More chapter 2 Economics: The Framework for Business

19. In the context of monetary policy, if the Fed decreases the reserve requirement, _____. a. there will be more loans available b. the availability of credit will decrease c. banks must hold more funds d. interest rates will increase

a. there will be more loans available

27. Macroeconomics involves the study of: a. spatial changes in the population of a country. b. the gross domestic product of a country. c. the competitive aspects of identical products. d. family incomes in a given region.

b. the gross domestic product of a country.

44. A(n) _____ is a structure for allocating limited resources. a. dynamical system b. credit system c. economic system d. accounting system

c. economic system

37. In the context of the fundamental principles of a free market system, the _____ is associated with the point at which the quantity demanded of a product equals the quantity supplied. a. fiscal price b. intermediate price c. parity price d. equilibrium price

d. equilibrium price

1. In the context of federal debt, if spending is lower than revenue, the government incurs a budget deficit. a. True b. False

False

11. Gross Domestic Product (GDP) measures the total value of all the imports and exports of a nation on a quarterly basis. a. True b. False

False

2. In the context of monetary policy, when the Fed reduces the discount rate, banks will have to obtain funds at a higher cost. a. True b. False

False

6. Reserve requirement is a rule of the Fed which requires that all of its member banks hold funds which are more than the stated percentage of the deposits held by their customers. a. True b. False

False

8. The amount of input divided by the amount of output equals productivity. a. True b. False

False

50. Which of the following is a difference between inflation and deflation?

Inflation is a period of rising average prices across the economy, whereas deflation is a period of falling average prices across the economy.

10. The consumer market basket of goods and services, in which the consumer price index (CPI) measures the change in weighted-average price over time, is created by the U.S. Bureau of Labor Statistics. a. True b. False

True

3. Socialist economies tend to have high taxes, which are designed to distribute wealth more evenly through society. a. True b. False

True

5. Deflation refers to a period of falling average prices across an economy, which is a sign of economic trouble that goes hand-in-hand with very high unemployment. a. True b. False

True

7. A drawback of communism, which was adopted by some countries in the 1900s, was the inability of people to make basic choices such as where to work or what to buy. a. True b. False

True

9. Gross Domestic Product (GDP) levels tend to be somewhat understated, since they don't include any illegal activities, which can represent a significant portion of some countries' production. a. True b. False

True

38. __________is a form of unemployment that involves layoffs during recessions. a. Cyclical b. Isochronal c. Periodical d. Seasonal

a. Cyclical

31. Larry is part of the Board of Governors that manages U.S. monetary policy. He has been elected by the President to serve a single 14-year term. In addition to setting the monetary policy, he is responsible for extending banking services to commercial banks. In this scenario, Larry is most likely part of the _____. a. Federal Reserve b. Department of Commerce c. Bureau of Economic Analysis d. U.S. Treasury

a. Federal Reserve

40. In the context of fundamental principles of a free market system, which of the following statements is true of a supply curve? a. It shows the relationship between price and quantity from a supplier standpoint. b. It refers to the point where the supply of products starts exceeding demand due to excessive production. c. It shows the relationship between price and quantity from a buyer standpoint. d. It refers to the point where the supply of products is no longer possible due to exhaustion of resources.

a. It shows the relationship between price and quantity from a supplier standpoint.

45. Which of the following tools is most frequently used by the Fed to expand and contract the money supply in the economy? a. Open market operations b. Credit default swaps c. Endowment mortgages d. Steering taxes

a. Open market operations

12. The United States goes through a period of recession because of the continuous decrease in the nation's gross domestic product. The Fed intervenes and improves the situation by reducing the discount rate. This move by the Fed will result in: a. banks obtaining funds at a lower cost. b. a rise in the interest rates of bank loans. c. individuals getting discouraged to borrow money and spend it. d. a drop in the availability of loans to consumers.

a. banks obtaining funds at a lower cost.

25. In the context of open market operations, when inflation is a concern, the Fed sells securities to buyers who write checks to the Fed to pay for securities they bought, and the Fed withdraws these funds from banks. With fewer funds, _____. a. credit becomes tighter b. banks increase the number of loans they make c. the money supply increases d. the inflationary pressures in the economy heat up

a. credit becomes tighter

28. The funds of Lutsan City Bank decreased after the Federal Reserve cashed the checks that it received after selling government securities. As a result, the bank had to cut back on its loan offerings as it did not have sufficient funds to provide loans. This scenario exemplifies _____. a. open market operations b. market monetarism c. reflation d. articles of incorporation

a. open market operations

36. The government of the South Asian nation of Albana is unable to maintain the electronics business effectively because of slack in management and lack of skilled employees. It sells the business to a company called Ramington Electricals. The company has no association with the government and operates on its own terms. The sale of the government-owned electronics business to Ramington Electricals is an example of _____. a. privatization b. globalization c. a joint venture d. a coalition

a. privatization

17. The economic situation in Lanceberg, an African country, slowly picks up after a severe financial downturn. Over a period of 12 months, businesses begin to expand and employment levels begin to rise. The markets in the country are also vitalized as consumers begin to engage in normal buying behavior. In this scenario, the economy of Lanceberg is currently in the _____. a. recovery phase b. relapse phase c. contraction phase d. inflation phase

a. recovery phase

26. The Board of Governors of the Federal Reserve holds a meeting to discuss its concern over the decreasing gross domestic product of the country. All members agree that the situation can be brought under control and the economy can be stimulated if they use the discount rate as a tool. In this scenario, the Fed is most likely to: a. reduce the discount rate. b. maintain the existing discount rate. c. increase the discount rate. d. slash the discount rate altogether.

a. reduce the discount rate.

18. Ronnie works on a part-time basis for a company that provides home repair and maintenance services. Ronnie is specialized in handling the central heating systems in homes and is therefore needed to be at work only during the winter. Other than that, he is mostly unemployed for the rest of the year. In this scenario, the form of unemployment faced by Ronnie is _____. a. seasonal unemployment b. structural unemployment c. periodical unemployment d. cyclical unemployment

a. seasonal unemployment

47. Ancusia, an East Asian country, was plagued by war and corruption for several years. This led to poor economic conditions, and the government was compelled to borrow funds from other nations. Because of the slow economic growth in the country, the government could repay only 15% of its debts. In this scenario, the amount that the government is yet to repay is known as _____. a. the federal debt b. a budget surplus c. the debt brake d. a revenue deficit

a. the federal debt

39. New Tapan, an African country, invested resources in the defense sector, and as a result, its budget deficit grew. To decrease the budget deficit, the government cut down its expenditures in several other sectors and imposed higher taxes. In this scenario, the measures implemented by the government of New Tapan most likely created _____. a. the fiscal cliff b. a reserve requirement c. the debt ceiling d. an earmark

a. the fiscal cliff

34. During a period of grave financial crisis in the United States, Congress is pressurized to raise the limit on the maximum amount of money the government can borrow. Congress increases the limit on the condition that it will implement sharp tax hikes and across-the-board spending cuts to compensate for the raise and to ensure that the overall budget deficit decreases. In this scenario, the measures implemented by Congress will most likely create: a. the fiscal cliff. b. a reserve requirement. c. the debt ceiling. d. an earmark.

a. the fiscal cliff.

33. The government in the town of Rodenham has granted exclusive rights to a few telecommunications companies to operate in specific geographic areas. The companies have to provide their services in the areas allotted to them, and no company is allowed to extend its services to the areas allotted to its competitors. This system has been put in place because it would be inconvenient for each company to build its own infrastructure in all areas. The given scenario exemplifies: a. pure competition. b. a natural monopoly. c. monopolistic competition. d. an oligopoly.

b. a natural monopoly.

49. When Congress agreed to raise the debt ceiling during the economic meltdown in the United States in 2011, it temporarily averted a shutdown crisis, but the deal they reached to do so created the _____. a. risk-return relationship b. fiscal cliff c. bottom-up budgeting d. niche barrier

b. fiscal cliff

23. The country of Ukanturk has been facing an economic downturn for two consecutive years. To revive the financial condition of the country, its government tries to influence the economy through taxation and spending decisions. These measures are designed to encourage growth and increase employment. In this scenario, the government of Ukanturk is implementing its _____. a. monetary policy b. fiscal policy c. investment policy d. supply-side policy

b. fiscal policy

13. Normander Corp. is a large media corporation that owns all the media outlets in Liecheben and a few news agencies internationally. Any new media company that tries to establish itself in Liecheben soon runs out of business because of the overpowering presence of Normander Corp. This scenario exemplifies _____. a. pure competition b. monopoly c. monopolistic competition d. oligopoly

b. monopoly

14. The Fed: a. decreases the money supply when the economy contracts. b. performs banking services for commercial banks in districts where it operates. c. calculates the expected expenditure for the federal government every year. d. outlines expected revenue that is due from the collection of taxes and fees.

b. performs banking services for commercial banks in districts where it operates.

35. Which of the following is a negative factor that affects socialist economic systems? a. Excessive private ownership of healthcare services b. Absence of a tax structure c. Inefficiencies and corruption d. Lack of government ownership of key enterprises

c. Inefficiencies and corruption

16. During a period of inflation in the United States, the Federal Reserve sells treasury bonds. Buyers of these bonds write checks to the Fed, and the Fed cashes these checks from banks. Given this information, the banks will most likely: a. increase the loan amount. b. increase the discount rate. c. cut back on the loans they make. d. cut back on the discount rate.

c. cut back on the loans they make.

21. A newly appointed government in the United States requests Congress to raise the amount of money that the government can borrow. This borrowed money is intended to be used to cover the costs of the major policies that it plans to implement. In this scenario, the government has asked the Congress to hike its _____. a. discount rate b. fiscal cliff c. debt ceiling d. down payment

c. debt ceiling

32. During an especially difficult year of weakening financial conditions, the government of Geriva, a European nation, borrows money to meet its legal obligations. However, once the borrowed amount reaches a certain limit, the government is not allowed to borrow more money. This is because the government has hit the _____. a. fiscal cliff b. reserve requirement c. debt ceiling d. price ceiling

c. debt ceiling

30. Real gross domestic product (GDP) measures the total value of final goods and services produced within a nation's physical boundaries over a given period of time, adjusted for: a. a loss of workforce. b. recession. c. inflation. d. a rise in unemployment.

c. inflation.

24. Brontsky & Co., a member bank of the Fed, receives a notice from the Fed that notifies that it must hold funds equal to 15% of the deposits held by its customers. In this scenario, the 15% is the _____. a. capital adequacy ratio b. capital requirement c. reserve requirement d. statutory liquidity ratio

c. reserve requirement

43. In the context of open market operations, when inflation is a concern, the Federal Reserve _____ government securities. a. buys b. borrows c. sells d. withholds

c. sells

41. Giovani, a baker, makes exactly 20 loaves of brown bread each day. These loaves of bread are delivered to the 20 individuals who have placed an order with him. The quantity associated with such a demand and supply pattern is called _____. a. a vector quantity b. the reserve requirement quantity c. the equilibrium quantity d. a latent quantity

c. the equilibrium quantity

20. In the context of monetary policy, _____ is a rule set by the Fed, which specifies the minimum amount of funds a bank must hold, expressed as a percentage of the bank's deposits. a. full-reserve banking b. the statutory framework c. the reserve requirement d. statutory liquidity ratio

c. the reserve requirement

22. _____ are market structures with one company as the supplier of a product because the nature of that product makes a single supplier more efficient than multiple, competing ones. a. Monopolies b. Oligopolies c. Pure competitions d. Natural monopolies

d. Natural monopolies

46. In the context of monetary policy, when the economy is weak, the Fed: a. withdraws funds from banks. b. asks banks to cut back on the loans they make. c. helps reduce inflationary pressures in the economy. d. buys government securities on the open market.

d. buys government securities on the open market.

42. The country of Trevanvia goes through a period of recession, which leaves a large number of people unemployed due to extensive layoffs by companies. The companies use the strategy of job termination to cut down their costs and reduce their output as the people are now more cautious with their spending. In the given scenario, the layoffs that take place exemplify _____. a. seasonal unemployment b. structural unemployment c. frictional unemployment d. cyclical unemployment

d. cyclical unemployment

48. A capitalist system depends on fair competition among businesses to: a. be consistent with the goals of socialism. b. ease the buying and selling of government securities. c. guarantee that every individual business earns profits. d. drive higher quality and lower prices.

d. drive higher quality and lower prices.

29. Following a contraction in the economy, the government of Geri, a South American country, decides to increase the money supply in the country. The government wants to first tally the M1 form of money supply. In this context, the government will most likely use _____ to tally the M1 form of money supply. a. bonds and certificates of deposit b. money market accounts c. savings accounts d. metal coins and paper bills

d. metal coins and paper bills

15. In the context of monetary policy, the Fed is most likely to reduce the discount rate during: a. inflations. b. periods of investment recovery. c. periods of low money supply. d. recessions.

d. recessions.

4. Socialism is an economic system that encourages privatization and believes that all enterprises should be publicly owned. a. True b. False

false