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Chapter 02 - Understanding Economics and How It Affects Business
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__________ unemployment results when the demand for labor varies during the year.
A. Frictional
B. Structural
C. Cyclical
D. Seasonal
263. The _________ is a statistic used to compute the pace of inflation or deflation.
A. consumer price index
B. gross domestic product
C. index of leading indicators
D. index of inflationary trends
264. The measure used to report price changes at the wholesale level is the:
A. gross domestic product (GDP).
B. consumer price index (CPI).
C. wholesale price index (WPI).
D. producer price index (PPI).
265.
Chapter 02 - Understanding Economics and How It Affects Business
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_____________ refers to a general rise in the price level of goods and services over time.
A. Acceleration
B. Recession
C. Inflation
D. Escalation
266. __________ is a condition in which the price increases are slowing.
A. Deflation
B. Disinflation
C. Stagflation
D. Uniflation
267. __________ is a condition in which the average level of prices is actually falling.
A. Deflation
B. Disinflation
C. Stagflation
D. Uniflation
268.
Chapter 02 - Understanding Economics and How It Affects Business
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A __________ is a very severe recession that is usually accompanied by deflation.
A. stagflation
B. retraction
C. depression
D. dissolution
269. In recent years, U.S. manufacturing sector has experienced ___________
productivity.
A. rising
B. relatively stable
C. falling slowly
D. falling very rapidly
270.
Chapter 02 - Understanding Economics and How It Affects Business
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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 ______.
A. Gross Domestic Product
B. Consumer Price Index
C. Consumer Marginal Index
D. number of workers who are frictionally employed
Feedback: GDP is the measure of the value of a nation's total output of final goods and
services over a given year.
271. One reason the CPI is monitored very closely by government, businesses, and workers
is that:
A. It indicates whether we are running a budget surplus or a deficit.
B. Some wages, interest rates, tax rates, and government benefits are tied to changes in the
value of the CPI.
C. It is the best measure of worker productivity in the service sector.
D. The gross domestic product is computed from the reported increases in the CPI.
Feedback: As a measure of inflation, the CPI is an index which is often used to determine
cost of living increases in wages, salaries, interest rates, and other payments. Income tax
brackets and some government benefits, such as Social Security payments, are also adjusted
when the CPI changes.
272.
Chapter 02 - Understanding Economics and How It Affects Business
____________ in the service sector has not shown the significant improvement that it has
in the manufacturing sector. There are significant advances in the quality of service, but
workers in this sector are unable to increase the number of persons served in a given time
period.
A. The CPI
B. Technology
C. Productivity
D. The growth
Feedback: Productivity is a measure of how much output a worker can produce in a given
time period.
273. Which of the following indicators provides the clearest indication that an economy is
experiencing deflation?
A. A decrease in the unemployment rate.
B. A decrease in GDP.
C. An increase in the PPI.
D. A decrease in the CPI.
Feedback: Deflation refers to a situation where the average level of prices is actually
declining. The CPI is an index of consumer prices. Thus a decline in the CPI is a clear
indication that prices are declining.
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274. A collapse in Buldovia's banking system eventually led to companies unable to borrow
money to run their businesses. Firms terminated employees. These circumstances cut into
consumer's purchasing power, causing a severe decline in the prices of goods and
services, better known as _______.
A. Disinflation.
B. Deflation.
C. Contra inflation.
D. Overproduction.
Feedback: Deflation means that prices are actually declining. Disinflation occurs when the
rate of increase in prices is slowing down, i.e. the inflation rate is declining.
275. Which of the following strategies may have a net effect on inflation?
A. Decreasing interest rates and decreasing taxes.
B. Proportionately increasing wages and increasing prices.
C. Decreasing prices and decreasing taxes.
D. Proportionately increasing prices and decreasing wages.
Feedback: Inflation refers to rising prices. Inevitably this occurs with time. If we increase
wages in the same proportion that we increase prices of goods and services, it will have a net
effect because even though the cost of goods and services is rising, this is offset by the
increase in wages.
276.
Chapter 02 - Understanding Economics and How It Affects Business
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The nation of Florentina is in the midst of a serious economic downturn. The nation's
GDP has declined steadily for over five years and is now at its lowest level in over fifty
years. Florentina's unemployment rate is at an all time high and the nation's CPI is falling.
Florentina's economic condition is referred to as a:
A. Period of stagflation.
B. Balance of trade deficit.
C. Depression.
D. Retraction.
Feedback: A recession exists when GDP falls for two consecutive quarters (six months). A
depression is a severe recession. Since GDP has fallen for more than five years, the
unemployment is near an all time high, and the average level of prices is falling, it is clear that
the economy is experiencing a depression.
277. John complained to his buddy, Frank, that prices have increased a lot over the past
year. Frank disagreed, saying that the prices of some goods have gone up a bit, but other
prices have declined, noting that you can get some good buys on houses right now. Frank
feels that the average price of consumer goods hasn't changed. Frank and John can refer to
the __________ to learn how government economists currently view the price situation.
A. GDP
B. CPI
C. PPI
D. MEW
Feedback: The consumer price index, or CPI, provides information on changes in consumer
prices.
278.
Chapter 02 - Understanding Economics and How It Affects Business
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Emily recently quit her job at a major corporation because she saw little chance for
advancement. Although she is still searching for a new position, Emily believes the
economy is healthy and she hears that several firms are hiring people with her
qualifications. Which of the following statements about Emily's current situation is most
accurate? Emily is:
A. Not considered unemployed because she voluntarily quit her job.
B. An example of cyclical unemployment.
C. An example of frictional unemployment.
D. Likely to find employment quickly if she seeks training in a different field.
Feedback: Frictional unemployment refers to job seekers who are entering the labor market
for the first time (or after a long absence) or are temporarily between jobs. Workers who are
frictionally unemployed typically have skills that are in demand, but are in the process of job
search and have not yet accepted employment. This appears to be the case for Emily.
279. Kathleen's company produces computer monitors and other peripheral devices for
computers. About six months ago, Kathleen began to keep track of number of hours
worked, and the resulting output at her particular work site. Comparing the results, she
found that the number of workers (and the hours they worked) remained relatively steady
over the past six months, however, the work site's output increased significantly. This
indicates that:
A. Productivity at the work site has increased.
B. The work site sold-off some of its excess inventory.
C. The company's prices have increased faster than the wages paid to workers.
D. The company should hire more workers.
Feedback: Productivity measures the amount of output a given amount of labor can produce
in a given time period. If output is increasing, while work hours are unchanged, that means
that productivity is increasing.
280.
Chapter 02 - Understanding Economics and How It Affects Business
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Which of the following statements about business cycles in the U.S. is most accurate?
A. Business cycles occur precisely every 5 years.
B. Long term business cycles have only two phases—boom and bust.
C. Seasonal business cycles occur within a year.
D. Business cycles are based on theories.
Feedback: Business cycles are the periodic rises and falls that occur in economies over time.
Economists look at a number of types of cycles, from seasonal cycles that occur within a year
to cycles that occur every 48 to 60 years. Economist Joseph Schumpeter identified the four
phases of long-term business cycles as boom—recession—depression—recovery. Finally,
business cycles are based on facts, but what those facts describe can be explained only by
using theories.
281. Which of the following statements about productivity in the service sector of the U.S.
economy is most accurate?
A. Productivity in the service sector has increased much more rapidly than productivity in
the manufacturing sector.
B. Improving productivity in the service sector is much less important than improving
productivity in the manufacturing sector, because the service sector does not really
produce anything.
C. Productivity in the service sector is easier to measure than productivity in agriculture.
D. Measures of productivity in the service sector do a poor job of taking quality
improvements into account.
Feedback: The text cites many examples to illustrate that the quality of output in the service
sector has improved dramatically. However, current measures of productivity concentrate on
quantity rather than quality. Thus, these current measures understate how improvements in the
service sector are contributing to rising standards of living.
282.
Chapter 02 - Understanding Economics and How It Affects Business
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Chase is a recent college graduate with a new job as an engineering trainee for a large
defense company. Now that he is making good wages, he hopes to start saving for his first
house and also contribute toward the company retirement plan. As he looks over his
monthly bills, Chase is concerned about ever getting ahead of the game. His food bill, car
payment, and mounting gasoline payments keep him in the "just making ends meet"
category. As his mind wonders back to the good ol' college days, he reflects on a time
when gas and food seemed a lot more reasonable. Chase is experiencing the effects of:
A. Inflation
B. Conditions of low demand
C. Involuntary CPI
D. Cyclical unemployment
Feedback: Chase is experiencing the effects of inflation, or rising prices. When prices rise,
but salaries stay the same, we cannot purchase the same amount of those goods and services
that we did in the past.
283.
Chapter 02 - Understanding Economics and How It Affects Business
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Gabby and Gus Malloy recently got pre-approved on a loan for their first house purchase.
They are speculating on how much they should bid on their number one choice - a small,
three-bedroom bungalow near a major college town. Which of the following indicators
may be an important factor in whether they are able to successfully put in a low bid?
A. The federal tax rate in that area
B. The unemployment rate in that area
C. The producer's price index in that area
D. The CMI - consumer's marginal index
Feedback: When people are trying to determine the market value of a large investment such
as a house, it is important to review key economic indicators in the area - indicators such as
the unemployment rate that would cause housing prices to increase or decrease. If the area has
a high unemployment rate, there will not be as many persons interested in buying houses. In
fact, the recent recession resulted in significant home foreclosures, where banks could not
collect on previous loans. With fewer people interested in purchasing homes due to high
unemployment, the market value will decrease. The opposite also holds true: when business is
booming and people are relocating to hot spots to work, the market value of homes rises.
284.
Chapter 02 - Understanding Economics and How It Affects Business
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Patrick just landed a job working for a major online gaming company in Silicon Valley. In
a lot of ways, this is his dream job come true - the chance to work for a company that
makes gaming software and live in California at the same time. As his plane lands at San
Jose International, he pictures a snazzy apartment with a palm tree right outside the front
door. A few hours later, as he meets a property manager of a large apartment complex, his
heart sinks. The price of apartments is out of sight! Back at the hotel, he logs on to the
Bureau of Labor Statistics to try to get a better picture of why the cost of housing is so
high in this region of the U.S. Which factors may be causing the rise in the price of
housing?
A. Low Unemployment rate and increasing GDP
B. High consumer's marginal index and low PPI
C. Low CPI and high state tax rate
D. Decreasing Disruptive Technologies Index and high unemployment
Feedback: An increase in gross domestic product (GDP) signifies a higher demand for goods
and services. When firms are producing, they usually have a need for more workers. If more
workers move into the area, the demand for additional housing becomes greater. This will
often result in a housing shortage because workers desire to live close to where they work.
These circumstances will increase the price of available housing.
285.
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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. In March
2008, 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 ___________.
A. deflation
B. stagflation
C. disinflation
D. equalization
Feedback: Stagflation occurs when the economy is slowing but prices are going up. In the
situation described here, the price of wholesale price of flour, eggs, milk, ground beef, corn,
soybeans, and wheat surged up causing grocery retailers to raise their prices.
286. Recently the U.S. national debt was over:
A. $14 trillion.
B. $25 trillion.
C. $560 billion.
D. $380 billion.
287.
Chapter 02 - Understanding Economics and How It Affects Business
____________ refers to the efforts of the federal government to keep the economy stable
by increasing or decreasing taxes and/or government spending.
A. Monetary policy
B. Incomes policy
C. Fiscal policy
D. Cyclical policy
288. Fiscal policy involves increases or decreases in:
A. The money supply.
B. Interest rates.
C. Government spending and taxes.
D. Exports and imports.
289. When the federal government's collection of tax revenues is less than what it spends in
a given year, it results in a:
A. Federal Reserve allowance.
B. GDP deflator.
C. Balance of payments deficit.
D. National deficit.
