Exam 2: Economics: The Framework of Business

Briefly discuss mixed economies.

Identify a true statement about pure market economies.

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:

Glasvania, a European country, experiences a period of economic downturn that results in high unemployment. Almost all businesses are compelled to reduce their prices by a large margin because most consumers have limited money to spend. The given scenario exemplifies _____.

Denver wants to start an industrial products manufacturing company, but he finds it difficult to enter the market as it is already dominated by a single producer who controls product quality and product prices. Given this information, Denver is unable to enter the market because of the existence of _____.

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

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.

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:

The term _____ refers to a market structure with many competitors selling differentiated products; the barriers to enter such a market structure are low.

To bring inflation under control, the Fed:

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

In the year 2002, Timothy wanted to purchase a house. As he did not have sufficient funds, he decided to take a loan. Given his low credit score, it was highly unlikely that he would be able to repay the borrowed money. However, he was able to secure a loan despite his reduced ability to repay the loan. Timothy most likely applied for a _____.

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 _____.

Following a contraction in the economy, the government of Geri, a South American country, decides to increase the money supply in the country. The government wants to first tally the M1 form of money supply. In this context, the government will most likely use _____ to tally the M1 form of money supply.

In the context of the fundamental principles of a free market system, the _____ is associated with the point at which the quantity demanded of a product equals the quantity supplied.

The U.S. government uses the consumer price index (CPI) and the producer price index (PPI) to evaluate:

In response to inflation, the Fed is likely to:

Which of the following statements best defines the producer price index (PPI)?

Capitalism is an example of a planned economy.

In the context of the fundamental principles of a free market system, which of the following statements is true of the equilibrium price?