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Exam 2: Understanding How Economics Affects Business

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Question 31

True/False

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Frictional unemployment occurs because the economy is experiencing a recession.

A) True
B) False

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Question 32

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Mini-Case Gig Abite is a bright,hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia.Gig became discouraged by the high tax rates in Frinezia,so he immigrated to the United States eleven years ago.Soon after moving to the U.S. ,Gig again started his own business,which he named Giganeers Consulting.The company struggled at first,and almost went under midway through its second year.However,Gig never lost faith,the company survived,and it soon developed a growing reputation for quality work and dependable service.Giganeers began experiencing sustained growth early in its fourth year.In fact,Gig hired additional employees over the next few years to keep up with the increasing workload.His company,which started with only Gig and 2 other full time workers,now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes,some clouds are on the horizon.The company recently suffered its first drop in business since its very early years.Gig is convinced that the problem is not with his company,but rather due to a downturn in the U.S.economy.He heard a national broadcast last week reporting that the value of the total output of final goods and services in the U.S.declined over the last quarter.The news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months.Gig is concerned that he will have to lay off some of his employees if the economy doesn't improve.He hopes that the government does something soon to put the economy back on track. -Gig recently heard a radio report that the Fed will try to help get the U.S.economy back on track.If the Fed takes action,Gig would likely see:

A) Lower interest rates.
B) An increase in the size of the government's budget deficit.
C) Lower government spending.
D) An increase in the minimum wage.

E) B) and C)
F) C) and D)

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Question 33

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Several years ago,the nation of Florentina had a government-owned telecommunication system that lagged far behind other nations.In several of its rural areas,there was only one phone for an entire village of people.Government taxes collected for the purpose of maintaining the telephone system were very meager,so the notion of expanding service was almost impossible.The government of Florentina decided to sell the phone company to a private firm.The private firm expanded rapidly.It reported that even poor consumers were willing to pay for a private phone line.This government decision and subsequent sale was:

Workers in nations who are strong proponents of communism work much harder and longer hours.

The CPI is based on the prices of a carefully selected market basket of goods,all of which consumers can purchase at a supermarket.

The producer price index measures what is happening to prices at the wholesale level.

Africa has been one of the fastest-growing regions in the 21^st century.

Which of the following statements about government deficit spending is most accurate?

Which of the following would be a topic emphasized in a macroeconomics course?

The Federal Reserve Bank operates:

If the national debt is $14 trillion,the national deficit will be considerably higher.

Under capitalism,the government prohibits people and businesses from competing with each other.

The point of intersection between the supply and demand curves is called the stress point.

If a shortage exists in a market for a good,the price of that good will tend to fall.

A key to economic growth and development is to:

Core inflation figures omit healthcare prices,but not energy prices.

History shows that free-market capitalism leads to a fair and equitable distribution of wealth.

Microeconomics focuses on the decisions and behavior of people and organizations in particular markets.

The nation of Florentina is in the midst of a serious economic downturn.The nation's GDP has declined steadily for over five years and is now at its lowest level in over fifty years.Florentina's unemployment rate is at an all time high and the nation's CPI is falling.Florentina's economic condition is referred to as a:

One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.