Exam 2: Understanding Economics and How It Affects Business

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

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

Mini-Case Cooper Collins is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Evensplitia. Cooper was discouraged by the high tax rates in Evensplitia, so he immigrated to the United States seven years ago. Soon after moving to the U.S., Cooper again tried his hand at entrepreneurship and opened Coop's Consulting. The company struggled at first, and almost went bankrupt midway through its second year. However, Cooper never lost faith, the company survived, and eventually developed a great reputation in the community. Coop's Consulting began experiencing sustained growth early in its fourth year. In fact, Cooper hired additional employees to keep up with the increasing workload. His company, which started with only Cooper and two other full-time workers, now provides jobs for 43 full-time employees as well as many part-time workers and interns. Despite these past successes, business ownership is not without complications. The company suffered its first drop in business since its very early years. Cooper 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 anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Cooper 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. -Cooper recently saw a report online that the Fed will try to help get the U.S. economy back on track. If the Fed takes action, Cooper would likely see

Which of the following statements about productivity in the service sector of the U.S. economy is most accurate?

A benefit of a free market can be that