Chapter 1

62) The Fed has opted to buy securities and lower the reserve requirement. What will most likely happen as a result of this course of action? A) The money supply will increase thereby stimulating the economy. B) The money supply will increase thereby reducing inflation. C) The money supply will increase thereby causing disinflation. D) The money supply will decrease thereby reducing the possibility of a recession. E) The money supply will decrease thereby reducing deflation.

A

28) What is the point at which the supply curve and the demand curve intersect on a graph? A) equilibrium price B) decision point C) surplus price D) perfect price E) parity point

A

41) A new U.S. company plans to introduce an inexpensive, high-quality line of shoes to the American market. It has found a manufacturer in another country that can produce the shoes at a low enough cost that they will still be cheaper than other brands of the same quality. Which of the following represents a potential ethical implication that the company should consider before beginning production? A) the country's existing labor laws and the factory working conditions B) the average exchange rate of the country's currency over a ten-year period C) the challenges of doing business in a country with a nonconvertible currency D) the energy demands of the manufacturer's facility E) the basic international business strategy it will use

A

42) What marks the key difference between economic systems? A) the way they manage the factors of production B) the way they transport goods within their borders C) the way rules and regulations are legislated D) the way workers are relocated to different regions E) the way basic necessities are determined

A

47) A new feature on the the latest Acme smart phone has made it wildly popular. Which action should Acme take to maximize profits? A) Increase the supply of the smart phone. B) Decrease the supply of the smart phone. C) Reduce the price of the smart phone. D) Maintain the current supply until demand falls. E) Create a shortage of the smart phone.

A

54) Which of the following is characterized by having few sellers, similar prices among sellers, and difficult market entry? A) oligopoly B) pure competition C) monopoly D) monopolistic competition E) state socialism

A

57) What term do economists use for the pattern of short-term expansions and contractions in the economy? A) business cycle B) aggregate output C) standard of living D) consumer price index E) purchasing power parity

A

55) In an oligopoly, when one firm reduces its prices, how do other sellers react? A) There is no reaction from other firms to change their prices. B) Other firms reduce their prices also, usually quite quickly. C) Other firms may reduce their prices, but usually gradually. D) Other firms are not usually aware that price has changed. E) There is a combined response from other firms to stabilize prices.

B

58) Which indicator refers to the total quantity of goods and services produced by an economic system during a given period? A) the business cycle B) aggregate output C) gross domestic product D) the consumer price index E) gross national product

B

60) A financial analyst has noticed a serious rise in inflation. What course of action might the financial analyst advise the government to take in order to reduce inflation? A) The government can lower taxes. B) The government can raise taxes. C) Encourage the government to increase spending. D) Encourage consumers to increase spending. E) Encourage the government to increase spending and lower taxes.

B

61) Which course of action should the Federal Reserve take if it wishes to reduce inflation and curb consumer spending? A) The Federal Reserve should buy securities. B) The Federal Reserve should sell securities. C) The Federal Reserve should decrease the reserve requirement. D) The Federal Reserve should lower the discount rate. E) The Federal Reserve should sell securities and lower the discount rate.

B

29) What is the price at which the quantity of goods demanded and the quantity of goods supplied are equal? A) the going rate B) the margin rate C) the market price D) the optimum price E) the cost price

C

32) Which of the following exists when an industry or market has only one producer? A) competition B) oligopoly C) monopoly D) communism E) socialism

C

34) Which term refers to the total quantity and quality of goods and services that people living in an economic system can purchase? A) business cycle B) demand and supply schedule C) standard of living D) aggregate output E) consumer price index

C

35) Which term refers to the total value of all goods and services produced within a given period by a national economy? A) standard of living B) aggregate output C) gross domestic product D) gross national produce E) purchasing power parity

C

36) Which of the following measures indicates the prices of typical products purchased by American consumers living in urban areas? A) GDP per capita B) standard of living C) consumer price index D) purchasing power parity E) Big Mac index

C

44) Which economic system emphasizes the private ownership of most factors of production? A) socialism B) communism C) capitalism D) Marxism E) federalism

C

45) A city of 150,000 people has a large commercial sector bringing in businesses from the surrounding region. In 2005, there was 2.75 million square feet of commercial space available. Five years later, after a building boom, there was 5.5 million square feet of commercial space available. Which effect will most likely occur? A) The equilibrium price of commercial real estate will not be effected. B) The increase in the supply of commercial real estate will lead to a corresponding increase in its price. C) The price of commercial real estate will decrease, absent a dramatic increase in demand. D) The increase in the supply of commercial real estate will lead to an increase in resource

C

49) In a small town of 3,000 people, the number of car washes has grown from two to five in the last two months. Which result will likely occur? A) The increase in supply will have no effect on the equilibrium price. B) The increase in supply will lead to a decrease in demand. C) The increase in supply will lead to a decrease in the equilibrium price. D) The increase in supply will lead to an increase in demand. E) The increase in supply will lead to an increase in equilibrium price.

C

56) Which of the following is the most likely pricing approach for a monopoly? A) Charge customers whatever you please. B) Give customers a real bargain on price. C) Charge a price that will not cause consumer demand to drop. D) Undercut the prices of the competition. E) Give customers a fair price that cannot be matched by competitors.

C

70) How would supply affect the aggregate output of an economy? A) Supply would decrease aggregate output. B) Increases in both would cause inflation. C) Aggregate output would grow with supply. D) Supply would have no direct effect on aggregate output. E) Aggregate output would increase the money supply.

C

71) Which of the following best describes what the consumer price index is used to indicate? A) the average wage rate for a given region B) the economic performance of key consumer product companies C) the changes in the cost of consumer products over time D) the percentage of consumers in the total population looking for work E) the number of price increases within a given period of time

C

73) What type of policy is made up of fiscal and monetary policy? A) trade B) employment C) stabilization D) tax E) foreign

C

75) In the United States, milk is produced on thousands of farms, with no producer dominating the market. Producers sell milk at the going price and are unable to influence this price. Millions of gallons of milk are purchased every day. What type of competition is the market for milk? A) a monopoly B) an oligopoly C) perfect competition D) monopolistic competition E) a cooperative

C

84) Why would a government most likely be concerned about its country carrying a trade deficit? A) A trade deficit means that the country's productivity is low. B) A trade deficit means local companies do not have enough competition. C) A trade deficit ties up money that could be used for economic growth. D) A trade deficit decreases demand for goods overall. E) A trade deficit means that consumers do not have enough purchasing power.

C

65) The CEOs of Company A and B are investigating expansion into new markets, which will provide greater trade volume. Which scenario describes an economic environment that is most suitable for an importingexporting opportunity? A) Country X invests primarily in its textile industry while Country Y focuses on producing high-yield crops. B) Company A is willing to provide parts used in the production of equipment by Company B in exchange for discounts on manufacturing equipment. C) The southern region of Country X over-produces a wide range of produce, while few crops can be efficiently grown in the northern region. D) Company A and Company B are exploring the possibility of a joint venture to provide goods to Country X. E) Country X is looking to invest in foreign markets and Country Y currently has a large trade deficit.

A

66) Robert has established a start-up business manufacturing a range of outdoor wear for the leisure market. Which possible scenario would best show that Robert is positioning his business for the global business market? A) Robert launched a Web site for his business and hired two new employees to handle national and international shipping. B) Robert launched a Web site and filmed a commercial for television and recorded a radio version for local stations. C) Robert created a page for his business on a networking site and offered store coupons to his first 100 friends. D) Robert had his Web site translated into Korean in order to better serve the local Korean community. E) Robert took a full page ad out in the state's official tourism brochure.

A

67) What is a chief goal of an economic system? A) economic stability B) income equality C) money supply growth D) national debt reduction E) product innovation

A

69) Which of the following statements about inflation is true? A) The consumer price index is a good way of measuring inflation. B) Productivity decreases the purchasing power of consumer dollars. C) Inflation increases the purchasing power of consumer dollars. D) Localized price increases can cause inflation across the economic system. E) The amount of money tends to be distributed evenly during inflationary periods.

A

72) Which of the following is a likely cause of increased prices for products, decreased purchasing power, and decreased profit margins? A) low unemployment B) stagnant wages C) declining living standards D) cyclical inflation E) limited credit

A

74) In the city of Westminster, Christmas trees are being sold for $25. At this price, buyers are able to satisfy their demand, though some trees remain unsold. What is the term used to describe this market condition? A) surplus B) stoppage C) shortage D) demand deficit E) equilibrium price

A

80) Which of the following would be included in the gross domestic product of Brazil? A) the profits earned by a U.S.-owned automobile plant in Brazil B) the profits earned by a Brazilian coffee company operating in the United States C) the profits earned by a Brazilian coffee company operating in Peru D) the profits earned by U.S. suppliers to Brazil operating in the United States E) the profits earned by Peruvian companies operating outside Brazil

A

85) If, in the long run, international trade improves the standards of living in participating countries, why might some countries want to place trade barriers such as extra taxes on imported products? A) Imported products compete with domestic products and thus put pressure on local business. B) Imported products are usually not as good quality as domestically made products. C) Generating government revenue is often more economically valuable than free trade. D) This is necessary to keep a country's currency strong. E) International trade tends to lead to political tension.

A

87) The government is concerned that the economy is being stifled by low consumer spending. Which course of action should the Federal Reserve take if it wishes to improve the economy? A) The Federal Reserve should buy securities. B) The Federal Reserve should sell securities. C) The Federal Reserve should increase the reserve requirement. D) The Federal Reserve should increase the discount rate. E) The Federal Reserve should sell securities and lower the discount rate

A

59) Azucks is a socially responsible American company engaged in the manufacture of sports shoes. The CEO cautions that there is a disadvantage associated with the company planning increased globalization of production. Which of the following is the most likely disadvantage he is referring to? A) Heavy job losses can ensue in the domestic market. B) Greater disparities in living standards will emerge. C) Trade barriers will be reduced between countries. D) Substantial job losses will occur in developing markets. E) Increased competition will emerge between companies

AS

26) What term denotes a nation's basis for allocating its resources among its citizens? A) capital structure B) economic system C) ownership processes D) distribution network E) national regulations

B

27) What is the process for converting government enterprises into individually owned firms known as? A) production allocation B) privatization C) entrepreneurship D) demand assessment E) profit maximization

B

31) Which of the following does NOT represent a degree of competition in a private enterprise system? A) oligopoly B) socialism C) monopoly D) perfect competition E) monopolistic competition

B

33) Which term refers to the pattern of short-term ups and downs in an economy? A) aggregate output B) business cycle C) standard of living D) balance of payments E) demand and supply schedule

B

37) What does productivity measure? A) the total value of all goods and services produced by a national economy B) how much a system produces with the resources needed to produce it C) how much output is necessary to produce a certain level of demand D) the standard of living relative to purchasing power parity E) how much gross national product results from inputs of labor

B

38) What is the economic condition characterized by widespread increased prices without increased purchasing power? A) unemployment B) inflation C) expansion D) deflation E) recession

B

39) What is the condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate? A) unemployment B) stability C) deflation D) inflation E) oversupply

B

43) What does a planned economy rely on a centralized government to do? A) support free enterprise in every way possible B) allocate all or most factors of production C) encourage citizens to buy shares of stock in small companies D) keep its control activities to a minimum E) direct workers to start their own small businesses

B

46) A new watch manufacturer would like to determine the market price of a new line of watches. How could the manufacturer most effectively determine the market price? A) Place several of the new watches on sale at a watch store and see which sells most quickly. B) Arrange to sell the watches in a number of diverse auctions. C) Set the price of one watch higher than another and see which sells the most quickly. D) Survey potential customers and retailers on what they think the price should be. E) Canvass executives from competing companies about what they think the price should be.

B

64) The global business environment encompasses many international forces that influence the outcomes of companies doing business in foreign countries. Which of the following scenarios would best count as evidence of globalization? A) Diamonds mined in Country X are sold on the markets in Country Y. The proceeds are then used to fund a coup against the government in Country X. B) A natural disaster disables factories in Country X that produce computer chips for Company Y. Company Y reduces the number of employee shifts and raises the price of its products. C) Farmers in Country X have lost most of their wheat crops due to a drought. The market price for wheat triples and the government pays the farmers for a percentage of the lost wheat. D) Country X has almost mined all of its available natural energy sources. The government has been investing in alternative energy research for years and now an efficient synthetic energy source has been developed. E) Country X has raised the tax on oil products. As a result more people are taking public transportation and reducing unnecessary car travel

B

68) Which of the following best describes economic stability? A) the measure of economic growth that compares how much a system produces with the resources needed to produce it B) a condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate C) the economic condition in which a country's exports exceed its imports D) a relative equality between what the government owes its creditors and the revenue it gets from imports E) the economic value of all the products that a country exports minus the economic value of all the products it imports

B

79) Which of the following best describes nominal GDP? A) total quantity of goods and services produced by an economic system B) total value of all goods and services produced within a given period by a national economy through domestic factors of production measured in current dollars or with all components valued at current prices C) total value of all goods and services produced within a given period by a national economy regardless of where the factors of production are located D) total value of all goods and services produced within a given period by a national economy through domestic factors of production adjusted to account for changes in currency values and price changes E) total quantity of goods and services that are imported within a given period of time

B

81) Honata Automobiles is a South Korean-owned company. Honata has factories in Indonesia and Brazil. Which of the following is/are affected by the production of Honata automobiles? A) Indonesia, Brazil, and South Korea's GDP B) Indonesia and Brazil's GDP C) South Korea's GDP D) Indonesia and Brazil's GNP E) Indonesia, Brazil, and South Korea's GNP

B

83) Which is the best explanation for why standard of living only increases through productivity? A) The more goods that are available, the lower prices will be. B) More goods are available without having to come by additional resources. C) Productivity increases the money supply in an economy. D) Purchasing power increases when there is more consumer choice. E) Prices are determined by the standard of living.

B

25) Which environment is NOT an important dimension of a business organization's external environment? A) the political-legal environment B) the sociocultural environment C) the technological environment D) the corporate cultural environment E) the global business environment

D

30) What occurs when the quantity demanded exceeds the quantity supplied? A) demand deficit B) surplus C) equilibrium point D) shortage E) supply schedule

D

48) Which of the following is NOT a likely reason why a small business in a free enterprise system should seek the ideal combination of price charged and quantity supplied? A) to maintain goodwill among customers B) to maximize profits C) to avoid surpluses and shortages D) to avoid government regulation E) to discourage competition

D

50) Ernesto's Pizza is about to offer customers a new variety of a personal pizza. Which of the following actions by Ernesto's Pizza would most likely prevent a surplus or a shortage of the personal pizzas in its first week? A) limit the supply of the personal pizza B) lower demand for the personal pizza C) set the price of substitute goods D) estimate the market price of the personal pizza E) lower the price of the pizza throughout the week

D

51) Which of the following is one of the elements required in private enterprise? A) adequate representation in the government B) freedom from foreign competition C) the opportunity for market leadership D) the right to ownership of property E) numerous regulatory agencies

D

53) How does monopolistic competition differ from perfect competition? A) There are more sellers in a market characterized by monopolistic competition. B) It is easier for sellers to enter a market or industry characterized by monopolistic competition. C) In a perfectly competitive market, products are more dissimilar. D) In a market characterized by monopolistic competition, individual firms have some control over price. E) In a perfectly competitive market, the size of the firms must be large

D

63) If the Fed is concerned with a potential recession, what course of action should it take? A) Lower the reserve requirement and sell securities. B) Lower the discount rate and increase the reserve requirement. C) Sell securities and lower the discount rate. D) Buy securities and lower the discount rate. E) Buy securities and increase the reserve requirement

D

76) Which of the following best gives the meaning of the term gross domestic product? A) total quantity of goods and services produced by an economic system B) total quantity of goods that a country's citizens can purchase with the currency used in their economic system C) conditions of the economic system in which an organization operates D) total value of all goods and services produced within a given period by a national economy through domestic factors of production E) indicators of available goods and services produced within a specific domestic market

D

78) Which of the following best gives the meaning of the term gross national product? A) total quantity of goods and services produced by an economic system B) total quantity of goods and services produced within a given period by a national economy, not including foreign production C) total value of all goods and services produced within a given period by a national economy through domestic factors of production D) total value of all goods and services produced within a given period regardless of where the factors of production are located E) total value of all goods and services that are exported

D

82) Which of the following best describes purchasing power parity? A) total quantity of goods and services produced by an economic system B) total quantity of goods and services that can be purchased with one paycheck C) total quantity of goods and services that could have been purchased if one's pay rose in the same proportion as inflation D) the principle that exchange rates are set so that prices of similar products in different countries are about the same E) the principle that a market economy determines supply and demand for consumer products

D

86) Through various stimulus programs, the U.S. government injected money into the economy during the 2008-2009 recession. What was the concern that this type of action would lead to? A) increased labor costs B) increased spending C) increased unemployment D) increased inflation E) increased trade imbalance

D

40) What are profits? A) total money taken in by a corporation B) increases in income from year to year C) increases in a corporation's stock price D) revenue generated by goods and services E) difference between revenues and expenses

E

52) In perfect competition, which of the following conditions must prevail? A) All firms must adhere to cost and pricing standards. B) The number of firms in the industry must be limited. C) A single firm is able to influence the price of its product. D) It is relatively difficult to enter the industry. E) All firms in a given industry must be small.

E

77) Which of the following best gives the meaning of the term business cycle? A) the conditions of the economic system in which an organization operates B) the total quantity and quality of goods and services that a country's citizens can purchase with the currency used in their economic system C) the measure of economic growth that compares how much a system produces with the resources needed to produce it D) the number of businesses started during a given time period E) the pattern of short-term ups and downs in an economy

E