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Exam 2: Understanding How Economics Affects Business

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Question 101

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A __________ is a very severe recession that is usually accompanied by deflation.

A) stagflation
B) retraction
C) depression
D) dissolution

E) A) and B)
F) None of the above

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Question 102

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Adam Smith believed the self-interest of businesspeople would lead them to create needed goods,services,and jobs.

A) True
B) False

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Question 103

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Like most nations,the United States has a mixed economy.

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.

Some wages,tax brackets,interest rates,and government benefits are based on the CPI.

Resource development is the study of how to increase resources and to create the conditions that will make better use of those resources.

__________ is a condition in which the average level of prices is actually falling.

Efforts by the Federal Reserve Bank (the Fed) to control the money supply and interest rates are known as:

Monica notices that just a few big companies produce the vast majority of soft drinks.She would be correct in describing the soft drink industry as an oligopoly.

Most communist countries today are suffering from severe economic problems.

The presence of competition in free markets:

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.

Countries that wish to avoid shortages and surpluses of goods should adopt a communist system.

The price of iPhones™ is falling.In a free-market economic system where everything else is equal,the most likely explanation is:

____________ looks at the behavior of individual people and organizations in specific markets.

In perfect competition,each firm produces a product that is clearly differentiated from the products of other firms in the same market.

A major distinction between capitalism and socialism concerns the distribution of income.

Capitalism is the foundation of the U.S.economic system.

In a mixed economy,the government's goal is to grow the economy and maintain some measure of social equality.

In the newspaper this morning,you read about the downfall of a multi-national entertainment business,and a report that the company's CEO enjoyed a 9% increase in his salary during the same year that the company's profits were down 35%.As you read further,you learn that the company's board of directors approved undeserved salary increases.Clearly,this is an example of how inequality and greed can infiltrate the free-market economic system.