Business Chapter 2

In the context of the business cycle, which of the following statements is true of the period of economic contraction?

Consumers shift their buying patterns to more basic products.

Capitalism is an example of a planned economy.

False

In the context of monetary policy, which of the following statements is true of money supply?

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

Social security taxes are a source of revenue for the U.S. federal government.

True

The structure of the Board of Governors of the Federal Reserve is such that no single president can appoint all of the Board's members.

True

The gross domestic product (GDP) of Trelinberg, a South American nation, has been decreasing for the past eight years. The long period of consecutive decreases in the GDP has led to high unemployment rates in Trelinberg. In the given scenario, the economy of Trelinberg is most likely experiencing _____.

a depression

Which of the following is a similarity between socialism and communism?

both have strong involvement of the government

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 this information, the economic system followed by Rochester is _____.

capitalism

A capitalist system depends on fair competition among businesses to:

drive higher quality and lower prices.

A(n) _____ is a structure for allocating limited resources.

economic system

Real gross domestic product (GDP) measures the total value of final goods and services produced within a nation's physical boundaries over a given period of time, adjusted for:

inflation

The repayment of the debt by the U.S. federal government is likely to result in an increase in:

taxes

Reserve requirement is a rule of the Fed which requires that all of its member banks hold funds which are more than the stated percentage of the deposits held by their customers.

False

Socialism is an economic system that encourages privatization and believes that all enterprises should be publicly owned.

False

Disinflation is defined as a period of slowing average price increases across an economy.

True

The economic situation in Lanceberg, an African country, slowly picks up after a severe financial downturn. Over a period of 12 months, businesses expand and employment levels rise. Consumers begin to engage in normal buying behavior. In this scenario, the economy of Lanceberg is currently in the _____.

recovery phase

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

Identify a true statement about pure market economies.

They do not make sufficient provision for the old, the young, and the sick.

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.

True

In a capitalist economy, private-sector businesses are free to decide how much they will charge for their products.

True

The Fed directly stimulates spending by:

buying government securities.

A drawback of communism, which was adopted by some countries in the 1900s, was the inability of people to make basic choices such as where to work or what to buy.

True

Each year, the Federal Open Market Committee holds eight regularly scheduled meetings to make decisions about open market operations.

True

The term _____ refers to a market structure with many competitors selling differentiated products; the barriers to enter such a market structure are low.

monopolistic competition