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Exam 2: Understanding How Economics Affects Business

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Question 111

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At the equilibrium price,the quantity consumers desire to buy equals the quantity sellers desire to sell. Level of Learning 1: Knowledge of key terms

A) True
B) False

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Question 112

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In the U.S. ,the percentage of GDP that the government collects through taxes is approximately 28.2%. Level of Learning 1: Knowledge of key terms

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B) False

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Question 113

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Patrick lives in a nation whose government embraces capitalism.He owns his own home and car,as well as his own business and building.Patrick maintains ownership due to:

The market price of apples is currently rising.In a free-market economy,the most likely explanation of this price change is that:

A professor of economics at a prominent university recently urged government policy makers to cut taxes and increase government spending in order to pull the economy out of its current downturn.The policy measures called for by the professor are examples of fiscal policy. Level of Learning 2: Understanding of concepts and principles

Ben recently lost his job at a major U.S.auto plant in one of the rust belt states.After looking unsuccessfully for work in a similar industry for several months,he plans to start interviewing with road and bridge repair companies.He speculates that if the government begins to contract with companies that repair highways and bridges,he may find steady work,at least in the short-term.Which of the following statements best describes the strategy behind his thoughts?

How is it that people working in their own self-interest produce goods,services,and wealth for others?

Adam Smith believed that an economic system couldn't truly prosper unless people were taught to value the welfare of others above their own personal gain. Level of Learning 2: Understanding of concepts and principles

The next wave of marketable innovations may involve new ways to produce and conserve energy.If we can turn new technology into marketable products and services that produce energy to run our businesses and homes,the U.S.could see a surge in output of goods and services.The Department of Economic Development would document this surge by measuring the ______.

In command economies,the government plays a major role in deciding which goods are produced and who will get them. Level of Learning 1: Knowledge of key terms

High tax rates in socialist countries is a major reason these nations have experienced a brain drain. Level of Learning 1: Knowledge of key terms

Sarah owns a hair styling salon.She needs to update her shop with new customer chairs and work stations.If the Fed were to lower interest rates by 1.5 percentage points,at the same time that the government increased the tax rate by 1.5%,she could immediately determine that updating her shop would not increase or decrease her financial position. Level of Learning 3: Application of principles

On average,what percentage of the GDP does the U.S.government collects through taxes?

John is creating a presentation on the consumer price index for his business class.He wants students to understand that food and energy prices have risen more rapidly than other market items that the government traditionally measures for inclusion in the CPI calculation.He will show students that the core inflation figure will be _______ than the CPI.He will then inform the class that if consumers begin substituting,for example: If the prices at full service hair styling salons get too exorbitant,consumers may substitute by going to cheaper hair cutting salons.This will make the ___________ calculation lower.

Resource development is the study of how to increase resources and to create the conditions that will make better use of those resources. Level of Learning 1: Knowledge of key terms

Adam Smith believed that countries would prosper if businesspeople were free to start and run their own businesses.Businesspeople would make a profit by providing the goods,services and ideas that others in the economy wanted,and they would hire others to help increase those profits,leading to social and economics benefits for many.This idea was called the __________.

Senator Spendital made a speech deploring the continuous deficits in the federal budget.He is proposing an increase in tax rates to raise more revenue for the government and thus gradually reduce the size of the national debt over a period of several years.The strategy Senator Spendital is proposing is a common type of monetary policy. Level of Learning 3: Application of principles

Frictional unemployment occurs because the economy is experiencing a recession. Level of Learning 1: Knowledge of key terms

Socialists believe that the primary economic function of the government is to promote rapid economic growth. Level of Learning 1: Knowledge of key terms

Mini-Case Gig Abite is a bright,hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia.Gig became discouraged by the high tax rates in Frinezia,so he immigrated to the United States eleven years ago.Soon after moving to the U.S. ,Gig again started his own business,which he named Giganeers Consulting.The company struggled at first,and almost went under midway through its second year.However,Gig never lost faith,the company survived,and it soon developed a growing reputation for quality work and dependable service.Giganeers began experiencing sustained growth early in its fourth year.In fact,Gig hired additional employees over the next few years to keep up with the increasing workload.His company,which started with only Gig and 2 other full time workers,now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes,some clouds are on the horizon.The company recently suffered its first drop in business since its very early years.Gig is convinced that the problem is not with his company,but rather due to a downturn in the U.S.economy.He heard a national broadcast last week reporting that the value of the total output of final goods and services in the U.S.declined over the last quarter.The news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months.Gig is concerned that he will have to lay off some of his employees if the economy doesn't improve.He hopes that the government does something soon to put the economy back on track. -Besides the slowdown in the general economy,Giganeers faces threats of competition from several other companies that provide engineering consulting services.In order to gain more business,Gig tries to convince potential clients that his company offers better service than the competition.He has advertised heavily in professional magazines,often quoting some of his highly satisfied clients.The market Giganeers operates in is an example of: