Business Principles 1301- Chapter 2

The government in the town of Rodenham has granted exclusive rights to a few telecommunications companies to operate in specific geographic areas. The companies have to provide their services in the areas allotted to them, and no company is allowed to extend its services to the areas allotted to its competitors. This system has been put in place because it would be inconvenient for each company to build its own infrastructure in all areas. The given scenario exemplifies:

A natural monopoly.

The Federal Trade Commission:

Actively promotes fair competitive practices.

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

False

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

False

In the context of federal debt, if spending is lower than revenue, the government incurs a budget deficit.

False

In the context of monetary policy, when the Fed reduces the discount rate, banks will have to obtain funds at a higher cost.

False

In the context of monetary policy, when the economy contracts, the Fed typically decreases the money supply.

False

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

The amount of input divided by the amount of output equals productivity.

False

In the context of monetary policy, which of the following is a result of an increase in the reserve requirement?

Interests rates begin to rise.

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

In its role as a regulator, the Fed:

Oversees mergers and acquisitions.

The Board of Governors of the Federal Reserve holds a meeting to discuss its concern over the decreasing gross domestic product of the country. All members agree that the situation can be brought under control and the economy can be stimulated if they use the discount rate as a tool. In this scenario, the Fed is most likely to:

Reduce the discount rate.

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

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 _____.

The fiscal cliff

The central banking system in the country of Darmos issues a notice to all its commercial banks stating that they must hold funds that are equal to 48% fo the deposits held by their customers. In the given scenario, the central banking system's notice exemplifies ___________.

The reserve requirement

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

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

True

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

True

Fiscal strategies are closely tied to political philosophy.

True

Gross Domestic Product (GDP) levels tend to be somewhat understated, since they don't include any illegal activities, which can represent a significant portion of some countries' production.

True

The consumer market basket of goods and services, in which the consumer price index (CPI) measures the change in weighted-average price over time, is created by the U.S. Bureau of Labor Services

True

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

True

Unfair business practices such as predatory pricing hinder capitalism from achieving its potential.

True