+ (gross)? a. savings deposits Incorrect: M1+ (gross) is currency outside the banks plus all chequable deposits held at chartered banks, trust and mortgage loan companies, credit unions, and caisses populaires; plus continuity adjustments. b. money market accounts Incorrect: Currency outside the banks plus all chequable deposits held at chartered banks, trust and mortgage loan companies, credit unions, and caisses populaires; plus continuity adjustments. c. certificates of deposit Incorrect: Currency outside the banks plus all chequable deposits held at chartered banks, trust and mortgage loan companies, credit unions, and caisses populaires; plus continuity adjustments. ScholarStock 42 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking d. currency outside the banks plus all chequable deposits Correct: Currency outside the banks plus all chequable deposits held at chartered banks, trust and mortgage loan companies, credit unions, and caisses populaires; plus continuity adjustments. Answer: d Diff: 1 Type: MC Page Reference: 51 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 84) What constitutes M3 (gross)? a. savings deposits, money market accounts, and interbank deposits Incorrect: M3 (gross) constitutes M2 (gross) plus bank non-personal term deposits and foreign-currency deposits of residents; less interbank deposits; plus continuity adjustments. b. certificates of deposits less than $100,000 and mutual funds Incorrect: M3 (gross) constitutes M2 (gross) plus bank non-personal term deposits and foreign-currency deposits of residents; less interbank deposits; plus continuity adjustments. c. coins, traveller’s cheques, chequing accounts, and continuity adjustments Incorrect: M3 (gross) constitutes M2 (gross) plus bank non-personal term deposits and foreign-currency deposits of residents; less interbank deposits; plus continuity adjustments. d. M2 (gross) plus bank non-personal term deposits and foreign-currency deposits Correct: M3 (gross) constitutes M2 (gross) plus bank non-personal term deposits and foreign-currency deposits of residents; less interbank deposits; plus continuity adjustments. Answer: d Diff: 1 Type: MC Page Reference: 51 Objective: 2.5 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 85) Disinflation is also known as ____________. a. reduced inflation rate Correct: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. b. decreased spending Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. c. reverse deflation ScholarStock 43 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. d. decreased money supply Incorrect: A decrease in the rate of inflation is disinflation, and a continuous decrease in prices over time is deflation. Answer: a Diff: 1 Type: MC Page Reference: 45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 86) 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 Bank of Canada sells securities. Incorrect: When the Bank of Canada 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. b. The Bank of Canada buys securities. Correct: When the Bank of Canada 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. c. The Bank of Canada rate increases. Incorrect: When the Bank of Canada 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. d. The discount rate increases. Incorrect: When the Bank of Canada 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. Answer: b Diff: 3 Type: MC Page Reference: 52 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 87) Which of the following is one of the main tools that the Bank of Canada uses to alter money supply? a. discount rate Incorrect: The Bank of Canada uses two tools to affect money supply: open market operations and the overnight rate. b. Bank of Canada rate ScholarStock 44 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: The Bank of Canada uses two tools to affect money supply: open market operations and the overnight rate. c. open market operations Correct: The Bank of Canada uses two tools to affect money supply: open market operations and the overnight rate. d. reserve requirement Incorrect: The Bank of Canada uses two tools to affect money supply: open market operations and the overnight rate. Answer: c Diff: 1 Type: MC Page Reference: 51 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 88) Which of the following is an economic condition in which there is an overall increase of prices? a. disinflation Incorrect: 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. b. deflation Incorrect: 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. c. inflation Correct: 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. d. none of the above Incorrect: 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. Answer: c Diff: 2 Type: MC Page Reference: 45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 89) Lower interest rates stimulate the economy by _______________. a. increasing the demand for loans Correct: Lower interest rates help stimulate the economy by decreasing the desire to save and increasing the demand for loans such as home mortgages. b. encouraging people to save ScholarStock 45 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: Lower interest rates help stimulate the economy by decreasing the desire to save and increasing the demand for loans such as home mortgages. c. causing banks to borrow from other banks Incorrect: Lower interest rates help stimulate the economy by decreasing the desire to save and increasing the demand for loans such as home mortgages. d. hastening government spending Incorrect: Lower interest rates help stimulate the economy by decreasing the desire to save and increasing the demand for loans such as home mortgages. Answer: a Diff: 1 Type: MC Page Reference: 52 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 90) When the economy is robust, the Bank of Canada ________ the overnight rate, discouraging banks from borrowing. a. lowers Incorrect: If the economy is too robust, the Bank of Canada can increase the overnight rate, which discourages banks from borrowing additional funds. Businesses are then discouraged from borrowing because of the higher interest rates. b. increases Correct: If the economy is too robust, the Bank of Canada can increase the overnight rate, which discourages banks from borrowing additional funds. Businesses are then discouraged from borrowing because of the higher interest rates. c. reports Incorrect: If the economy is too robust, the Bank of Canada can increase the overnight rate, which discourages banks from borrowing additional funds. Businesses are then discouraged from borrowing because of the higher interest rates. d. waives Incorrect: If the economy is too robust, the Bank of Canada can increase the overnight rate, which discourages banks from borrowing additional funds. Businesses are then discouraged from borrowing because of the higher interest rates. Answer: b Diff: 1 Type: MC Page Reference: 52 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 91) ________ include raising taxes and decreasing government spending in an attempt to slow the economy. a. Monetary policies ScholarStock 46 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: The government increases taxes in an attempt to offset rising inflation. Contractionary measures include raising taxes and decreasing government spending in an attempt to slow the economy. b. Contractionary measures Correct: The government increases taxes in an attempt to offset rising inflation. Contractionary measures include raising taxes and decreasing government spending in an attempt to slow the economy. c. Expansionary measures Incorrect: The government increases taxes in an attempt to offset rising inflation. Contractionary measures include raising taxes and decreasing government spending in an attempt to slow the economy. d. Diversionary measures Incorrect: The government increases taxes in an attempt to offset rising inflation. Contractionary measures include raising taxes and decreasing government spending in an attempt to slow the economy. Answer: b Diff: 1 Type: MC Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 92) What is the name of the interest rate that banks charge other banks when they borrow funds overnight from one another? a. discount rate Incorrect: The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank of Canada sets a target level for that rate.b. bank agency rate Incorrect: The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank of Canada sets a target level for that rate.c. overnight rate Correct: The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank of Canada sets a target level for that rate.d. security rate Incorrect: The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank of Canada sets a target level for that rate. Answer: c Diff: 1 Type: MC Page Reference: 52 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 93) Banks make loans available to ____________. ScholarStock 47 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking a. disqualified people Incorrect: Banks make use of deposited money by loaning it to people, small businesses, corporations, and other banks. Banks make money by the interest charged on those loans. b. foreign banks Incorrect: Banks make use of deposited money by loaning it to people, small businesses, corporations, and other banks. Banks make money by the interest charged on those loans. c. small businesses Correct: Banks make use of deposited money by loaning it to people, small businesses, corporations, and other banks. Banks make money by the interest charged on those loans. d. other nations Incorrect: Banks make use of deposited money by loaning it to people, small businesses, corporations, and other banks. Banks make money by the interest charged on those loans. Answer: c Diff: 1 Type: MC Page Reference: 52 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 94) Which of the following describes the situation when the money being spent by government exceeds the money coming into government ? a. budget surplus Incorrect: If the money being spent by government exceeds the money coming into government, this is called a budget deficit. b. budget balance Incorrect: If the money being spent by government exceeds the money coming into government, this is called a budget deficit. c. budget deficit Correct: If the money being spent by government exceeds the money coming into government, this is called a budget deficit. d. budget system Incorrect: If the money being spent by government exceeds the money coming into government, this is called a budget deficit. Answer: c Diff: 1 Type: MC Page Reference: 50 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 95) In economics, the demand for a product or service is the sole determinant of the price or value of the product. a. True ScholarStock 48 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: 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. b. False Correct: 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. Answer: b Diff: 2 Type: TF Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 96) The study of economics acknowledges that not everyone will be able to have what he or she wants because of limited resources and supplies. a. True Correct: Not everyone will be able to have what he or she wants because of limited resources (such as money, space, or time) and supplies. This is the fundamental economic problem known as scarcity. b. False Incorrect: Not everyone will be able to have what he or she wants because of limited resources (such as money, space, or time) and supplies. This is the fundamental economic problem known as scarcity. Answer: a Diff: 1 Type: TF Page Reference: 28 Objective: 2.1 Define economics and describe the different types of economic systems. 97) The inflation of the dollar is a vital concern for macroeconomists. a. True Correct: Economy-wide occurrences, such as changes in unemployment, interest rates, inflation, and prices, are all part of the study of macroeconomics. b. False Incorrect: Economy-wide occurrences, such as changes in unemployment, interest rates, inflation, and prices, are all part of the study of macroeconomics. Answer: a Diff: 1 Type: TF Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. ScholarStock 49 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 98) An example of microeconomics in practice is a price increase in wheat that impacts the food industry. In a market economy, the buyer has the freedom of choice, not the seller. a. True Incorrect: The increase in price of wheat has significant impact not only on individual businesses, but on the whole food industry and even in other areas of the economy. b. False Correct: The increase in price of wheat has significant impact not only on individual businesses, but on the whole food industry and even in other areas of the economy. Answer: b Diff: 2 Type: TF Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. 99) In a planned economic system, individuals are able to make their own economic decisions. a. True Incorrect: In a planned economic system, the government plays a greater role in determining the goods and services provided and how they are produced and distributed. b. False Correct: In a planned economic system, the government plays a greater role in determining the goods and services provided and how they are produced and distributed. Answer: b Diff: 1 Type: TF Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 100) In a market economy, the buyer has the freedom of choice, not the seller. a. True Incorrect: 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. b. False Correct: 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. Answer: b Diff: 1 Type: TF Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. ScholarStock 50 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 101) Cuba is the only country to achieve Karl Marx’s vision of workers in a communist economy taking over the government’s responsibilities and providing services. a. True Incorrect: No communist country has achieved this level of Marx’s vision. Existing communist states, including North Korea and Cuba, are failing economically. b. False Correct: No communist country has achieved this level of Marx’s vision. Existing communist states, including North Korea and Cuba, are failing economically. Answer: b Diff: Type: TF Page Reference: Objective: 103) Currency provides a consistent standard based on an underlying commodity. a. True Correct: Currency, a unit of exchange for the transfer of goods and services, provides a consistent and equitable standard, the value of which is based on an underlying commodity, such as gold. b. False Incorrect: Currency, a unit of exchange for the transfer of goods and services, provides a consistent and equitable standard, the value of which is based on an underlying commodity, such as gold. Answer: a Diff: 1 Type: TF Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 105) Supply and demand determine the price for a product or service in a free market. a. True Correct: The market price for a product or service is 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. b. False Incorrect: The market price for a product or service is 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. Answer: a Diff: 1 ScholarStock 51 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Type: TF Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 106) The availability of an item is called demand, and the need for an item is called supply. a. True Incorrect: The demand is the need for an item, and the supply is the item’s availability. b. False Correct: The demand is the need for an item, and the supply is the item’s availability. Answer: b Diff: 2 Type: TF Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 107) The four degrees of competition are monopoly, oligopoly, monopolistic competition, and perfect competition. a. True Correct: Economists have identified the four degrees of competition as monopoly, oligopoly, monopolistic competition, and perfect competition. b. False Incorrect: Economists have identified the four degrees of competition as monopoly, oligopoly, monopolistic competition, and perfect competition. Answer: a Diff: 1 Type: TF Page Reference: 40 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 108) A monopoly occurs when there is only one provider of a service or product and no substitutes for the product exist. a. True Correct: If one Internet company were the sole provider of Internet services, that company would be considered a monopoly. b. False Incorrect: If one Internet company were the sole provider of Internet services, that company would be considered a monopoly. Answer: a Diff: 1 ScholarStock 52 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Type: TF Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 109) The number of substitutes for a particular product or service determines the level of competition. a. True Correct: Various industries experience different degrees of competition, ranging from many competitors to few or no competitors. b. False Incorrect: Various industries experience different degrees of competition, ranging from many competitors to few or no competitors. Answer: a Diff: 1 Type: TF Page Reference: 40 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 110) If Bruno’s Pizzeria is the only place where people can get pizza in the neighbourhood, then we can say that Bruno has an oligopoly. a. True Incorrect: Bruno’s Pizzeria is a monopoly because it is the only place where people can get pizza. If a few more businesses moved into the neighbourhood, then it would be an oligopoly. b. False Correct: Bruno’s Pizzeria is a monopoly because it is the only place where people can get pizza. If a few more businesses moved into the neighbourhood, then it would be an oligopoly. Answer: b Diff: 2 Type: TF Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 111) An oligopoly is a form of competition in which only a few sellers exist. a. True Correct: An oligopoly may be formed when another company enters a monopoly. b. False Incorrect: An oligopoly may be formed when another company enters a monopoly. Answer: a ScholarStock 53 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Diff: 1 Type: TF Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 112) Even imported goods are counted in a country’s gross domestic product. a. True Incorrect: The GDP measures economic activity—the overall market value of final goods and services produced in a country in a year. b. False Correct: The GDP measures economic activity—the overall market value of final goods and services produced in a country in a year. Answer: b Diff: 1 Type: TF Page Reference: 44 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 113) The gross national product attributes earnings to the country both where the firm is owned and where the product is manufactured. a. True Incorrect: 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. b. False Correct: 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. Answer: b Diff: 2 Type: TF Page Reference: 45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 114) When the gross domestic product goes up, the indication is that the economy is in a positive state. a. True Correct: When the GDP goes up, the indication is that the economy is in a positive state. Goods and services are being produced and businesses are doing well. b. False ScholarStock 54 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: When the GDP goes up, the indication is that the economy is in a positive state. Goods and services are being produced and businesses are doing well. Answer: a Diff: 1 Type: TF Page Reference: 45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 115) The producer price index tracks the prices of goods that sellers use to create their products or services, such as raw materials. a. True Correct: The producer price index tracks prices of goods sellers use to create their products or services, such as raw materials, product components that require further processing, and finished goods sold to retailers. b. False Incorrect: The producer price index tracks prices of goods sellers use to create their products or services, such as raw materials, product components that require further processing, and finished goods sold to retailers. Answer: a Diff: 1 Type: TF Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 116) Frictional unemployment measures those out of work during the off-season. a. True Incorrect: Frictional unemployment is temporary or unexpected unemployment. Seasonal unemployment is unemployment during the off-season. b. False Correct: Frictional unemployment is temporary or unexpected unemployment. Seasonal unemployment is unemployment during the off-season. Answer: b Diff: 2 Type: TF Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 117) Higher productivity numbers often result in lower costs and lower prices. a. True ScholarStock 55 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: Higher productivity results in lower costs and lower prices, which generates more income and more profitability. b. False Incorrect: Higher productivity results in lower costs and lower prices, which generates more income and more profitability. Answer: a Diff: 1 Type: TF Page Reference: 45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 118) A boom or peak occurs when the economy is at its most robust point. a. True Correct: A boom or peak occurs when the economy is at its most robust point. The peak occurs when an expansion ends and a recession begins. b. False Incorrect: A boom or peak occurs when the economy is at its most robust point. The peak occurs when an expansion ends and a recession begins. Answer: a Diff: 1 Type: TF Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 119) Over time, the economy naturally goes through periodic increases and decreases, which economists refer to as the business cycle. a. True Correct: The business cycle refers to the period when the economy naturally fluctuates, which means it goes through periods of increased growth and decreased growth. b. False Incorrect: The business cycle refers to the period when the economy naturally fluctuates, which means it goes through periods of increased growth and decreased growth. Answer: a Diff: 1 Type: TF Page Reference: 48 Objective: 2.5 List and describe the four stages of the business cycle. 120) Eventually, after a recession or even a depression, the economy begins to grow again. a. True ScholarStock 56 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Correct: Eventually, after a recession, or even a depression, the economy hits a trough and begins to grow again. It enters into an expansionary or recovery phase. b. False Incorrect: Eventually, after a recession, or even a depression, the economy hits a trough and begins to grow again. It enters into an expansionary or recovery phase. Answer: a Diff: 1 Type: TF Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 121) To combat rising inflation, a decrease in taxes is necessary so that fewer consumers spend money on businesses and save it in banks instead. a. True Incorrect: When taxes are lowered, it is in the hope that consumers will then spend more money and therefore stimulate the economy. b. False Correct: When taxes are lowered, it is in the hope that consumers will then spend more money and therefore stimulate the economy. Answer: b Diff: 2 Type: TF Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 122) The amount of money entering into the system is dependent only on the decrease in taxes. a. True Incorrect: The amount of money entering the system depends on how much of the tax reduction consumers spend and how much they save. Money put into savings does not help stimulate the economy immediately. b. False Correct: The amount of money entering the system depends on how much of the tax reduction consumers spend and how much they save. Money put into savings does not help stimulate the economy immediately. Answer: b Diff: 49 Type: TF Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. ScholarStock 57 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 123) Government spending increases cash flow to the economy faster than increasing taxes. a. True Correct: Increasing government spending is a fiscal policy tactic that the government uses to help fuel a lagging economy. Government spending increases cash flow to the economy faster than decreasing taxes, because it provides an immediate injection of funds into the system. b. False Incorrect: Increasing government spending is a fiscal policy tactic that the government uses to help fuel a lagging economy. Government spending increases cash flow to the economy faster than decreasing taxes, because it provides an immediate injection of funds into the system. Answer: a Diff: Type: TF Page Reference: Objective: 124) During periods of high economic growth, the government will likely increase its spending to create more jobs, boosting the growth even more. a. True Incorrect: 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. b. False Correct: 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. Answer: b Diff: 2 Type: TF Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 125) To help fuel a lagging economy, the government may spend money on projects, such as infrastructure improvements and programs that benefit the military, education, and health care. a. True Correct: Increasing government spending is a fiscal policy tactic that the government uses to help fuel a lagging economy. b. False ScholarStock 58 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Incorrect: Increasing government spending is a fiscal policy tactic that the government uses to help fuel a lagging economy. Answer: a Diff: 1 Type: TF Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 126) Patty travelled to Denmark for a year, and while she was there, she worked in a bookshop. When she received her first paycheque, 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 life, 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. Feedback: 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 Type: ES Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 127) 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. How can Tony’s country modify its economy to help citizens like him afford basic necessities? Answer: Tony’s country can adopt 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. Feedback: Market economies lack control over the regulation of prices because such economies are based on the demand of the people. In a mixed economy, the government can help people afford basic necessities, but it does not necessarily have control over the whole economic system. Diff: 2 Type: ES ScholarStock 59 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 128) 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. Describe how Rachel should 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. Feedback: 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 Type: ES Page Reference: 35 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 129) Roger is a supplier of photography equipment such as cameras, 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 decreased. Feedback: 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 Type: ES Page Reference: 36 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 130) 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 neighbourhood. It didn’t take long before her bakery became a ScholarStock 60 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking neighbourhood favourite. 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. Feedback: 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 Type: ES Page Reference: 36 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 131) 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. Identify the kind of competition that exists in this situation. Answer: An 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. Feedback: An 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 Type: ES Page Reference: 41 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 132) Rashad 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, Rashad feels one is superior to the other. Feedback: Monopolistic competition exists when sellers have similar products, but one is perceived as being superior to the other. ScholarStock 61 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Diff: 2 Type: ES Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 133) 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. Feedback: The producer price index is used to track changes in prices in the raw materials used to make products and services. Sellers need this index to determine whether they will be able to supply more of their products in the market. Diff: 3 Type: ES Page Reference: 46 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 134) 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. Feedback: Seasonal unemployment measures those out of work during the off-season. Diff: 2 Type: ES Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 135) 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 that he has had to hire more people to help cope with the demand. What stage of the business cycle is Wilson experiencing? ScholarStock 62 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 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. Feedback: The boom or peak is the stage where the economy is at its most robust point, as illustrated in the situation. Diff: 2 Type: ES Page Reference: 48 Objective: 2.5 List and describe the four stages of the business cycle. 136) 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 by stimulating the slow economy through increase of their spending. This could be done by spending money on various projects that will allow more cash flow to the economy quickly. Feedback: 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: Type: ES Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 137) 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 businessperson or an entrepreneur, evaluate how 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. Feedback: Studying economics enables you to look at how resources are distributed in the marketplace and how equitably and efficiently those resources are disbursed. ScholarStock 63 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Diff: 3 Type: ES Page Reference: 28 Objective: 2.1 Define economics and describe the different types of economic systems. 138) When you start up a business, the chance of having a competitor is high. Assuming that your business is involved in monopolistic competition, describe what you can do to beat the competition. Answer: One way to beat the competition is to show that your business offers superior products or services at reasonable prices. 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. Feedback: Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products, but there is a perceived difference among consumers, who therefore favour one product offering over another. Diff: 3 Type: ES Page Reference: 42 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 139) You were recently elected as the president of the School of Business in your university. Outline why you think it is important to study economics. Answer: Economics helps us understand the impact government decisions have on firms, industries, and nations. It helps us understand the effect international trade has on a global and national level. It helps us recognize secondary effects of decisions—for example, if the government creates a tax to pay for some needed social program, the secondary effect might be that people, now paying higher taxes, spend less money shopping, causing economic growth to slow. Studying economics is important as it allows us to learn from our mistakes; understand business cycles, investments, and standards of living; solve problems; and make better decisions. Feedback: There are many reasons to study economics, but one of the most important is to learn about how people get the goods and services they need and want. Diff: 2 Type: ES Page Reference: 29 Objective: 2.1 Define economics and describe the different types of economic systems. ScholarStock 64 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 140) The newly elected mayor of your city is interested in the study of economics; you are selected to present your research findings to him by comparing the two basic studies of economics: microeconomics and macroeconomics. Answer: Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their limited resources in the exchange of goods and services. Macroeconomics is the study of the behaviour of the overall economy. Economy-wide occurrences, such as changes in unemployment, interest rates, inflation, and prices, are all part of the study of macroeconomics. Feedback: Studying economics is important as it allows us to learn from our mistakes; understand business cycles, investments, and standards of living; solve problems; and make better decisions. Microeconomics looks at individual businesses, households, and consumers; and macroeconomics looks at the overall economy. Diff: 2 Type: ES Page Reference: 28 Objective: 2.1 Define economics and describe the different types of economic systems. 141) Compare the features of communism and socialism. Answer: Communism is an economic system in which government makes all economic decisions and controls all the social services and many of the major resources required for production of goods and services. Socialism provides that the government plans and controls the economy. Government owns or controls many basic businesses and services, while individuals own and operate less crucial industries. Feedback: Communism and socialism are planned economic systems whereby the government plays a greater role in determining the goods and services provided and how they are produced and distributed. Diff: 2 Type: ES Page Reference: 30 Objective: 2.1 Define economics and describe the different types of economic systems. 142) What is bartering? Answer: The act of bartering involves people trading goods or services without an exchange of money. The “price” of something is determined by the needs of each person in the bartering exchange and what they are willing to trade. ScholarStock 65 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking Feedback: In the days of bartering, when people traded goods or services without an exchange of money, the “price” of something was determined by the needs of each person in the bartering exchange and what they were willing to trade. Diff: 2 Type: ES Page Reference: 32 Objective: 2.2 Describe the law of supply and demand and how supply and demand affect price. 143) Enumerate the four degrees of competition. Answer: Economists have identified four degrees of competition: • monopoly • oligopoly • monopolistic competition • perfect competition Feedback: The number of substitutes for a certain product or service determines the degree (level) of competition. Diff: 2 Type: ES Page Reference: 40 Objective: 2.3 Summarize the four degrees of competition and describe how competition affects demand. 144) Explain how to determine if the economy is growing. Answer: Economists primarily use the following three economic indicators to determine how well businesses are performing overall: • gross domestic product (GDP) • consumer and producer price indexes • unemployment rate Feedback: The economy is an indicator of how well or poorly businesses are doing in general. Because changes in the economy can affect a business, managers need to be aware of a number of key economic indicators and how they relate to business. Diff: 2 Type: ES Page Reference: 44 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 145) Distinguish the differences between gross domestic product (GDP) and gross national product (GNP). Answer: ScholarStock 66 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking The gross domestic product (GDP) measures economic activity—the overall market value of final goods and services produced in a country in a year. The gross national product (GNP) attributes earnings to the country where a firm was owned, not where a product was manufactured. Feedback: GDP and GNP are used by economists to determine how well businesses are performing. GDP can be contrasted with GNP in that GDP defines its scope according to location, while GNP defines its scope according to ownership. Diff: 2 Type: ES Page Reference: 44-45 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 146) Evaluate how price stability is measured. Answer: There are two price indexes used as economic indicators: the consumer price index (CPI) and the producer price index (PPI). The consumer price index (CPI) is a benchmark used to track changes in prices over time. It creates a “market basket” of a specified set of goods and services (including taxes) that represent the average buying pattern of urban households. The PPI tracks the average change in prices at the wholesale level (from the seller’s perspective). It tracks the prices of goods sellers use to create their products or services, such as raw materials, product components that require further processing, and finished goods sold to retailers. Feedback: Price stability uses these two price indexes as economic indicators to determine the purchasing power of people and help government make some business decisions. Diff: 2 Type: ES Page Reference: 47 Objective: 2.4 Identify how economic indicators such as the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health. 147) Define the business cycle. What are the four stages of business cycles? Answer: The business cycle describes how the economy fluctuates over time, which means it naturally goes through periods of increased growth (expansion) and decreased growth (contraction). The four stages are as follows: • Peak: This stage occurs when the economy is at its most robust point. The peak occurs when an expansion ends and a recession begins. ScholarStock 67 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking • Recession: A recession is a decline in the GDP for two or more successive quarters of a year. • Trough: A trough occurs when the recession hits bottom and the economy begins to expand again. • Expansion or recovery: After a recession, or even a depression, the economy hits a trough and begins to grow again. It enters into an expansionary or recovery phase. Eventually, the recovery will hit a peak, and the cycle begins again. Feedback: The economy naturally fluctuates, which means it goes through periods of increased growth (expansion) and decreased growth (contraction). Economists refer to these increases and decreases as the business cycle. Diff: 2 Type: ES Page Reference: 48 Objective: 2.5 List and describe the four stages of the business cycle. 148) Compare recession and depression. Answer: A recession is a decline in the GDP for two or more successive quarters of a year. A depression is a severe or long recession. Feedback: A recession is a decline in the GDP for two or more successive quarters of a year. In recessionary times, corporate profits decline, unemployment increases, and the stock market reacts with large selling sessions that result in decreasing stock prices. A severe or long recession is a depression. Depressions are usually associated with falling prices (deflation). Diff: 1 Type: ES Page Reference: 48 Objective: 2.5 List and describe the four stages of the business cycle. 149) How does the government control fluctuations in the economy? Answer: To smooth out the fluctuations in the business cycle, the government influences the economy through its fiscal policy, in which the government determines the appropriate level of taxes and spending, and through its monetary policy, in which the government manages the supply of money. Feedback: The government increases taxes in an attempt to offset rising inflation. Diff: 2 Type: ES Page Reference: 48 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. ScholarStock 68 Solomon: Better Business, First Canadian Edition Chapter 2: Economics and Banking 150) Distinguish the differences between contractionary and expansionary measures. Answer: Contractionary measures include raising taxes and decreasing government spending in an attempt to slow the economy. Expansionary measures include decreasing taxes and increasing government spending to boost the market and put money back into the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. Feedback: Contractionary and expansionary measures are means governments use to control inflation and improve a lagging economy, respectively. Diff: 2 Type: ES Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. 151) Outline the role of the Bank of Canada. Answer: The Bank of Canada acts as the federal government’s financial adviser and is responsible for promoting the economic and financial well-being of Canada. The Bank of Canada manages the country’s money supply through its monetary policy to control inflation. Feedback: The Bank of Canada sets the monetary policy and provides banking services to member banks and to the federal government. Diff: 2 Type: ES Page Reference: 49 Objective: 2.6 Summarize how the government uses both fiscal policy and monetary policy to control changes in the business cycle. ScholarStock 69