BUS-101 Chapter 2 Quiz

Identify a true statement about the Federal Reserve.

It manages the monetary policy of the United States

The economic system of the United States is called _____.

capitalism

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

economic system

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

They are both strongly involved with the government

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

The economic system of the East Asian nation of Xinzen calls for public ownership of all businesses. The government has complete control over the market, and individuals do not have individual rights and the freedom to make choices. In this scenario, the economic system followed by Xinzen is _____.

communism

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

False

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

False

The cosmetics industry in the district of Dunkenburg has many competing companies that sell personal care products. However, each company manufactures products that correspond to different income groups. The products are also different in terms of their uses. Which of the following market structures is existent in the cosmetics industry in Dunkenburg?

Monopolistic competition

__________is a market structure with just a single producer completely dominating the industry.

Monopoly

_____ are market structures with one company as the supplier of a product because the nature of that product makes a single supplier more efficient than multiple, competing ones.

Natural monopolies

The district of Dansas in Nerito, a European country, is a major producer of walnuts. All producers in the district sell packaged walnuts. The market structure is flexible enough for producers to enter and leave the market as and when they wish, but no single producer has control over the prices of the product. Which of the following market structures is existent in Dansas?

Pure competition

Socialist economies tend to have high taxes, which are designed to distribute wealth more evenly through society.

True

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

buys government securities on the open market

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

When Congress agreed to raise the debt ceiling during the economic meltdown in the United States in 2011, it temporarily averted a shutdown crisis, but the deal they reached to do so created the _____.

fiscal cliff

Anoush used to work for an investment firm. Although she liked her job, she had to resign because it took her a lot of time to commute to work. After resigning, she searched for a job, and within a month, she found a better job that was closer to her home. This scenario exemplifies _____.

frictional unemployment

The funds of Lutsan City Bank decreased after the Federal Reserve cashed the checks that it received after selling government securities. As a result, the bank had to cut back on its loan offerings as it did not have sufficient funds to provide loans. This scenario exemplifies _____.

open market operations

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 the South Asian nation of Albana is unable to maintain the electronics business effectively because of slack in management and lack of skilled employees. It sells the business to a company called Ramington Electricals. The company has no association with the government and operates on its own terms. The sale of the government-owned electronics business to Ramington Electricals is an example of _____.

privatization

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.

recovery

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

recovery phase

Ronnie works on a part-time basis for a company that provides home repair and maintenance services. Ronnie is specialized in handling the central heating systems in homes and is therefore needed to be at work only during the winter. Other than that, he is mostly unemployed for the rest of the year. In this scenario, the form of unemployment faced by Ronnie is _____.

seasonal unemployment

In the context of open market operations, when inflation is a concern, the Federal Reserve _____ government securities.

sells

During a period of grave financial crisis in the United States, Congress is pressurized to raise the limit on the maximum amount of money the government can borrow. Congress increases the limit on the condition that it will implement sharp tax hikes and across-the-board spending cuts to compensate for the raise and to ensure that the overall budget deficit decreases. In this scenario, the measures implemented by Congress will most likely create:

the fiscal cliff