90. (p. 44) Deanne Beardon is a vocal critic of socialism. She likes to point out that in recent years the
governments in many socialist countries have cut back on government services and have reduced taxes. Deanne
believes that this trend will ultimately result in all nations adopting pure free-market economies. Recent
evidence suggests that Deanne’s views are essentially correct.
91. (p. 44) In a mixed economy, the government’s goal is to grow the economy and maintain some measure of
social equality.
92. (p. 46) Three major indicators of economic conditions are (1) the gross domestic product (GDP), (2) the
interest rate, and (3) the price indexes.
93. (p. 46) The total value of a country’s output of final goods and services in a given year is known as the nation’s
gross domestic product (GDP).
94. (p. 46) In the early 2000s, GDP in the United States was over $11 trillion.
95. (p. 46) Any output produced by U.S. firms is included in the value of U.S. GDP, even if the output was
produced in a foreign country.
96. (p. 46) GDP figures do not include the value of illegal activities.
97. (p. 46) To be classified as unemployed, a person must be at least 16 years old and must have tried to find a job
within the past four weeks.
98. (p. 46–47) The U.S. unemployment rate dropped significantly throughout 2002 and 2003, reaching its lowest
level in nearly two decades.
99. (p. 47, figure 2.6) Frictional unemployment occurs because the economy is experiencing a recession.
100. (p. 47, figure 2.6) 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.
101. (p. 47) Inflation refers to a general rise in the prices of goods and services over time.
102. (p. 47) Disinflation refers to a situation in which the overall level of prices in an economy is steadily falling.
103. (p. 47) Deflation is a situation in which prices are declining.
104. (p. 48) The consumer price index (CPI) measures what is happening to prices at the wholesale level.
105. (p. 48, figure 2.7) The CPI has 211 item categories, which are used to compute basic indexes.
106. (p. 48) The CPI is based on the prices of a carefully selected market basket of goods, all of which consumers
can purchase at a typical supermarket.
107. (p. 48) Some wages, tax brackets, interest rates, and government benefits are based on the CPI.
108. (p. 48) The producer price index measures what is happening to prices at the retail level.
109. (p. 48) The producer price index measures what is happening to prices at the wholesale level.
110. (p. 48) The main reason U.S. workers are well paid is because they are very productive.
111. (p. 48) The higher productivity is, the higher the costs of production are likely to be.
112. (p. 48) An increase in productivity means that a worker is now able to produce more goods and services in
the same amount of time.
113. (p. 48) As productivity increases, the cost of producing goods and services is likely to fall.
114. (p. 49) In the service sector of the economy, the influx of machinery such as computers increases output per
worker, but does little to improve the quality of services.
115. (p. 49) Current measures of productivity in the service sector provide an accurate measure of changes in the
quality of output.
116. (p. 49) An economy is said to be in a recession if GDP declines for two or more consecutive quarters.
117. (p. 49) A depression is a severe recession that is often accompanied by deflation.
118. (p. 49) Depressions are usually accompanied by severe inflation.
119. (p. 46) A prediction that GDP will increase significantly over the next six months is bad news for most
businesspeople.
120. (p. 46) Danny was laid off from his job five months ago. At first, he looked for a new job every day. For the
last six weeks, however, Danny has become so depressed that he has not made an effort to find a job. According
to the criteria used by the government, Danny is a civilian whose unemployment would be included in
computing the unemployment rate.
121. (p. 48) Although changes in the CPI provide interesting insights into the overall performance of the economy,
these changes have little practical impact on the lives of ordinary people.
122. (p. 48) A problem with the CPI is that it measures the price changes of only food and clothing, while ignoring
what happens to the prices of such important items as medical care and interest rates.
123. (p. 46) Larry and Moe are having an argument. Larry believes that over the last year the economy is
experiencing rapid inflation, while Moe says that the economy actually experienced disinflation during this
period. The easiest way for Larry and Moe to settle their argument is to look at GDP figures for the past year.
124. (p. 49) Maureen is the office manager of a service company. She has recently spent a lot of money installing
new computers and office equipment that will be used by the workers in her office as they provide services to
clients. If Maureen’s company is like most service companies, she will probably see a big jump in the
productivity figures reported for workers in her office.
125. (p. 47) The government of Nexico has made progress in its efforts to bring Nexico’s rapid inflation under
control. Although prices are still rising, the rate of increase has slowed considerably. This suggests that Nexico
currently is experiencing disinflation.
126. (p. 49) The nation of Woland has seen its GDP decline severely for four years in a row, with no relief in
sight. Unemployment has risen to record levels, and businesses are failing faster than at any time in the past
century. The economy of Woland is experiencing a depression.
127. (p. 47, figure 2.6) Robin just graduated from college and is seeking her first job. She received a degree in
engineering at a prestigious university and graduated with honors. Robin has several leads and has heard that
the market for engineers is very strong, so she is convinced that she should locate a good job in the near future.
Robin’s current situation is an example of structural unemployment.
128. (p. 50) Fiscal policy refers to the federal government’s efforts to keep the economy stable by controlling the
amount of money in circulation.
129. (p. 50) Fiscal policy involves the federal government’s efforts to stabilize the economy by increasing or
decreasing taxes and/or government spending.
130. (p. 50) The U.S. national debt currently exceeds $28,000 for each man, woman and child in the United
States.
131. (p. 50) When the government attempts to stabilize the economy by changing taxes or government
expenditures, it is using fiscal policy.
132. (p. 50) The national deficit is the difference between our nation’s exports and its imports.
133. (p. 50) The size of the national debt increases when the federal government runs a deficit.
134. (p. 50) Our national debt is now less than $200 billion.
135. (p. 50) When all types of taxes are taken into account, some of the highest earning citizens in the United
States face a tax rate that can exceed 50 percent.
136. (p. 51) Monetary policy involves the management of the money supply and interest rates by the Federal
Reserve System.
137. (p. 51) Monetary policy is directly under the control of the U.S. Department of the Treasury.
138. (p. 51) One of the major ways the Fed influences economic conditions is through its control of interest rates.
139. (p. 50) Dr. John Maynard is a professor of economics at a prominent university. Dr. Maynard has recently
urged policy makers in our national government to cut taxes and increase government spending in order to pull
the economy out of its current downturn. The policy measures called for by the professor are examples of fiscal
policy.
140. (p. 50) The best way to avoid national budget deficits is increase our exports and decrease our imports.
141. (p. 50) Senator Spendital has just made a speech deploring the continuous deficits in the federal budget. He is
proposing an increase in tax rates to raise more revenue for the government and thus gradually reduce the size
of the national debt over a period of several years. The strategy Senator Spendital is proposing is a common
type of monetary policy.
142. (p. 51) In order to restrict spending by businesses and households, the Fed would take measures designed to
lower interest rates.
143. (p. 51) 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.
144. (p. 51) Larry wants to buy a new car, and is planning to borrow the money for his purchase from a bank. He
has just read in the newspapers that the Federal Reserve is likely to implement policies in the next few weeks
that are designed to stimulate the economy, which is currently in a recession. Larry would probably get a lower
interest rate on his car loan if he waits until after the Fed implements its new policies.
145. (p. 31) Economics is the study of how:
D. people govern themselves in a democratic society.
146. (p. 31) __________ is the study of how to employ resources to produce goods and services and distribute
them among competing groups and individuals.
D. Socialism
147. (p. 31) ___________ studies the operation of a nation’s economy as a whole.
A. Microeconomics
148. (p. 31) ____________ looks at the behavior of individual people and organizations in specific markets.
A. Macroeconomics
149. (p. 31) Resource development is:
A. the study of how society chooses to employ resources to produce goods and services and distribute them for
consumption among various competing groups and individuals.
150. (p. 31) The study of how to increase the amount of available resources and create conditions that will make
better use of these resources is known as:
A. human resource management
151. (p. 31) Thomas Malthus believed that a major problem that would limit economic progress was:
D. the inability of workers in developed nations to compete against cheap foreign labor.
152. (p. 31) Neo-Malthusians believe that the solution to poverty is:
A. increasing the world population.
153. (p. 32) A key to economic growth and development is to:
A. locate more deposits of gold and other precious metals.
154. (p. 32) _________ is considered by some to be the father of modern economics.
A. John Maynard Keynes
155. (p. 30) Which of the following is a reason South America is relatively poor and there is less money available
for entrepreneurial ventures?
D. South Americans operate businesses in free markets.
156. (p. 31) Which of the following would be a topic emphasized in a macroeconomics course?
D. The determinants of the wage rate for a certain type of labor.
157. (p. 31) Which of the following would be a topic emphasized in a microeconomics class?
A. How a nation’s GDP is computed.
158. (p. 31) The main goal of resource development is to find ways to:
D. promote the central planning of resource utilization so that resources can be allocated to the uses that will
benefit society the most.
159. (p. 31) Thomas Malthus was pessimistic about the ability of societies to achieve high standards of living for
most of their citizens because he believed that:
D. high tax rates would eventually undermine people’s incentives to work hard and create wealth.
160. (p. 31) Economics was known as the “Dismal Science” because:
D. there were too many old people and not enough young people to care for them.
161. (p. 33) How is it that people working in their own self-interest produce goods, services, and wealth for
others?
D. The government pays entrepreneurs in the U.S. to produce goods, services, and wealth for others.
162. (p. 32) Adam Smith believed that countries would prosper if businesspeople were free to start and run their
own businesses, because businesspeople would make a profit by providing the goods, services and ideas that
others in the economy wanted. This was called the:
163. (p. 31) Sue Flay is a gifted cook. She is about to open her own business, a restaurant in which she will be the
head chef. Sue is willing to work long hours because she believes that her culinary talents and hard work will
allow her business to succeed and earn her a great deal of money. Sue’s efforts appear most consistent with the
economic theory developed by:
A. Thomas Malthus.
164. (p. 31) Clara Richards considers herself to be a follower of Thomas Malthus. Which of the following
statements would Clara be most likely to make?
165. (p. 32) Which of the following statements would a follower of Adam Smith be most likely to make?
A. The federal government should use its ability to spend and tax to guide the decisions of businesses and
consumers.
166. (p. 32) Fourteen years ago, Murray noticed that a lot of people who bought personal computers really did not
know much about how to use them and frequently suffered system crashes and other aggravations. He decided
he could earn a nice profit by starting a consulting business to help other people overcome their computer woes.
Although the business struggled at first, it has been quite successful for the last five years. Murray has many
satisfied customers, and the business has grown to the point he now employs several workers. Murray’s
experience is an example of:
A. socialism at work.
167. (p. 32) For many years, Congressman Reggie Lader has called for more government regulation of business.
“After all,” the Congressman said recently, “businesspeople are out to make a profit, not to create jobs or serve
their customers. The government must pass more laws to require businesses to take the interests of consumers
and workers into account.” From these comments, it is clear that Congressman Lader:
D. does not realize that government regulation is already the main determinant of business decisions in
capitalist economies.