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Exam 2: Understanding Economics and How It Affects Business

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Question 31

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In an effort to promote rapid growth,the government of Goldinia has kept taxes low,done little to regulate business activities,and implemented only modest social programs.The government is now facing political pressure to do more to clean up the environment and to reduce the inequalities of income and wealth.Which of the following statements is most accurate? Goldinia's government is currently taking:

A) A purely capitalist approach to achieve its economic goals,and is likely to continue doing so in the future.
B) A purely socialist approach to achieve its economics goals,and is likely to continue doing so in the future.
C) A predominately socialist approach to achieving economic goals,but the current pressures it faces suggest it is likely to adopt a more capitalist approach in the future.
D) A predominately capitalist approach toward achieving economic goals,but the current pressures it faces suggest it is likely to adopt a more socialist approach in the future.

E) C) and D)
F) A) and B)

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Question 32

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Keynesian economic theory suggests:

A) Reducing government involvement in the free-market economy.
B) Proposing long-term solutions in order to create wider swings in the business cycle.
C) A more permanent government involvement in the banking system,even creating a national banking system that owns and operates most of the global and regional banks.
D) Short-term increases in government spending to stimulate the economy.

E) A) and D)
F) A) and C)

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Question 33

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Studies about the effects of population growth on the economy are part of macroeconomics.

Jill owns a bakery that specializes in cheesecakes.Until recently,Jill charged a price of $12 for each cheesecake.At this price Jill's customers bought an average of 84 cheesecakes each week.For the last few weeks,she has reduced her price to $10.50 per cheesecake,and her customers have purchased an average of 96 cheesecakes each week.These results are consistent with the economic concept of demand.

If businesses are producing at capacity,and the nation is experiencing almost full employment a very low rate of unemployment - less than 2%) ,the Fed may decide to:

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. TRUE

Adam Smith believed that an economic system couldn't truly prosper unless people were taught to value the welfare of others above their own personal gain.

GLAMOR GAL,a popular women's cosmetics company is gaining popularity among younger women.Differentiating itself from the sea of companies that compete for the same business,it focuses on products for sensitive,youthful skin.GLAMOR GAL clearly operates in an oligopolistic environment.

__________ is a condition in which the average level of prices is actually falling.

Workers in socialist countries often get longer vacations and more social benefits than workers in free market economies.

A prediction that GDP will increase significantly over the next six months is bad news for most businesspeople.

Abby left her native land in Eastern Europe in order to become a nanny for a family in a western suburb of Chicago,Illinois.One of the benefits of her arrangement was that she could attend the community college near her family's residence.When she arrived at her new job,she experienced the differences from a predominately socialist nation and a capitalist nation.Abby noted that public transportation in northern Illinois was limited and expensive,making it difficult to get to school.For a negligible fee,the government in her native country provided public transportation for everyone.Abby's native country's economic system was more characteristic of socialism.

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

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

The government of Velovia made progress in its efforts to bring rapid inflation under control.Although prices are still rising,the rate of increase has slowed considerably.This suggests that Velovia is experiencing disinflation.

As you drive to school in the morning,you will probably flip through several radio stations before deciding to settle on one for the duration of the drive.For instance: you can listen to a "fair and balanced" talk show;an "intelligent talk" program;an interactive "call-in" talk show;a "right-wing" political talk show;a "self-improvement" talk show;and,even an "all sports" talk show.With so much monopolistic competition in radio programming,radio stations focus on offering you something just a little different.

One of the major ways the Fed influences economic conditions is through its control of interest rates.

A major distinction between capitalism and socialism concerns the distribution of income.

The most fundamental of all rights in capitalism is the right to private property.

Socialists believe that wealth should be more evenly distributed than what actually occurs in a free-market capitalistic system.