Question 1

Keynesian economic theory suggests

Accepted Answer

Keynesian economic theory suggests that during times of economic recession or downturn, the government should increase its spending to stimulate the economy. This is often implemented through infrastructure projects or government programs that create jobs and put money into the economy. This approach is based on the idea that increased government spending will lead to increased consumer spending and investment, ultimately helping the economy recover.

Question 2

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.

Accepted Answer

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Question 3

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

Accepted Answer

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Question 4

Mini-Case
Cooper Collins is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Evensplitia. Cooper was discouraged by the high tax rates in Evensplitia, so he immigrated to the United States seven years ago. Soon after moving to the U.S., Cooper again tried his hand at entrepreneurship and opened Coop's Consulting. The company struggled at first, and almost went bankrupt midway through its second year. However, Cooper never lost faith, the company survived, and eventually developed a great reputation in the community. Coop's Consulting began experiencing sustained growth early in its fourth year. In fact, Cooper hired additional employees to keep up with the increasing workload. His company, which started with only Cooper and two other full-time workers, now provides jobs for 43 full-time employees as well as many part-time workers and interns.
Despite these past successes, business ownership is not without complications. The company suffered its first drop in business since its very early years. Cooper is convinced that the problem is not with his company, but rather due to a downturn in the U.S. economy. He heard a national broadcast last week reporting that the value of the total output of final goods and services in the U.S. declined over the last quarter. The anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Cooper is concerned that he will have to lay off some of his employees if the economy doesn't improve. He hopes that the government does something soon to put the economy back on track.
-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

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Cooper Collins is a bright, hard-working engineer...

Question 5

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

Accepted Answer

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Question 6

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

Ben's strategy is to advocate for government spending on road and bridge repair as a means of increasing jobs and jump-starting the economy. This aligns with the Keynesian economic model, which suggests that government intervention in the economy, particularly through increased spending, is necessary during times of economic weakness. Choice A is incorrect because it presents a different, less relevant idea. Choice B is incorrect because it presents a negative view of Ben's situation, rather than describing the strategy behind his thoughts. Choice C is incorrect because it presents an alternative, unrelated solution to Ben's problem.

Question 7

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

Accepted Answer

Deficit spending occurs when the government spends more money than it takes in through revenue sources such as taxes. While the U.S. Constitution does not require the government to balance its budget each year, the government has historically struggled with reducing deficits due to pressure to expand spending. The government has not consistently run surpluses since the late 1980s, and deficit spending does not directly lower the national debt.

Question 8

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

Accepted Answer

Cutting spending will reduce the amount of money the government is borrowing and can help to lessen the budget deficit. Increasing spending, calling in government savings bonds, and increasing social programs will all lead to an increase in the deficit.

Question 9

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

The Fed is most likely to pursue a policy of restricting the money supply and increasing interest rates to slow the economy and combat inflation. This policy is known as contractionary monetary policy. Increasing taxes or devaluing the dollar are not typically strategies used by the Fed to combat inflation. Decreasing interest rates would have the opposite effect of what the Fed is trying to achieve by stimulating the economy and potentially fueling more inflation.

Question 10

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

Accepted Answer

The Federal Reserve Bank, also known as the Fed, is responsible for managing the money supply and setting interest rates in the United States. The United States Treasury is responsible for issuing and managing government debt, but does not directly control interest rates. The State Department focuses on foreign policy, and the Federal Deposit Insurance Corporation insures deposits in banks.

Question 11

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

The first blank refers to policies that can address high unemployment despite low interest rates, which is the role of fiscal policy. The second blank refers to providing tax breaks for corporations, which is also a component of fiscal policy. Therefore, the correct choice is C, which refers to both monetary policy (which is already ineffective due to low interest rates) and fiscal policy (which can address unemployment through tax breaks).

Question 12

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

The prime minister's strategy of increasing government spending to revive the economy aligns with Keynesian economic theory, which argues that government intervention and spending can stimulate economic growth during times of recession. Malthusian theory focuses on population growth and resource depletion, Bernankeism is not a recognized economic theory, and Greenspanian theory is associated with the former chairman of the Federal Reserve and does not provide a clear framework for dealing with a financial crisis.

Question 13

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

Accepted Answer

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Question 14

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

If businesses are producing at capacity and there is almost full employment, it means that the economy is operating at or close to its potential level. This could lead to an increase in inflationary pressures as demand for goods and services outstrips supply. In such a scenario, the Federal Reserve may decide to increase interest rates to moderate demand and keep inflation in check. This is because higher interest rates increase the cost of borrowings, reducing spending and investment, which can help to dampen demand and alleviate inflationary pressures.

Question 15

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

Accepted Answer

The Federal Reserve Bank (the Fed) manages the U.S. money supply and interest rates. While the Fed does play a role in monetary policy which affects the economy, it is not the primary government agency involved in carrying out fiscal policies (which relates to government spending and revenue) or ensuring the U.S. maintains enough gold reserves. Additionally, while the Fed does collect some tax receipts, it is not an agency of the U.S. Treasury Department.

Question 16

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

Accepted Answer

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Question 17

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

Accepted Answer

The efforts made by the Federal Reserve Bank to control the money supply and interest rates fall under monetary policy, which involves managing the money supply and credit availability in the economy. Fiscal policy, on the other hand, involves government spending and taxation decisions. Income and securities policies do not directly relate to the Fed's efforts to control the money supply and interest rates.

Question 18

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 government spending exceeds tax revenues, it means that the government will need to borrow money to cover its expenses, which leads to an increase in the total national debt. This can have negative impacts on the economy, such as higher interest rates and reduced confidence in the government's ability to manage its finances.

Question 19

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

Senator Lee's call for increasing government spending and cutting taxes to stimulate the economy falls under the domain of fiscal policy, which involves government decisions about spending and taxation to influence economic activity. Monetary policy, on the other hand, involves the control of the money supply and interest rates by central banks to promote economic stability. Discretionary income policy and social investment policy are not relevant to Senator Lee's actions.

Question 20

The Federal Reserve Bank operates

Accepted Answer

The Federal Reserve Bank is structured as a quasi-public institution, meaning it is a mix of government and private ownership. While it is subject to oversight from Congress, the Fed is not under the direct control of the government or any particular political party. Instead, the Board of Governors is made up of members appointed by the president and confirmed by the Senate, while the 12 regional Federal Reserve Banks are each overseen by a board of directors that includes both private sector and public sector representatives.

Quiz 2: Understanding Economics and How It Affects Business