economics unit 3-5, Economics 1

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Read the scenario.

The citizens of Country D have noticed that the average prices of most goods within their nation have begun to rise. At the same time, employers are not raising wages at the same rate. The combination of these challenges has resulted in a decrease in overall demand, causing a decline in GDP.

According to the scenario, what is the greatest economic challenge that Country D is facing?

unemployment
inflation
high production
high wages

b

When an economy suffers from low production, a country cannot

worry about unemployment.
change the tax rate.
provide adequate funding for public safety.
enjoy a steady rate of economic growth.

d

Read the scenario.

The citizens of Country D have noticed that the average prices of most goods within their nation have begun to rise. At the same time, employers are not raising wages at the same rate. The combination of these challenges has resulted in a decrease in overall demand, causing a decline in GDP.

Based on the scenario, who is most affected by the situation taking place within Country D?

the government of Country D
the workers of Country D
the businesses of Country D
the government, workers, and businesses of Country D

d

The graph shows the number of employed workers in the United States in nonfarm jobs from 2008 to 2013.

What course of action might a government take to respond to the downturn revealed in this graph?

reducing the size of its armed forces
laying off unnecessary workers
investing in job-training programs
encouraging people to travel overseas

c

The graph shows the number of employed workers in the United States in nonfarm jobs from 2008 to 2013.

The best conclusion that can be drawn from the graph is that the number of nonfarm jobs

remained consistent over time.
started going down in 2008.
went up every year since 2008.
started going down in 2010.

b

Public policy can be best defined as

a course of action the government takes in response to an issue or problem.
a decision made by all registered voters to change a government program.
the annual review of a government’s plans to spend taxpayers’ money.
a forum where citizens can debate the merits of a government proposal.

a

Economic interdependence means that economic policies must balance the needs of

all governments in the world.
governments, individuals, and businesses.
small businesses and large corporations.
both wealthy and poor individuals.

b

In a free enterprise system, governments address public problems through policy to ensure that

citizens’ needs are met and protected.
economic operations of businesses are controlled.
workers earn more than workers in other countries.
the nation’s level of productivity remains steady.

a

The diagram shows a challenge for government policy-makers.

Which of these statements describes what the diagram is showing?

A country’s needs are more important than its ideals.
The most important aspect of economic policy is citizens’ safety.
Economic policy must reach a balance between needs and ideals.
Private property is somewhat less important than fairness.

b

A government’s monetary policy is its plan to control

taxation and spending.
prices.
workers’ wages.
the money supply.

d

A plan for spending money that balances income with spending and shows how money will be spent is

a surplus.
an expenditure.
a budget.
a deficit.

c

The graph shows government spending as a percentage of GDP from 1990 to 2012.

At its peak, government spending made up about

half of GDP.
100 percent of GDP.
one quarter of GDP.
one tenth of GDP.

c

The graph shows the federal budget from 1980 to 2010.

In which period did the federal budget show the greatest deficit?

1980 to 1990
1980 to 2000
1990 to 2000
2000 to 2010

d

Which statements accurately describe debts and deficits? Check all that apply.

Debt is free and does not affect a government.
A government’s budget deficit causes debt to increase.
A government’s budget deficit causes debt to decrease.
Debt requires a government to pay back more than it has borrowed.
The deficit is the amount a government spends above what it brings in.

245

When a government creates a budget, it is seeking a way to

spend as much revenue as possible.
cut spending to a bare minimum.
return as much money to taxpayers as possible.
allocate money to programs and projects.

d

What is the main goal in creating the federal budget?

managing businesses and increasing spending on all programs
deciding how to manage the government’s tax revenue and expenditures
finding a way to allow the economy to run on its own
finding a way to slow down rapid economic growth

b

When revenues are higher than expenditures in a budget, that budget

shows a deficit.
is in balance.
must be discarded.
shows a surplus.

d

"Meeting the spending targets in this budget meant some very difficult choices."
President Barack Obama,
2012 Budget Message of the President

Read the passage.

What did the president mean when he said he had to face "very difficult choices" when creating a federal budget?

deciding which country to borrow from to finance spending
deciding what would be funded and what would be cut
deciding how to keep interest rates low on the national debt
deciding how much to increase tax rates

b

The pie chart shows federal spending in 2010.

Which of the following was the highest spending priority for the federal government in 2010?

labor and transportation
veterans’ affairs
education/health and human services
international assistance

c

Which of the following statements most accurately describes the federal government and its employees?

Millions of Americans work for the federal government.
The federal government is not allowed to hire employees.
The majority of Americans are employed by the federal government.
The number of federal employees is too small to affect government spending.

a

The chart shows how two people with different incomes are taxed.

According to the chart, the citizens are being taxed .

proportionally

Which are examples of programs or projects most likely funded by taxes paid by citizens of the United States? Check all that apply.

constructing a highway
collecting garbage
developing a vacation resort
building a shopping center
maintaining state parks

125

How are progressive taxes and regressive taxes similar?

Both charge high-income individuals more.
Both are considered flat taxes.
Both are determined based on income.
Both are types of indirect taxes.

c

If a sales tax is the same for all goods sold within a given area, why are sales taxes considered regressive?

High-income earners avoid paying sales tax through deductions.
Sales taxes tend to be higher in areas with large low-income populations.
Sales tax disproportionately affects low-income earners.
Low-income earners make purchase decisions based exclusively on sales tax.

c

A(n) is a tax issued by the federal government on imported goods.

tariff

Property taxes are usually determined based on

the property owner’s income.
the amount of money invested in the property.
the earnings generated by the property.
the value of the property.

d

Which of these is most likely the US government’s aim in taxing imported goods?

to protect domestic businesses
to decrease international trade
to end reliance on foreign goods
to make US markets less desirable

a

Which best explains how contractionary policies can hamper economic growth?

They slow demand.
They help increase consumer debt.
They reduce consumer confidence.
They reduce disposable income.

d

If expansionary taxation policies encourage growth, are they always appropriate to implement?

No, government services could be reduced and cause serious problems for individuals and businesses.
Yes, the private sector can easily and affordably replace all services and facilities cut by the government.
No, the government is capable of providing many but not all services individuals and businesses need.
Yes, the government will still ensure that individuals and businesses continue to receive all necessary services.

a

How is an excise tax different from a sales tax?

An excise tax is not deductible.
An excise tax applies to specific products.
An excise tax applies only to imported goods.
An excise tax is an indirect tax.

b

If the domino effect occurs as a result of changes in the money supply, what will most likely happen as an immediate result of banks having more money to lend?

Borrowing will increase.
Interest rates will decrease.
Investing will increase.
Inflation will decrease.

b

Which statement best describes how the Fed’s use of open market operations affects banks?

It affects banks’ interest rates
It affects banks’ liquidity.
It affects banks’ lending practices.
It affects banks’ stability.

b

Which best describes a central bank’s primary role?

controlling inflation
adjusting interest rates
printing money
creating monetary policy

d

Which of these is a banking activity of the Fed?

printing money
regulating securities markets
storing money for banks
funding government programs

c

If the domino effect occurs as a result of changes in the money supply, what will most likely happen as an immediate result of interest rates being increased?

Borrowing will decrease.
Investing will decrease.
Inflation will increase.
Liquidity will increase.

a

monetary policy involves decreasing the money supply.

contradictionary

Which best describes a central bank’s primary goals?

controlling inflation and reducing unemployment
reducing unemployment and maintaining cash flow
controlling stagflation and reducing unemployment
managing credit and ensuring the money supply’s liquidity

a

Why does the Fed pay interest to banks?

It is interest on money held in reserve.
It is interest on credit available to the Fed.
It is interest on loans taken by the Fed.
It is interest on government investments.

a

Which statement best describes how the Fed responds to recessions?

It sells more securities.
It charges banks more interest.
It increases reserve requirements.
It increases the money supply.

d

Which best describes what a central bank uses monetary policy to do?

ensure that the government has a balanced budget
influence financial institutions globally
ensure that the government is sufficiently funded
steer the economy away from recession and toward growth

d

How long is a representative’s term of office?

one year
two years
four years
six years

b

What is the proper order for how a bill passes through the House?

submission, debate, hearing, vote
submission, hearing, debate, vote
hearing, submission, debate, vote
hearing, debate, submission, vote

b

How can the Senate limit the power of the House?

by not sending bills to the House
by not approving the House’s bills
by being the upper chamber
by having six-year terms

b

What power does the House hold in regard to impeachment?

It forms a committee to hear complaints against an official.
It brings charges against an official to remove him or her from office.
It holds a trial to present evidence against an official on the charges of impeachment.
It decides whether the official is guilty and should be removed from office.

b

What happens first when a bill is introduced in the House?

The House votes to approve or reject the bill.
Representatives debate the bill on the floor of the House.
The Speaker decides whether the House will consider the bill.
The bill is assigned to a committee, who looks into it and recommends changes.

d

Read the quote from a member of the House.

In order to do our job well, we spend a lot of time meeting with people who live in our states to tell them about what is happening in government and to listen to their ideas about how to improve life in our country.

—Representative Mike Honda
California District 17
San Jose, CA

To which duty of a House member does this quote most likely refer?

to propose and draft state laws
to hire and manage staff in Washington D.C. and in the district
to meet with constituents in Washington D.C. and in the district
to serve on committees in the House

c

How many members are there in the House of Representatives?

100
200
435
535

c

Who in the House has the power to lead the caucus and control the agenda?

the Majority Whip
the Majority Floor Leader
the Speaker of the House
the Committee Chair

c

Which of the House’s functions is the most important?

electing a president in a deadlock
impeaching a federal employee
reviewing Senate tax bills
creating laws

d

Which of these is an exclusive power of the House of Representatives?

to amend a bill
to impeach a government official
to check the power of the president
to review a tax bill the Senate has proposed

b

For a piece of legislation to proceed to the Senate, it needs a certain number of votes. Whose job is it to organize the votes of the party?

the whip
the floor leader
the caucus
the committee

a

What is the hierarchy in the structure of the House?

The members are at the top, and the floor leaders are at the bottom.
The Speaker is at the top, and the members are at the bottom.
The Speaker is at the top, and the whips are at the bottom.
The floor leaders are at the top, and the members are at the bottom.

b

How does the Speaker exert power over a committee?

by preventing a committee from meeting
by rejecting the findings of the committee
by appointing the chair and a majority of the members
by appointing the whip as a voting member of the committee

c

The person who has the job of maintaining order in the House is the

Sergeant at Arms.
Majority Whip.
Speaker of the House.
President of the House.

c

Revenue bills can be proposed only by

the House.
the Senate.
the Speaker.
the President.

a

In which situation would government regulation most likely be necessary?

A factory requires employees to work in unsafe conditions.
A restaurant requires employees to work overtime on weekends.
A computer company requires employees to work long hours.
A power plant requires employees to take safety training classes.

a

Government regulation is intended to

encourage producers to take negative actions.
discourage producers from taking harmful actions.
encourage producers to follow the Constitution.
discourage producers from making a profit.

b

Regulatory policy requires a balance between protecting safety and

protecting constitutional rights.
improving corporate profits.
improving environmental conditions.
protecting states’ rights.

a

The Food and Drug Administration sets standards for

advertising.
product labeling.
the environment.
traffic safety.

b

What makes enforcing safety standards a challenge for the Food and Drug Administration?

Many foods are imported from other countries, and the FDA must ensure those foods meet the same standards as US goods.
The FDA faces competition from the EPA, which sets standards for product labeling.
The FDA has no control over advertising laws, which may conflict with safety standard laws.
Many raw materials are exported to other countries, and the FDA must ensure those materials meet the same standards as international goods.

a

The most efficient way to ensure that producers are responsible for products is through

advertising.
legislation.
labeling.
compliance.

c

Regulatory agencies such as the OCC and the FDIC add to the banking system.

safety

A mixed-market economy is best defined as an economy

with some government intervention.
without government intervention.
with some externalities.
without corporate compliance.

a

A goal of financial regulatory agencies is to

prevent monopolies.
enforce workplace safety.
protect the environment.
enforce food safety.

a

The chart shows a cost-benefit analysis.

Which most likely explains why the costs and benefits shown by the EPA are higher than the other regulatory agencies?

The EPA legislates and enforces more regulations that reap greater benefits than the other agencies.
The EPA legislates and enforces food regulations that reap greater benefits than the other agencies.
The EPA has a larger budget than the other agencies, and its employees work longer hours.
The EPA is less efficient than the other agencies, and its employees spend more money.

a

What is the definition of collective bargaining?

ongoing salary negotiations between an employee and a factory owner
an agreement among a group of factory owners to raise worker wages
a written set of guidelines about legal and illegal workplace conditions
labor union and employer negotiations about wages and other issues

d

What is the definition of minimum wage?

the lowest hourly pay that workers can receive
the average pay for qualified workers
the starting salary for all new employees
the required pay when an employee is injured

a

What event had an enormous effect on US workplace safety?

a new minimum wage
the first labor union
a worker strike
a deadly factory fire

d

Both newspaper journalists and postal workers have been negatively affected by

the popularity of electronic communication and the Internet.
declining literacy rates and lack of interest in reading.
government budget cuts that led to fewer jobs in these fields.
competition with cheaper labor performed by overseas workers.

a

What is one benefit for US workers who have a college degree rather than a high school diploma?

More than 80 percent of jobs require a college degree.
Those with a college degree report higher job satisfaction.
Most workers with a college degree are immune to layoffs.
Those with a college degree earn nearly twice as much as those without college.

d

The graph shows labor union membership.

During what years did union membership peak?

in 1945 and 1955
in 1960 and 1970
in 1930 and 1950
in 1965 and 1970

a

The job outlook for physical therapists

is weak to very poor.
depends on the economy.
will remain stable.
will improve over time.

d

What is the most likely reason why many of the New York Factory Investigating Commission’s suggestions were not implemented immediately?

The public did not support new safety regulations until several factory disasters occurred.
Many of the suggested changes would have negatively affected the quality of products made in factories.
Most workers outside New York would not have benefited from widespread factory reform.
Factory owners resisted the suggestions because they would be costly to implement.

d

If union contracts raise wages above competitive levels, what might be one negative outcome?

Industries will raise salaries for top-level workers but not entry-level workers.
Companies will move overseas to escape unions and hire cheaper labor.
Inexperienced workers will lose their jobs to more experienced workers.
Employees will be content with their status and thus less likely to join unions.

b

Who benefits most from workplace safety regulations?

employers, who are less likely to lose income and productivity due to serious employee injuries
qualified workers with disabilities, against whom employers may no longer discriminate
all workers, who are less likely to miss work because of injury or face high medical bills
rival companies, which gain an advantage by using more cost-effective safety measures

c

In the 1870s, began to investigate factory conditions.

Massachusetts

What was the status of US workplace safety laws in 1900?

A few states had tried to pass safety laws, but they had no public support.
Most states had passed some safety laws, but enforcement varied.
Most states opposed safety laws, but workers began to demand them.
All states had safety laws, but no one bothered to enforce them.

b

Why must the government consider companies’ needs as well as those of workers?

Workers often take advantage of safety and wage laws and regulations.
Company owners can easily vote government officials out of office.
Employers deserve the same benefits and protections as employees do.
Regulations can be costly and may drive companies out of business.

d

One argument in favor of labor unions is that they

help create many new jobs.
support both owners and workers.
give workers job security.
eliminate unqualified workers.

c

Which workers are most likely to be in demand in the future?

those with high-tech skills
those with construction skills
those in government jobs
those in manufacturing jobs

a

Read the excerpt from a letter about the early trade union movement.

The trade union movement came into being as a movement of hunger. It was made necessary by conditions. It was in the beginning formed in response to a hunger for enough to eat . . . As it became possible to secure more food, other hungers demandedsatisfaction . . . The demands were for more and better food, for better clothes and for better homes. It required a struggle to satisfy these needs . . . [A]t every step of the way it was necessary to overcome the stubborn opposition of employers who were resolved not to recede and not to relinquish any of the powers and privileges which they possessed.

—Samuel Gompers, 1920

What does the author believe about factory owners?

They struggle just as workers do.
They earned their privileges.
They are greedy and selfish.
They are stubborn but hardworking.

c

laws ensure that workers are paid if they are injured on the job.

worker’s compensation

Which document determines the number of shares a company can sell?

a stock prospectus
an annual bill of rights
a corporate charter
an annual report

c

Franchising is typically done by

cooperatives.
partnerships.
sole proprietors.
corporations.

d

What happens to earnings in a cooperative?

They are used to pay middlemen for services.
They are shared with member owners.
They are used to buy more stock for members.
They are shared with customers through dividends.

b

The main advantage that corporations have is

limiting liability for owners and stockholders.
giving many owners a say in business decisions.
being inexpensive and easy to establish.
requiring fewer state and federal regulations.

a

How do corporations raise money and resources to expand?

They request a bank loan.
They save business profits.
They cash in dividends.
They agree to sell stocks.

d

Which best describes the difference between preferred and common stocks?

Preferred stock allows shareholders to vote for a board of directors, while shareholders of common stock do not have voting rights.
Common stock gives shareholders one vote per share owned, while shareholders of preferred stock do not have voting rights.
Preferred stock gives shareholders priority for dividends distributed, while shareholders of common stock are not allowed dividends.
Common stock allows shareholders to get priority for dividends distributed, while shareholders of preferred stock are not allowed dividends.

b

People who buy stock in a company are known as .

shareholders

Analyze the chart, which depicts a typical corporate structure.

Based on the chart, the primary responsibility of shareholders is to

run the business by electing a board of directors, who then hire the company’s leaders.
run the business by electing a board of directors and hiring a president and other leaders.
make business decisions on the advice of a board of directors, a president, and other leaders.
make business decisions on the advice of a board of directors, who follow the expertise of leaders.

not c

Which can be considered disadvantages of sole proprietorships and partnerships?

Partnerships require many people to write a charter, while sole proprietorships require one person to write a charter.
Sole proprietorships require one person to know complicated tax laws, while partnerships require many people to know the rules.
Partnerships require one person to do many things, while sole proprietorships require many people to weigh in on decisions.
Sole proprietorships require one person to do many things, while partnerships require many people to weigh in on decisions.

d

An entrepreneur who opens a franchise must

assume debts.
keep profits.
offer training.
select sites.

a

What role does a fast-food corporation play when it agrees to franchise its business? Check all that apply.

The franchisor will supply training.
The franchisor will license a trademark.
The franchisor will select a location.
The franchisor will pay associated fees.
The franchisor will supply advertising.
The franchisor will collect most profits.

not the combination of 135

Which describes the process of how a business incorporates?

The business must gain government permission and issue a stock sale, followed by a shareholder vote.
The business must issue a stock sale and take a shareholder vote, followed by government permission.
The business must take a shareholder vote and gain government permission, followed by a stock sale.
The business must gain government permission, followed by writing a charter and issuing a stock sale.

a

Entrepreneurs who want to open a franchise

buys the rights from the parent company and creates his or her own rules.
buy the rights from the parent company and invest in a location approved by the parent company.
invest in a location and create a business model for the franchise.
invest in a location and develop a trademark for the franchise.

b

Cooperatives save members money by

purchasing supplies and services as a group.
securing financing from banks as a group.
charging more to sell their products as a group.
sharing all profits democratically as a group.

a

The most common business organizations in the United States are

partnerships.
sole proprietorships.
corporations.
franchises.

b

What must an entrepreneur assume when starting a business?

that the correct location guarantees success
that every product has a customer who wants it
that clever market strategies may still fail to sell a product
that raising funds is the most difficult step in starting a business

c

What is a main reason why entrepreneurs experience daily stress?

They have considerable responsibility.
They need to spend time training employees.
They need to have sufficient income to pay loans.
They have to contribute both to the market and society.

a

An entrepreneur would most likely be a

low risk taker.
trained manager.
person who works well alone.
person who has a brief work week.

c

Read the graph.

What can the reader reasonably conclude from information in the graph?

Fewer new businesses were started in 2010 than in other years.
The opening of new businesses peaked between 2007 and 2008.
More new businesses were started in 2006 than in 2005.
The number of new businesses remained constant between 2006 and 2009.

a

An entrepreneur is someone who

starts and runs a business.
is an employee of a business.
invents products for other businesses.
works for multiple developing businesses.

a

An entrepreneur must accept being accountable for the failure of the company because the entrepreneur is

part of the management team.
responsible for organizing the business.
expected to contribute positively to society.
expected to dedicate the most hours to the business.

b

What is one purpose of writing a business plan before entering the market?

to prove that the new company will be successful
to show that the enterprise is realistically based
to have a useful tool when applying for funding
to differentiate the new company from the competition

d

To be successful, an entrepreneur must be willing to invest money, considerable effort, and

.

not tome probably time

How are Bill Gates and Henry Ford similar? Check all that apply.

They both streamlined factory production.
They both became wealthy and successful.
They both helped better the lifestyles of others.
They both developed products that filled a human need or needs.
They both founded a company when they were very young.

234

Henry Ford was a successful entrepreneur because he

gained great wealth from his company.
helped workers achieve better conditions.
designed a useful mode of transportation.
built his own factory to produce a product.

b

According to the article by Brooks, successful entrepreneurs are most interested in

job security.
financial gain.
personal fulfillment.
a flexible working environment.

c

According to Brooks’s article, what was the main effect of entrepreneurship in China?

Poverty noticeably declined.
Foreign investment declined.
New products were invented.
Product exports exceeded imports.

a

A new business should be based on an entrepreneur’s individual interests because the entrepreneur must

have sufficient confidence to succeed.
be willing to take personal responsibility.
have enough determination to work alone.
dedicate as many hours as needed to the work.

d

What must an entrepreneur do after creating a business plan?

open the business
finance the business
file the right paperwork
identify an opportunity

b

What is one way for an entrepreneur to decrease risk?

by mimicking popular products
by maintaining personal flexibility
by creating a strong business strategy
by developing reliable sources for materials

c

Successfully starting and running a business requires drive, talent, and clear vision of a long-range .

goal

Read the graph.

What can the reader conclude from the graph?

A company selling telephones most likely has only a 40 percent chance of surviving for at least four years.
A company offering physical therapy most likely has only an 80 percent chance of surviving for at least two years.
A company offering cleaning services most likely has only a 50 percent chance of surviving for at least seven years.
A company selling diabetes supplies has only a 60 percent chance of surviving for at least three years.

b

Which body manages the Fed?

the Appropriations Committee
the Federal Reserve Board
the Federal Open Markets Committee
the Economic Policy Subcommittee

b

Which of these are goals of an expansionary policy? Check all that apply.

increased available credit
decreased available credit
increased money supply
increased inflation
increased interest rates
decreased interest rates

136

What part does interest play in deficit spending?

Governments must pay interest on money they borrow when they take on debt.
Citizens must pay interest when their governments borrow money.
Governments may charge foreign countries interest when they borrow money.
Interest is not a factor when a government’s budget is in deficit.

a

What happens when a bank is required to hold more money in reserve?

It has less money for loans.
It has less money for operations.
It has less money for interest payments.
It has less money for withdrawals.

a

What circumstances during the early days of industrialization led to a need for reform? Check all that apply.

Factory equipment was dangerous to operate.
There were too few capable workers to fill positions.
There was little government regulation of workplaces.
A typical work shift might be twelve to sixteen hours long.
It was very expensive to keep factories running.

134

Which group does the Fed serve?

financial institutions
consumers
government bodies
bankers

a

Among the changes that labor reformers wanted after the Industrial Revolution was

more jobs for untrained workers.
a ban on child factory workers.
jobs for women factory workers.
equal pay for owners and workers.

b

Labor unions were certain to advocate for the best interests of workers because

the government shut down factories that did not improve work conditions.
the top factories were run by owners who wanted to retain their workers.
the government required all labor unions to promote workplace reform.
the labor unions were created by workers and made up of workers.

d

Two doctors who join forces in business form a

partnership

Which best explains why a sole proprietor would want a partner?

to reduce the number of responsibilities
to make it easier to raise funds for expansion
to move into a more favorable tax bracket.
to take advantage of little government oversight.

b

The development of many new businesses helps limit

unemployment.
taxation.
revenue.
risk.

a

Before creating a business plan, an entrepreneur must research businesses in the past.

similar

Expansionary spending takes place when a government makes the decision to

put a freeze on the number of its employees.
raise taxes to balance its budget.
raise taxes to run a budget surplus.
raise spending to stimulate the econom

d

Which best describes why governments collect taxes?

to control the value of currency
to keep the government running
to ensure surplus funds
to fund government programs

d

A business owner would most likely create a cooperative instead of buying a franchise because

cooperatives give majority owners the most control, while franchises make decisions with a parent company.
cooperatives make it easy to accumulate supplies, while franchises come with supplier relationships already in place.
cooperatives are well financed by members, while franchises must raise large sums of money to launch a business.
cooperatives allow all owners to share profits, while franchises are required to share profits with a parent company.

d

Which of these factors would strengthen demand for a nation’s currency on the international market? Select all that apply.

high domestic inflation
stability of government
victory in war
high gross domestic product
defeat in war
low unemployment rates

not the combination of 12346

The chart below shows an exchange rate table.

In this table, the reference currency is the

US dollar.
Swiss franc.
Japanese yen.
euro.

d

Which factor plays a role in establishing the price of a country’s currency?

attractiveness of the currency
popularity of the country
supply and demand
distance between countries

c

The best time for Americans to import French cheese is when they can

exchange a combination of goods and US dollars for euros.
buy the most euros for US dollars.
buy the most US dollars for euros.
exchange US dollars for pesos and then for euros.

b

The chart below shows an exchange rate table.

If you lived in Great Britain and wanted to buy one euro, how much would it cost?

less than a pound
more than a pound
exactly one pound
about eight pounds

a

What is an example of a country that makes use of another nation’s currency?

France
Germany
Panama
Mexico

c

The chart below shows an exchange rate table.

Which statement accurately interprets the information on the chart?

Japan’s currency shows that it has the strongest economy of any country.
The value of each currency is shown in relation to the US dollar.
It would take six British pounds to purchase one US dollar.
Swiss francs are the strongest currency in Europe.

b

The graph below shows the value of the US dollar versus the Canadian dollar.

For the time period shown, the value of the US dollar was generally

rising against the Canadian dollar.
falling against the Canadian dollar.
more than twice that of the Canadian dollar.
about half that of the Canadian dollar.

a

Which of these statements most accurately describes currencies in North America?

All countries in North America use the US dollar.
All countries in North America use the euro.
North American countries have done away with separate currencies.
Each country in North America uses its own currency.

d

Which statements accurately describe a country’s currency? Select all that apply.

The currency is easily divisible.
The currency can be used in any other country.
The currency has a value that can change.
The currency has denominations.
The currency has a value that must stay the same.

134

Read this news report about a planned devaluation of the bolivar, the currency of Venezuela.

The president of Venezuela announced that the country would be devaluating the bolivar for the fifth time in nine years. The official rate is falling from 4.3 bolivars to the dollar, to 6.3, a 32% devaluation. By increasing the bolivar value of exports of oil to the US and other nations, the government hopes to alleviate a budget crisis caused by its increasing reliance on borrowing to meet spending obligations.

In response to the announcement, the people of Venezuela lined up today to buy televisions, electronics, and airline tickets in order to protect themselves from projected price increases.

By devaluating the bolivar, the president of Venezuela has

followed the law of supply and demand.
allowed the exchange rate to remain unchanged.
increased the number of bolivars needed to buy one dollar.
decreased the number of bolivars needed to buy one dollar.

c

Who decides which currency each country in the world uses?

the United Nations
each individual country
the European Union
the United States

b

Read this news report about a planned devaluation of the bolivar, the currency of Venezuela.

The president of Venezuela announced that the country would be devaluating the bolivar for the fifth time in nine years. The official rate is falling from 4.3 bolivars to the dollar, to 6.3, a 32% devaluation. By increasing the bolivar value of exports of oil to the US and other nations, the government hopes to alleviate a budget crisis caused by its increasing reliance on borrowing to meet spending obligations.

In response to the announcement, the people of Venezuela lined up today to buy televisions, electronics, and airline tickets in order to protect themselves from projected price increases.

Venezuelans started buying items immediately because of their fear of

rising inflation.
price deflation.
declining inflation.
increased imports.

a

There would be no separation between one country’s economy and another’s if the entire world

shared the same currency.
chose paper currency over coins.
eliminated denominations for currency.
agreed to use only two types of currency.

a

It’s important for countries to exchange currencies so that goods from other nations can be

manufactured.
destroyed.
traded.
regulated.

c

How do quotas help domestic producers?

Quotas facilitate increased exports of domestic goods.
Quotas lower the cost of domestic goods.
Quotas limit the number of producers that compete in a sector.
Quotas facilitate the sale of more domestic goods.

DDDD

Which best describes how standards help domestic producers?

Standards require goods to meet basic requirements.
Standards provide financial support for producers.
Standards restrict the import of cheap goods.
Standards offer incentives to ensure high quality.

a

Tariffs and subsidies are both types of

import restrictions.
benefits.
economic penalties.
incentives.

d

What do quotas and embargoes have in common?

They both tend to raise prices.
They both affect imports from certain countries.
They both set limits on imported goods.
They both frequently result in domestic shortages.

c

Which type of trade barrier is explicitly used for political purposes?

standards
embargoes
quotas
tariffs

b

Customs duty on cars produced overseas is a type of

positive incentive and subsidy.
negative incentive and subsidy.
positive incentive and tariff.
negative incentive and tariff.

d

On which country has the United States imposed an embargo since 1960?

Cuba
Iran
North Korea
Syria

a

Which of these is a positive incentive for domestic producers?

a subsidy on imported cars
a tariff on cars
a subsidy on domestic oranges
a tariff on clothes

c

Which best describes the standards required of foreign producers?

Foreign producers have more stringent standards than domestic producers.
Foreign producers must meet the same standards as domestic producers.
Foreign producers must meet specific standards based on their origin.
Foreign producers do not use standards that harm consumers.

b

What is the government’s aim in setting quotas?

to create more competition in the market
to increase sales of domestic goods
to keep tariffs high
to limit export of domestic goods

b

Who ultimately pays for tariffs, consumers or producers?

consumers

How are subsidies similar to tariffs?

Both are types of taxes.
Both aim to lower the price of domestic goods.
Both try to raise the price of imported goods.
Both aim to disadvantage imports.

d

How do embargoes most negatively affect a domestic market?

by depriving domestic producers of needed goods, restricting their ability to trade
by helping international producers fill a market void, decreasing domestic trade
by preventing domestic producers from trading needed goods with all countries
by encouraging international producers to sell new goods for lower prices than domestic goods

a

Which best describes what a subsidy does?

It keeps the price of domestic goods relatively low.
It raises the price of imported goods.
It limits the import of foreign goods.
It eliminates all taxes on domestic goods.

a

Why were free trade zones created in China?

to avoid governmental rules and conditions
to attract investments by foreign countries
to import technology more easily
to control imports and exports

b

One primary purpose of the European Union is to

create a common market.
eliminate borders between countries.
allow highly skilled workers to be employed.
establish a free trade zone in the marketplace.

a

With which statement would President Bill Clinton most likely have agreed?

Free trade helps every nation.
Free trade has drawbacks for participants.
Free trade will eliminate poverty.
Free trade must be carefully monitored.

d

International trade organizations promote free trade by encouraging countries to

maintain tariffs.
establish trade quotas.
remedy trade surpluses.
develop products.

c

Trade agreements are helpful because they allow countries to

trade for necessary goods.
increase trade tax revenue.
influence foreign trade.
help create new trade barriers.

a

Which best describes ASEAN?

an international organization promoting free trade
a regional organization promoting growth in Southeast Asia
an international organization trying to establish a common currency
a regional organization establishing free trade between Canada and Mexico

b

Which group primarily helps settle trade disputes?

European Union
World Trade Organization
Association of Southeast Asian Nations
North American Free Trade Agreements

b

Countries establish internal economic zones in order to

limit foreign investment.
make solving disputes easier.
have fewer economic restrictions.
create manageable amounts of imports.

c

Which group works to help members establish internal political stability?

European Union
World Trade Organization
Association of Southeast Asian Nations
North American Free Trade Agreements

c

What can be a result of free trade? Check all that apply.

trade imbalances
decreased production
lower economic growth
increased pollution
exploitation of workers
new opportunities

not the combination of 145

What did President Ronald Reagan believe about economic growth?

Increased trade barriers would help the economy.
Free trade associations would limit competition.
Increased production and fair trade would help the economy.
Trade barriers would help make trade more fair between countries.

c

Why do countries most often create trade agreements?

to limit imports
to reduce tariffs
to establish quotas
to decrease competition

b

How can a nation benefit from effectively exporting its goods?

Its citizens can buy cheaper goods.
Its businesses can invest in the future.
Its domestic spending increases.
Its citizens have more money.

c

A specific territory or zone that has laws and regulations different from the rest of the country is called a(n)

work zone.
border zone.
tax-free zone.
economic zone.

d

The Free Trade Agreement Tariff Tool allows US businesses to

request that tariffs be limited.
access tariff rates when planning to export.
know which countries are entering trade associations.
access new trade agreements as they are developed.

b

What is the main role of the US Import Administration?

creating more free trade treaties
enforcing conditions of trade agreements
regulating standards for goods exchanged in trade
recruiting countries to participate in trade agreements

b

Which of these statements most accurately describes the use of currencies in different parts of the world?

Most countries use the dollar as their currency.
Countries in Asia use the euro as their currency.
Different countries use different currencies.
All countries are required to use the same currency.`

c

The North American Free Trade Agreement created a free trade zone between Canada, the United States, and

Mexico

If the value of the US dollar declines in relation to other currencies, goods imported into the United States will

not be allowed to enter the country.
become less expensive.
remain the same in price.
become more expensive.

d

Why might a country choose to devalue its currency?

to please its trading partners
to encourage exports
to encourage imports
to reduce taxes

b

The is designed to help increase US productivity, GDP, and employment.

national export initiative

What is the purpose of the US International Trade Association?

to help countries establish free trade
to help businesses create viable exports
to limit levels of investment in trade opportunities
to limit trade opportunities for competing companies

b

How did NAFTA affect the economies of participating countries?

by creating unrestricted trade benefits
by raising employment rates and standards of living
by creating a balance of exports and imports
by increasing the overall volume of production

d

An exchange rate table makes it easy to compare the

different currency denominations used by a single country.
cost to produce the currency used by a single country.
value of the currencies for two or more countries.
unemployment rates for two or more countries.

c

A factory owner might decide to manufacture shirts in Pakistan instead of the United States because

it is less expensive to make shirts there.
it is worth paying more for foreign labor.
workers in Pakistan are more skilled.
workers in Pakistan work fewer hours.

a

An economic incentive is best described as something that

benefits producers or consumers when taking action.
pushes producers or consumers to act on the government’s behalf.
motivates producers or consumers to take action.
forces producers or consumers to act in a certain way.

c

A tariff is a type of

tax.
punishment.
subsidy.
grant.

a

Which process helps countries import things they cannot make while allowing them to specialize in exports?

absolute advantage
isolation
competition
international trade

d

Which best describes the effect negative incentives have on a certain course of action?

They make the action impossible.
They make the action less profitable.
They make the action difficult.
They make the action less likely.

b

What are standards designed to do? Check all that apply.

protect consumers
support domestic industries
limit imports
ensure safety
offer domestic industries an advantage

134

A reason that countries trade with each other is

to help their neighbors.
to get products they cannot produce.
to sell goods they do not need.
to share excess resources.

b

Which would be most helpful when considering a large expenditure that might require repeating payments?

careful consideration of short-term goals
recording income and spending over the past year
creating a budget to consider future income and spending
learning more about different kinds of accounts to manage money

c

Planning to finance higher education helps people prepare for their financial future because it teaches them about

funds management and loans.
their educational options.
the real world.
investing in their future.

a

Which of these is the best example of successfully managing a financial asset?

buying a new video game console
sending old objects to a thrift store
opening a new savings account
spending money on a vacation

c

Which of these is the best example of an asset?

the electricity in a home
the shirt someone is wearing
the coffee someone drank this morning
an old, used airline ticket

b

How do short-term goals differ from long-term goals?

Short-term goals involve less planning than long-term goals.
Short-term goals are more affordable than long-term goals.
Short-term goals cost more than long-term goals in the long run.
Short-term goals are more immediate than long-term goals.

d

In American society, which of these is an example of a want?

food
shoes
television
rent

c

Which of these is the most significant item that personal finance skills can affect?

one’s investment earnings
one’s spending power
one’s quality of life
one’s ability to save

not d

are items such as utilities, rent, and food—items that one can’t do without.

needs

This chart shows Dan’s budget:

Did Dan stay on budget? Why or why not?

Yes, Dan spent as much as he earned.
No, Dan should move to a new apartment.
Yes, Dan uses his savings to cover extra expenses.
No, Dan should reduce his discretionary spending.

d

In personal finance, what is considered a need?

something one would like to have
something for which one budgets
something one can afford
something one cannot live without

d

Personal finances encompass an individual’s

potential earnings.
assets.
debt.
investment risks.

b

What term describes using assets to accomplish a goal in the present?

budgeting
saving
investing
spending

d

How do long-term goals differ from short-term goals?

Long-term goals require more money than short-term goals do.
Long-term goals require more patience than short-term goals do.
Long-term goals are less attainable than short-term goals are.
Long-term goals involve more planning than short-term goals do.

b

The cost of a decision is also known as a(n)

personal cost.
financial cost.
long-term cost.
opportunity cost.

d

Which best describes what financial planning skills ultimately enable an individual to do?

to prepare for the future
to determine lifetime income
to determine the cost of living
to learn from the past

a

At an educational institution, the cost of room and board includes

housing and meals.
health and dental care.
textbooks and supplies.
tuition and class fees.

a

These lists provide information about two jobs.

Which statement best compares the two jobs?

Job A has a lower salary than job B, but the benefits make job A a more attractive pay package.
Job B has a lower salary than job A, but the benefits make job B a more attractive pay package.
Job A has a higher salary than job B plus benefits that make job A a more attractive pay package.
Job B has a higher salary than job A plus benefits that make job B a more attractive pay package.

b

How is a student loan different from a scholarship?

A student loan must be paid back, but a scholarship is not paid back.
A scholarship must be paid back, but a student loan is not paid back.
A student loan is a form of financial aid, but a scholarship is not.
A scholarship is a form of financial aid, but a student loan is not.

a

This graph compares consumer expenditures in three American cities from 2007 to 2010.

The best inference that can be made based on the graph is that

workers in Houston are more likely to have jobs with high growth rates.
workers in New York may face a cost of living that will exceed their salaries.
jobs in San Francisco may have higher salaries to offset the cost of living.
jobs in Cleveland tend to pay based on an hourly wage instead of a salary.

c

What is one benefit or drawback to an hourly wage?

An hourly wage is a set payment.
An hourly wage is regular over a year.
An hourly wage may result in lower pay.
An hourly wage will never vary in required hours.

c

Which statement best defines tuition?

Tuition is federal money awarded to a student.
Tuition is aid given to a student by an institution.
Tuition is money borrowed to pay for an education.
Tuition is the price of attending classes at a school.

d

This graph shows student loan debt in the United States from 1994 to 2009.

What trend does the graph demonstrate?

Student loan debt will most likely decrease in the coming years.
Students have taken out higher and higher loans since 1994.
Enrollment for higher education will soon begin to decrease.
Tuition for higher education has risen steadily since 1994.

b

Besides the cost of an education, what additional expenses must students pay? Check all that apply.

housing
meals
supplies
textbooks
tuition

1234

This graph compares the total cost of attending educational institutions in Texas.

The graph demonstrates that the cost at private and public

technical schools greatly varies.
vocational schools greatly varies.
four-year universities greatly varies.
community colleges greatly varies.

c

Student-specific scholarships are awarded to students who

have impressive athletic accomplishments.
have impressive academic achievements.
demonstrates a specific skill
are members of a certain group.

d

To change gross income, someone would need to

save more per month.
reduce deductions.
earn more money.
increase withholdings.

c

Which is an example of income withholdings?

an unexpected salary cut
income lost due to illness
vacation budget
retirement savings

d

Short-term financial goals might include

spending less on gas.
buying movie tickets.
purchasing a new car.
saving up for vacation.

b

Which is the best way to achieve long-term financial goals?

Spend less on mandatory expenses.
Eliminate short-term financial goals.
Increase discretionary expenditures.
Save more money from net income.

d

Why should someone plan variable expenses after fixed expenses?

Fixed expenses are deducted from gross income, and variable expenses come from net income.
Variable expenses are a necessary part of fixed expenses but can only be calculated after fixed expenses.
Variable expenses are almost always higher than fixed expenses and need a greater budget.
Fixed expenses are required and constant, but variable expenses are not required and are more flexible.

d

When should fixed and variable monthly budgeted expenses first be planned?

at the end of each month
day by day during the month
at the start of each month
at least twice per month

c

Paying for transportation to and from work is an example of

a mandatory expense.
a variable expense.
a short-term expense.
a discretionary expense.

a

When creating a budget, you must track both your budgeted expenses and your expenses.

actual

Look at this monthly budget.

Monthly Budget

Next month, Tokuji’s monthly net income will increase to $650. If he increases his savings to $110 a month, how much can he increase his discretionary spending?

$20
$10
$40
$30

a

From what part of income should someone take savings?

what otherwise would be fixed expenses
gross income, before other deductions
what otherwise would be discretionary income
gross income, along with other deductions

c

Which statements apply to financing contracts? Check all that apply.

requires a credit check
less expensive than using a credit card
includes interest rate information
must be signed for rent-to-own agreements
can be broken at any time

134

Why might people choose to rent a home rather than buy a home?

They have a lot of money saved for a down payment.
They may be relocated for a job.
The interest rates on equity are too high.
The maintenance costs are more reasonable for renters.

b

Which activity is done in Step 2 of comparison shopping?

Research a product.
Assess the purchase objectively.
Compare prices and features.
Buy a product.

b

The most economical way to purchase large items, such as furniture, is to buy with

.

NOT credit cards

A monthly fixed rate mortgage payment

could change.
never changes.
increases annually.
decreases annually.

b

The point at which it is no longer advantageous to buy in bulk is known as marginal

cost.
tipping.
benefit.
error.

c

At what point does buying in bulk stop being a wise spending choice?

when the consumer has a lot of space to store bulk items
when costs rise too quickly due to demand
when bulk items are not on sale anymore
when the consumer buys more than is needed

d

What is the purpose of comparison shopping?

ensuring you are not buying out of emotion
attempting to find the best deal on a product
determining whether you truly need a product
reading reviews to make sure a product is good

b

Mr. and Mrs. Atoll are planning a party for 10 people and want to make sure they have enough soda for everyone to have two bottles. Which of the following makes the most economic sense?

20 bottles of soda at $1.50 each
4 six-packs of soda at $5.00 each
one case of 24 sodas at $18.50
two cases of 24 sodas at $18.50 each

c

When you buy in bulk, the price per individual item .

decreases

This chart shows the actual pricing history for three items.

For which product(s) would it be most beneficial to wait before buying?

game system
smartphone
DVD and smartphone
smartphone and game system

b

Which strategy best helps a company reach their consumers?

selling at trade shows
local mailings in small towns
national advertising
selective marketing

c

Read the scenario.

Raoul is heading to college and needs a reliable car. He has a steady part-time job that he can keep while in school, and he likes to change things up every now and then. However, he will not have a lot of extra money to spend on repairs and maintenance on his car.

Based on this scenario, Raoul should

buy a used car.
lease a used car.
buy a new car.
lease a new car.

d

School band members need to raise money for new uniforms. Some members want to sell energy drinks at a football game, but others want to organize a car wash in the school parking lot. Based on economics, what would be most influential in making the decision?

the labor needed
the consumer appeal
the capital needed
the value of the resources

not a and b

In what time period did hydroelectric power usage reach its peak?

1970-1980
1980-1990
1990-2000
2000-2010

c

Which power source has been least developed?

wood
wind
biofuel
hydroelectric

b

Based on the lesson, how are individuals and economies similar?

They both must decide how to allocate resources.
They both must carefully categorize available resources.
They both must recognize the issues with nonrenewable resources.
They both must choose whether to use more renewable resources.

a

Which object is likely to have the most value based on the concept of scarcity?

a flowering plant
a silver necklace
a new coffee table
a crop of oranges

b

How would a manufacturer benefit by using fewer scarce resources?

The product would be less expensive to produce.
The product would better satisfy consumer needs.
The product would be popular and readily available.
The product would provide a more satisfactory profit.

a

Which of the following uses a nonrenewable energy source?

a wind mill
a power plant
a fruit orchard
a swimming pool

b

Which resource is both renewable and inexpensive?

gold
coal
lumber
minerals

c

A large, new diamond mine has just opened, and the price of diamonds has gone down. Because she has studied economics, Cecilia decides to buy a diamond necklace since she knows that

diamonds are in great demand.
diamonds are a nonrenewable resource.
the cost of diamonds depends only on the demand.
the purchase of diamonds will satisfy wants and needs.

b

What determines the value of an item?

the amount of goods that are produced
the capital required to build the factory
the unlimited wants of the consumers
the resources consumed in production

d

Which statement best describes the impact of scarcity?

People are able to meet most of their needs.
Consumers must pay higher prices for many items.
Governments must try to meet the wants of citizens.
Economies can work to provide more goods and services.

b

A can be defined as whatever people use to create services and goods.

resources

What does the concept of scarcity explain? Check all that apply.

why a product could lose significant value over time.
why people continue to purchase different products.
why consumers are willing to pay high prices for items.
why decisions must be made on how to use resources
why resources can be both renewable and nonrenewable.
why a single resource has more value than another resource.

3.4.6

Read the scenario.

Ricardo works part time at his local computer store. One day, his manager approaches him about moving from cashier to floor supervisor. Ricardo is excited because the promotion comes with a raise, but the extra work hours would take away from time with his friends. In the end, he decides to take the promotion.

What is Ricardo’s opportunity cost?

Choosing the promotion over time with his friends.
Being able to use the extra money for summer football camp.
Losing extra time to spend with his friends.
Receiving another promotion in six months.

not c

Venya and Kari own a flower shop that specializes in custom bouquets. Wanting to expand into selling potted plants, they create a production possibility chart to asses whether the potted plants are a good idea. Study their chart:

How many potted plants should they be able to produce on Day 3?

25
30
50
75

c

Which of the following are examples of limited resources on the part of consumers?

product and space
money and product
time and money
space and time

c

Look at the equation framework.

Which of the following lists the proper placement of terms, from left to right, to complete the equation?

revenue, profit, production cost
profit, revenue, production cost
production cost, profit, revenue
production cost, revenue, profit

b

Rescooperate Ice Cream Shop recently analyzed their books. They found that in the past year, they made $100,000 selling ice cream and spent $75,000 on supplies and factory space. The remaining $25,000 represents

profit.
loss.
revenue.
expense.

a

Demonstrating opportunity cost is done through production

analysis.
possibility.
calculation.
research.

b

Which of the following illustrates an opportunity cost?

James has enough money to buy some socks and a book.
Alyssa does not have enough time to study for her test.
Amir only has time to study or to play basketball.
Lydia does not have enough money to buy a new shirt.

c

Opportunity cost occurs because of a producer’s need to

limit resources.
protect resources.
allocate resources.
spend resources.

c

What is a graphical representation of the combination of goods and services that can be produced in a situation?

production possibility curve

One method for studying opportunity cost is to think in terms of

risk and ability.
pros and cons.
cost and benefit.
trial and error.

c

Read the scenario.

Samira is a freshman basketball player who hopes to go to college on a basketball scholarship. She is offered the chance to play on her school’s varsity basketball team, which plays in tournaments during holiday breaks. Samira usually spends her breaks working at the local hardware store. After careful consideration, Samira decides to stay on the freshman basketball team and keep working over breaks.

The fact that Samira may miss out on a scholarship opportunity by staying on the freshman team illustrates

a cause.
opportunity cost.
an effect.
unexpected risk.

a

Which of the following has the largest impact on opportunity cost?

consumer wants
tight deadlines
consumer needs
limited resources

d

The chart below shows a production possibility schedule for a pastry shop that makes $0.50 profit per donut and $0.75 profit per bagel.

Choice presents the lowest opportunity cost.

b

Which scenarios can be considered effects of Sole Sister Shoe Store choosing to sell dress shoes over sneakers?

CHECK ALL THAT APPLY.

High school athletes stop shopping there.
The inventory of sports socks goes unsold.
Publicity for the store declines.
Profits decline because dress shoes cost less than sneakers.

a&b

One of the main questions of economics involves deciding upon the method for

distributing goods and services.
creating goods and services.
pricing goods and services.
enhancing goods and services.

b

One of the three main questions of economics addresses who should

produce goods and services.
market goods and services.
receive goods and services.
distribute goods and services.

c

Which of the following best illustrates deciding how to produce a specific product?

Should we make a bunch of cheaper jeans or one really exclusive pair?
Can we market our jeans to teenagers or focus on people in their twenties?
Do we have enough customer support to charge more for our jeans?
Are jeans still "in," or should we develop a line of skirts instead?

a

Fantastic Snack Company has spent months developing a new type of snack chip, but the chips are not selling. Which of the following is the most likely mistake Fantastic Snack Company made?

conserving too valuable resources
spending capital it did not have
not researching production methods
not meeting the wants of its consumers

d

A society decides that it needs to produce more corn to feed the growing population. What must it do before it begins the production process?

analyze existing resources, such as water availability
determine how people will receive the surplus crops
study the profitability of increasing corn production
understand who is in a position of authority to produce more

a

Which of the following will be accomplished by assessing the factors of production?

ensuring economic profitability
understanding whether a product will fail
guaranteeing the fulfillment of needs and wants
replenishment of limited resources

not d and a

The questions of economics address which of the following? Check all that apply.

who
what
where
when
why
how

who what how

Which of the following is an example of a land resource?

cow
factory
employee
tractor

a

Which of the following illustrates one of the three questions of economics?

How many proposals do we need to get this product approved?
Do our salespeople know how to price this product based on competition?
Is this product going to cost more to distribute than our other products?
Should we use the assembly line method to create this product?

d

Read the following scenario.

A clothing company wants to expand into new regions. It is looking at an urban area with a large number of vacant warehouses. The population is made up of people with average educations and a lower standard of living. The company is experiencing slower sales but has hopes that product will take off and be successful.

Which of the factors of production will the company need to address most closely when making its decision to expand?

land
capital
land and labor
labor and capital

b

A mixed market economy tends to exist under a

communist government that provides little regulation.
democratic government that provides some regulation.
representative government that provides no regulation.
socialist government that provides a lot of regulation.

b

How does the government of a republic typically shape its economy?

The government allows citizens to own private businesses.
The government blocks the ownership of personal property.
The government owns all homes and other forms of housing.
The government controls factories and other forms of production.

a

Which nation has a communist command economy?

Cuba
North Korea
South Korea
the United States

b

The citizens of the United States live and work in a

closed economy.
command economy.
mixed market economy.
pure market economy.

c

The goal of a market economy is to

sustain self-sufficiency.
preserve traditional customs.
create equality within a society.
promote free economic choices.

d

Which nation has a socialist command economy?

Cuba
North Korea
South Korea
the United States

a

What restriction would the government impose in a closed economy?

The government would prohibit trade with other nations.
The government would set the prices for imported goods.
The government would preserve traditional customs only.
The government would prevent private ownership of property.

a

What are the pros of a mixed market economy for most citizens? CHECK ALL THAT APPLY.

The government provides most basic necessities for citizens.
There is a great deal of independence and personal choice.
There may be less of a gap between rich and poor people.
The government cannot dictate which jobs citizens hold.
There may be greater opportunity to become wealthy.
The economic system works to promote equality.

2&4&5

The most common economic system in the world is a

closed economy.
command economy.
market economy.
traditional economy.

c

Which statement best describes a pure market economy?

Producer intervention in economic choices is strictly forbidden.
The government determines economic choices and makes most decisions.
The decisions made by producers and consumers drive all economic choices.
Producers and consumers make some economic choices while the government makes others.

c

What is one argument in favor of the wealth gap?

The lower classes have the opportunity to invest.
Poor people can easily move into the middle class.
Investments by the upper class create lower-class jobs.
Buying power sharply increases for the working class.

c

When compared to a mixed-market economy, a command economy typically has

more private ownership.
a much smaller wealth gap.
strong consumer buying power.
a greater chance for a high income

b

What is the best definition of ownership?

Ownership is the right to possess land or goods.
Ownership is the right to possess land alone.
Ownership is the right to purchase land or goods.
Ownership is the right to purchase goods alone.

a

What is one argument against the wealth gap?

Economic growth will likely decline over time.
The upper classes cannot help create new jobs.
The wealthy become unable to make investments.
Buying power exceeds the supply from producers.

a

The difference in income between the richest and poorest citizens is called the

wealth gap

A wealth gap is an economic difference between

nations.
classes.
businesses.
governments.

b

This graph shows the division of wealth in the United States in 2010.

Based on this graph, how much wealth did the top 20 percent of the population hold?

about 35 percent
about 55 percent
about 80 percent
about 90 percent

d

How does a high unemployment rate affect the economy?

A high unemployment rate has no effect.
A high unemployment rate has little effect.
A high unemployment rate has a very positive effect.
A high unemployment rate has a very negative effect.

d

Ivan works for an automobile factory that exports cars around the world. The government manages the factory, and he lives in housing provided by the city. Ivan most likely lives in

a closed economy with limited government regulation.
a pure market economy with no government regulation.
a command economy with heavy government regulation.
a mixed market economy with some government regulation.

c

How can the government reduce the wealth gap in a mixed market economy?

The government can control income levels by placing limits on how much citizens can earn.
The government can set wages for workers in certain industries to affect economic differences.
The government can improve education to provide new opportunities for workers in the lower class.
The government can tax members of the wealthy class at a lower rate to address differences in income.

c

In a free-enterprise system, consumers decide

how to set prices.
which goods to export.
which services to buy.
how to use materials.

c

What kind of economy uses a free-enterprise system?

a closed economy
a command economy
a market economy
a traditional economy

c

In free-enterprise systems around the world, there are

no restrictions on business ownership or business activity.
some restrictions on business activity but not on business ownership.
some restrictions on business ownership but not on business activity.
some restrictions on business ownership and business activity.

d

Why does the US government create regulatory agencies? Check all that apply.

to create fair competition between producers
to limit the knowledge of certain consumers
to allow producers to have greater freedom
to protect consumers’ health and safety
to prevent the formation of monopolies

1&4&5

In a free-enterprise system, producers decide

how much to charge.
which services to buy.
where to shop for goods.
which goods interest them.

a

Which group creates regulations in mixed-market economies?

consumers
governments
monopolies
producers

b

Which is an example of regulation in the automobile industry?

the creation of fuel-efficiency standards for cars
the installation of satellite radio systems in some cars
the usage of multiple-year warranties to cover repairs
the production of hybrid models that conserve gasoline

a

In 1776, an economics book titled was published to promote the concept of free enterprise.

The Wealth of Nations

What are aspects of a free-enterprise system? Check all that apply.

Private ownership of property is severely restricted.
The government has a lot of power and influence.
There are few limits on the use of private property.
Consumers make all of their economic choices.
Producers make all of their economic choices.

3&4&5

Innovation allows producers to

create goods that draw consumer attention.
follow restrictions that the government imposes.
avoid competing with similar businesses.
offer warranties for all of their products.

a

This graph shows the US unemployment rate from August 2010 to November 2011.

This graph could help an economist predict

how the government will address unemployment.
why workers might have a harder time finding jobs.
how many people will be out of work in the next year.
why producers might hire fewer workers in the future.

c

What is the best definition of technology?

Technology is replacing human workers with mechanical or electronic devices.
Technology is applying scientific knowledge to find answers and fix problems.
Technology is using fewer resources to manufacture goods more efficiently.
Technology is hiring workers from all over the world to manufacture goods.

b

When the US government becomes aware of economic changes, the discovery is most likely to influence

how the nation allocates resources.
how companies interest buyers.
how producers ship products.
how economists study trends.

a

This graph shows the US unemployment rate from August 2010 to November 2011.

This graph suggests unemployment in the United States

will continue to fall.
will continue to rise.
will remain the same.
will only change a little.

b

How can the use of new technology in industry benefit workers?

Workers can react to economic change quickly.
Workers can identify economic emergencies.
Workers can gain new knowledge and skills.
Workers can make economic forecasts.

c

One consequence of using automation to improve production is

fewer jobs are available.
production can slow down.
costs often rise for producers.
prices often rise for consumers.

a

What is one way that technology can improve the distribution of goods?

Workers can take Internet classes to gain new skills.
Automation can create goods more cheaply and easily.
Businesses can hire factory workers across the world.
Container ships can transport a number of goods at once.

d

The government of country A has determined there is a coal shortage based on mining reports. As a result of these data, the government decreases coal exports to other nations. Access to information helped country A

allocate resources.
limit consumption.
purchase goods.
increase sales

a

What are the benefits of instant communication and sales for consumers? Check all that apply.

Companies can ship goods to customers in an instant.
Businesses can be available for customers 24 hours a day.
Customers can purchase goods and services online.
Customers can give feedback to producers instantly.
Employers can hire workers from all over the world.

234

Technology can help governments handle economic emergencies, such as

the reliance on automation.
crop and resource shortages.
the fall of the unemployment rate.
instant sales and communication.

b

What role do government agencies play in a mixed market economy?

They run shipping companies and other sources of distribution.
They own farms, factories, and other sources of production.
They regulate some aspects of production and distribution.
They employ most of the workers in the economic system.

c

Opportunity cost means that something needs to be

replenished.
given up.
ignored.
paid for.

b

In a command economy, a cotton farm floods after a heavy storm. The repair work most likely will be paid by

the private business that operates the farm.
the government group that runs the farm.
the individual who manages the farm.
the family who owns the farm.

b

What are the cons of a mixed market economy for most citizens? CHECK ALL THAT APPLY.

There may be a sizable gap between rich and poor people.
It can be very difficult for citizens to start private businesses.
Citizens must pay for most basic necessities by themselves.
There is no guarantee of steady employment for many citizens.
Citizens may pay higher taxes than in other economic systems.
Citizens often purchase their own health care and higher education.

1345

What type of labor force might a pottery factory want to focus on when hiring?

highly skilled
highly wealthy
highly educated
highly localized

a

What are the basic types of resources used by producers? Check all that apply.

capital
labor
value
scarcity
land

125

What are some ways to address unemployment in a market economy? CHECK ALL THAT APPLY.

creating new projects
increasing regulation
lowering restrictions
raising more taxes
promoting hiring

135

What are some benefits to private ownership? Check all that apply.

Private ownership provides offices for government workers.
Private ownership provides land or goods for all citizens to use.
Private ownership can make it possible for a business to earn money.
Private ownership might help a person move to another economic class.
Private ownership allows a person to own goods that may increase in value.

345

What might happen if an economy is unable to produce wanted goods and services?

People will go without them.
People will look elsewhere for them.
People will stop wanting them.
People will focus on needs instead.

b

Which of the following are considered needs? Check all that apply.

food
Internet
cell phone
residence
television
water

146

Land is considered a resource because it

is always available to use.
is used to produce things.
costs little or nothing to use.
requires labor to be useful.

b

New technology in allows producers to use materials from all over the world to manufacture goods.

shipping

In the free-enterprise system of the United States, the government

makes no economic decisions.
makes some economic decisions.
makes most economic decisions.
makes all economic decisions.

b

In the lesson, you learned about Dave and his bakery. It was mentioned that "in one hour of work, Dave can make either 60 donuts or 30 bagels." Which might help Dave assess whether he should focus on bagels or donuts?

It costs less to make bagels.
Customers prefer donuts.
Dave charges more for bagels.
Donuts cost more to produce.

b

In a competitive market, an electronics company releases a smartphone that is much faster than older models. This is an example of

following a federal regulation.
lowering prices for customers.
reducing the risk for consumers.
creating an innovative product.

d

The area in which the law of demand best applies is

macroeconomics.
social policy.
microeconomics.
political science.

c

Which does the law of demand do? Check all that apply.

allows producers to respond to consumers
allows consumers to influence prices
provides a demand schedule for a market
allows consumers to choose low-priced goods
provides consumers with additional income

12

A factor that most influences changes in consumer demand is

quantity.
price.
quality.
competition.

b

Consumers create demand for

goods and services.
sales and low prices.
goods and income.
services and low prices.

a

The graph shows a demand curve.

What change does the graph show?

a decrease in demand as prices decrease
an increase in price as demand decreases
a decrease in income as demand increases
an increase in demand as prices decrease

d

Which best explains how the law of demand affects consumers?

It helps consumers know when prices are going down.
It helps consumers know when prices are going up.
It helps consumers tell producers when prices are too high.
It helps consumers tell producers when to make new goods.

c

The graph shows a demand curve.

Which most likely accounts for the changes shown on the demand curve?

More consumers want a product.
Fewer consumers want a product.
The price of a product rises a little.
The price of a product rises sharply.

a

A
is a graph that shows how prices affect consumer demand.

demand curve

The law of demand applies most directly to which group?

buyers
sellers
producers
lawmakers

a

An example of complementary goods would be

computers and printers.
cars and trucks.
sheets and towels.
food and clothing.

a

Read this scenario and answer the question that follows it.

Sample scenario:

A factory produces blue and green widgets, both at equal production costs. In one day, the factory can make 20 widgets of either color. The factory has been making 10 blue and 10 green widgets per day because they both sell for $5.00. Recently, the price of blue widgets has increased from $5.00 each to $8.00 each.

How does the law of supply say the factory will respond to the increase in the price of blue widgets?

by increasing the number of green widgets supplied
by not changing the number of blue widgets produced
by increasing the number of blue widgets supplied
by decreasing the number of blue widgets supplied

c

The law of supply states that as the price of a good rises, the quantity supplied of that good

disappears.
decreases.
remains the same.
increases.

d

When prices for homes rise, why might construction companies decide to build more homes?

to increase employment
to make a profit
to create a need for more resources
to boost name recognition

b

This graph shows a supply curve.

What happens when the price of a good increases?

The quantity of goods that are produced increases.
The producer of the good is certain to make less money.
The quantity of goods that are produced decreases.
The quantity of goods that are produced stays about the same.

a

The graph shows a supply curve.

Which change is illustrated by the shift taking place on this graph?

an increase in demand
a decrease in demand
an increase in supply
a decrease in supply

d

The study of the interaction between individuals and businesses is known as

the law of supply.
macroeconomics.
microeconomics.
elasticity.

c

The amount of a good or service available in a market at a given price is known as ________

supply

A supply schedule shows how prices affect the

quality of a good.
overall economy of a country.
quantity of a good supplied by a producer.
unemployment rate.

c

The law of supply demonstrates the behaviors of producers when they

change their company’s name.
decide to hire fewer workers.
supply goods to consumers.
launch a new marketing campaign.

c

Read the scenario below and then answer the question.

Sample scenario:

Scientists have created a new grass seed that stops grass growth at a specific length, eliminating the need to mow the lawn. The price of this seed is high, but many consumers still want to use it. As a result, several different producers supply a large amount of this seed to consumers. In order to attract consumers to their product, some producers lower their prices and supply fewer bags of seeds.

What is the best description of the grass seed that is described in this scenario?

a good with a low price
a good with a high price
a good with an inelastic supply
a good with an elastic supply

d

Both excess supply and excess demand are a result of

equilibrium.
disequilibrium.
overproduction.
elasticity

b

On a graph, an equilibrium point is where

a supply curve and a demand curve meet.
a supply curve is higher than a demand curve.
the supply and demand curves head up.
the supply and demand curves head down.

a

A limited amount of goods available means that excess
is occurring.

demand

The graph shows excess supply.

Which explains why the price indicated by p2 on the graph is higher than the equilibrium price?

As prices rise, demand goes up.
As prices rise, demand goes down.
As prices rise, demand stays the same.
As prices rise, demand disappears.

b

What happens when the quantity of goods is higher than demand?

excess supply
stable prices
exact equilibrium
increased production

a

Supply and demand coordinate to determine prices by working

together.
competitively.
with other factors.
separately.

a

The graph shows excess supply.

Which needs to happen to the price indicated by p2 on the graph in order to achieve equilibrium?

It needs to be increased.
It needs to be decreased.
It needs to reach the price ceiling.
It needs to remain unchanged.

b

The graph shows excess demand.

Which explains why the price indicated by p2 on the graph is lower than the equilibrium price?

As prices fall, demand goes up.
As prices fall, demand goes down.
As prices fall, demand stays the same.
As prices fall, demand disappears.

a

The graph shows demand.

In order to achieve equilibrium, what else must be included on the graph?

disequilibrium
supply curve
excess supply
excess demand

b

The graph shows a point of equilibrium.

What does "Q" represent on the graph?

the point where equilibrium is achieved
the quantity at the equilibrium point
the average cost of goods sold
the point where supply and demand drop

b

The graph shows the price of a good compared to the quantity demanded and the quantity supplied.

On this graph, the bottom horizontal line represents

an ineffective price floor set above equilibrium.
an effective price floor set below equilibrium.
an ineffective price ceiling set above equilibrium.
an effective price ceiling set below equilibrium.

d

The graph shows the price of a good compared to the quantity demanded and the quantity supplied.

On this graph, the top horizontal line represents

a price floor set above equilibrium.
a price floor set below equilibrium.
a price ceiling set above equilibrium.
a price ceiling set below equilibrium.

a

In economics, if a good is inelastic,

consumers have lost an interest in purchasing it.
producers have lost an interest in manufacturing it.
its supply or demand is too sensitive to price changes.
its supply or demand is not sensitive to price changes.

d

In the market, actions known as incentives affect

producers only.
consumers only.
consumers or producers.
neither consumers nor producers.

c

The graph shows the price of a good compared to the quantity supplied.

This graph demonstrates how

the amount produced slightly changes with the price.
the amount produced greatly changes with the price.
the amount consumed slightly changes with the price.
the amount consumed greatly changes with the price.

b

Which statement best describes incentives?

Incentives are mostly positive.
Incentives are mostly negative.
Incentives can be positive or negative.
Incentives are neither positive nor negative.

c

Tasty Treat Tea is a popular iced tea drink. When the manufacturer begins to use imported tea leaves, the price rises and consumer demand for the drink falls. This suggests that

Tasty Treat Tea is an elastic good because it is more of a need than a want.
Tasty Treat Tea is an elastic good because it is more of a want than a need.
Tasty Treat Tea is an inelastic good because it is more of a need than a want.
Tasty Treat Tea is an inelastic good because it is more of a want than a need.

b

A(n)
is a reward or punishment that encourages people to behave in certain ways.

incentive

Which is an example of a product that is considered a need?

breakfast food
music player
sports equipment
video game

a

Price controls on goods can be set by

consumers.
economists.
governments.
producers.

c

In economics, if a good is inelastic,

consumers have lost an interest in purchasing it.
producers have lost an interest in manufacturing it.
its supply or demand is too sensitive to price changes.
its supply or demand is not sensitive to price changes.

The point of maximum profit is the point at which the marginal cost equals the

marginal revenue.
market price.
total revenue.
production cost.

a

The Davis family grows organic vegetables to sell at a local farmer’s market. Which are factors that directly affect their profit? Check all that apply.

an increase in the cost of farm equipment
a rise in demand for organic produce
an increase in customers at the market
a change in the market price for non-organic fruit
a sale on organic meats at the market

not the combination of 1&2&4

Brenda’s Boards manufactures skateboards. Each skateboard sells for $45 and includes the following expenses: $3 for the wheels and mounts, $1 for the plastic board, $1 for the paint, and $10 for the labor. What is the total revenue the company makes after selling 10 boards?

$300
$350
$400
$450

d

South Avenue Publishing produces self-help books. The company’s profit is the

money the company earns after paying all of its production costs.
paper, binding, and other supplies the company purchases.
total amount the company receives from the sale of its books.
amount of money the company earns from selling a single book.

a

What is the best definition of marginal cost?

the possible income from producing an additional item
the price of producing one additional unit of a good
the additional income gained from selling an additional good
the financial gain from business activity minus expenses

b

The chart shows the marginal revenue of producing apple pies.

According to the chart, the marginal revenue

decreases by ten dollars as production increases.
increases by ten dollars as production increases.
falls to zero dollars as production increases.
remains the same as production increases.

d

In order to calculate marginal cost, producers must compare the difference in the cost of producing one unit to the cost of

purchasing a unit.
distributing that unit.
producing the next unit.
producing a different unit.

c

Producers must understand the marginal benefit of making an additional unit, which shows the

actual gain.
eventual gain.
possible gain.
unlikely gain.

c

To generate higher profit margins, producers must work to

increase their total supply.
increase their total expenses.
decrease their customer base.
decrease their production costs.

d

How can producers maximize their profit? Check all that apply.

They can work to increase their marginal cost.
They can work to decrease their marginal cost.
They can raise prices to increase marginal revenue.
The can lower prices to decrease marginal revenue.
They can keep marginal costs below marginal revenues.
They can keep marginal revenues below marginal costs.

2&3&5

Profit equals the total amount of money made minus

expenses.
prices.
revenue.
supply.

a

What is the difference between marginal cost and marginal revenue?

Marginal cost is the money earned from selling one more unit of a good. Marginal revenue is the money paid for producing one more unit of a good.
Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good.
Marginal cost is the money a producer might make from one more unit. Marginal revenue is the money a producer actually makes from one more unit.
Marginal cost is the money a producer actually makes from one more unit. Marginal revenue is the money a producer might make from one more unit.

b

What is the best definition of marginal revenue?

the possible income from producing an additional item
the price of producing one additional unit of a good
the additional income gained from selling an additional good
the financial gain from business activity minus expenses

c

What is the difference between profit and revenue?

Revenue is the total amount producers receive after selling a good. Profit is the total amount producers earn after subtracting the production costs.
Revenue is the total amount producers earn after subtracting the production costs. Profit is the total amount producers receive after selling a good.
Revenue is the total amount producers pay to manufacture a good. Profit is the total amount producers earn after subtracting the production costs.
Revenue is the total amount producers pay to manufacture a good. Profit is the total amount producers receive after selling a good.

a

Which describes a way in which consumers most likely benefit from producers’ absolute advantage?

Consumers’ opportunity costs decrease.
Prices decrease as a result of increased production efficiencies.
Producers always use savings to improve products.
Consumers can find a given product in more places.

b

A producer with a comparative advantage has the ability to produce a good or service at

a lower opportunity cost than any competitor can.
a faster rate than any competitor can.
a greater volume than any competitor can.
a lower cost than any competitor can.

a

Which best describes how producers benefit from specialization?

Producers can increase their profits.
Producers can expand their market.
Producers can offer a wider range of goods.
Producers can increase sales.

a

is the act of limiting the types of goods and services produced.

specialization

Which most likely results from producers engaging in specialization?

Producers reduce their costs.
Producers increase their market share.
Producers decrease the materials needed for production.
Producers always offer more competitive pricing.

a

Which scenario is the best example of an opportunity cost?

A computer company issues a recall on its tablets.
A computer company produces fewer laptops to meet tablet demand.
A computer company reduces the price on last year’s models.
A computer company stops making computers with CD/DVD drives.

b

This table shows the production possibility schedule for several toothpaste companies.

Toothpaste company

Large tubes

Small tubes

Sparkling

100 per hour

200 per hour

Bright White

100 per hour

250 per hour

Fresh!

200 per hour

250 per hour

Mmmint

150 per hour

150 per hour

Which company has the comparative advantage in producing large tubes of toothpaste?

Sparkling
Bright White
Fresh!
Mmmint

d

When discussing comparative and absolute advantage, which best describes specialization?

developing expertise in certain types of production
limiting the types of goods and services produced
targeting specific consumers and retailers
producing certain items for specific market segments

b

Which of these best describes an opportunity cost?

a win-win
a loss
a chance
a trade-off

not b

Which best explains why producers choose to specialize? Check all that apply.

to increase sales
to gain a comparative advantage
to decrease the amount of goods produced
to maintain market share
to increase efficiency

not the combination of 1&4&5 not the combination of 2&4&5

his table shows the cost of producing ice cream for several manufacturers.

Manufacturer

Amount Produced

Cost

The Dairy

100 gallons

$10

Ice Cream, Inc.

100 gallons

$15

Frozen Treats

150 gallons

$12

Bob & Gary’s

125 gallons

$15

Which manufacturer has the absolute advantage?

The Dairy
Ice Cream, Inc.
Frozen Treats
Bob & Gary’s

c

Which best describes how consumers may benefit from specialization?

Consumers are offered higher-quality goods.
Consumers have more price options.
Consumers receive more sale offers.
Consumers find products at lower prices.

d

This table shows the number of cookies several bakeries sell each day.

Bakery

Number of Cookies Sold

Mrs. Track’s

90

Chips

100

The Bakeshop

75

Uncle John’s

125

All else being equal, which bakery has the absolute advantage?

Mrs. Track’s
Chips
The Bakeshop
Uncle John’s

d

This table shows the production possibility schedule for several toothpaste companies.

Toothpaste company

Large tubes

Small tubes

1

Sparkling

100 per hour

200 per hour

2

Bright White

100 per hour

250 per hour

3

Fresh!

200 per hour

250 per hour

4

Mmmint

150 per hour

150 per hour

Use the numbers to place the companies in order of greatest comparative advantage to least comparative advantage in producing small tubes of toothpaste.

2, 1, 3, 4
1, 2, 3, 4
4, 3, 1, 2
2, 1, 4, 3

a

It is better for businesses to have opportunity costs, as it often gives them a comparative advantage.

lower

In monopolistic competition, what effect do price variations generally have on the market as a whole?

no effect
little effect
great effect
indeterminable effect

a

In pure competition, producers compete exclusively on the basis of

price.
advertising.
product features.
image.

a

Natural monopolies occur when one producer

can meet the market’s entire demand.
controls the method of production.
is the only one authorized to produce a given product.
creates unique products.

a

Why is the automobile industry considered an oligopoly?

It offers little differentiation within the market.
It has significant barriers to entry.
It is controlled by companies that patent key technology.
It relies on price variation to attract customers.
It depends on brand loyalty and image to generate sales.
It is dominated by a few key players.

256

is the type of competition that occurs in a competitive market without identical producers.

monopolistic

Why is competition limited in an oligopoly?

Barriers prevent new producers from entering the market.
Producers completely refuse to engage in price wars.
No major distinctions exist between producers.
Producers actively segment the market to avoid competition.

a

In an oligopolistic market, consumer choice is

nonexistent.
limited.
extensive.
infinite.

b

The market for which item generally involves pure competition?

cola
corn
jeans
ice cream

b

Wellness Pharmaceuticals has released a new antidepressant, Lexabuzac. Which type of monopoly does the company most likely have on this medication?

natural monopoly
de facto monopoly
government monopoly
technological monopoly

not a maybe d

In the United States, which type of industry is often considered part of an oligopoly?

electric companies
cell phone carriers
mail delivery services
denim companies

b

Which best describes how the government enables government monopolies to exist?

by issuing a patent
by allowing natural monopolies to exist
by creating and running a monopoly
by owning the means of production

not d

The lack of competition within a monopoly means that

offered goods and services are lackluster.
the product’s market is small.
consumers must look elsewhere to find options.
prices are uniform and do not vary.

d

Which best describes the availability of substitutes in a monopoly?

Price points vary.
There are no substitutes.
There are different brands.
Products have different features.

b

Which helps enable an oligopoly to form within a market?

Firms cooperate to reduce competition.
The government restricts market entry.
The number of options in a market confuses consumers.
No competition exists between producers.

a

Excess supply is created when price or move away from the equilibrium point.

quantity

This table shows the production possibility schedule for several toothpaste companies.

Toothpaste company

Large tubes

Small tubes

1

Sparkling

100 per hour

200 per hour

2

Bright White

100 per hour

250 per hour

3

Fresh!

200 per hour

250 per hour

4

Mmmint

150 per hour

150 per hour

Use the numbers to place the companies in order of greatest comparative advantage to least comparative advantage in producing large tubes of toothpaste.

2, 1, 3, 4
4, 1, 2, 3
4, 3, 1, 2
3, 2, 1, 4

c

Producers hoping to earn profits supply goods and services to

debtors.
themselves.
competitors.
consumers.

d

What is the best definition of elasticity in economics?

Elasticity of supply measures how the amount of a good changes when the producer hires more employees.
Elasticity of supply measures how the amount of a good changes when the producer uses new materials.
Elasticity of demand measures how the amount of a good changes when its price goes up or down.
Elasticity of demand measures how the amount of a good changes when its distribution expands.

c

The chart shows the marginal cost and marginal revenue of producing apple pies.

What most likely will happen if the pie maker bakes a seventh pie?

The marginal cost will most likely decrease to $1.00
The marginal cost will most likely increase to $2.00
The marginal revenue will most likely remain the same, not decrease to $8.00.
The marginal revenue will most likely remain the same, not increase to $12.00.

b

Which quality best describes a producer with an absolute advantage?

efficient
fast
accurate
prolific

a

The graph shows a point of equilibrium.

If supply for a product is low but demand is high, what most likely needs to happen to achieve equilibrium?

The price needs to be raised.
The price needs to be lowered.
The supply needs to be raised.
The demand needs to be lowered.

c

Why are utilities, such as electricity and water, examples of natural monopolies?

The cost of production restricts competition in the market.
There are limited natural resources to meet demand.
Consumers only trust known companies to provide these essentials.
There is no need for alternative options.

a

The graph shows a supply curve.

Which events could cause the change in supply shown on this graph? Check all that apply.

A producer goes out of business.
A natural disaster causes production to drop.
A new company joins the marketplace.
A company begins to produce more goods.
A resource needed to produce more of the good has became scarce.

125

Which statements correctly explain price floors and price ceilings? Check all that apply.

Ineffective price floors tend to be too high.
Ineffective price ceilings tend to be too low.
Price floors help producers by raising prices.
Price ceilings help consumers by lowering prices.
Effective price floors are set above equilibrium.
Effective price ceilings are set below equilibrium.

3456

Motherboards, Inc., manufactures computer parts. The company’s total revenue is

the money the company earns after paying all of its production costs.
the total wages the company pays workers in its factories and stores.
the amount of money the company earns from selling an individual part.
the amount the company receives from the sale of all of its computer parts.

d

Which is the best title for this diagram?

The Definition of Supply
Factors That Affect Supply
Elasticity and Competition
The Law of Supply

b

The graph is a marginal cost curve that compares expenses for producing apple pies.

According to the graph, the marginal cost begins to increase when the producer makes

two pies.
three pies.
four pies.
five pies.

c

This table shows the number of employees needed to fill lunch orders at several food trucks.

Food Truck

Number of Lunch Orders

Number of Employees

Frank’s Falafels

20 per hour

2

Kimchi Kim’s

25 per hour

3

Deli Delight

30 per hour

3

Lunch on the Go

25 per hour

2

Which food truck has the absolute advantage?

Frank’s Falafels
Kimchi Kim’s
Deli Delight
Lunch on the Go

d

A clothing store has ordered a new supply of jeans for the fall season and wants to sell off the remaining items from the previous spring. What action would the store owner most likely take?

The store owner would most likely raise the price of the spring jeans to encourage producers.
The store owner would most likely lower the price of the spring jeans to encourage producers.
The store owner would most likely raise the price of the spring jeans to encourage consumers.
The store owner would most likely lower the price of the spring jeans to encourage consumers.

d

Which body or group is most able to use money to influence the economy?

government
consumers
firms
producers

a

In microeconomics, price helps determine both supply and demand. Which other factors also help determine each?

Supply is determined by production costs, and demand is determined by need for the product.
Supply is determined by production costs, and demand is determined by producer behavior.
Supply is determined by consumer behavior, and demand is determined by aggregate demand.
Supply is determined by producer behavior, and demand is determined by need for the product.

a

Which best describes the purpose served by economic models within an economic system?

Models identify patterns.
Models determine the business cycle.
Models control change.
Models define global demand.

a

In microeconomics, what occurs when equilibrium is reached?

Prices decline.
Prices increase.
Prices are set.
Prices fluctuate

c

The aggregate is

a type of economic system.
the total number of goods demanded or supplied.
a form of revenue.
the total profit made on sales.

b

Which challenges faced by an economy are examined in macroeconomics? Check all that apply.

declining innovation
inflation
unemployment
bankruptcy
decreased output

235

The circular flow model examines interactions between which two groups?

households and firms
households and consumers
firms and producers
firms and government

a

Which best describes why a government’s actions are important within macroeconomics?

Government controls industry through policy.
Government is both a consumer and a producer.
Government can prevent changes and challenges.
Government can use policy to influence the economy.

d

This is a graph showing price and total output in the short and long run.

According to this graph, how does supply behave in the long run?

Output remains constant.
Output increases.
Output cannot be predicted.
Output decreases.

a

Which best describes what occurs in the product market?

the exchange of labor for capital
the exchange of goods and services for factors of production
the exchange of goods and services for money
the exchange of money for factors of production

c

Rabia declined a job offer because she feels her skills merit better pay and a better position. Which terms can be used to describe Rabia? Check all that apply.

cyclically unemployed
domestically unemployed
frictionally unemployed
structurally unemployed
still employed
unemployed

3.6

Which unemployment rate do most economists consider to be acceptable?

0 percent
5 percent
10 percent
20 percent

b

This graph shows merchandise export data for the years 2010 through 2012.

Which statement most accurately describes the information presented on the graph?

The United States exported more merchandise than any other nation.
The United States exported more than $2 trillion worth of goods in 2012.
China exported more goods than the United States from 2010 to 2012.
China exported more than $2 trillion in goods for each year on the graph

c

Sometimes an economy cannot grow because of external factors, such as

lack of skilled labor.
poor infrastructure.
low domestic demand.
low demand for exports.

not c not a maybe d

The circle graph shows information about Germany’s labor force in 2011.

Which statement most accurately describes Germany’s labor force?

Most Germans are farmers.
Most Germans work in services.
Most Germans work in factories.
Most Germans fish for a living.

b

Economic growth takes place when a country

produces a steady number of automobiles.
has a high unemployment rate.
measures its gross domestic product (GDP).
produces more goods and services.

d

The graph shows unemployment rates in the United States in recent years.

Which statement is the most accurate explanation of the information on the graph?

Unemployment rates rise and fall in predictable patterns.
Unemployment will never again be as high as it was in 2010.
The United States suffered an economic downturn starting in 2009.
The United States does not have to worry about unemployment.

c

Jim lost his job in a car assembly factory to a robot and his skills will no longer be needed. Which terms can be used to describe Jim? Check all that apply.

cyclically unemployed
domestically unemployed
frictionally unemployed
structurally unemployed
still employed
unemployed

4.6

This graph shows changes in GDP and the unemployment rate in the United States in recent years.

In what year would someone looking for work have had the hardest time finding a job?

2008
2009
2011
2012

b

These circle graphs show information about Bolivia’s workforce and GDP.

What do the graphs indicate about Bolivia’s labor force?

Few people in Bolivia work in services.
Many people in Bolivia work in agriculture.
Most people in Bolivia work in industry.
Few people in Bolivia work in agriculture.

b

The graph shows data for the years 2010 through 2012.

Which might be a better title for this graph?

Total Exports for the United States and China
Trade Between China and the United States
Unemployment in the United States and China
The History of International Trade

a

The graph shows changes in GDP in the United States from 2009 to 2011.

How did the contribution of the services sector to GDP change between 2009 and 2011?

It rose by less than 1 percent.
It fell significantly.
It rose significantly.
It stayed exactly the same.

c

The circle graph shows the GDP in Germany for 2012.

Which sector of Germany’s economy had the highest GDP?

agriculture
industry
services
technology

c

An increase in gross domestic product (GDP) is a sign that a country’s economy is

declining.
stagnant.
growing.
depressed.

c

When economists determine that a nation’s GDP has declined, they can point to this as a sign of

economic shrinkage.
economic growth.
low unemployment.
poor leadership.

a

During a recession, what is one way governments try to encourage growth?

by increasing unemployment benefits
by stopping government spending
by requiring firms to maintain production
by eliminating all tax breaks

a

Which best describes how a recession develops as demand and production decrease?

The recession accelerates.
The recession spirals out of control
The recession feeds on itself.
The recession starts and stops.

c

There are five stages in a recession.

1. job loss

2. falling production

3. falling demand (occurs twice)

4. peak production

In which order do these stages occur?

4, 3, 2, 1, 3
3, 2, 1, 3, 4
4, 3, 2, 3, 1
4, 2, 3, 1, 3

a

Which of the following events most likely explains renewed demand in a recovery period?

Increased employment means increased availability of funds.
Need and, hence, demand increase as goods wear out.
Producers decrease prices to prompt demand and recovery.
Economic policy renews consumer confidence and, hence, demand.

not a not c

Which event best describes why it is difficult to sell a home during a recession?

Reduced income prevents buying.
Demand greatly decreases.
Mortgages become unavailable.
Housing prices increase.

b

Which best describes the nature of cause and effect in the context of the business cycle?

Each effect has other effects.
Causes and effects cannot be easily defined.
A cause has multiple independent effects.
Each effect has a cause.

a

Which indicators do economists use to determine the state of the economy? Check all that apply.

prices
immigration levels
agricultural output
employment levels
gross domestic product (GDP)

145

Which best describes what is represented in the business cycle model?

the interactions between producers and consumers
the change in production cost
macroeconomic trends
supply and demand trends

c

The graphs show the US unemployment rate and the price of whole milk between 2006 and 2012.

What do these graphs indicate about the relationship between employment levels and prices during economic cycles?

There is no link between prices and unemployment.
Rising unemployment rates drive prices higher.
Falling prices drive unemployment rates lower.
As unemployment rates rise, average prices fall.

d

Which best describes how governments respond to changes in the business cycle?

Governments issue more currency.
Governments refuse to pass a budget.
Governments change their policies.
Governments reduce spending.

c

Which scenario best reflects the relationship between production and demand in a recession?

Car dealerships have minimal overstock.
Car dealerships are not restocking.
Car dealerships cannot sell their stock.
Car dealerships cannot obtain stock.

c

When production is very high but demand is very low, it can lead to

a recession.
a recovery.
prosperity.
the peak.

a

Income reaches the highest level at the
point of the business cycle.

peak

Which of the following is a characteristic of the prosperity phase of the business cycle?

stagnant prices
high levels of production
ambivalence about the economy
reduced incomes

b

Which of the following conditions is most indicative of recovery?

The economy has stopped shrinking.
The economy begins to peak.
The economy has passed the trough.
The economy is growing again.

d

There are four stages in an economic recovery.

1. increased production

2. rising demand (occurs twice)

3. increased hiring

In which order do these stages occur?

2, 1, 2, 3
3, 2, 1, 2
2, 3, 1, 2
2, 1, 3, 2

d

Typically, high inflation is a sign of

a healthy economy because it results from a fall in production costs.
a healthy economy because it results from a rise in consumer interest.
a struggling economy because it results from a rise in production costs.
a struggling economy because it results from a fall in consumer interest.

c

Which is the best definition of inflation?

a gradual reduction in the price of goods and services
a gradual expansion in the price of goods and services
an exponential reduction in the price of goods and services
an exponential expansion in the price of goods and services

b

Consumers having more money to purchase computers will most likely result in

a decrease in prices for computers and computer parts.
an increase in prices for computers and computer parts.
a decrease in prices for computers, but not computer parts.
an increase in prices for computers, but not computer parts.

b

The inflationary spiral explains the causes and effects of high inflation. The spiral usually begins with a rise in production costs. What is the direct effect?

Producers raise prices to continue to make a profit.
The government prints more money and lowers its value.
Workers negotiate with employers to receive more money.
Consumers need higher wages to keep up with rising prices.

a

Which is an effect of stagflation?

Trade with other economies increases.
The value of a country’s currency drops.
Prices for goods fall sharply and suddenly.
The GDP rises along with production levels.

b

Which federal agency calculates the Consumer Price Index (CPI)?

US Census Bureau
US Bureau of Labor Statistics
US Department of Commerce
US Department of the Treasury

b

Stagflation occurs when high inflation combines with

high unemployment and a low level of production.
low unemployment and a high level of production.
a drop in buying power and a rise in workers’ wages.
a rise in buying power and a drop in workers’ wages.

a

Which scenario is an example of cost-push inflation?

Consumers have more money to buy cars, and the prices of cars and car parts rise as a result.
An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.
The demand for cars falls as consumers have less disposable income, and car prices fall as a result.
A government bailout helps car manufacturers lower their costs, and car prices fall as a result.

b

Which scenario is an example of demand-pull inflation?

Consumers have more money to buy cars, and the prices of cars and car parts rise as a result.
An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.
The demand for cars falls as consumers have less disposable income, and car prices fall as a result.
A government bailout helps car manufacturers lower their costs, and car prices fall as a result.

a

When government intervention makes currency worthless, this condition is called

deflation.
hyperinflation.
cost-push inflation.
demand-pull inflation.

b

What might cause a change in the value of fiat money?

a change in the value of commodities
a change in government regulations
a change in materials used to make money
a change in individuals’ spending habits

b

What kind of money is a gold certificate considered to be?

commodity
fiat
representative
currency

c

Which of these scenarios involves commodity money?

A girl writes a check to her friend for a stack of valuable comic books.
A boy starts a lemonade stand and sells each drink for twenty-five cents.
A woman offers her neighbor a US silver dollar in exchange for a bicycle.
A man buys some T-shirts and pays with a US fifty-dollar bill.

c

In the United States, dollar bills, nickels, and dimes are

representative money.
commodity money.
various currencies.
different denominations.

d

A currency’s exchange rate is

how many denominations the currency has.
its stable rate as established by the government.
how easily it can be divided into other currencies.
its changing value relative to other currencies.

d

What would happen if currency in all countries had fewer denominations?

People would be more likely to confuse the value of currencies.
Exchanging money between countries would be much easier.
People could not charge as many different prices for goods.
All goods would be more expensive than they currently are.

c

What is true of representative money? Check all that apply.

It can be exchanged for a valuable good.
It was once the most common form of money.
It was used in systems involving a "gold standard."
It can be traded for a commodity such as silver.
It is made with precious metals or stones.

134

The condition of a country’s
depends on its people’s ability to exchange money for goods and services

economy

Which is an example of a demand account?

savings account
investment account
credit account
checking account

d

People might choose to use a debit card rather than cash for purchases because

they do not want to carry around large amounts of cash.
their banking institutions charge high fees for cash withdrawals.
most items cost less when purchased with a debit card.
debit cards have a higher value than cash and can buy more.

a

The Federal Reserve manages the nation’s currency and money supply by

setting interest rates and acting as a lender to banks.
overseeing bank collections and payments on loans.
dictating criteria and setting loan terms for banks.
offering investment advice and adjusting interest rates.

a

How do central banks govern the banking industry? Check all that apply.

by deciding how much banks must keep in reserve
by overseeing the nation’s payment system
by supervising the loan process at banks
by printing money for distribution to banks
by responding quickly to banking crises that occur
by auditing banks based on current regulations

1256

Read the graph that displays interest and total payments on a loan.

Banks make the most money and take the most risk with an interest rate of

5 percent.
10 percent.
15 percent
18 percent.

d

Bank deposits help the nation’s economy by

providing protection for consumers from theft.
giving banks the money to loan and invest.
providing protection for banks on investments.
giving consumers the ability to save money.

b

Who mostly directly benefits when banks make a profit?

employees, shareholders, and the economy
shareholders, shoppers, and the economy
employees, companies, and the economy
shareholders, companies, and the economy

d

An entrepreneur who needs money to create and distribute a new invention would most likely visit

a community banker.
an investment banker.
a commercial banker.
an executive banker.

b

Banks pay interest to customers through a

savings account.
credit card account.
mortgage account.
401k account.

a

The Federal Reserve Bank of the United States is also known as the

people’s bank.
central bank.
world bank.
retail bank.

b

Which best describes the effects of low and high interest rates on the economy?

Low interest rates encourage consumers to borrow and spend, while high interest rates discourage such behavior.
High interest rates discourage consumers from investing, while low interest rates encourage investment.
High interest rates encourage consumers to borrow and spend, while low interest rates discourage such behavior.
Low interest rates encourage consumers to invest, while high interest rates discourage investment.

a

The main role of banks in the nation’s economy is to

store, lend, and invest money.
store, lend, and borrow money.
store, lend, and distribute money.
store, lend, and approve money.

a

Which term refers to the possibility of an investor losing some or all of an investment?

risk
likelihood
probability
chance

a

Which types of investments are securities?

both debt and equity
debt only
equity only
neither debt nor equity

a

Which best describes how an investor makes money off debt?

by selling the debt
by earning interest
by raising capital
by being repaid for the principal

b

If a company pays dividends on a stock, does that mean that the stock has appreciated in value? Why or why not?

Yes, the payment of dividends indicates that a stock’s value has increased.
No, the payment of dividends indicates that a company has earned profits.
Yes, the payment of dividends indicates that a company’s assets have grown.
No, the payment of dividends indicates that a company can repay investors.

not d

Which is true about investments and risk?

Low-risk investments have a high return over the long run.
High-risk investments usually fail.
Safe investments are always somewhat profitable.
Every investment carries some degree of risk.

d

Which factors can affect a stock’s price? Check all that apply.

market performance
the company’s financial health
the quantity products produced
location of the company
the economy

125

How do bonds generate income for investors?

Bonds appreciate in value.
Bonds pay interest.
Bonds pay dividends.
Bonds pay a specified amount at maturity.

d

Which best describes what generally occurs in financial markets?

Debt and loans are traded.
Assets are traded.
Commodities are traded.
Shares are traded.

b

Which best describes how an investor makes money from an equity investment?

by earning interest
by selling the asset for a profit
by raising capital
by growing the asset

b

Are the buying and selling of stocks centralized activities? Why or why not?

Yes, the New York Stock Exchange is the principal exchange for the nations of the world.
No, people can buy stocks anywhere, and they do not need to go through a market.
Yes, the world’s stock markets are coordinated exchanges, and they are dependent on one another.
No, there are many stock markets around the world, and they are independent of one another.

not c

Bonds are considered to offer a guaranteed return, as they must be honored by law, but which is still a potential risk that investors face?

The issuer may not raise enough capital.
The issuer could refuse to pay dividends.
The issuer could go bankrupt.
The issuer may not make a profit.

d

Once stocks are on the market, which best explains how their prices are set?

Prices are controlled by the issuing company.
Prices are set by the financial market.
Prices follow economic trends.
Prices fluctuate on the basis of demand.

d

Which best describes the role that government and business play in investments?

They both use taxes to support a country’s growth.
They both invest money to earn a profit.
They both receive capital to use for growth.
They both act as angel investors for start-up

not b

Which can be traded in a commodities market?

cars
computers
oil
clothing

c

Which best describes an investor’s primary goal?

to grow a business
to earn a profit
to bolster the economy
to provide capital to a business

b

Which is an example of how a denomination is divisible?

An American dollar may equal one-half of one Euro.
An American dollar is equal to four quarters.
Three American dollars may buy a small snack.
Five American dollars may be worth less next year.

b

When individuals are looking for jobs but are unable to find work, they are said to be
.

unemployed

What role does the Federal Reserve play? Check all that apply.

Regulate the banking industry
Loan money to banks
Give individual loans
Give corporate loans
Transfers any profits to the Treasury

125

What advantages does money have over bartered goods? Check all that apply.

Money is easy to earn, and bartering takes a lot of work.
Money has a set value, and bartered goods do not.
Money is more portable than bartered goods.
Money is always worth more than bartered goods.
Money allows people to easily store value they earn.

235

Which of the following best describes the circular flow model?

The model represents the movement of money throughout the economy.
The model represents the interactions within sectors.
The model represents the flow of goods and services between sectors.
The model represents the changing relationships between actors.

a

One fact about all currency is that it

loses value over time.
has a changing value.
maintains a stable value.
grows increasingly valuable.

b

According to the business cycle, what characteristic indicates that a depression has been reached?

The economy reaches recovery.
A trough has occurred.
The peak has passed.
A period of property has ended.

b

This graph shows changes in GDP and the unemployment rate in the United States in recent years.

Which statement most accurately describes the trends shown on this graph?

When GDP falls, unemployment rises.
GDP and unemployment have little to do with each other.
When GDP rises, unemployment rises as well.
GDP and unemployment rise at times of world crises.

a

How do bank loans help the nation’s economy?

They ensure consumer spending and confidence.
They ensure the success of new businesses.
They allow businesses to expand and improve.
They allow consumers to quickly pay off debts.

c

Which statement best describes the main cause of the 2008 housing market crash in the United States?

Many people could not buy new homes during a weak economy.
Many homes could not sell because housing prices rose too fast.
Many homes could not sell because banks charged high interest.
Many people could not make home payments during a weak economy.

d

The most common measure of inflation is a statistic called the

consumer price index

In the circular flow model, factors of production flow to firms. Which of the following are the primary factors of production? Check all that apply.

labor
capital
goods
land
services

124

Which is the most liquid form of money?

cash and currency in circulation
investment accounts
savings accounts
demand accounts

a

Which best describes the economic impact of defaulting on bank loans?

The economy suffers because banks have less money to loan to others.
The economy suffers because people have less money to spend.
The economy suffers because businesses are scared to take out loans.
The economy suffers because people are scared to take out loans.

a

Cost-push inflation occurs when

consumers show an interest in purchasing more goods.
producers need more money to make and distribute goods.
the government prints more money and pushes prices up.
consumers have more money to spend on goods and services.

b

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