Question 1

Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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.
-Gig recently heard a radio report that the Fed will try to help get the U.S. economy back on track. If the Fed takes action, Gig would likely see:

Accepted Answer

If the Fed takes action to help the U.S. economy, one likely result would be lower interest rates. Lower interest rates would make it easier for individuals and businesses to borrow money, which could stimulate spending and investment. It is important to note that the other options listed (an increase in the government's budget deficit, lower government spending, and an increase in the minimum wage) are all policy decisions that would be made by the government, not the Fed.

Question 2

Explain the difference between fiscal policy and monetary policy. Discuss how each of these approaches can be used to influence the state of the economy.

Accepted Answer

The answer of Explain the difference between fiscal policy and...

Question 3

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

Accepted Answer

The answer of Explain the significance of "price" in a...

Question 4

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, this could lead to inflation and higher prices. To counteract this, the Fed may decide to increase interest rates, which makes borrowing more expensive and reduces spending, slowing down economic growth and inflation. This helps to keep prices under control while maintaining economic stability.

Question 5

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

Accepted Answer

The answer of Discuss the views of economist Adam Smith....

Question 6

In one of his weekly broadcasts, 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. He 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 question is asking about which type of policy the Federal Reserve Chairman believes would be more useful for bolstering employment, and the answer is fiscal policy. Option A is incorrect because it pairs federal policy with state policy, which does not make sense in this context. Option B is incorrect because the question explicitly states that monetary policy (i.e. interest rates) cannot do anything for the high unemployment problem due to already being close to zero. Option D is incorrect because the question asks specifically for the type of policy, not the level of government that would need to provide tax breaks for corporations.

Question 7

Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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.
-Gig started Giganeers 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, introduced by Adam Smith, suggests that individuals' pursuit of self-interest in a free market can lead to positive social outcomes, such as job creation, as seen in Gig's case.

Question 8

Lance owns Lance Lawns Irrigation Systems, LLC, a company that installs and maintains underground lawn irrigation systems. Business is down due to new housing starts being negatively impacted by a deep recession. To make things worse, his bank called yesterday to inform him that his credit limit (interest fee of 12.5%) will be cut from $30,000 per year to $15,000 per year, unless he is willing to pay a higher interest rate of 20%. As Lance drives to the first job this morning, he knows that his last task of the day will be to reduce the hours for his two employees. He can't afford to work employees eight hours per day, with only a $15,000 line of credit. Which of the following strategies will help Lance's situation?

Accepted Answer

If the Fed decreases interest rates, it will make it easier for Lance to obtain loans at a lower interest rate, which will help him expand his business and potentially hire more employees. It will also make it more manageable for him to pay off his current debt and credit line, easing the financial burden on his company. The increase in government spending (choice A) may be helpful for the overall economy, but it may not directly benefit Lance's business. Decreasing government spending (choice B) could further hurt the economy and potentially make it harder for Lance to obtain funding. Increasing the federal funds rate (choice D) would make it more difficult and expensive for Lance to obtain funding and could further hinder his ability to expand his business.

Question 9

Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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.
-Besides the slowdown in the general economy, Giganeers faces threats of competition from several other companies that provide engineering consulting services. In order to gain more business, Gig tries to convince potential clients that his company offers better service than the competition. He has advertised heavily in professional magazines, often quoting some of his highly satisfied clients. The market Giganeers operates in is an example of:

Accepted Answer

Giganeers is facing competition from several other companies, indicating that it operates in a market with more than one seller (not a monopoly). Additionally, Gig is trying to differentiate his company from the competition by highlighting its quality of service, which is a characteristic of monopolistic competition. Therefore, the best answer is D) monopolistic competition.

Question 10

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

The answer of When describing the state of the U.S....

Question 11

Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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.
-Gig's native country of Frinezia was much different from the United States. In addition to its higher tax rates, the government offered more extensive social programs that were designed to redistribute income and reduce inequality. Although small businesses were privately owned and operated in Frinezia, many basic industries were owned and operated by the government. From this information, you would classify Frinezia's economic system as ___________.

Accepted Answer

Frinezia's economic system is classified as socialism because the government offers social programs aimed at redistributing income and reducing inequality, and controls many basic industries.

Question 12

Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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.
-The broadcast that reported a decline in total output for the United States probably got some of its information from the government's measurement of ___________.

Accepted Answer

The decline in total output in the U.S. is likely referring to a decline in GDP (Gross Domestic Product), which is a measure of the value of all final goods and services produced in a country during a specific time period.

Question 13

Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig 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 news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig 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.
-The broadcast cited forecasts that national output might continue to fall in the future. If total output shows decline for two consecutive quarters, economists would classify this as a _____________.

Accepted Answer

A decline in total output of final goods and services for two consecutive quarters is classified as a recession by economists.

Question 14

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

Accepted Answer

The answer of Identify and describe the 4 basic rights...

Quiz 2: Understanding Economics and How It Affects Business

Explain the difference between fiscal policy and monetary policy. Discuss how each of these approaches can be used to influence the state of the economy.

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

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:

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

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.

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