Question 1

Identify and describe the 4 basic rights that form the foundation of capitalism.

Accepted Answer

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Question 2

Compare and contrast fiscal policy and monetary policy. Discuss how each of these approaches can be used to influence the state of the economy.

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Question 3

The nation of Forlornia is in the middle of a severe financial crisis. The prime minister has increased government spending by trillions, in order to revive the ailing economy. Her strategy followed the economic theory known as

Accepted Answer

Keynesian economic theory and later adaptations suggest that government policy could be effective in helping manage the economy. By increasing government spending on infrastructure such as the building and repair of roads, bridges, schools, and utilities, the government will purchase goods and services and put people to work.

Question 4

In the U.S., the ________ has the role of managing the money supply and interest rates.

Accepted Answer

The Federal Reserve Bank, commonly known as the Federal Reserve or simply the Fed, is the central banking system of the United States. Its primary responsibilities include managing the money supply, conducting monetary policy, and regulating and supervising banks and other financial institutions. The United States Treasury deals with government finances and debt management, the State Department handles foreign policy, and the Federal Deposit Insurance Corporation insures deposits in banks and thrift institutions.

Question 5

Efforts by the Federal Reserve Bank (the Fed) to control the money supply and interest rates are known as ________ policy.

Accepted Answer

Monetary policy refers to the actions taken by central banks to regulate the money supply, credit availability, and interest rates in an economy. The Federal Reserve uses monetary policy to promote economic growth, stabilize prices, and prevent inflation. Fiscal policy, on the other hand, refers to government spending and taxation policies that impact the economy. Income policy and securities policy are not terms commonly used to describe the actions of the Federal Reserve.

Question 6

When describing the state of the U.S. economy, reporters often refer to the nation's GDP, its unemployment rate, and the CPI. Explain what each of these terms means and why each measure is significant.

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Question 7

Which of the following statements about the Federal Reserve Bank (the Fed) is most accurate?

Accepted Answer

The Fed operates as a semi-private organization that has the goal of keeping the economy growing without causing inflation. It does this by managing the supply of money and interest rates.

Question 8

Discuss the views of economist Adam Smith. How does the "invisible hand" philosophy suggested by Smith benefit society as a whole?

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Question 9

Keynesian economic theory suggests

Accepted Answer

Keynesian economic theory and later adaptations suggest that government policy could be effective in helping manage the economy. By increasing government spending on infrastructure such as the building and repair of roads, bridges, schools, and utilities, the government could help stimulate the economy.

Question 10

Ben recently lost his job at a major U.S. auto plant in one of the rust belt states. After looking unsuccessfully for work in a similar industry for several months, he plans to start interviewing with road and bridge repair companies. He speculates that if the government begins to contract with companies that repair highways and bridges, he may find steady work, at least in the short term. Which of the following statements best describes the strategy behind his thoughts?

Accepted Answer

Keynesian economic theory believes that government intervention is sometimes necessary in the short term in order to jump-start an ailing economy. By employing citizens and paying them wages, workers would start spending again, which would help stabilize wide swings in the business cycle.

Question 11

Which of the following statements about government deficit spending is most accurate?

Accepted Answer

The national deficit is the difference between the government's tax revenues and its expenditures. Every year there are calls for new social programs (or increases in allocation for existing programs) and additional needs for military spending. This continuous pressure to increase spending makes it difficult to reduce the level of deficit spending.

Question 12

Senator Shulei Lee is alarmed at the state of the economy. Unemployment is high and GDP is low. Senator Lee has called for Congress to take action to increase government spending and cut taxes in order to stimulate the economy. The actions called for by Senator Lee are examples of

Accepted Answer

Changes in the level of government spending and taxes to help stabilize the economy are known as fiscal policies.

Question 13

Explain the significance of "price" in a free-market economic system.

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Question 14

The chair of the Federal Reserve Bank spoke to the American public. The message she conveyed is that Fed economists are worried about inflation and believe the best course of action would be to slow the economy. Which of the following policies is the Fed most likely to pursue?

Accepted Answer

When the Fed is concerned about inflation it is likely to try to slow down the economy by increasing interest rates and restricting the money supply.

Question 15

Cooper created Coop's Consulting 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.

Accepted Answer

The invisible hand concept says that self-interest (the desire to earn a profit) leads entrepreneurs to create jobs and produce goods and services that satisfy wants, thus benefiting society as a whole.

Question 16

In one of her weekly live videos, the Federal Reserve Chairman remarked that inflation had begun to tick upward. However, unemployment in the U.S was still quite high and economic growth had slowed. With short-term interest rates close to 0 (zero), the Chair did not visualize that ________ policy would be able to do anything for the high unemployment problem. She felt that ________ policy would be more useful for bolstering employment, but that would require local and state governments and the federal government to provide tax breaks for corporations.

Accepted Answer

Monetary policy is the responsibility of the Federal Reserve Bank and the open market committee. Fiscal policy involves raising and lowering taxes. It is the responsibility of Congress to pass legislation, which affects the amount of taxes businesses pay.

Question 17

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

Accepted Answer

When the business cycle is experiencing a boom, businesses begin producing close to capacity, most people who want to be employed are employed, and spending is robust, the government may decide to curb inflation (rising prices) by raising interest rates to make borrowing less attractive. If borrowing is less attractive, the demand for goods and services will go down, and subsequently prices will remain stable.

Question 18

The Federal Reserve Bank operates

Accepted Answer

The Federal Reserve Bank is considered as a semi-private organization because while it is created by the government, it operates independently and is not directly controlled by the government or any other entity. It is owned by member banks, but it also operates as the central bank of the United States.

Question 19

As you're checking out the online edition of your local newspaper, you quickly scan a report in the business section that says government spending will again exceed tax revenues in the current year. What does this mean for the economy?

Accepted Answer

When its tax revenues fall short of its expenditures, the federal government runs a deficit. Since the national debt is the sum of all deficits, running another deficit will increase the debt.

Question 20

One way to lessen the U.S. government budget deficit is to

Accepted Answer

Cutting spending is the best choice to lessen the U.S. government budget deficit, as it reduces the amount of money the government is spending, which in turn reduces the deficit. Increasing spending or social programs would only add to the deficit, while calling in government savings bonds would not be sufficient to make a significant impact on the deficit.

Quiz 2: Understanding Economics and How It Affects Business