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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?
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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.
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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
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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.
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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 __________.
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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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
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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?
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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.
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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.
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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?
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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
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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).
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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 ____________.
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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.
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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?
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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.
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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.
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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.
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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:
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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.
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• 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.
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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.
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