Deck 2: Economics: The Framework of Business

Question 1

Socialist economies tend to have very low taxes.

Answer 1

False

Question 2

The gross domestic product (GDP) includes output produced within households.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

In the context of federal debt, if spending is lower than revenue, the government incurs a budget deficit.

Question 5

Socialism is an economic system that encourages privatization and believes that all enterprises should be publicly owned.

Question 6

The structure of the Board of Governors of the Federal Reserve is such that no single president can appoint all of the Board's members.

Question 7

Capitalism is an example of a planned economy.

Question 8

Fiscal strategies are closely tied to political philosophy.

Question 9

Unfair business practices such as predatory pricing hinder capitalism from achieving its potential.

Question 10

The clothing industry is an example of monopolistic competition.

Question 11

Each year, the Federal Open Market Committee holds eight regularly scheduled meetings to make decisions about open market operations.

Question 12

A drawback of communism, which was adopted by some countries in the 1900s, was the inability of people to make basic choices such as where to work or what to buy.

Question 13

Gross Domestic Product (GDP) levels tend to be somewhat understated, since they don't include any illegal activities, which can represent a significant portion of some countries' production.

Question 14

In the context of monetary policy, the money supply includes credit cards.

Question 15

In a capitalist economy, private-sector businesses are free to decide how much they will charge for their products.

Question 16

In the context of monetary policy, when the Fed reduces the discount rate, banks will have to obtain funds at a higher cost.

Question 17

Social security taxes are a source of revenue for the U.S. federal government.

Question 18

In the context of capitalist economy, the right to free choice directly feeds competition.

Question 19

In the context of monetary policy, when the economy contracts, the Fed typically decreases the money supply.

Question 20

Gross Domestic Product (GDP) measures the total value of all the imports and exports of a nation on a quarterly basis.

Question 21

A newly appointed government in the United States requests Congress to raise the amount of money that the government can borrow. This borrowed money is intended to be used to cover the costs of the major policies that the government plans to implement. In this scenario, the government has asked the Congress to hike its _____.

A) discount rate
B) fiscal cliff
C) debt ceiling
D) down payment

Question 22

Aidan is a college student. As part of his economics project, he has to collect data on the consumption patterns of the households in his locality. In this scenario, Aidan is most likely involved in the study of _____.

A) heterodox economics
B) complexity economics
C) microeconomics
D) macroeconomics

Question 23

Deflation refers to a period of falling average prices across an economy, which is a sign of economic trouble that goes hand-in-hand with very high unemployment.

Question 24

When Congress agreed to raise the debt ceiling during the economic meltdown in the United States in 2011, it temporarily averted a shutdown crisis, but the deal they reached to do so created the _____.

A) risk-return relationship
B) fiscal cliff
C) bottom-up budgeting
D) niche barrier

Question 25

The consumer market basket of goods and services, in which the consumer price index (CPI) measures the change in weighted-average price over time, is created by the U.S. Bureau of Labor Statistics.

Question 26

In the context of fiscal policy, which of the following actions by the government helps boost the economy in the long term?

A) Providing jobs, such as mail carrier
B) Creating deflation in the market every few years
C) Investing in public assets, such as a national renewable energy grid
D) Artificially creating a budget deficit every few years by withdrawing funds from the market

Question 27

During an especially difficult year of weakening financial conditions, the government of Geriva, a European nation, borrows money to meet its financial obligations. However, once the borrowed amount reaches a certain limit, the government is not allowed to borrow more money. If this was to happen in the United States, it could be said that this is because the government has hit the _____.

A) fiscal cliff
B) reserve requirement
C) debt ceiling
D) price ceiling

Question 28

The amount of input divided by the amount of output equals productivity.

Question 29

Disinflation is defined as a period of slowing average price increases across an economy.

Question 30

The country of Ukanturk has been facing an economic downturn for two consecutive years. To revive the financial condition of the country, its government tries to influence the economy through taxation and spending decisions that are designed to encourage growth and increase employment. In this scenario, the government of Ukanturk is implementing its _____.

A) monetary policy
B) fiscal policy
C) investment policy
D) supply-side policy

Question 31

The controversial $700 billion economic bailout plan passed by Congress in early October 2008 was called the _____.

A) American Recovery and Reinvestment Act
B) Troubled Assets Relief Program
C) Clayton Antitrust Act
D) NCUA Corporate Stabilization Program

Question 32

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:

A) the fiscal cliff.
B) a reserve requirement.
C) the debt ceiling.
D) an earmark.

Question 33

Macroeconomics involves the study of:

A) spatial changes in the population of a country.
B) the gross domestic product of a country.
C) the competitive aspects of identical products.
D) family incomes in a given region.

Question 34

Which of the following statements is true of the Troubled Assets Relief Program (TARP)?

A) It ended up costing taxpayers far less than expected.
B) It did not offer bailout to automakers.
C) It invested heavily in green energy.
D) It was not able to save insurance companies and banks from bankruptcy.

Question 35

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 _____.

A) subsidized loan
B) subprime mortgage loan
C) endowment mortgage loan
D) concessional loan

Question 36

Microeconomics focuses on:

A) the employment rate in a country.
B) individual businesses.
C) the gross domestic product of a country.
D) taxation policies.

Question 37

Identify a true statement about the debt ceiling.

A) The decision to hike debt ceiling does not depend on the earlier borrowings by the federal government.
B) Voting on the debt ceiling happens separately from voting on taxes and spending.
C) Debt ceiling hikes are strictly decided by public voting.
D) Debt ceiling hikes are extremely rare.

Question 38

Prior to formulating its annual budget, the government of the Asian country of Florenesia employs a number of individuals to look into the overall productivity of the country. These individuals are also responsible for studying and revising some of the taxation policies and gauging the employment rate. Given this information, these individuals are studying _____.

A) heterodox economics
B) managerial economics
C) microeconomics
D) macroeconomics

Question 39

Economists declare an official recession when gross domestic product decreases for six consecutive quarters.

Question 40

The _____ was an $825 billion economic stimulus package, passed by Congress, designed to turn the economy by cutting taxes, building infrastructure, and investing in green energy.

A) American Recovery and Reinvestment Act
B) Troubled Assets Relief Program
C) Clayton Antitrust Act
D) NCUA Corporate Stabilization Program

Question 41

Ancusia, an East Asian country, was plagued by war and corruption for several years. This led to poor economic conditions, and the government was compelled to borrow funds from other nations. Because of the slow economic growth in the country, the government could repay only 15% of its debts. In this scenario, the amount that the government is yet to repay is known as _____.

A) the federal debt
B) a budget surplus
C) the debt brake
D) a revenue deficit

Question 42

Identify a true statement about the Federal Reserve.

A) It is headed by a 15-member Board of Governors.
B) It manages the monetary policy of the United States.
C) It is restricted from performing banking services for commercial banks.
D) It operates under immense political pressure.

Question 43

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

A) buys
B) borrows
C) sells
D) withholds

Question 44

_____ refers to Federal Reserve decisions that shape the economy by influencing interest rates and the supply of cash.

A) Fiscal policy
B) Monetary policy
C) Revenue policy
D) Deficit policy

Question 45

In 1982, the total expenditure of the government of Kargenia, a European country, exceeded its revenue by a substantial amount. This forced the government of Kargenia to borrow funds to meet its legal obligations. In this scenario, the government of Kargenia incurred a _____ in 1982.

A) fiscal drag
B) budget deficit
C) debt brake
D) revenue backlog

Question 46

In the context of open market operations, when inflation is a concern, the Fed sells securities to buyers who write checks to the Fed to pay for securities they bought, and the Fed withdraws these funds from banks. With fewer funds, _____.

A) credit becomes tighter
B) banks increase the number of loans they make
C) banks offer subprime mortgage loans
D) the inflationary pressures in the economy heat up

Question 47

Larry is part of the Board of Governors that manages U.S. monetary policy. He has been elected by the President to serve a single 14-year term. In addition to setting the monetary policy, he is responsible for extending banking services to commercial banks. In this scenario, Larry is most likely part of the _____.

A) Federal Reserve
B) Department of Commerce
C) Bureau of Economic Analysis
D) U.S. Treasury

Question 48

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 _____.

A) open market operations
B) market monetarism
C) reflation
D) articles of incorporation

Question 49

To bring inflation under control, the Fed:

A) reduces the interest rates.
B) reduces the money supply.
C) buys government securities.
D) offers loans to the commercial banks.

Question 50

The Fed:

A) decreases the money supply when the economy contracts.
B) performs banking services for commercial banks in districts where it operates.
C) calculates the expected expenditure for the federal government every year.
D) outlines expected revenue that is due from the collection of taxes and fees.

Question 51

New Tapan, an African country, invested resources in the defense sector, and as a result, its budget deficit grew. To decrease the budget deficit, the government of New Tapan cut down its expenditures in several other sectors and imposed higher taxes. Similar measures implemented by the government in the United States would most likely create _____.

A) the fiscal cliff
B) a reserve requirement
C) the debt ceiling
D) an earmark

Question 52

Which of the following tools is most frequently used by the Fed to expand and contract the money supply in the economy?

A) Open market operations
B) Credit default swaps
C) Endowment mortgages
D) Steering taxes

Question 53

The repayment of the debt by the U.S. federal government is likely to result in an increase in:

A) the number of student loans.
B) housing subsidies.
C) the number of government jobs.
D) taxes.

Question 54

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.

A) bonds and certificates of deposit
B) money market accounts
C) savings accounts
D) metal coins and paper bills

Question 55

Which of the following is one of the core purposes of the Fed?

A) Regulating taxes
B) Providing short term jobs
C) Investing in critical public assets
D) Influencing the size of the money supply

Question 56

In the context of monetary policy, when the economy is weak, the Fed:

A) withdraws funds from banks.
B) asks banks to cut back on the loans they make.
C) helps reduce inflationary pressures in the economy.
D) buys government securities on the open market.

Question 57

The Fed directly stimulates spending by:

A) limiting the M1 form of money supply.
B) increasing the interest rates.
C) encouraging inflation in the market.
D) buying government securities.

Question 58

The government of Laslow, an Asian nation, earned more revenue than its total expenditure in the last fiscal year. Given this information, the government of Laslow incurred a _____.

A) revenue backlog
B) revenue deficit
C) debt brake
D) budget surplus

Question 59

When the Fed sells securities, _____.

A) banks become flush with funds
B) banks cut back on the loans
C) credit becomes readily available
D) the money supply increases

Question 60

In the context of monetary policy, which of the following statements is true of money supply?

A) The M1 money supply includes market accounts and certificates of deposit.
B) The M1 money supply includes all currency plus checking accounts and traveler's checks.
C) The M2 money supply excludes all of the M1 supply except certificates of deposit.
D) The M2 money supply excludes paper bills and metal coins.

Question 61

In its role as a regulator, the Fed:

A) maintains the federal government's checking account.
B) influences the economy through taxation and spending decisions.
C) oversees mergers and acquisitions.
D) coordinates the check-clearing process for checks on behalf of banks.

Question 62

The Board of Governors of the Federal Reserve holds a meeting to discuss its concern over the decreasing gross domestic product of the country. All members agree that the situation can be brought under control and the economy can be stimulated if they use the discount rate as a tool. In this scenario, the Fed is most likely to:

A) reduce the discount rate.
B) maintain the existing discount rate.
C) increase the discount rate.
D) use a negative discount rate.

Question 63

Rolliand Bank is going through a financial crisis. Therefore, it takes a loan from the Federal Reserve. The bank has to repay the loan within a year, and it also has to pay a monthly interest of 6% to the Fed. In this case, the 6% interest rate that the Fed charges from Rolliand Bank is the _____.

A) prime rate
B) nominal rate
C) discount rate
D) exchange rate

Question 64

In the context of monetary policy, which of the following statements is true of the discount rate?

A) The Fed increases it during recessions.
B) When the Fed reduces it, interest rates on bank loans tend to fall.
C) When the Fed increases it, banks can obtain funds at a lower cost.
D) It is the interest rate that the Fed charges on its loans to individuals.

Question 65

In response to inflation, the Fed is likely to:

A) increase the discount rate.
B) subsidize loans.
C) buy government securities.
D) increase the debt ceiling.

Question 66

Brontsky & Co., a member bank of the Fed, receives a notice from the Fed that notifies that it must hold funds equal to 15% of the deposits held by its customers. In this scenario, the 15% is the _____.

A) capital adequacy ratio
B) capital requirement
C) reserve requirement
D) debt ceiling

Question 67

In the context of monetary policy, which of the following is a result of an increase in the reserve requirement?

A) Banks can no longer hold any funds.
B) Number of bank loans begin to increase.
C) Interest rates begin to rise.
D) Credit becomes readily available.

Question 68

In the context of monetary policy, which of the following is a result of a decrease in the reserve requirement?

A) Interest rates begin to increase.
B) Banks make less number of loans.
C) Banks need to hold more funds.
D) The availability of credit increases.

Question 69

In the context of monetary policy, the _____ is a rule set by the Fed, which specifies the minimum amount of funds a bank must hold, expressed as a percentage of the bank's deposits.

A) debt ceiling
B) statutory framework
C) reserve requirement
D) fiscal drag

Question 70

The central banking system in the country of Darmos issues a notice to all its commercial banks stating that they must hold funds that are equal to 48% of the deposits held by their customers. In the given scenario, the central banking system's notice exemplifies _____.

A) full-reserve banking
B) the statutory framework
C) the reserve requirement
D) statutory liquidity ratio

Question 71

Which of the following statements states a core principle of capitalism?

A) The lot of the working class should be improved at the expense of the super-rich.
B) Individuals, innovation, and hard work should be of paramount importance.
C) The government should own and operate key enterprises that directly affect public welfare.
D) All enterprises in an economy should be publicly owned.

Question 72

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

A) dynamical system
B) credit system
C) economic system
D) accounting system

Question 73

During a period of inflation in the United States, the Federal Reserve sells treasury bonds. Buyers of these bonds write checks to the Fed, and the Fed cashes these checks from banks. Given this information, the banks will most likely:

A) increase the loan amount.
B) increase the discount rate.
C) cut back on the loans they make.
D) cut back on the discount rate.

Question 74

The United States goes through a period of recession because of the continuous decrease in the nation's gross domestic product. The Fed intervenes and improves the situation by reducing the discount rate. This move by the Fed will result in:

A) banks obtaining funds at a lower cost.
B) a rise in the interest rates of bank loans.
C) individuals getting discouraged to borrow money and spend it.
D) a drop in the availability of loans to consumers.

Question 75

In the context of monetary policy, the Fed is most likely to reduce the discount rate during:

A) inflations.
B) periods of investment recovery.
C) periods of low money supply.
D) recessions.

Question 76

Which of the following statements is true about the Fed?

A) It regulates financial institutions.
B) It regulates taxes.
C) It creates jobs, such as mail carrier or park ranger, during recession.
D) It can implement decisions only after they are approved by the Senate.

Question 77

In the context of monetary policy, if the Fed decreases the reserve requirement, _____.

A) there will be more loans available
B) the availability of credit will decrease
C) banks will need to hold more funds
D) interest rates will increase

Question 78

The economic system of the United States is called _____.

A) capitalism
B) communism
C) socialism
D) mercantilism

Question 79

In its role as a banker for banks, the Fed:

A) regulates the total amount of money within the overall economy.
B) reduces the discount rate so that banks can obtain funds at a lower cost.
C) performs open market operations, which involve buying and selling government securities, which include treasury bonds, notes, and bills.
D) coordinates the check-clearing process for checks on behalf of any banks that are willing to pay its fees.

Question 80

In its role as the government's bank, the Fed:

A) keeps the U.S. currency supply in good condition.
B) reduces the discount rate so that banks can obtain funds at a lower cost.
C) coordinates the check-clearing process for checks on behalf of banks.
D) regulates the taxes rates.