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Exam 2: Understanding Economics and How It Affects Business

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Question 1

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America's business success is largely due to an economic and social climate that allows businesses to operate freely.

A) True
B) False

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Question 2

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The consumer price index (CPI) measures what is happening to prices at the wholesale level.

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B) False

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In the newspaper this morning, you read about the downfall of a multi-national entertainment business, and a report that the company's CEO enjoyed a 9% increase in his salary during the same year that the company's profits were down 35%. As you read further, you learn that the company's board of directors approved undeserved salary increases. Clearly, this is an example of how inequality and greed can infiltrate the free-market economic system.

Emily recently quit her job at a major corporation because she saw little chance for advancement. Although she is still searching for a new position, Emily believes the economy is healthy and she hears that several firms are hiring people with her qualifications. Which of the following statements about Emily's current situation is most accurate? Emily is:

The nation of Desperia is reporting a significant decline in GDP for four consecutive years, with no relief in sight. With unemployment at record levels and businesses failing faster than at any time in the past century, Desperia is likely experiencing a depression.

The study of how society chooses to employ resources to produce goods and services and to distribute them for consumption among various competing groups and individuals is known as sociology.

type market may have opportunity to differentiate themselves from the competition.

is the study of how a society employs its limited resources to produce goods and services and how it distributes them among competing groups and individuals.

Gabby and Gus Malloy recently got pre-approved on a loan for their first house purchase. They are speculating on how much they should bid on their number one choice - a small, three-bedroom bungalow near a major college town. Which of the following indicators may be an important factor in whether they are able to successfully put in a low bid?

A is a very severe recession that is usually accompanied by a decline in the average level of prices.

Adam Smith believed that incentives to seek personal gain would create wealth, but that the government must then step in to make sure that this wealth is equitably distributed.

Communism is an economic and political system in which the state makes almost all economic decisions and owns almost all the major factors of production.

When the government attempts to stabilize the economy by changing taxes or government expenditures, it is using fiscal policy.

When the market price of a good is above its equilibrium value, and all other determinants are unchanged:

Fetna resides in a country where the economic system is primarily based on free market capitalism. Fetna is likely to have the freedom to buy and sell property.

The National Coalition on Healthcare Reform reports that nearly 18% of the U.S. population under the age of 65 is without healthcare. If this advocacy group succeeds in convincing the current administration and Congress to vote for basic healthcare for everyone, which of the following is likely to occur?

One of the major ways the Fed influences economic conditions is through its control of interest rates.

One of the most significant problems faced by communist nations is:

If consumers see a measurable increase in the price of coffee, they are likely to change their consumption to less expensive tea. These substitutions would show-up in the .

One of the benefits of communism is that it allows individuals a great deal of freedom to make their own economic decisions.