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Exam 2: Understanding Economics and How It Affects Business

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Question 151

Multiple Choice

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One way to lessen the U.S. government budget deficit is to

A) cut spending.
B) increase spending.
C) call in government savings bonds.
D) increase government social programs such as welfare, food stamps, and Medicare.

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

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Question 152

Multiple Choice

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Recently, the government of Evensplitia announced that it is standing behind the concept of state-owned utilities, public schools, and the communications industry of the nation. Although not all industry is owned and managed by the government, these ideas would lead one to believe that the nation has a preference for a ________ state.

A) capitalist
B) socialist
C) communist
D) nationalist

E) A) and D)
F) C) and D)

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Question 153

Multiple Choice

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A command economic system is characterized by

High tax rates that put money into the government's funds tend to slow spending, and ultimately slow the economy.

Although changes in the CPI provide interesting insights into the overall performance of the economy, these changes have little practical impact on the lives of ordinary people.

Over the past decade, socialist economies have proven to be more successful at creating wealth and jobs than capitalist economies.

Gabby and Gus Malloy recently got preapproved on a loan for their first house purchase. They are speculating on how much they should bid on their number one choice-a small, three-bedroom bungalow near a major college town. Which of the following indicators may be an important factor in whether they are able to successfully put in a low bid?

This morning on Facebook, you clicked a link to an article about the downfall of a multinational entertainment company. The report shows that despite profits plummeting 35%, the company's CEO received a 9% raise. As you read on, you learn that the company's board of directors approved undeserved salary increases. This is an example of how inequality and greed can infiltrate the free-market economic system.

Adam Smith believed that incentives to seek personal gain would create wealth, but that the government must then step in to make sure that this wealth is equitably distributed.

In the past, socialist nations have realized that some of the government-run businesses do not grow as quickly as businesses that operate for a profit.

The national deficit is the difference between our nation's exports and its imports.

A surplus currently exists for fidget spinners. In a free-market economic system, the government must step in and buy any spinners that consumers do not buy in order to eliminate the surplus and establish equilibrium.

When describing the state of the U.S. economy, reporters often refer to the nation's GDP, its unemployment rate, and the CPI. Explain what each of these terms means and why each measure is significant.

Forlornistan is a country in the midst of a serious economic downturn. Forlornistan's GDP has declined steadily for over three years and is now at its lowest level in over sixty years. Forlornistan's unemployment rate is at an all-time high and the nation's CPI is falling. Forlornistan's economic condition is referred to as a

A rising GDP, rising unemployment rate, and rising inflation rate signify a healthy economy.

The producer price index measures what is happening to prices at the wholesale level.

At the equilibrium price, the quantity consumers desire to buy equals the quantity sellers desire to sell.

Economic progress can occur when business owners provide jobs and economic growth for their employees, their communities, and themselves.

The best way to avoid national budget deficits is to increase our exports and decrease our imports.

Socialists believe that the primary economic function of the government is to promote rapid economic growth.