Chapter 3 Study Guide

There are four interrelated areas on which American businesses should concentrate to meet the global economic challenges of the 21st century. Briefly list and explain each.

1. Chronic fiscal imbalances - failure to redress excessive government debt responsibilities 2. Rising greenhouse gas emissions - governments, businesses, and consumers fail to reduce greenhouse gas emissions and expand carbon sinks. 3. Water supply crisis - a decline in the quality and quantity of fresh water combined with increased competition among resource-intensive systems, such as food and energy production. 4. Aging population - failure to address both the rising costs and social challenges associated with population aging.

List and define the factors that collectively determine demand.

1. Customer preference - Increased or decreased preference for a product or service 2. Buyer Numbers - Increase or decrease in number of buyers can impact demand 3. Buyer Income - Increase or decrease of income 4. Prices of off-brand/substitute goods - increase or decrease in price of these goods can affect the demand for the original product 5. Prices of complimentary goods - Increase or decrease in price of these goods can impact the demand for the original product 6. Future Expectations - When customers become more optimistic about future endeavors, demand increases. If customers are pessimistic about future endeavors, demand decreases

Give examples of how monetary and fiscal policy can be used to combat inflation and unemployment.

1. Expansionary monetary policy puts more money into circulation, making business borrowing easier and often lowering interest rates. As businesses increase activity, more jobs are created, decreasing the unemployment rate. 2. Restrictive monetary policy reduces the money in circulation and can help reduce inflation. 3. Fiscal policy that increases taxes will pull money out of circulation and can help reduce inflation. 4. Fiscal policy that decreases taxes will increases business activity and overall economic activity.

Describe two ways countries like the United States aim to help developing countries modernize their economies.

1. Nations, including the United States, are struggling to find ways to help developing nations modernize their economies. One proposal is to forgive the debts of some of these countries, particularly countries in Africa, to help their economies grow and develop. 2. Leaders of these countries should be encouraged to allow citizens to own property, lower tax rates, avoid devaluing currencies, create a path for new businesses to start, and reduce trade barriers.

In the United States, changes in price levels are tracked by the _______________, which measures the monthly average changes in prices of goods and services.

Consumer Price Index

______________ is the inflation rate of an economy after energy and food prices are removed.

Core inflation rate

The science of allocating scarce resources is known as _______________.

Economics

The _______________ is the price at which the demand curve and the supply curve intersect.

Equilibrium price

A core inflation rate includes energy and food-related prices.

False

A general decline in the prices of goods and services is known as inflation.

False

Excess demand for a product tends to generate pressure to push the price back down toward equilibrium.

False

Government policy that impacts the overall economy is a good example of a microeconomic issue.

False

If consumers' incomes increase, more products may be sold, shifting the demand curve to the left.

False

If the demand curve shifts to the right, then the number of buyers has decreased.

False

If the price of apples increases, consumers' demand for apples will also likely increase.

False

In monopolistic competition, the industry requires such large capital investment that there are very few producers.

False

Macroeconomics and microeconomics are not related in any way.

False

Macroeconomics deals directly with small-scale consumer purchases.

False

Microeconomics addresses such questions as how to control inflation.

False

Mixed-market economies are generally defined by a weak public sector with a handful of private enterprises.

False

Policies to reduce unemployment would be primarily a concern of microeconomics.

False

Privatization occurs when private companies are taken over and run by the government.

False

Socialism is an economic system in which the government owns all the nation's productive capacity.

False

The most widely used measure of inflation in the United States is the Gross domestic product (GDP).

False

Under communism, the government owns and operates only the basic industries.

False

Unemployment is its level of productivity.

False

_______________ refers to people who are temporarily out of work but who are looking for a job.

Frictional unemployment

The widest measure of a nation's economic activity, the _______________ counts the dollar value of all the goods and services produced within a nation's borders.

Gross Domestic Product (GDP)

List and define the factors that collectively determine supply.

I. Costs of Inputs - Changes in the cost of parts of production, like natural resources, capital, human resources, and entrepreneurship, can impact the amount of supply able to be produced II. Cost of Technology - New technology costs can impact the supply of products or services that need that technology to be produced III. Taxes - Increase or decrease in taxes can impact the suppliers' willingness to produce the product IV. Number of Suppliers - When more suppliers enter the market, the supply curve shifts to the left. When suppliers leave the market, the supply curve shifts right.

The term used to describe the study of the overall operations of an economy and its various components is known as _______________.

Macroeconomics

_______________ refers to the study of the economic activities of a firm or an individual.

Microeconomics

Define monetary policy.

Monetary policies are government policies and actions concerning regulation of the money supply. Expansionary monetary policy increases the money supply in an effort to cut the cost of borrowing, which encourages business decision makers to make investments, in turn stimulating employment and economic growth. Restrictive monetary policy reduces the money supply to stop rising prices, overexpansion, and concerns about overly rapid economic growth.

_______________ refers to governmental measures like interest rates designed to affect the level of economic activity through changes in the money supply.

Monetary policy

Producers are able to differentiate their products.

Monopolistic Competition

The market situation in which a large number of buyers and sellers exchange well-differentiated products is known as _______________.

Monopolistic competition

There is only one seller in the industry.

Monopoly

Because the industries require large capital investment, there are very few producers.

Oligopoly

The industry is made up of many firms of similar size whose products are indistinguishable.

Pure Competition

_______________ counts people like construction workers, farm laborers or ski instructors who are out of work due to the time of year or a seasonal industry.

Seasonal unemployment

_______________ counts those people who are unable to find work for a long period of time because they lack the necessary skills for available jobs, or their skills fail to match those needed in the workforce.

Structural unemployment

A restrictive monetary policy helps reduce inflation.

True

A restrictive monetary policy reduces the money supply in order to curb rising prices.

True

A rise in the cost of materials or labor can produce cost-push inflation.

True

A surplus of a product or service will bring the price of that product or service down.

True

Economics is the study of people and the choices they make in allocating scarce resources.

True

Generally, a decrease in the price of travel will increase the demand for travel.

True

Global competitiveness depends on improving working skills to take full advantage of new technologies that enhance use, management, and control of information.

True

Karl Marx is credited with developing the communist theory.

True

Macroeconomics deals with large issues that affect a country's overall economy.

True

Most modern economies blend free enterprise with some degree of government regulation and are known as mixed market economies.

True

Oligopolies are market situations, like those in the steel and airline industries, in which relatively few sellers compete and high start-up costs form barriers to keep out new competitors.

True

The Federal Reserve sets and implements monetary policy.

True

The aging of the world's population is proving to be a challenge to the global economy.

True

The exchange process between buyer and seller represents the relationship between supply and demand.

True

The most important measure of a company or nation's efficiency and competitiveness is its level of productivity.

True

The shift from a manufacturing to a service economy has required workers with different skills, resulting in structural unemployment.

True

When the federal government runs a budget deficit, the national debt is also increased.

True

To be competitive in a global economy the United States should: a. all of these answers are correct. b. be attentive to the aging of the world's population. c. be ready to compete with China and India for resources. d. concentrate on developing a more highly skilled workforce.

a. all of these answers are correct.

When an economic slowdown continues in a downward spiral over a long period of time, we have: a. depression. b. recession. c. prosperity. d. recovery.

a. depression.

The total dollar value of the goods and services produced in a country during a year is known as: a. gross domestic product. b. all of these answers are correct. c. the consumer price index. d. the business cycle.

a. gross domestic product.

When the economy has contracted for six months or more, the nation is in a(n): a. recession. b. recovery period. c. inflationary period. d. depression.

a. recession.

If buyer optimism improves: a. the demand curve shifts to the right. b. the demand curve shifts to the left. c. the supply curve shifts to the right. d. the supply curve shifts to the left.

a. the demand curve shifts to the right.

Which of the following is a macroeconomic issue? a. inflation. b. all of these answers are correct c. unemployment. d. the business cycle.

b. all of these answers are correct

A contraction in the gross domestic product (GDP) that lasts six months or more is called: a. prosperity. b. recession. c. recovery. d. depression.

b. recession.

During the late fall retailers tend to hire many people, and in January lay off many of them. This results in: a. structural unemployment. b. seasonal unemployment. c. cyclical unemployment. d. frictional unemployment

b. seasonal unemployment.

When the federal government generates enough revenue through taxation to cover the total proposed spending for the year, a _______________ has been attained.

balanced budget

The _______________ is the federal government's plan for how it will raise and spend money during the coming year.

budget

When the federal government spends more than it gets from tax revenues, a _______________ is the result.

budget deficit

40. When a government takes in more money than it spends, it is said to have a _______________.

budget surplus

When the United States government influences the economy through government spending and tax collections, this is referred to as: a. tax policy. b. monetary policy. c. fiscal policy d. political maneuvering.

c. fiscal policy

The common factor that directly impacts both supply and demand is: a. government policy. b. advertising. c. price. d. gross domestic product.

c. price.

After an economic downturn, when consumer spending begins to increase and business activity accelerates, the country is in: a. prosperity. b. recession. c. recovery. d. depression.

c. recovery.

Under the economic system known as _______________, the means of production are owned and controlled by the government.

communism

When people are out of work during a recession or other economic downturn, their job loss is referred to as _______________.

cyclical unemployment

Microeconomics studies the economic actions of: a. individuals. b. families. c. individual firms. d. all of these answers are correct.

d. all of these answers are correct.

When prices continue to fall, customers and businesses lose confidence and economic activity is reduced. This phenomenon is known as: a. recovery. b. inflation. c. prosperity. d. deflation.

d. deflation.

People with the necessary skills who are temporarily out of work and seeking employment are classified as: a. structurally unemployed. b. cyclically unemployed. c. seasonally unemployed. d. frictionally unemployed.

d. frictionally unemployed

The stage characterized by low unemployment and strong consumer confidence is called: a. recovery. b. recession. c. depression. d. prosperity.

d. prosperity.

A period of falling prices that erodes values and business confidence is known as _______________.

deflation

The ability and willingness of buyers to purchase goods and services in the economy is known as _______________.

demand

The _______________ depicts the relationship between different prices and the quantity of a good buyers will purchase.

demand curve

_______________ is the government's action to increase the money supply.

expansionary monetary policy

Governmental actions concerning tax revenue and expenditures of public funds are referred to as _______________.

fiscal policy

An economic situation characterized by soaring prices is known as _______________.

hyperinflation

When prices continue to increase due to costs or demand, the economy is said to be experiencing a period of _______________.

inflation

Nearly all of the world's economies today blend private and public ownership into what is known as a _______________.

mixed market economy

When a firm in the market has no competitors, it is said to have a _______________.

monopoly

The ___national debt____________ is the total cumulative borrowing by the federal government to finance budget deficits.

national debt

A(n) _______________ is a market situation that features few sellers and substantial entry restrictions.

oligopoly

In a _______________, government controls determine business ownership, profits, and resource allocation.

planned economy

In a mixed market economy, _______________ defines the trend of replacing public ownership with private ownership.

privatization

39. A nation's _______________ measures the relationship between that nation's output of goods and services and the inputs needed to produce them.

productivity

In _______________, a large number of buyers and sellers exchange homogeneous products so no single participant has a significant influence on price.

pure competition

Six months or more of economic contraction counts as a ___recession____________.

recession

A _______________ occurs when government grants exclusive rights in a single market to a single firm, such as a utility company.

regulated monopoly

__________________ is the government's attempt at reducing the money supply to curb rising prices, overexpansion, and rapid economic growth.

restrictive monetary policy

Under _______________, the government owns and operates the key industries that are considered vital to the public welfare.

socialism

All else remaining unchanged, an increase in _______________ of a product will lower its market price.

supply

The _______________ depicts the difference in the amount of a good a seller will produce at various prices.

supply curve

The ______________ measures the number of people who are looking for work but who are unable to find jobs.

unemployment rate