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Questions and Correct Verified Answers.

Graded A

Chapter 1 The U.S. Business Environment

25. Which environment is NOT an important dimension of a business organization's external environment? A) the political-legal environment B) the sociocultural environment C) the technological environment D) the corporate cultural environment E) the global business environment Answer: D Explanation: D) The external environment consists of everything outside an organization's boundaries that might affect it. The corporate cultural environment is internal to the organization. Page Ref: 6- Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
26. What term denotes a nation's basis for allocating its resources among its citizens? A) capital structure B) economic system C) ownership processes D) distribution network E) national regulations Answer: B Explanation: B) An economic system is a nation's system for allocating its resources among its citizens, both individuals and organizations. Page Ref: 7 Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
27. What is the process for converting government enterprises into individually owned firms known as? A) production allocation B) privatization C) entrepreneurship D) demand assessment E) profit maximization Answer: B Explanation: B) Privatization is the process of converting government enterprises into privately owned companies, which will then have the right to run such a business for profit.

Page Ref: 10 Difficulty: Easy

Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept

28. What is the point at which the supply curve and the demand curve intersect on a graph? A) equilibrium price B) decision point C) surplus price D) perfect price E) parity point Answer: A Explanation: A) The equilibrium price is determined by the shape of the supply curve and the demand curve when plotted by amount available and price. The equilibrium price is set at the point at which the supply curve and the demand curve intersect. Page Ref: 12 Difficulty: Easy Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Concept
29. What is the price at which the quantity of goods demanded and the quantity of goods supplied are equal? A) the going rate B) the margin rate C) the market price D) the optimum price E) the cost price Answer: C Explanation: C) The market price is set by the demand and supply for a given good. It is defined as the price at which the quantity of goods demanded and the quantity of goods supplied are equal. Page Ref: 12 Difficulty: Easy Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Concept
30. What occurs when the quantity demanded exceeds the quantity supplied? A) demand deficit B) surplus C) equilibrium point D) shortage E) supply schedule Answer: D Explanation: D) When demand exceeds supply, there will not be enough goods available to meet the demand for them. This is known as a shortage. Page Ref: 12

Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept

31. Which of the following does NOT represent a degree of competition in a private enterprise system? A) oligopoly B) socialism C) monopoly D) perfect competition E) monopolistic competition Answer: B Explanation: B) Competition is the economic condition in which there are certain demands that can be met by more than one business, so businesses in the same industry compete for the same resources or customers. Page Ref: 14 Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
32. Which of the following exists when an industry or market has only one producer? A) competition B) oligopoly C) monopoly D) communism E) socialism Answer: C Explanation: C) A monopoly is a market or industry in which there is only one producer that supplies a certain product. Monopolies in the United States economy are either discouraged or regulated so that prices are not too high. Page Ref: 16 Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
33. Which term refers to the pattern of short-term ups and downs in an economy? A) aggregate output B) business cycle C) standard of living D) balance of payments E) demand and supply schedule Answer: B Explanation: B) The business cycle is the short-term pattern of economic expansions and contractions.

Page Ref: 17 Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept

34. Which term refers to the total quantity and quality of goods and services that people living in an economic system can purchase? A) business cycle B) demand and supply schedule C) standard of living D) aggregate output E) consumer price index Answer: C Explanation: C) The standard of living is the total quantity and quality of goods and services that people can purchase with the currency used in their economic system. Standard of living is determined by economic conditions such as inflation and purchasing power. Page Ref: 17 Difficulty: Easy Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
35. Which term refers to the total value of all goods and services produced within a given period by a national economy? A) standard of living B) aggregate output C) gross domestic product D) gross national produce E) purchasing power parity Answer: C Explanation: C) Gross domestic product is the total value of all goods and services produced within a given period by a national economy through domestic factors of production. Page Ref: 17 Difficulty: Easy Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
36. Which of the following measures indicates the prices of typical products purchased by American consumers living in urban areas? A) GDP per capita B) standard of living C) consumer price index D) purchasing power parity E) Big Mac index

Answer: C Explanation: C) The consumer price index is a measure of the prices of typical products purchased by consumers living in urban areas. It is used as a comparative standard, to tell whether inflation or deflation is occurring, for example. Page Ref: 22 Difficulty: Easy Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept

37. What does productivity measure? A) the total value of all goods and services produced by a national economy B) how much a system produces with the resources needed to produce it C) how much output is necessary to produce a certain level of demand D) the standard of living relative to purchasing power parity E) how much gross national product results from inputs of labor Answer: B Explanation: B) Productivity is a measure of economic growth that compares how much a system produces with the resources needed to produce it. Page Ref: 19 Difficulty: Easy Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
38. What is the economic condition characterized by widespread increased prices without increased purchasing power? A) unemployment B) inflation C) expansion D) deflation E) recession Answer: B Explanation: B) Inflation is the condition that occurs when widespread price increases are present throughout an economic system. This happens when the amount of money in the economy grows faster than the amount of products available to buy. Page Ref: 21- Difficulty: Easy Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
39. What is the condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate? A) unemployment B) stability C) deflation

D) inflation E) oversupply Answer: B Explanation: B) Economic stability happens when the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate. When this occurs, there is neither inflation nor deflation. Page Ref: 23 Difficulty: Easy Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept

40. What are profits? A) total money taken in by a corporation B) increases in income from year to year C) increases in a corporation's stock price D) revenue generated by goods and services E) difference between revenues and expenses Answer: E Explanation: E) Profits represent the difference between an organization's revenues and its expenses; profits are the goal of most businesses and allow people to open and expand businesses. Page Ref: 4 Difficulty: Moderate Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
41. A new U.S. company plans to introduce an inexpensive, high-quality line of shoes to the American market. It has found a manufacturer in another country that can produce the shoes at a low enough cost that they will still be cheaper than other brands of the same quality. Which of the following represents a potential ethical implication that the company should consider before beginning production? A) the country's existing labor laws and the factory working conditions B) the average exchange rate of the country's currency over a ten-year period C) the challenges of doing business in a country with a nonconvertible currency D) the energy demands of the manufacturer's facility E) the basic international business strategy it will use Answer: A Explanation: A) When choosing a country to outsource to, a company should not only consider the financial implications of offshoring, but also the ethical implications of conducting business in a country that may have very different laws and legal standards. Page Ref: 6 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.

Learning Outcome: Compare and contrast different economic systems Skill: Application

42. What marks the key difference between economic systems? A) the way they manage the factors of production B) the way they transport goods within their borders C) the way rules and regulations are legislated D) the way workers are relocated to different regions E) the way basic necessities are determined Answer: A Explanation: A) Economic systems manage the factors of production differently; management of these factors often revolves around the degree of government control of them. Page Ref: 7 Difficulty: Moderate Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
43. What does a planned economy rely on a centralized government to do? A) support free enterprise in every way possible B) allocate all or most factors of production C) encourage citizens to buy shares of stock in small companies D) keep its control activities to a minimum E) direct workers to start their own small businesses Answer: B Explanation: B) A centralized government controls all or most of the factors of production. Page Ref: 10 Difficulty: Moderate AACSB: Dynamics of the global economy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
44. Which economic system emphasizes the private ownership of most factors of production? A) socialism B) communism C) capitalism D) Marxism E) federalism Answer: C Explanation: C) Capitalism makes use of the profit incentive for private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive. Page Ref: 10 Difficulty: Easy AACSB: Dynamics of the global economy Objective: 1. Learning Outcome: Compare and contrast different economic systems

Skill: Concept

45. A city of 150,000 people has a large commercial sector bringing in businesses from the surrounding region. In 2005, there was 2.75 million square feet of commercial space available. Five years later, after a building boom, there was 5.5 million square feet of commercial space available. Which effect will most likely occur? A) The equilibrium price of commercial real estate will not be effected. B) The increase in the supply of commercial real estate will lead to a corresponding increase in its price. C) The price of commercial real estate will decrease, absent a dramatic increase in demand. D) The increase in the supply of commercial real estate will lead to an increase in resource prices. E) The increase in supply will cause a corresponding increase in demand. Answer: C Explanation: C) Since the supply of commercial real estate has dramatically increased, unless there was a dramatic increase in demand we would expect the price of commercial real estate to decrease. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application
46. A new watch manufacturer would like to determine the market price of a new line of watches. How could the manufacturer most effectively determine the market price? A) Place several of the new watches on sale at a watch store and see which sells most quickly. B) Arrange to sell the watches in a number of diverse auctions. C) Set the price of one watch higher than another and see which sells the most quickly. D) Survey potential customers and retailers on what they think the price should be. E) Canvass executives from competing companies about what they think the price should be. Answer: B Explanation: B) Auctions are an effective way to determine market prices because consumers determine the selling price. Page Ref: 16 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application
47. A new feature on the the latest Acme smart phone has made it wildly popular. Which action should Acme take to maximize profits? A) Increase the supply of the smart phone. B) Decrease the supply of the smart phone. C) Reduce the price of the smart phone.

D) Maintain the current supply until demand falls. E) Create a shortage of the smart phone. Answer: A Explanation: A) Acme will want to have more phones available when demand is high. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application

48. Which of the following is NOT a likely reason why a small business in a free enterprise system should seek the ideal combination of price charged and quantity supplied? A) to maintain goodwill among customers B) to maximize profits C) to avoid surpluses and shortages D) to avoid government regulation E) to discourage competition Answer: D Explanation: D) A small business is unlikely to be a monopoly so how it sets its prices will not attract the attention of government regulators. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application
49. In a small town of 3,000 people, the number of car washes has grown from two to five in the last two months. Which result will likely occur? A) The increase in supply will have no effect on the equilibrium price. B) The increase in supply will lead to a decrease in demand. C) The increase in supply will lead to a decrease in the equilibrium price. D) The increase in supply will lead to an increase in demand. E) The increase in supply will lead to an increase in equilibrium price. Answer: C Explanation: C) In general, greater availability of goods and services leads to a decrease in cost. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application
50. Ernesto's Pizza is about to offer customers a new variety of a personal pizza. Which of the

following actions by Ernesto's Pizza would most likely prevent a surplus or a shortage of the personal pizzas in its first week? A) limit the supply of the personal pizza B) lower demand for the personal pizza C) set the price of substitute goods D) estimate the market price of the personal pizza E) lower the price of the pizza throughout the week Answer: D Explanation: D) The market price occurs where there is neither a surplus nor a shortage of supply. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Describe the major components of effective distribution Skill: Application

51. Which of the following is one of the elements required in private enterprise? A) adequate representation in the government B) freedom from foreign competition C) the opportunity for market leadership D) the right to ownership of property E) numerous regulatory agencies Answer: D Explanation: D) Necessary elements of capitalism include private property rights, freedom of choice, profits, and competition. Page Ref: 14 Difficulty: Moderate AACSB: Analytic skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
52. In perfect competition, which of the following conditions must prevail? A) All firms must adhere to cost and pricing standards. B) The number of firms in the industry must be limited. C) A single firm is able to influence the price of its product. D) It is relatively difficult to enter the industry. E) All firms in a given industry must be small. Answer: E Explanation: E) In perfect competition, all firms in a given industry must be small, the number of firms in the industry must be large, and no single firm is powerful enough to influence the price of its product; therefore, prices are determined completely by supply and demand. Page Ref: 14 Difficulty: Moderate Objective: 1. Learning Outcome: Compare and contrast different economic systems

Skill: Concept

53. How does monopolistic competition differ from perfect competition? A) There are more sellers in a market characterized by monopolistic competition. B) It is easier for sellers to enter a market or industry characterized by monopolistic competition. C) In a perfectly competitive market, products are more dissimilar. D) In a market characterized by monopolistic competition, individual firms have some control over price. E) In a perfectly competitive market, the size of the firms must be large. Answer: D Explanation: D) Individual firms have some control over price in monopolistic competition; in perfect competition price is determined by supply and demand. Page Ref: 14 Difficulty: Moderate AACSB: Analytic skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
54. Which of the following is characterized by having few sellers, similar prices among sellers, and difficult market entry? A) oligopoly B) pure competition C) monopoly D) monopolistic competition E) state socialism Answer: A Explanation: A) An oligopoly has few sellers. Because there is competition between those sellers, they will offer similar prices. Because those sellers will be large and well-established, it will be difficult for new companies to enter the market. Page Ref: 15 Difficulty: Moderate Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
55. In an oligopoly, when one firm reduces its prices, how do other sellers react? A) There is no reaction from other firms to change their prices. B) Other firms reduce their prices also, usually quite quickly. C) Other firms may reduce their prices, but usually gradually. D) Other firms are not usually aware that price has changed. E) There is a combined response from other firms to stabilize prices. Answer: B Explanation: B) Because there are few firms competing in an oligopoly, competition between firms tends to be close, and firms thus respond quickly to price reductions by one firm. Therefore, other firms will likely quickly reduce their prices as well. For example, when an

airline announces new fare discounts, others adopt the same strategy. Page Ref: 15 Difficulty: Moderate AACSB: Analytic skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application

56. Which of the following is the most likely pricing approach for a monopoly? A) Charge customers whatever you please. B) Give customers a real bargain on price. C) Charge a price that will not cause consumer demand to drop. D) Undercut the prices of the competition. E) Give customers a fair price that cannot be matched by competitors. Answer: C Explanation: C) A monopoly happens when one firm dominates the market. The monopolizing firm does not have to factor competitors' prices when determining its own prices, so it only needs to charge a price that will not be so high that it causes demand to drop. Page Ref: 16 Difficulty: Moderate Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
57. What term do economists use for the pattern of short-term expansions and contractions in the economy? A) business cycle B) aggregate output C) standard of living D) consumer price index E) purchasing power parity Answer: A Explanation: A) Short-term ups and downs are referred to as the business cycle. Page Ref: 17 Difficulty: Easy Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
58. Which indicator refers to the total quantity of goods and services produced by an economic system during a given period? A) the business cycle B) aggregate output C) gross domestic product D) the consumer price index E) gross national product Answer: B

Explanation: B) Aggregate output is the primary measure of growth in the business cycle. Page Ref: 17 Difficulty: Moderate Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept

59. Azucks is a socially responsible American company engaged in the manufacture of sports shoes. The CEO cautions that there is a disadvantage associated with the company planning increased globalization of production. Which of the following is the most likely disadvantage he is referring to? A) Heavy job losses can ensue in the domestic market. B) Greater disparities in living standards will emerge. C) Trade barriers will be reduced between countries. D) Substantial job losses will occur in developing markets. E) Increased competition will emerge between companies. Answer: A Explanation: A) Developed countries usually have higher labor costs than developing countries so some companies will choose to outsource production to a developing country in order to lower costs. This results in the loss of jobs in the developed countries where the goods were originally produced. Page Ref: 19 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
60. A financial analyst has noticed a serious rise in inflation. What course of action might the financial analyst advise the government to take in order to reduce inflation? A) The government can lower taxes. B) The government can raise taxes. C) Encourage the government to increase spending. D) Encourage consumers to increase spending. E) Encourage the government to increase spending and lower taxes. Answer: B Explanation: B) Raising taxes encourages consumers to spend less, thereby curbing inflation. Page Ref: 21 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application

61. Which course of action should the Federal Reserve take if it wishes to reduce inflation and curb consumer spending? A) The Federal Reserve should buy securities. B) The Federal Reserve should sell securities. C) The Federal Reserve should decrease the reserve requirement. D) The Federal Reserve should lower the discount rate. E) The Federal Reserve should sell securities and lower the discount rate. Answer: B Explanation: B) Selling securities reduces the money supply, thus curbing consumer spending and bringing prices down. Page Ref: 23 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
62. The Fed has opted to buy securities and lower the reserve requirement. What will most likely happen as a result of this course of action? A) The money supply will increase thereby stimulating the economy. B) The money supply will increase thereby reducing inflation. C) The money supply will increase thereby causing disinflation. D) The money supply will decrease thereby reducing the possibility of a recession. E) The money supply will decrease thereby reducing deflation. Answer: A Explanation: A) Buying securities and lowering the reserve requirement will increase the money supply, which in turn stimulates the economy. Page Ref: 23 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
63. If the Fed is concerned with a potential recession, what course of action should it take? A) Lower the reserve requirement and sell securities. B) Lower the discount rate and increase the reserve requirement. C) Sell securities and lower the discount rate. D) Buy securities and lower the discount rate. E) Buy securities and increase the reserve requirement. Answer: D Explanation: D) Buying securities and lowering the discount rate increases the money supply, which encourages spending. Page Ref: 23 Difficulty: Moderate AACSB: Reflective thinking skills

Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application

64. The global business environment encompasses many international forces that influence the outcomes of companies doing business in foreign countries. Which of the following scenarios would best count as evidence of globalization? A) Diamonds mined in Country X are sold on the markets in Country Y. The proceeds are then used to fund a coup against the government in Country X. B) A natural disaster disables factories in Country X that produce computer chips for Company Y. Company Y reduces the number of employee shifts and raises the price of its products. C) Farmers in Country X have lost most of their wheat crops due to a drought. The market price for wheat triples and the government pays the farmers for a percentage of the lost wheat. D) Country X has almost mined all of its available natural energy sources. The government has been investing in alternative energy research for years and now an efficient synthetic energy source has been developed. E) Country X has raised the tax on oil products. As a result more people are taking public transportation and reducing unnecessary car travel. Answer: B Explanation: B) Globalization is the movement toward a more interconnected and interdependent world market. One consequence of this is that countries and companies become more reliant on each other and events in one part of the world can directly affect conditions in another part of the world. Page Ref: 6 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
65. The CEOs of Company A and B are investigating expansion into new markets, which will provide greater trade volume. Which scenario describes an economic environment that is most suitable for an importing- exporting opportunity? A) Country X invests primarily in its textile industry while Country Y focuses on producing high-yield crops. B) Company A is willing to provide parts used in the production of equipment by Company B in exchange for discounts on manufacturing equipment. C) The southern region of Country X over-produces a wide range of produce, while few crops can be efficiently grown in the northern region. D) Company A and Company B are exploring the possibility of a joint venture to provide goods to Country X. E) Country X is looking to invest in foreign markets and Country Y currently has a large trade deficit.

Answer: A Explanation: A) The economic environment refers to relevant conditions, such as import and export opportunities, that exist in the economic system in which a company operates. In the above case, importing and exporting both refer to the movement of goods between different countries. Countries X and Y focus on a particular industry, which implies that these are areas in which they have an import-export opportunity. Page Ref: 6 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application

66. Robert has established a start-up business manufacturing a range of outdoor wear for the leisure market. Which possible scenario would best show that Robert is positioning his business for the global business market? A) Robert launched a Web site for his business and hired two new employees to handle national and international shipping. B) Robert launched a Web site and filmed a commercial for television and recorded a radio version for local stations. C) Robert created a page for his business on a networking site and offered store coupons to his first 100 friends. D) Robert had his Web site translated into Korean in order to better serve the local Korean community. E) Robert took a full page ad out in the state's official tourism brochure. Answer: A Explanation: A) By creating a Web site, which can be viewed worldwide, and expanding his business to handle national and international shipping, Robert is actively engaging in market globalization. Page Ref: 6 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
67. What is a chief goal of an economic system? A) economic stability B) income equality C) money supply growth D) national debt reduction E) product innovation Answer: A Explanation: A) With stability, the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate.

Page Ref: 21 Difficulty: Moderate Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept

68. Which of the following best describes economic stability? A) the measure of economic growth that compares how much a system produces with the resources needed to produce it B) a condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate C) the economic condition in which a country's exports exceed its imports D) a relative equality between what the government owes its creditors and the revenue it gets from imports E) the economic value of all the products that a country exports minus the economic value of all the products it imports Answer: B Explanation: B) Economic stability is evident when the amount of money available and the number of goods and services produced are growing at about the same rate; inflation and unemployment, in particular, threaten economic stability. Page Ref: 21 Difficulty: Moderate AACSB: Analytic skills Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept
69. Which of the following statements about inflation is true? A) The consumer price index is a good way of measuring inflation. B) Productivity decreases the purchasing power of consumer dollars. C) Inflation increases the purchasing power of consumer dollars. D) Localized price increases can cause inflation across the economic system. E) The amount of money tends to be distributed evenly during inflationary periods. Answer: A Explanation: A) The consumer price index is a good measurement of inflation; inflation occurs with widespread price increases. Page Ref: 22 Difficulty: Moderate Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
70. How would supply affect the aggregate output of an economy? A) Supply would decrease aggregate output. B) Increases in both would cause inflation. C) Aggregate output would grow with supply.

D) Supply would have no direct effect on aggregate output. E) Aggregate output would increase the money supply. Answer: C Explanation: C) Supply is the amount of goods available, and aggregate output is the production of goods, so increased supply would increase aggregate output. Page Ref: 17 Difficulty: Moderate Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Synthesis

71. Which of the following best describes what the consumer price index is used to indicate? A) the average wage rate for a given region B) the economic performance of key consumer product companies C) the changes in the cost of consumer products over time D) the percentage of consumers in the total population looking for work E) the number of price increases within a given period of time Answer: C Explanation: C) The consumer price index is a measure of the prices of typical products purchased by consumers living in urban areas. It is expressed as a percentage of prices as compared to a base period. Page Ref: 22 Difficulty: Moderate Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Concept
72. Which of the following is a likely cause of increased prices for products, decreased purchasing power, and decreased profit margins? A) low unemployment B) stagnant wages C) declining living standards D) cyclical inflation E) limited credit Answer: A Explanation: A) Potential results of low unemployment include increased prices, decreased purchasing power, and decreased profits. Page Ref: 22 Difficulty: Difficult Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Synthesis
73. What type of policy is made up of fiscal and monetary policy? A) trade B) employment

C) stabilization D) tax E) foreign Answer: C Explanation: C) A stabilization policy is a government goal to smooth out fluctuations in output and unemployment and to even out prices. Page Ref: 23 Difficulty: Moderate Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Concept

74. In the city of Westminster, Christmas trees are being sold for $25. At this price, buyers are able to satisfy their demand, though some trees remain unsold. What is the term used to describe this market condition? A) surplus B) stoppage C) shortage D) demand deficit E) equilibrium price Answer: A Explanation: A) A surplus is defined as a situation in which quantity supplied exceeds quantity demanded. Page Ref: 13 Difficulty: Moderate Objective: 1. Learning Outcome: Explain how economic performance is monitored Skill: Application
75. In the United States, milk is produced on thousands of farms, with no producer dominating the market. Producers sell milk at the going price and are unable to influence this price. Millions of gallons of milk are purchased every day. What type of competition is the market for milk? A) a monopoly B) an oligopoly C) perfect competition D) monopolistic competition E) a cooperative Answer: C Explanation: C) In perfect competition, there are many sellers who are not individually powerful enough to influence price. Page Ref: 14 Difficulty: Difficult Objective: 1. Learning Outcome: Compare and contrast different economic systems Skill: Application
76. Which of the following best gives the meaning of the term gross domestic product?

A) total quantity of goods and services produced by an economic system B) total quantity of goods that a country's citizens can purchase with the currency used in their economic system C) conditions of the economic system in which an organization operates D) total value of all goods and services produced within a given period by a national economy through domestic factors of production E) indicators of available goods and services produced within a specific domestic market Answer: D Explanation: D) Gross domestic product (GDP) is the total value of all goods and services produced within a given period by a national economy through domestic factors of production; this figure does not include goods and services produced by domestic firms overseas. Page Ref: 17 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept

77. Which of the following best gives the meaning of the term business cycle? A) the conditions of the economic system in which an organization operates B) the total quantity and quality of goods and services that a country's citizens can purchase with the currency used in their economic system C) the measure of economic growth that compares how much a system produces with the resources needed to produce it D) the number of businesses started during a given time period E) the pattern of short-term ups and downs in an economy Answer: E Explanation: E) A business cycle is represented in the short-term ups and downs in the economy, as measured by prosperity, recession, and so on. Page Ref: 17 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application
78. Which of the following best gives the meaning of the term gross national product? A) total quantity of goods and services produced by an economic system B) total quantity of goods and services produced within a given period by a national economy, not including foreign production C) total value of all goods and services produced within a given period by a national economy through domestic factors of production D) total value of all goods and services produced within a given period regardless of where the factors of production are located E) total value of all goods and services that are exported Answer: D Explanation: D) Gross national product includes even the value of goods and services produced by domestic companies abroad.

Page Ref: 18 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept

79. Which of the following best describes nominal GDP? A) total quantity of goods and services produced by an economic system B) total value of all goods and services produced within a given period by a national economy through domestic factors of production measured in current dollars or with all components valued at current prices C) total value of all goods and services produced within a given period by a national economy regardless of where the factors of production are located D) total value of all goods and services produced within a given period by a national economy through domestic factors of production adjusted to account for changes in currency values and price changes E) total quantity of goods and services that are imported within a given period of time Answer: B Explanation: B) Nominal GDP is not adjusted to make up for inflation and/or changes in currency values. Page Ref: 18 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept
80. Which of the following would be included in the gross domestic product of Brazil? A) the profits earned by a U.S.-owned automobile plant in Brazil B) the profits earned by a Brazilian coffee company operating in the United States C) the profits earned by a Brazilian coffee company operating in Peru D) the profits earned by U.S. suppliers to Brazil operating in the United States E) the profits earned by Peruvian companies operating outside Brazil Answer: A Explanation: A) Gross domestic product refers to the value of goods and services produced in a given period domestically. Page Ref: 18 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application
81. Honata Automobiles is a South Korean-owned company. Honata has factories in Indonesia and Brazil. Which of the following is/are affected by the production of Honata automobiles? A) Indonesia, Brazil, and South Korea's GDP B) Indonesia and Brazil's GDP C) South Korea's GDP

D) Indonesia and Brazil's GNP E) Indonesia, Brazil, and South Korea's GNP Answer: B Explanation: B) GDP measures goods and services produced within a country regardless of where the companies are based. Page Ref: 18 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application

82. Which of the following best describes purchasing power parity? A) total quantity of goods and services produced by an economic system B) total quantity of goods and services that can be purchased with one paycheck C) total quantity of goods and services that could have been purchased if one's pay rose in the same proportion as inflation D) the principle that exchange rates are set so that prices of similar products in different countries are about the same E) the principle that a market economy determines supply and demand for consumer products Answer: D Explanation: D) Purchasing power parity gives us a good idea of what people can actually buy with the financial resources allocated to them by their respective economic systems. Page Ref: 19 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept
83. Which is the best explanation for why standard of living only increases through productivity? A) The more goods that are available, the lower prices will be. B) More goods are available without having to come by additional resources. C) Productivity increases the money supply in an economy. D) Purchasing power increases when there is more consumer choice. E) Prices are determined by the standard of living. Answer: B Explanation: B) Productivity is the amount of goods that can be made using a given amount of resources. If it takes more resources to produce more goods, prices will not decrease as long as demand keeps pace. But if more goods can be made using the same resources, prices will go down and purchasing power will increase. Page Ref: 19 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Synthesis

84. Why would a government most likely be concerned about its country carrying a trade deficit? A) A trade deficit means that the country's productivity is low. B) A trade deficit means local companies do not have enough competition. C) A trade deficit ties up money that could be used for economic growth. D) A trade deficit decreases demand for goods overall. E) A trade deficit means that consumers do not have enough purchasing power. Answer: C Explanation: C) A trade deficit implies a carrying of debt; when there is a trade deficit imports are not paid for in full. Page Ref: 20-21 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application
85. If, in the long run, international trade improves the standards of living in participating countries, why might some countries want to place trade barriers such as extra taxes on imported products? A) Imported products compete with domestic products and thus put pressure on local business. B) Imported products are usually not as good quality as domestically made products. C) Generating government revenue is often more economically valuable than free trade. D) This is necessary to keep a country's currency strong. E) International trade tends to lead to political tension. Answer: A Explanation: A) In the course of international trade, jobs are often initially lost in those industries in which a country does not have a comparative advantage. Trade barriers are used as a way to protect these industries from strenuous competition. Page Ref: 20 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain the benefits and challenges of engaging in international business Skill: Synthesis
86. Through various stimulus programs, the U.S. government injected money into the economy during the 2008-2009 recession. What was the concern that this type of action would lead to? A) increased labor costs B) increased spending C) increased unemployment D) increased inflation E) increased trade imbalance Answer: D Explanation: D) Some experts feared that increasing the money supply might also lead to inflation.

Page Ref: 23 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application

87. The government is concerned that the economy is being stifled by low consumer spending. Which course of action should the Federal Reserve take if it wishes to improve the economy? A) The Federal Reserve should buy securities. B) The Federal Reserve should sell securities. C) The Federal Reserve should increase the reserve requirement. D) The Federal Reserve should increase the discount rate. E) The Federal Reserve should sell securities and lower the discount rate. Answer: A Explanation: A) Buying securities will increase the money supply, which will increase consumer spending, thereby improving the economy. Page Ref: 23 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application Chapter 2 Business Ethics and Social Responsibility
88. What are beliefs about what is right and wrong or good and bad called? A) motivators B) rules C) cultures D) ethics E) laws Answer: D Explanation: D) Ethics are beliefs about what is right and wrong or good and bad in actions that affect others. Page Ref: 32 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept
89. Which of the following should be the first step in assessing ethical behavior in a certain situation?