Exam 2: Understanding Economics and How It Affects Business

Michael and Casey are having an argument. Casey believes that over the past year, the economy is experiencing rapid inflation, while Michael says that the economy actually experienced disinflation during this period. The easiest way for Michael and Casey to settle their argument is to look at GDP figures for the past year.

How is it that people working in their own self-interest produce goods, services, and wealth for others?

The Fed is concerned that the economy is growing too rapidly. Given these concerns, it is likely to pursue policies to restrict the supply of money and raise interest rates.

Keynesian economic theory suggests

Adam Smith believed that since businesspeople are motivated to improve their own prosperity, their actions are unlikely to benefit society as a whole.

We use indicators such as the gross domestic product (GDP), the interest rate, and the price indexes to measure the health of our economy.

The greed of businesspeople represents one of the greatest dangers to the operation of a free market system.

Brain drain has occurred in many socialistic nations because

One of the most significant problems faced by communist nations is

Three important economic indicators of the United States are the unemployment rate, the price indices, and the

Any output produced by U.S. firms is included in the value of U.S. GDP, even if the output was produced in a foreign country.

Efforts by the Federal Reserve Bank (the Fed) to control the money supply and interest rates are known as ________ policy.

Inflation refers to the persistent rise in the purchasing power of money.

It is understandable that productivity is rising faster in the service sector because service businesses have newer technologies than the manufacturing sector and fewer laborers.

Which of the following indicators provides the clearest indication that an economy is experiencing deflation?

A free-market economic system is one in which the market of buyers and sellers decides what is produced, how much is produced, and how it is distributed.

An economist is examining how consumers in the automobile market have responded to recent price increases by car manufacturers. He is examining a microeconomic situation.

The total value of final goods and services produced within a nation's borders in a given year is known as that nation's

Senator Spendital recently made a speech condemning the continuous deficits in the federal budget. He is now proposing an increase in tax rates to raise more revenue for the government and thus gradually reduce the size of the national debt over a period of several years. The strategy Senator Spendital is proposing is a common type of monetary policy.

Fiscal policy involves the federal government's efforts to stabilize the economy by increasing or decreasing taxes and/or government spending.