Unit 3 Economics Study Guide

Read the graph that displays interest and total payments on a loan. Banks make the most money and take the most risk with an interest rate of 5 percent. 10 percent. 15 percent 18 percent.

18 percent.

There are four stages in an economic recovery. 1. increased production 2. rising demand (occurs twice) 3. increased hiring In which order do these stages occur? 2, 1, 2, 3 3, 2, 1, 2 2, 3, 1, 2 2, 1, 3, 2

2, 1, 3, 2

There are four stages in an economic recovery. 1. increased production 2. rising demand (occurs twice) 3. increased hiring In which order do these stages occur? 2, 1, 2, 3 3, 2, 1, 2 2, 3, 1, 2 2, 1, 3, 2

2, 1, 3, 2

These are the four stages of the business cycle:1. Depression2. Prosperity3. Recession4. RecoveryIn which order do these stages occur? 1, 3, 4, 2 3, 1, 2, 4 1, 2, 3, 4 2, 3, 1, 4

2, 3, 1, 4

This graph shows merchandise export data for the years 2010 through 2012. Which statement most accurately describes the information presented on the graph? The United States exported more merchandise than any other nation. The United States exported more than $2 trillion worth of goods in 2012. China exported more goods than the United States from 2010 to 2012. China exported more than $2 trillion in goods for each year on the graph.

China exported more goods than the United States from 2010 to 2012.

Which statement best describes why it is difficult to sell a home during a recession? Mortgage rates are high. Demand greatly decreases. Mortgages become unavailable. Housing prices increase.

Demand greatly decreases.

Which best describes the nature of cause and effect in the context of the business cycle? Each effect has other effects. Causes and effects cannot be easily defined. A cause has multiple independent effects. Each effect has a cause.

Each effect has other effects.

Which best explains why banks consider interest on loans to be important? Interest enables them to control the economy. Interest helps them to satisfy customers. Interest enables them to stockpile money. Interest helps them cover business costs.

Interest helps them cover business costs.

How is using money related to bartering? It is a substitute for bartering. It is the opposite of bartering. It is a newer form of bartering. It is an old form of bartering.

It is a substitute for bartering.

These circle graphs show information about Bolivia's workforce. Which statement best summarizes the information on these graphs? Many Bolivians are farmers, but the agriculture sector does not produce much in terms of GDP. Industry in Bolivia has grown very important to that country's economy in recent years. Bolivia is investing large sums of money in education in an effort to encourage economic growth. Bolivia must depend on agriculture if it intends to have a healthy economic future.

Many Bolivians are farmers, but the agriculture sector does not produce much in terms of GDP.

Which statement best describes the main cause of the 2008 housing market crash in the United States? Many people could not buy new homes during a weak economy. Many homes could not sell because housing prices rose too fast. Many homes could not sell because banks charged high interest. Many people could not make home payments during a weak economy.

Many people could not make home payments during a weak economy.

Which best describes the purpose served by economic models within an economic system? Models identify patterns. Models determine the business cycle. Models control change. Models define global demand.

Models identify patterns.

What advantages does money have over bartered goods? Check all that apply. Money is easy to earn, and bartering takes a lot of work. Money has a set value, and bartered goods do not. Money is more portable than bartered goods. Money is always worth more than bartered goods. Money allows people to easily store value they earn.

Money has a set value, and bartered goods do not. Money is more portable than bartered goods. Money allows people to easily store value they earn.

What role does the Federal Reserve play? Check all that apply. Regulate the banking industry Loan money to banks Give individual loans Give corporate loans Transfers any profits to the Treasury

Regulate the banking industry Loan money to banks Transfers any profits to the Treasury

Which of these are among the macroeconomic goals of governments? Check all that apply. Steadily increasing the gross domestic product. Avoiding overspending at all costs. Keeping citizens employed. Helping limit economic growth. Managing prices throughout the economy.

Steadily increasing the gross domestic product. Keeping citizens employed. Managing prices throughout the economy.

Which are the roles of a bank? Check all that apply. Storing and holding money Making purchases to create profits Lending money Investing in the economy Creating money for the economy

Storing and holding money Lending money Investing in the economy

Which best describes how a recession develops as demand and production decrease? The recession enters a recovery period. The recession slows. The recession accelerates. The recession starts and stops.

The recession accelerates.

When economists study aggregate supply and aggregate demand, what are they studying? The supply and demand of a good produced by one company. The total supply and demand of goods produced at all price levels. The equilibrium price of one good that is produced. The reason for a decrease in supply and demand for a specific good.

The total supply and demand of goods produced at all price levels.

Which is an effect of stagflation? Trade with other economies increases. The value of a country's currency drops. Prices for goods fall sharply and suddenly. The GDP rises along with production levels.

The value of a country's currency drops.

When production is very high but demand is very low, it can lead to a recession. a recovery. prosperity. the peak.

a recession.

What term is used in macroeconomics to describe the total supply and the total demand? capital inflation aggregate equilibrium

aggregate

An entrepreneur who needs large amounts of capital to create and distribute a new invention would most likely visit a community banker. an investment banker. a commercial banker. an executive banker.

an investment banker.

Which is the most liquid form of money? cash and currency in circulation investment accounts savings accounts demand accounts

cash and currency in circulation

Which is an example of a demand account? savings account investment account credit account checking account

checking account

As a result of decreased production, David lost his job designing cars. Which terms can be used to describe David? Check all that apply. cyclically unemployed domestically unemployed frictionally unemployed structurally unemployed still employed unemployed

cyclically unemployed unemployed

In the United States, dollar bills, nickels, and dimes are representative money. commodity money. various currencies. different denominations.

different denominations.

Read the graph about mortgage interest rates and housing starts between 1978 and 1983. A conclusion that can be drawn from both graphs by looking at 1983 is that interest rates dropped, which led to more home starts. peaked, while home starts bottomed out. climbed, which led to fewer home starts. bottomed out, while home starts peaked.

dropped, which led to more home starts.

When economists determine that a nation's GDP has declined, they can point to this as a sign of economic shrinkage. economic growth. low unemployment. poor leadership.

economic shrinkage.

The exchange of factors of production for income occurs in the _____ market. private close factor

factor

Rabia does not currently have a job, but declined a job offer because she feels her skills merit better pay and a better position. Which terms can be used to describe Rabia? Check all that apply. cyclically unemployed domestically unemployed frictionally unemployed structurally unemployed still employed unemployed

frictionally unemployed unemployed

Which body or group is most able to use money to influence the economy? government suppliers firms producers

government

The circular flow model examines interactions between which sectors of the economy? Select THREE answers. private government foreign tech households

government foreign households

One fact about all currency is that it loses value over time. has a changing value. maintains a stable value. grows increasingly valuable.

has a changing value.

Which describes a factor that limits economic growth? making investments developing technology engaging in trade having low internal demand

having low internal demand

In the circular flow model, factors of production flow to firms. Which of the following are the primary factors of production? Check all that apply. labor capital goods land services

labor capital land

Sometimes an economy cannot grow because of external factors, such as lack of skilled labor. poor infrastructure. low domestic demand. low demand for exports.

low demand for exports.

Which best describes what is represented in the business cycle model? the interactions between producers and consumers the change in production cost macroeconomic trends supply and demand trends

macroeconomic trends

The Federal Reserve manages the nation's currency and money supply by manipulating interest rates and acting as a lender to banks. overseeing bank collections and payments on loans. dictating criteria and setting loan terms for banks. offering investment advice and adjusting interest rates.

manipulating interest rates and acting as a lender to banks.

What area of economics focuses on the interactions between individual consumers and producers? aggregates macroeconomics microeconomics markets

microeconomics

Which best describes what injector factors bring to an economic system? factors of production imports consumers money

money

Income reaches the highest level at the ________ point of the business cycle.

peak

Economic growth takes place when a country produces a steady number of automobiles. has a high unemployment rate. measures its gross domestic product (GDP). produces more goods and services.

produces more goods and services.

What kind of money is a gold certificate considered to be? commodity fiat representative currency

representative

The graph shows changes in the US economy between 1971 and 2001. According to the graph, 1971 to 1976 was a period of stagflation due to rising unemployment and inflation. falling unemployment and inflation. rising unemployment and falling inflation. falling unemployment and rising inflation.

rising unemployment and inflation.

Banks pay interest to customers through a savings account. credit card account. mortgage account. 401k account.

savings account.

Which is the correct order of entities that benefit when banks make a profit? employees, shareholders, and the economy shareholders, shoppers, and the economy employees, companies, and the economy shareholders, companies, and the economy

shareholders, companies, and the economy

Which best describes what occurs in the product market? the exchange of labor for capital the exchange of goods and services for factors of production the exchange of goods and services for money the exchange of money for factors of production

the exchange of goods and services for money

What gives commodity money its value? a government's guarantee of its value the type of material with which it is made its rate of exchange in other countries the ability to trade it for a valuable good

the type of material with which it is made

People might choose to use a debit card rather than cash for purchases because they do not want to carry around large amounts of cash. their banking institutions charge high fees for cash withdrawals. most items cost less when purchased with a debit card. debit cards have a higher value than cash and can buy more.

they do not want to carry around large amounts of cash.

What decisions does the business cycle help businesses make? Check all that apply. whether to stay at old facilities or move to new facilities whether to grow or shrink the business whether to keep or change products whether to increase or decrease production whether to hire or lay off workers whether to invest or save money

whether to grow or shrink the business whether to increase or decrease production whether to hire or lay off workers whether to invest or save money

Which of these scenarios involves commodity money? A girl writes a check to her friend for a stack of valuable comic books. A boy starts a lemonade stand and sells each drink for twenty-five cents. A woman offers her neighbor a US silver dollar in exchange for a bicycle. A man buys some T-shirts and pays with a US fifty-dollar bill.

A woman offers her neighbor a US silver dollar in exchange for a bicycle.

Which is an example of how a denomination is divisible? An American dollar may equal one-half of one Euro. An American dollar is equal to four quarters. Three American dollars may buy a small snack. Five American dollars may be worth less next year.

An American dollar is equal to four quarters.

Which event most likely explains renewed demand in a recovery period? Consumers choose to save more and spend less. Economic policy renews consumer confidence and demand. Producers decrease prices to prompt demand and recovery. Production decreases to prompt increased demand.

Economic policy renews consumer confidence and demand.

How does demand-pull inflation differ from cost-push inflation? Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers. Demand-pull inflation is driven by producers, while cost-push inflation is driven by consumers. Demand-pull inflation is driven by the private sector, while cost-push inflation is driven by the government. Demand-pull inflation is driven by the government, while cost-push inflation is driven by the private sector.

Demand-pull inflation is driven by consumers, while cost-push inflation is driven by producers.

Which best describes why taxes and savings are considered leakage factors? They take money out of households. They take money out of the economic system. They take money out of the economic sectors. They take money out of the financial sector.

They take money out of the economic system.

The graph shows data for the years 2010 through 2012. Which might be a better title for this graph? Total Exports for the United States and China Trade Between China and the United States Unemployment in the United States and China The History of International Trade

Total Exports for the United States and China

A fee banks charge in exchange for borrowing money is called _____.

interest

To help encourage economic growth, a country can stop selling goods to other countries. invest in research and development. lay off unneeded workers. lower requirements for education.

invest in research and development.

A currency's exchange rate is how many denominations the currency has. its stable rate as established by the government. how easily it can be divided into other currencies. its changing value relative to other currencies.

its changing value relative to other currencies.

Exchange rates can indicate economic health by showing exactly how much of each nation's currency is liquid. revealing how much of each nation's income goes to savings. showing the relative strength of different nations' currencies. examining spending patterns across nations and continents.

showing the relative strength of different nations' currencies.

The main role of banks in the nation's economy is to store, lend, and invest money. store, lend, and borrow money. store, lend, and distribute money. store, lend, and approve money.

store, lend, and invest money.

Jim lost his job in a car assembly factory to a robot and his skills will no longer be needed. Which terms can be used to describe Jim? Check all that apply. cyclically unemployed domestically unemployed frictionally unemployed structurally unemployed still employed unemployed

structurally unemployed unemployed

The Federal Reserve transfers profits from its twelve regional banks to investment and commercial banks. central banks in Europe and Asia. the Department of Commerce. the Department of the Treasury.

the Department of the Treasury.

The aim of the study of macroeconomics is to examine the interactions between individual producers and consumers. the behavior of factors affecting the economy. the relationship between supply and demand. the economy's viability.

the behavior of factors affecting the economy.

When individuals are looking for jobs but are unable to find work, they are said to be _____.

unemployed

When might it be important to know a currency's exchange rate? when planning expenses for an overseas trip when changing money into smaller denominations when preparing to buy something expensive when deciding which college is the best value

when planning expenses for an overseas trip

This graph shows changes in GDP and the unemployment rate in the United States in recent years. In what year would someone looking for work have had the hardest time finding a job? 2008 2009 2011 2012

2009

There are five stages in a recession. 1. job loss 2. falling production 3. falling demand (occurs twice) 4. peak production In which order do these stages occur? 4, 3, 2, 1, 3 3, 2, 1, 3, 4 4, 3, 2, 3, 1 4, 2, 3, 1, 3

4, 3, 2, 1, 3

Which unemployment rate do most economists consider to be acceptable in the United States? 0 percent 5 percent 10 percent 20 percent

5 percent

Which example best describes how a bank injects money into the economy? A bank opens a savings account for a customer. A bank approves a loan for a customer. A bank buys a company's rapidly growing stock. A bank buys property in a bustling business district.

A bank approves a loan for a customer.

The graphs show the US unemployment rate and the price of whole milk between 2006 and 2012. What do these graphs indicate about the relationship between employment levels and prices during economic cycles? There is no link between prices and unemployment. Rising unemployment rates drive prices higher. Falling prices drive unemployment rates lower. As unemployment rates rise, average prices fall.

As unemployment rates rise, average prices fall.

Which scenario best reflects the relationship between production and demand in a recession? Car dealerships have minimal overstock. Car dealerships are not restocking. Car dealerships cannot sell their stock. Car dealerships cannot obtain stock.

Car dealerships cannot sell their stock.

Which statement best describes why a government's actions are important in macroeconomics? Check all that apply. Government controls industry through policy. Government is both a consumer and a producer. Government can prevent changes and challenges. Government can use policy to influence the economy. Government can accurately predict economic trends.

Government controls industry through policy. Government is both a consumer and a producer. Government can use policy to influence the economy.

Which of the following are examples of injectors? Check all that apply. Government spending by the government sector. Investments made by the financial sector. Taxes collected by the government sector. Savings by individuals outside a bank. Exports purchased by the foreign sector.

Government spending by the government sector. Investments made by the financial sector. Exports purchased by the foreign sector.

Why might buying a home during a recession be a good decision for some consumers? Check all that apply. Housing prices are down. It is easier to get a mortgage. Less demand means more options for buyers. Less demand means less competition with other buyers. Fewer houses are on the market.

Housing prices are down. Less demand means more options for buyers. Less demand means less competition with other buyers.

What is true of representative money? Check all that apply. It can be exchanged for a valuable good. It was once the most common form of money. It was used in systems involving a "gold standard." It can be traded for a commodity such as silver. It is made with precious metals or stones.

It can be exchanged for a valuable good. It was used in systems involving a "gold standard." It can be traded for a commodity such as silver.

The graph shows changes in GDP in the United States from 2009 to 2011. How did the contribution of the services sector to GDP change between 2009 and 2011? It rose by less than 1 percent. It fell significantly. It rose significantly. It stayed exactly the same.

It rose significantly.

Which statement best describes the effects of low and high interest rates on the economy? Low interest rates encourage consumers to borrow and spend, while high interest rates encourage saving. High interest rates discourage consumers from investing, while low interest rates encourage investment. High interest rates encourage consumers to borrow and spend, while low interest rates encourage saving. Low interest rates encourage consumers to invest, while high interest rates discourage investment.

Low interest rates encourage consumers to borrow and spend, while high interest rates encourage saving.

Does a depression always follow a recession? Yes, the trough is always considered a depression. No, a depression is indicated when the recession is exceptionally long. Yes, for recovery to occur, the trough must be reached. No, the economy could decline quickly and bypass recession.

No, a depression is indicated when the recession is exceptionally long.

What would happen if currency in all countries had fewer denominations? People would be more likely to confuse the value of currencies. Exchanging money between countries would be much easier. People could not charge as many different prices for goods. All goods would be more expensive than they currently are.

People could not charge as many different prices for goods.

In microeconomics, what occurs when equilibrium is reached? Prices decline. Prices increase. Prices are set. Prices fluctuate.

Prices are set.

The inflationary spiral explains the causes and effects of high inflation.The spiral usually begins with an increase in demand. What is the direct effect of this increase? Producers raise prices to continue to make a profit. The government prints more money, lowering the value of money. Workers negotiate with employers to receive more money. Consumers need higher wages to keep up with rising prices.

Producers raise prices to continue to make a profit.

What are the signs of high inflation? Check all that apply. Production begins to fall. Production begins to rise. Interest rates decrease. Interest rates increase. Purchasing power falls. Fewer fixed rate bank loans.

Production begins to fall. Interest rates increase. Purchasing power falls. Fewer fixed rate bank loans.

In microeconomics, price helps determine both quantity supplied and quantity demanded. Which other factors can impact each by causing a shift to occur? Quantity supplied is determined by production costs, and quantity demanded is determined by desire for the product. Quantity supplied is determined by production costs, and quantity demanded is determined by producer behavior. Quantity supplied is determined by consumer behavior, and quantity demanded is determined by aggregate demand. Quantity supplied is determined by producer behavior, and quantity demanded is determined by desire for the product.

Quantity supplied is determined by production costs, and quantity demanded is determined by desire for the product.

Which of the following are examples of leakages? Check all that apply. Government spending by the government sector. Investments made by the financial sector. Taxes collected by the government sector. Savings by individuals outside a bank. Exports purchased by the foreign sector.

Taxes collected by the government sector. Savings by individuals outside a bank.

The graph shows unemployment rates in the United States in recent years. Which statement is the most accurate explanation of the information on the graph? Unemployment rates rise and fall in predictable patterns. Unemployment will never again be as high as it was in 2010. The United States suffered an economic downturn starting in 2009. The United States does not have to worry about unemployment.

The United States suffered an economic downturn starting in 2009.

What does macroeconomics focus on trying to understand? Check all that apply. The changes that take place within an economic system as a whole. The individual interactions of producers and consumers. The challenges that economic systems face, such as inflation and unemployment. Patterns of change within an economic system, as seen through economic models. A nation's economy in isolation, without considering how it integrates with other nations.

The changes that take place within an economic system as a whole. The challenges that economic systems face, such as inflation and unemployment. Patterns of change within an economic system, as seen through economic models.

What is one consequence of stagflation? The economy drastically slows down as money loses its buying power. Producers cannot keep up with consumer interest and raise their prices. There are not enough workers to meet the rising level of production. Demand is too high and people spend more money than they should.

The economy drastically slows down as money loses its buying power.

Which of the following conditions is most indicative of recovery? The economy has stopped shrinking. The economy begins to peak. The economy has passed the trough. The economy is growing again.

The economy is growing again.

Which best describes the economic impact of defaulting on bank loans? The economy suffers because banks have less money to loan to others. The economy suffers because people have less money to spend. The economy suffers because businesses are scared to take out loans. The economy suffers because people are scared to take out loans.

The economy suffers because banks have less money to loan to others.

Which examples of would a student of macroeconomics study? Check all that apply. The impact of competition of a bakery. The effects of a tax increase on the gross domestic product. The influence of economic challenges, such as inflation and unemployment. The effect of raising interest rates on the purchasing decisions of individuals. The result of a major government spending program on the national unemployment rate.

The effects of a tax increase on the gross domestic product. The influence of economic challenges, such as inflation and unemployment. The result of a major government spending program on the national unemployment rate.

Which of the following best describes the circular flow model? The model represents the movement of money throughout the economy. The model represents the interactions within sectors. The model represents the flow of goods and services between sectors. The model represents the changing relationships between actors.

The model represents the movement of money throughout the economy.

How do bank loans help the nation's economy? They ensure consumer spending and confidence. They ensure the success of new businesses. They allow businesses to expand and improve. They allow consumers to quickly pay off debts.

They allow businesses to expand and improve.

What is one problem that might commonly occur when one is bartering? Someone wants to trade a valuable item for a less valuable one. Two people have different ideas about the value of an item. Someone wants to barter a good in exchange for a service. Two people want to trade items of equal or nearly equal value.

Two people have different ideas about the value of an item.

This graph shows changes in GDP and the unemployment rate in the United States in recent years. Which statement most accurately describes the trends shown on this graph? When GDP falls, unemployment rises. GDP and unemployment have little to do with each other. When GDP rises, unemployment rises as well. GDP and unemployment rise at times of world crises.

When GDP falls, unemployment rises.

What might cause a change in the value of fiat money? a change in the value of commodities a change in government regulations a change in materials used to make money a change in individuals' spending habits

a change in government regulations

Which is the best definition of inflation? a gradual decrease in the price of goods and services a gradual increase in the price of goods and services an exponential decrease in the price of goods and services an exponential increase in the price of goods and services

a gradual increase in the price of goods and services

Typically, low inflation is a sign of a healthy economy because it results from a steady rise in demand. a healthy economy because it results from a steady rise in supply. a struggling economy because it results from a steady fall in demand. a struggling economy because it results from a steady fall in supply.

a healthy economy because it results from a steady rise in demand.

Typically, high inflation is a sign of a healthy economy because it results from a fall in production costs. a healthy economy because it results from a rise in consumer interest. a struggling economy because wages cannot keep up with the increase in prices. a struggling economy because it results from a fall in consumer interest.

a struggling economy because wages cannot keep up with the increase in prices.

Consumers having more money to purchase computers will most likely result in a decrease in prices for computers and computer accessories. an increase in prices for computers and computer accessories. a decrease in prices for computers, but not computer accessories. an increase in prices for computers, but not computer accessories.

an increase in prices for computers and computer accessories.

How do central banks govern the banking industry? Check all that apply. by deciding how much banks must keep in reserve by overseeing the nation's payment system by supervising the loan process at banks by printing money for distribution to banks by responding quickly to banking crises that occur by auditing banks based on current regulations

by deciding how much banks must keep in reserve by overseeing the nation's payment system by responding quickly to banking crises that occur by auditing banks based on current regulations

During a recession, what is one way governments try to encourage growth? by increasing unemployment benefits by stopping government spending by requiring firms to maintain production by eliminating all tax breaks

by increasing unemployment benefits

Read the paragraph. Government officials in Country M have determined that they need to take action to encourage the growth of their economy. To do this, they have introduced an incentive policy that offers citizens free education. This is extended to all individuals who sign a contract agreeing to work within their specific industry for the next ten years. Country M hopes to encourage economic growth by investing in education to reduce unemployment and increase production. new technologies to produce goods that are in great demand. resources that can be traded with other nations. research to develop goods that can be sold on a global scale.

education to reduce unemployment and increase production.

Which of the following is a characteristic of the prosperity phase of the business cycle? stagnant prices high levels of production ambivalence about the economy reduced incomes

high levels of production

The circular flow model examines interactions between which two groups? households and firms households and consumers firms and producers firms and government

households and firms

When government intervention makes currency worthless, this condition is called deflation. hyperinflation. cost-push inflation. demand-pull inflation.

hyperinflation.

Demand-pull inflation happens when the demand for goods remains very low. shifts up and down. matches the supply. increases.

increases.