Chapter 2: Economics: The Framework of Business

_____ is an economic system based on private ownership, economic freedom, and fair competition.

Capitalism

_____ is an economic and political system that calls for public ownership of virtually all enterprises, under the direction of a strong central government.

Communism

Which of the following statements is true about the debt ceiling?

Debt ceiling hikes are fairly routine.

_____ is the total value of all final goods and services produced within a nation's physical boundaries over a given period of time.

Gross domestic product

Which of the following statements is true of structural unemployment?

It encompasses people who don't have jobs because the economy no longer needs their skills.

In the context of monetary policy, which of the following statements is true of the reserve requirement?

It helps protect depositors who may want to withdraw their money without notice.

In the context of measuring economic performance, which of the following statements is true of gross domestic product (GDP)?

It ignores legal goods that are not reported to avoid taxation.

In the context of the free market system, which of the following statements best describes pure competition?

It is a market structure with many competitors selling virtually identical products.

Cleftell Inc., a coal mining company in the United States, is the only supplier of coal in its area. The company is backed by the government as it offers its supplies at a discounted rate. Government backing makes it easier for the company to deal with legislation, thereby increasing its overall efficiency and productivity. Which of the following market structures is exemplified in the scenario?

Natural monopoly

_____ involve buying and selling government securities, which include treasury bonds, notes, and bills.

Open market operations

Which of the following was an impact of the American Recovery and Reinvestment Act?

People traded good-paying jobs for lower-paying positions.

Which of the following is a difference between the Troubled Assets Relief Program (TARP) and the American Recovery and Reinvestment Act?

TARP was a $700 billion economic bailout plan, whereas the American Recovery and Reinvestment Act was an $825 billion economic stimulus package.

_____ is the rate of interest that the Federal Reserve charges when it loans funds to banks.

The discount rate

Which of the following statements is true of capitalism?

The vast majority of enterprises are privately owned by businesses.

Which of the following was a reason for the collapse of financial institutions during the economic crisis in the United States?

There was a drop in mortgage values.

In the context of monetary policy, which of the following statements is true of commercial banks?

They accept demand deposits and make loans for the public.

In the context of the different degrees of competition, which of the following is a reason why monopolies are considered illegal?

They can harm the economy.

In the context of monetary policy, which of the following statements is true of open market operations?

They involve securities that the government issues to finance its deficit spending.

In the context of the global economic crisis in mid-2000, identify a true statement about subprime loans.

They were given to borrowers with little or no documentation.

In the context of the global economic crisis, which of the following statements is true of subprime mortgage loans?

They were seen by the lenders as low-risk loans.

In the context of the business cycle, _____ is an economic downturn marked by a decrease in the gross domestic product (GDP) for two consecutive quarters.

a recession

If the Federal Reserve increases the reserve requirement, _____.

banks must hold more funds

In the context of monetary policy, when the Fed reduces the discount rate, banks:

can obtain funds at a lower cost.

The right to fair competition is one of the fundamental rights of:

capitalism

In the country of Harashimin, the government strongly backs the labor class of the country. It is authoritarian in nature and believes in exploiting wealthy citizens to fulfill its agenda of bringing social and financial equality in the society. In this scenario, the government of Harashimin has most likely adopted the political philosophy called _____.

communism

In a free market system, _____ refers to the quantity of products that consumers are willing to buy at different market prices.

demand

A pure market economy:

does not make sufficient provision for the environment.

Perggy's Bakes, a bakery in New Orleans that exclusively sells its confectionery products online, makes its products only when it receives an order. The bakery produces the products as per the order and delivers to the customer's homes. It does not produce any excess products. In the given scenario, the price associated with the demand and supply of the products at Perggy's Bakes reflects the _____.

equilibrium price

The term _____ refers to the sum of all the money that the federal government has borrowed over the years and not yet repaid.

federal debt

The term _____ refers to government efforts to influence the economy through taxation and spending decisions that are designed to encourage growth, boost employment, and curb inflation.

fiscal policy

In the context of fiscal policy, most economists agree that:

lower taxes can leave more money in people's pockets for them to spend or invest.

The Krakozhian fashion market has many brands that sell clothing. However, each brand sells clothing designed for different niches in the market. In this scenario, the market structure prevalent in the Krakozhian fashion market is _____.

monopolistic competition

The nation of Radonia recently approved the sale of its national railway service to a company called Dontsky Rail Corporation. The company has no association with the country's government and operates on its own terms. The sale of Radonia's national railway service to Dontsky Rail Corporation is an example of _____.

privatization

The nation of Platinia provides its citizens with free healthcare and education services. The government of Platinia funds these programs through high taxation. In addition to these services, the government also runs utilities, telecommunications, and several other enterprises. The nation of Platinia exemplifies a _____.

socialist economic system

In the context of planned economies, _____ tend to have high taxes, which are designed to distribute wealth more evenly through the public.

socialist economies

In the context of the global economic crisis, _____ are defined by experts as loans to borrowers with low credit scores, high debt-to-income ratios, or other signs of a reduced ability to repay the money they borrow.

subprime mortgages

Which of the following was a result of the collapse of financial institutions during the economic crisis in the United States?

Companies began to announce layoffs.

Which of the following statements is true of the economy?

It is essentially a financial and social system.

Which of the following statements best describes a budget surplus?

It is the overage that occurs when revenue is higher than expenses over a given period of time.

Which of the following statements best describes a budget deficit?

It is the shortfall that occurs when expenses are higher than revenue over a given period of time.

Which of the following statements best describes the consumer price index (CPI)?

It measures the change in weighted-average price over time in a consumer market basket of goods and services that the average person buys each month.

Identify a true statement about real gross domestic product (GDP)?

It usually tends to be understated as it does not include any illegal activities.

Which of the following statements is true of the fiscal cliff?

It was a package of draconian across-the-board spending cuts.

In the context of mixed economies, pure planned economies are practically nonexistent in today's world because they would:

not create enough value to support their people over the long term.