BUSN Ch. 2

Economists declare an official recession when gross domestic product decreases for six consecutive quarters. True or False

False

Fiscal strategies are closely tied to political philosophy. True or False

True

In the context of capitalist economy, the right to free choice directly feeds competition. True or False

True

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 exemplify _____. a. cyclical unemployment b. seasonal unemployment c. frictional unemployment d. structural unemployment

a. cyclical unemployment

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. a. producer price index b. cost-of-living index c. consumer price index d. prices received index

a. producer price index

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 of New Tapan cut down its expenditures in several other sectors and imposed higher taxes. Similar measures implemented by the government in the United States would most likely create _____. a. the fiscal cliff b. a reserve requirement c. the debt ceiling d. an earmark

a. the fiscal cliff

In the context of monetary policy, which of the following is a result of an increase in the reserve requirement? a. Number of bank loans begin to increase. b. Interest rates begin to rise. c. Credit becomes readily available. d. Banks can no longer hold any funds.

b. Interest rates begin to rise.

In the context of monetary policy, which of the following statements is true of money supply? a. The M1 money supply includes market accounts and certificates of deposit. b. The M1 money supply includes all currency plus checking accounts and traveler's checks. c. The M2 money supply excludes all of the M1 supply except certificates of deposit. d. The M2 money supply excludes paper bills and metal coins.

b. The M1 money supply includes all currency plus checking accounts and traveler's checks.

The Kingsabode Daily is a community news agency that distributes newspapers to the residents of Kingsabode County. To meet the demand and to ensure that there is zero wastage of resources, the news agency prints 250 newspapers that are distributed in the 250 homes in the county. The price associated with such a demand and supply pattern is called the _____. a. parity price b. equilibrium price c. basic price d. producer price

b. equilibrium price

The economy of Sutanvia is under severe financial distress. However, over the last few months, the economy has gradually picked up, and employment levels are slowly rising back to normal levels. Consumers are also beginning to engage in regular buying activities. In this scenario, the economy of Sutanvia is currently in the _____ phase of its business cycle. a. expansion b. recovery c. relapse d. contraction

b. recovery

The controversial $700 billion economic bailout plan passed by Congress in early October 2008 was called the _____. a. NCUA Corporate Stabilization Program b. American Recovery and Reinvestment Act c. Troubled Assets Relief Program d. Clayton Antitrust Act

c. Troubled Assets Relief Program

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. cut back on the discount rate. b. increase the loan amount. c. cut back on the loans they make. d. increase the discount rate.

c. cut back on the loans they make.

Which of the following is a feature of capitalism? a. The government owns and operates key enterprises that directly affect public welfare. b. The system works toward improving the lot of the working class at the expense of the super-rich. c. Private-sector businesses are not free to hire and fire at their discretion. d. Private-sector businesses are free to make their own choices regarding what they will produce.

d. Private-sector businesses are free to make their own choices regarding what they will produce.

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: a. more investments on human services such as free healthcare and education subsidies b. a reduction in incentives for both domestic and foreign investment c. stronger centralized government control over businesses d. reduced red tape in socialist governments.

d. reduced red tape in socialist governments.