Download Economics

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1st
Economics
Semester Final Exam Review
Chapter 1
1. What is the basic problem of economics? (p. 5)
Answer: scarcity
2. What is productivity? (p. 7)
Answer: The ability to produce greater quantities of goods and services in better
and faster ways.
3. What are services? (p. 6)
Answer: Activities done for others for a fee.
4. What are the four factors of production in any economic system? (p. 6)
Answer: Land, labor, capital, and entrepreneurship
5. Why do consumers need to make choices in spending habits? (p. 4)
Answer: Because our wants are unlimited and our resources are limited. (p. )
6. What is an example of a producer of a good? (p. 6)
Answer: A tangible good (i.e. carpenter building cabinets) versus a doctor treating a
patient (intangible good; service)
7. What is capital? (p. 6)
Answer: Money used to buy factory equipment.
Chapter 2
8. Who decides what is produced in a market economy?
Answer: signals in the marketplace (p. )
9. Who should share in what is produced? This question refers to the manner in which
goods and services are _________.
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Answer: distributed (p. )
10. What type of economy has government planners who decide what goods and services are
produced?
Answer: command economy (p. )
11. What is competition?
Answer: The rivalry among producers or sellers of similar goods to win more
business by offering the lowest prices or better quality. (p. )
12. Who has the greatest influence on the price of goods and services in a market economy?
Answer: All consumers collectively have a great influence on the price of goods and
services. (p. )
Chapter 3
13. What two scarce resources are used in every purchase decision?
Answer: time and income (p. )
14. What two main responsibilities does the consumer have?
Answer: learning about products and respecting the rights of producers and sellers
(p. )
15. Protection from dangerous products is the consumers right to __________.
Answer: safety (p. )
16. Becoming informed about products is the consumer’s __________.
Answer: responsibility; this means that the consumer must become informed about
the product to be purchased. (p. )
17. What is impulse buying?
Answer: An impulse purchase or impulse buy is an unplanned or otherwise
spontaneous purchase; NOT a sound basis for making purchase decisions. (p. )
18. Before making a purchase, what should you ask yourself first?
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Answer: Do I really need this item? (p. )
19. What agency would investigate a company involved in false advertising?
Answer: Federal Trade Commission
Chapter 4
20. What is a secured loan backed by?
Answer: a borrower’s collateral (p. )
21. What purchase has the largest installment debt in the United States?
Answer: home mortgages (p. )
22. What is a debit card?
Answer: A cashless method of buying that enables consumers to transfer funds
electronically. (p. )
23. What is a disadvantage of repaying a loan over a longer period of time?
Answer: a bigger interest charge on the loan (p. )
24. What is personal bankruptcy?
Answer: giving up most of what debtors own to be distributed to their creditors (p.
)
25. What happens to one’s credit if they declare personal bankruptcy?
Answer: They have minimal credit for 10-14 years. (p. )
26. What happens to the finance charge on a loan the longer it takes to repay?
Answer: the higher the finance charge (p. )
27. What is a credit bureau?
Answer: A business that gathers and sells information about consumers. (p. )
28. Which loan has a lower finance charge, 10% APR for 24 months, or 15% for 36 months?
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Answer: 10% APR for 24 months; lowest APR; lowest term (p. )
29. Can the amount of money you earn be used to deny you of a loan?
Answer: yes (p. )
30. What does the “Truth in Lending Law” require?
Answer: requires that lenders must state the total finance charge and annual
percentage rate (p. )
31. What is an advantage of repaying a loan over a longer period of time?
Answer: lower monthly payments (p. )
32. What are some warning signs of credit trouble?
Answer: borrowing to pay existing debts (p. )
33. What are debt consolidation loans?
Answer: The act of combining several loans or liabilities into one loan. Debt
consolidation involves taking out a new loan to pay off a number of other debts.
Most people who consolidate their debt usually do it to attain a lower interest rate,
or the simplicity of a single loan. (p. )
34. What is a line of credit?
Answer: the total amount of money a person is permitted to borrow or charge (p. )
Chapter 5
35. What is an advantage of buying a house?
Answer: You can deduct your mortgage interest and your real estate taxes from
your federal income tax. (p. )
36. How long does it take most people who buy a home to pay off the loan?
Answer: borrow much of the money and pay it back in 15 to 30 years (p. )
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37. What is a way to ensure a landlord keeps their promise to fix your apartment?
Answer: write the promise on the lease and have it initialed by both parties (p. )
38. What are some ways to resolve conflicts with your landlord?
Answer: complaining to local housing authorities, going to court, and forming a
tenant organization; NOT effective – stopping payment of rent (p. )
39. What happens when the annual expenses for the common areas of a condominium
development exceed the income?
Answer: (p. )
40. Who is protected by the following statement? “The tenant has inspected the apartment
and agrees it is now in good order and repair.”
Answer: the landlord (p. )
41. What is the key difference between a condominium and an apartment?
Answer: condominiums are owned while apartments are rented (p. )
42. What is an advantage of buying a used car instead of a new car?
Answer: lower price (p. )
43. How will following a budget benefit you?
Answer: A budget will help you achieve your short-term and long-term spending
goals. (p. )
44. Budget experts advise you to set aside money for __________.
Answer: emergencies (p. )
45. What is a fixed expense?
Answer: A cost that does not vary depending on production or sales levels, such as
rent, property tax, insurance, or interest expense (i.e. rent or mortgage expense). (p.
)
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Chapter 6
46. What is a savings bond?
Answer: A registered, non-callable, non-transferable bond issued by the U.S.
Government and backed by its full faith and credit. You are basically lending
money to the federal government. (p. )
47. What are dividends?
Answer: stockholders’ earnings (p. )
48. What is a stockholder considered to be?
Answer: owner (p. )
49. What are “capital gains?”
Answer: profits that are made from selling a share of stock (p. )
Chapter 7
50. What does a “supply curve” show?
Answer: A supply curve shows quantities of an item to explain the relationship
between prices and quantity supplied. (p. 187)
51. What is the law of “diminishing marginal utility?”
Answer: The economic rule that states that the additional satisfaction people get
from consuming one more unit of a product will lessen with each additional unit
they consume. (p. 174)
52. The “law of supply” states that, as price increases for a good, quantity supplied
__________.
Answer: increases (p. 187)
53. What does a “demand curve” show?
Answer: the quantity demanded of a good or service at each possible price (p. 179)
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54. If demand decreases for a good but supply increases, what will happen to the amount of
the good?
Answer: there will be a surplus of the good (p. 196)
55. When the overall rent rises for apartments, according to the law of supply, are there more
or fewer apartments for rent?
Answer: more apartments will be available for rent (p. 187)
56. What is an “equilibrium price/point?”
Answer: the quantity supplied by sellers is the same as the quantity demanded by
buyers (p. 195)
57. Graph – Supply/Demand
Answer: (p. 188 & 179)
Chapter 8
58. What is a big disadvantage of a sole proprietorship?
Answer: liability is unlimited (p. 214)
Chapter 12
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59. What is an unskilled worker?
Answer: lacking skill or technical training (p. )
60. What type of workers have their wages most affected by minimum wage laws?
Answer: unskilled workers (p. )
61. Who does the word “management” usually refer to?
Answer: those in charge of a company (p. )
62. How would you describe the reaction to labor unions by each of the following groups in
the 1800s?
Businesses – objected to unions
Workers – embraced unions
State Legislators – states passed laws against unions
63. Are the following practices legal or illegal?
Hiring workers who pledge not to join a union. Legal
Firefighters going on strike. Illegal
President ordering a union not to strike. Illegal
Paying union members more money than non-union members. Illegal
64. What is “arbitration?”
Answer: the state of negotiations in which union and management submit the issues
they cannot agree onto a third party for a final decision (p. )
65. What is the purpose of “picketing?”
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Answer: build public support for a strike (p. )
66. Describe a “union shop?”
Answer: workers must join the union after a certain period of time (p. )
Chapter 13
67. Would increased corporate borrowing indicate good news or bad news for the economy?
Answer: bad news; it is an indication of a downturn in the economy (p. 360)
68. What is “disposable personal income?”
Answer: a measure of the income people have available to spend (p. 348)
69. What four economic activities are computed in the Gross Domestic Product (GDP)?
Answer: consumer goods, net exports, government goods, and business goods (p.
345-346)
70. What happens when the business cycle enters a “contraction?”
Answer: GDP level off and begins to decline (p. 360)
71. What are “transfer payments?”
Answer: Medicare, Social Security, and spending on free school lunch programs;
NOT a transfer payment – spending on stocks and bonds (p. 348)
72. What is the “Consumer Price Index (CPI)?
Answer: a way economists keep track of inflation (p. 351)
Chapter 14
73. What is a “medium of exchange?”
Answer: (p. )
74. What does it mean when someone refers to money as being “durable?”
Answer: can withstand wear and tear (p. )
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75. What is a drawback to “electronic banking?”
Answer: lack of privacy (p. )
76. What is the M1 definition of money supply?
Answer: M1 includes all currency (bills and coins), all checkable deposits, and
traveler’s checks; does not include near moneys (money market mutual funds) (p. )
Chapter 15
77. What is the most important function of the Federal Reserve System?
Answer: regulating the nation’s money supply (p. 405)
78. What are three things that happen during times of “loose money policy?”
Answer: businesses expand, credit is inexpensive and abundant, and consumers buy
more (p. 408)
79. What is the purpose of the “fractional reserve banking system?”
Answer: strike a balance between tight and loose money (p. 408)
80. What would be a reason for the Fed to raise the discount rate?
Answer: discourage borrowing (p. 414)
81. How does the Fed create “new” money?
Answer: by buying government securities such as Treasury bills (p. 416)
82. What is likely to happen if the Fed adopted a “loose money policy?”
Answer: inflation (p. 408)
Chapter 16
83. What are “public goods?”
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Answer: a special type of goods or services that government tries to supply to its
citizens (i.e. streetlights) (p. 430)
84. What is a “merit good?”
Answer: a good deemed socially desirable by government leaders (i.e. museums,
ballets, and classical music concerts) (p. 430)
85. What is one example of the government “redistributing income?”
Answer: public assistance (p. 431)
86. What is an “estate tax?”
Answer: a tax on the property of someone who has died (p. 441)
87. What tax is the major source of revenue for local governments and public schools?
Answer: property tax (p. 442)
88. What is a “progressive tax?”
Answer: when an individual earns a higher income, his or her taxes increase more
than in proportion to the increase in money income; federal income tax (p. 443)
Chapter 17
89. Liberals believe that the federal government can stimulate an economy by doing what?
Answer: creating jobs programs (p. 459)
90. Conservatives believe that the federal government can stimulate an economy by doing
what?
Answer: cutting federal taxes (p. 459)
91. What is the definition of “unemployment rate?”
Answer: the percentage of the civilian labor force that is without jobs but is actively
seeking work (p. 452)
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