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Exam 2: Understanding Economics and How It Affects Business

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Question 41

True/False

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If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

A) True
B) False

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Question 42

Multiple Choice

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Senator Shulei Lee is alarmed at the state of the economy. Unemployment is high and GDP is low. Senator Lee has called for Congress to take action to increase government spending and cut taxes in order to stimulate the economy. The actions called for by Senator Lee are examples of

A) monetary policy.
B) fiscal policy.
C) discretionary income policy.
D) social investment policy.

E) B) and C)
F) All of the above

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Question 43

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Which of the following is an important premise of Adam Smith's conclusions about economic prosperity?

Cashland is a nation that supports a free-market economy with private ownership of businesses. But lately, the government of Cashland has developed policies designed to help the needy and lessen the level of income inequality. These programs are funded by relatively high taxes on businesses and workers. These arrangements suggest that the economy of Cashland is trending toward pure capitalism.

Senator Spendital recently made a speech condemning the continuous deficits in the federal budget. He is now 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.

One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.

The prime minister of Equalia has called for the nation's legislators to enact new legislation designed to shift the country away from socialism toward a more capitalistic system. The prime minister acknowledges that some citizens will be unhappy with the radical changes. The most likely source of dissatisfaction with a move toward capitalism is

Macroeconomics looks at long-run economic problems while microeconomics examines short-run economic problems.

The CPI is based on the prices of a carefully selected market basket of goods, all of which consumers can purchase at a supermarket.

A major premise of a socialist system is

Government spending on defense decreases the national deficit.

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

Kyle O'Donnell needs a new car and he is planning to borrow the money from a nearby bank. The other day, he read online that the Federal Reserve is likely to implement policies in the next few weeks that are designed to stimulate the economy. If he waits until after the Fed implements its new policies, Kyle would probably get a lower interest rate on his car loan.

Louisa is a gifted baker. She plans to open a small café in which she will be the head pastry chef. Louisa is willing to work the long hours because she believes that hard work will allow her business to succeed and earn her sizeable profits. Louisa's efforts are most consistent with the economic theory developed by

Olivia recently left her job at a large corporation because she saw little chance for advancement. Although she is still searching for a new position, she believes the economy is healthy and she hears that several firms are hiring people with her qualifications. Which of the following statements about Olivia's current situation is most accurate?

The quantity of a good or service that producers are willing to sell at different prices during a specific time period is known as the

The ________ is a statistic used to measure the pace of inflation or deflation.

The study of how to increase the amount of available resources and create conditions that will make better use of these resources is known as

A problem with the CPI is that it measures the price changes of only food and clothing, while ignoring what happens to the prices of such important items as medical care and energy.

Quinn owns a local salon. She wants to update her shop with new customer massage chairs and work stations for her nail technicians. 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 conclude that updating her shop would not increase or decrease her financial position.