Exam 2: Understanding Economics and How It Affects Business

In a free market economic system, the mechanism of __________ is the key determinant used to signal to producers what to produce and how much to produce.

While scanning the movies section in your local online newspaper, you click on the business section by mistake. While you're there, you quickly scan a report that says government spending will again exceed tax revenues in the current year. This means that the:

In capitalist countries, the government decides what to produce and how the goods and services will be produced.

A simple supply curve shows that an increase in the price of a good will cause the quantity supplied to:

Yesterday, Casey received a cable company ad for bundled TV, telephone, and Internet service that cost appreciably more than what she is currently paying. At the same time, she received a notice from her utility company that summer rates would be increasing. Her schoolbooks are costing almost twice what they cost last year, and yesterday, gasoline cost her 30 cents more per gallon than it did last week. As she ponders the situation, she can't help but wonder how prices could be rising when so many people have lost their jobs and are cutting back on expenditures. She is certain that this situation characterizes her economics professor's description of stagflation.

A typical demand curve shows that:

The next wave of marketable innovations may involve new ways to produce and conserve energy. If we can turn new technology into marketable products and services that produce energy to run our businesses and homes, the U.S. could see a surge in output of goods and services. The Department of Economic Development would document this surge by measuring the ______.

Which of the following statements about business cycles in the U.S. is most accurate?

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 started Giganeers to earn a profit, but by working hard and increasing his market share, he was able to create jobs for others. This is an example of the ______________ concept.

Frictional unemployment occurs because the economy is experiencing a recession.

The markets for laundry detergents, soft drinks, and automobiles are dominated by just a few sellers. Economists would classify these markets as examples of:

At the onset of the recent economic slowdown, prices at the grocery stores continued to rise. In some cases, products such as milk and bread almost doubled in price. A Boston newspaper reported, "The price of eggs was up 40% and milk was up 26%." Consumers were already being hit with high energy costs, and now their confidence in the economy was further shaken with job cuts and a loss of discretionary income due to increases in food prices. The economy was slowing, but prices were rising, signifying the potential for ___________.

Structural unemployment refers to unemployment caused by the restructuring of firms or by a mismatch between the skills or location of job seekers and the requirements or location of available jobs.

There is general agreement in the United States on the degree to which the government should be involved in the economy.

Keynesian economic theory suggests:

The total value of a country's output of final goods and services in a given year is known as the gross domestic product (GDP).

Joe and Tess McGreen are purchasing their first home in Durham, North Carolina. They are seeking pre-qualification on a home loan. The unemployment rate for North Carolina is 10.2% and GDP is declining. Chances are pretty good that the Fed will raise interest rates in order to loosen the supply of money, resulting in a more expensive loan for Joe and Tess.

The U.S. economic system relies on:

Deanne is a vocal critic of socialism. She likes to point out that in recent years the governments in many socialistic nations have cut back on government services and have reduced taxes. Deanne believes that this trend will ultimately result in all nations adopting pure capitalistic ideals. Recent evidence suggests that Deanne's views are essentially correct.

The presence of competition in free markets: