BUS100 Exam #1 **PRACTICE QUESTIONS**

In response to inflation, the Fed is likely to:

Increase the discount rate

The study of smaller economic units such as individual consumers, families, and individual businesses

Microeconomics definition

Which of the following is an example of a natural monopoly?

Public utilities

The two categories of planned economy are

socialism and communism

Which of the following statements is true of productivity?

A high level of productivity typically correlates with healthy gross domestic product growth.

Reserve requirement definition

A rule set by the fed, which specifies the minimum amount of reserves (or funds) a bank must hold, expressed as a percentage of the bank's deposit

In the context of monetary policy, when the economy is weak, the Fed:

Buys government securities on the open market

Rochester, an Asian country, follows an economic system that facilitates private ownership. The country's economy is based on economic freedom and fair competition. Given the information, the economic system followed by Rochester is ____.

Capitalism

The economic system of the United States is called _____.

Capitalism

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:

Cut back on the loans they make

A period of falling average prices across the economy.

Deflation definition

A period of slowing average price increases across the country

Disinflation definition

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.

Equilibrium price

Capitalism is an example of a planned economy (T/F)

False

Economists declare an official recession when gross domestic product decreases for six consecutive quarters. (T/F)

False

Irkholm, a South American nation, experiences an economic downturn that leads to an increase in average prices across the country. The situation becomes more serious when average prices increase more than 50% per month. In the given scenario, Irkholm is experiencing _____.

Hyperinflation

In the context of the free market system, which of the following statements is true of oligopoly?

It typically avoids intense price competition

Prior to formulating its annual budget, the government of the Asian country of Florenesia employs a number of individuals to look into the overall productivity of the country. These individuals are also responsible for studying and revising some of the taxation policies and gauging the employment rate. Given this information, these individuals are studying _____.

Macroeconomics

A market structure with many competitors selling differentied products. Barriers to entry are low.

Monopolistic Competition definition

Denver wants to start an industrial products manufacturing company, but he finds it difficult to enter the market as it is already dominated by a single producer who controls product quality and product prices. Given this information, Denver is unable to enter the market because of the existence of _____.

Monopoly

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 _____.

Monopoly

A market structure with only a handful of competitors selling products that can be similar or different. Barriers to entry are typically high.

Oligopoly definition

A giant telecommunications company that was previously owned by the government of Sunzabia, a European country, is sold to an independent industrialist to ensure that the company is handled in a more efficient way. This scenario exemplifies _____.

Privatization

The government of Lenzerbia, a country in South Asia, monitors its inflation rate using an index that measures change over time in the prices that businesses pay to each other for goods and services. In this scenario, the Lenzerbian government most likely uses the _____ to evaluate inflation.

Producer price index

_____ refers to the relationship between the goods and services that an economy generates and the resources needed to generate them.

Productivity

A market structure with many competitors selling virtually identical products. Barriers to entry are quite low.

Pure Competition definition

Over the past 30 years, most economies of the world have begun moving toward the market end of a spectrum that ranges from pure planned economy at one extreme to pure market economy at the other. This has led to:

Reduced red tape in socialist governments.

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 _____.

Reserve requirement

Gregory is a typist at a corporate firm. When the company adopted a special voice recognition software for the purpose of documentation, Gregory's job became inessential. Therefore, he was laid off. The increased use of technology in most companies makes Gregory's skill inessential, and he remains unemployed for a long time. In the given scenario Gregory is facing ___.

Structural unemployment

In the year 2002, Timothy wanted to purchase a house. As he did not have sufficient funds, he decided to take a loan. Given his low credit score, it was highly unlikely that he would be able to repay the borrowed money. However, he was able to secure a loan despite his reduced ability to repay the loan. Timothy most likely applied for a _____.

Subprime mortgage loan

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 _____.

The equilibrium quantity

Keltica, a country in Asia, enjoyed a period of great economic boom in the 1980's. The country had robust economic growth, high employment, and abundant business investments during this period. In the context of the business cycle, the economy of Keltica was in ___ during the 1980's.

The expansion phase

Supply curve definition

The graphed relationship between price and quantity from a supplier standpoint

Macroeconomics involves the study of:

The gross domestic product of a country.

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. (T/F)

True

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. (T/F)

True

Gross Domestic Product (GDP) measures the total value of all the imports and exports of a nation on a quarterly basis. (T/F)

True

In its role as a regulator, the Fed:

oversees mergers and acquisitions

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:

reduce the discount rate