Business Economics
Exam Answer Key
Course Introduction
Business Economics is a course designed to provide students with a thorough understanding of the economic concepts and analytical tools essential for effective business decision-making. The course examines the role of both microeconomic and macroeconomic factors in shaping business environments, focusing on topics such as supply and demand, market structures, pricing strategies, production and cost analysis, and the influence of government policies. Through case studies and real-world examples, students learn to apply economic reasoning to evaluate business opportunities, assess risks, and devise strategies for competitive advantage in dynamic markets.
Recommended Textbook
Economics The Basics 2nd Edition by Michael
Mandel
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1210 Verified Questions
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) Suppose the government decides to eliminate some,but not all,of the rules that govern how investment banks conduct their business.This would be an example of
A) laissez-faire policy.
B) deregulation.
C) central planning.
D) economic competition.
Answer: B
Q2) Poorer countries started to develop economically when they A) focused on becoming net traders.
B) figured out what the rest of the world wanted, and responded.
C) focused on becoming importers.
D) focused on domestic economic regulation.
Answer: B
Q3) A laissez-faire economy has minimal,if any,government regulations or laws affecting the economy.
A)True
B)False
Answer: True
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Chapter 2: Demand and Supply: The Basics of the Market Economy
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Sample Questions
Q1) Give three examples of why new markets are created every day.
Answer: New technologies create products for needs we didn't know we had,new services for technologies that didn't exist before,and new countries with fast-growing economies.An example of this is the MP3 player.Prior to the introduction of MP3 technology,consumers did not need a small,handheld device to store and transfer recorded music.The creation of this technology resulted in a complete shift in the distribution of music.
Q2) What phrase do economists use to describe the assumption that everything else about a situation stays the same,while one variable,such as price,changes?
A) E pluribus unum.
B) Caveat emptor.
C) Vini, vidi, vici.
D) Ceteris paribus.
Answer: D
Q3) Crude oil is sold on a local market.
A)True
B)False
Answer: False
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Chapter 3: Market Equilibrium and Shifts
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Sample Questions
Q1) Higher income usually means
A) a shift to the left on the demand curve.
B) a static change on the demand curve.
C) higher demand.
D) lower demand.
Answer: C
Q2) A demand shift changes the amount sellers want to supply at various prices.
A)True
B)False
Answer: False
Q3) To determine whether a particular good is a normal good,a luxury good,or an inferior good,you would want to observe what happens to demand for the good when __________ changes.
A) supply
B) price
C) the price of raw materials
D) income
Answer: D
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Chapter 4: How Businesses Work
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Sample Questions
Q1) The short-term cost function assumes that
A) All variable costs are equal.
B) Fixed costs can be easily changed.
C) Fixed costs can't be changed.
D) Variable costs can be fixed.
Q2) In short-run profit maximization,businesses focus on the ______,holding fixed costs constant.
A) long-term cost function
B) average input cost
C) short-term cost function
D) short-term production function
Q3) Fixed costs are also known as __________ costs because they are much harder for a business to change.
A) short-term
B) long-term
C) variable
D) static
Q4) Revenue is the money that customers pay for the output of a business.
A)True
B)False
Page 6
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Chapter 5: Competition and Market Power
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Sample Questions
Q1) Market power is
A) the combination of price and product.
B) the balance between average and marginal product.
C) another term for equilibrium.
D) the ability to raise prices above the prices that would exist under perfect competition.
Q2) From World War II to the early 1970s,GM,Ford,and Chrysler enjoyed
A) perfect competition.
B) a natural monopoly.
C) market power.
D) market advantage.
Q3) If a local car dealership can sell 8 cars per day at a price of $25,000 each,but must reduce the price to $24,000 to sell one more car,what is the marginal revenue of the 9<sup>th</sup> car?
A) -$1,000.
B) $16,000.
C) $24,000.
D) $216,000.
Q4) Over the long run,why do low-cost providers generally prevail?
Q5) Why does the government sometimes support a monopoly?
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Chapter 6: Government and the Economy
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Sample Questions
Q1) As one of the New Deal programs,the WPA was a government agency that
A) regulated the banking industry.
B) regulated the securities industry.
C) regulated the trucking and interstate commerce industries.
D) increased employment through construction projects.
Q2) The era of deregulation,when the role of the government in the economy steadily decreased,began
A) shortly after WWII.
B) in the mid-1970s.
C) with the presidency of Dwight Eisenhower.
D) with the presidency of Ronald Reagan.
Q3) The Wage and Price Controls of 1971 were an example of A) command approach intervention.
B) free enterprise.
C) market-based economics.
D) a balanced approach.
Q4) What happened to government regulation in the aftermath of the oil shock of 1973?
Q5) What are the four justifications for government intervention in the economy?
Describe two in detail,providing an example of each.
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Chapter 7: The First Step Into Macroeconomics
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Sample Questions
Q1) The output of a government is equal to government consumption plus government investment.
A)True
B)False
Q2) Government investment includes all purchases of long-lived assets such as tanks and planes.
A)True
B)False
Q3) In the late 1930s,military planners needed to know the size of the economy so they could determine
A) the tax base in case of war.
B) how many tanks and planes the economy could produce.
C) the military budget for the next five years.
D) whether military spending was too large.
Q4) Nonresidential investment does NOT include
A) office chairs.
B) computers on desktops.
C) copy paper.
D) software.
Q5) How are net exports calculated?
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Chapter 8: Inflation
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Sample Questions
Q1) Expected inflation is
A) the inflation rate that governments require from year to year.
B) the inflation rate that consumers and businesses expect will hold for some time in the future.
C) the inflation rate that is based on GDP growth.
D) the inflation rate minus the actual growth rate.
Q2) In 1973,the oil embargo sparked a wage-price spiral due to higher energy costs.In 2004,with a similar spike in oil prices,there was not a corresponding wage-price spiral.The cause of this was
A) Heavy government regulation.
B) Alternative energy sources.
C) Competition from overseas keeping a lid on wages and prices.
D) Unanticipated inflation.
Q3) As an example of hyperinflation,one U.S.dollar was equal to _________ German marks in 1923,compared to 8.9 marks in 1919.
A) 0.001
B) 1
C) 1,000
D) 1 trillion
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Page 10
Chapter 9: Growth
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Sample Questions
Q1) What would NOT be one of the reasons for a much lower real GDP in 1905,compared with 2007?
A) Productive capability in 1905 was lower than in 2007.
B) Fewer goods and services were available in 1905 than in 2007.
C) On average, there were fewer poor people in 1905 than in 2007.
D) Automobiles were rare in 1905, but common in 2007.
Q2) The inputs used in the aggregate production function do not include which of the following?
A) Education and skill levels.
B) Knowledge.
C) Average price levels.
D) The number of workers in a country.
Q3) The economy is growing if and only if
A) GDP is rising.
B) The average price level is rising.
C) Real GDP is rising.
D) GDP per capita is rising.
Q4) Besides a growing workforce,how can a country boost its aggregate production?
Q5) What inputs are included in the aggregate production function,and what is the economic impact of those inputs?
Page 11
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Chapter 10: Business Cycles, unemployment and Inflation
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Sample Questions
Q1) When real GDP is lower than potential GDP,the output gap is A) zero.
B) inflationary.
C) negative.
D) Deflationary.
Q2) Negative demand shifts can
A) be defined as an increase in demand without an increase in supply.
B) lead to a decrease in supply.
C) cause a recession.
D) be caused by falling aggregate production.
Q3) Which person provides an example of structural unemployment?
A) A worker who stays at home to tend to children.
B) A worker trained in running an obsolete machine.
C) A student who goes to school instead of working.
D) A fast-food worker who quits that job to find a better-paying job.
Q4) With a recession under way,consumers have less money,causing a demand shift to the right.
A)True
B)False
Q5) How is it possible for output to be greater than potential GDP?
Page 12
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Some economists argue that the spending multiplier is actually less than 1.If the spending multiplier is 0.8,then a $200 billion increase in government spending will cause private sector spending to
A) rise by $160 billion.
B) rise by $40 billion.
C) fall by $40 billion.
D) fall by $160 billion.
Q2) If tax cuts are stimulative,tax increases are
A) contractionary.
B) reactionary.
C) inflationary.
D) deflationary.
Q3) The multiplier effect of government spending can be stated as a __________ multiplier or a __________ multiplier.
A) fiscal; money
B) spending; job
C) federal; local
D) government; private sector
Q4) What does the government have to do when there is a budget deficit?
Q5) What is the definition and purpose of the payroll tax?
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Chapter 12: Monetary Policy
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Sample Questions
Q1) Money serves as a medium of exchange.This means that you can
A) use money to buy goods and services, and accept it as payment for the goods and services you sell.
B) hold on to money to use at a later time.
C) compare values across several items by looking at the prices in terms of money.
D) increase the economic growth rate in the long run by printing more money.
Q2) Alan Greenspan,who preceded Ben Bernanke as Fed chairman,was a proponent of A) discretionary intervention.
B) a rules-based approach to monetary policy.
C) inflation targeting.
D) fiscal policy.
Q3) Monetary stimulus requires about __________ for its full effect.
A) 3 to 6 months
B) 6 to 12 months
C) 12 to 18 months
D) 18 to 24 months
Q4) Show,using a supply-and-demand diagram,what would happen to the short-term interest rate (that is,the federal funds rate)if the Federal Reserve increases the amount of money available to banks to lend.
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Chapter 13: The Financial Markets
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Sample Questions
Q1) The time value of money is
A) the benefit of borrowing money.
B) the opportunity cost of not having your money available to you.
C) also known as the credit score.
D) also known as price appreciation.
Q2) Which of the following describes the risk-return principle?
A) In most financial markets, the greater the risk, the lower the rate of return.
B) In a financial market, the only way to get consistently higher returns over the long run is to take more risks.
C) In a stock market, the higher the price of the stock, the greater the risk incurred by the investor.
D) An investment or loan has less risk if it is likely to lose value at the same time your other investments or loans do.
Q3) Which of the following is NOT true about banks?
A) Banks are tightly regulated by state and federal governments.
B) Banks are required to keep a certain amount of cash reserves.
C) Banks are an example of a financial intermediary.
D) Banks are sellers, not buyers, in the market for money.
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Chapter 14: International Trade
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Q1) Which of the following will NOT occur when a tariff is imposed on an imported product?
A) The price paid by consumers will rise.
B) The level of imports will fall.
C) The price received by importers will fall.
D) The demand curve for imports will shift to the left.
Q2) The "infant industry" argument for protectionism says that new or small industries in a country are vulnerable and therefore should be protected with trade barriers until they have had an opportunity to grow large enough to compete effectively with their foreign rivals.
A)True
B)False
Q3) Which of the following statements about trade deficits is FALSE?
A) The trade deficit in the United States has grown since the early 1990s.
B) Budget deficits tend to produce trade deficits.
C) The U.S. has run a trade deficit for over 30 years.
D) A U.S. trade deficit makes it less likely that foreigners will make investments in the United States.
Q4) What has produced the rapid expansion in international trade in the last several decades?
Page 16
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Chapter 15: Technological Change
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Sample Questions
Q1) The process by which new ideas spread from the original company to other businesses in the economy is called
A) technological diffusion.
B) innovative revolution.
C) Moore's process.
D) patent dispersion.
Q2) Technological advances that reduce pollution fall into which category of innovation?
A) Productivity-enhancing innovation.
B) Creation of new goods and services.
C) Quality-of-life innovation.
D) Pollution reduction does not fit into any of the categories of innovation.
Q3) Locations like Silicon Valley,California; Cambridge,Massachusetts; and Bangalore,India have generated a large number of technological innovations,partly due to the concentration of people and capital that are specialized in innovative activities.These regions are known as
A) innovation clusters.
B) information nodes.
C) technology cells.
D) human capital districts.
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Page 17
Chapter 16: Economics of the Labor Market
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Sample Questions
Q1) Reducing the minimum wage would make it more difficult for low-skilled workers to find jobs.
A)True
B)False
Q2) The market expansion effect of globalization has which of the following effects?
A) The overall number of workers employed falls.
B) The labor force participation rate declines.
C) The supply of labor for many kinds of work increases, pushing the equilibrium wage down.
D) The demand for labor for many kinds of work increases, pushing the equilibrium wage up.
Q3) College-educated workers tend to reach their peak earnings between the ages of 45 and 54.
A)True
B)False
Q4) Employees who are members of a labor union can expect to receive lower wages than nonunion workers in the same industry,but can also expect greater job security.
A)True B)False
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Chapter 17: The Distribution of Income
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Q1) Differences in pay between men and women in the United States could be at least partially explained by all of the following EXCEPT
A) occupational choices in which women choose work with greater flexibility but lower pay.
B) gender discrimination.
C) interruptions in women's careers to spend time raising children are more common than for men.
D) large differences in education levels between men and women.
Q2) The 80/20 ratio is found by dividing the
A) number of households making less than 80 percent of the poverty line by the number of households making more than 20 times the poverty line.
B) income at the 80th percentile by the income at the 20<sup>th</sup> percentile.
C) average income of those below the 80<sup>th</sup> percentile by the average income of those above the 80<sup>th</sup> percentile (top 20 percent).
D) average income of the top 80 percent of income earners by the average income of the top 20 percent of income earners.
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Chapter 18: Economics of Retirement and Healthcare
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Q1) The old-age dependency ratio is the ratio of the size of the 65 and older population to the size of the working-age population.
A)True
B)False
Q2) Which of the following statements about medical care spending is true?
A) Over the past 20 years, medical expenses among the elderly have increased faster than medical expenses among the middle-aged and young.
B) Medical expenses among the elderly tend to be higher than medical expenses among the middle-aged.
C) Medical care is an inferior good because people spend less on medical care as their income rises.
D) Most medical care expenses are paid out-of-pocket, by the patient, rather than by insurance companies or the government.
Q3) What problems with healthcare did President Obama attempt to address with the health insurance reform bill he signed in 2010,and how were those problems addressed?
Q4) Describe the basic financial life cycle.How does the life cycle change with Social Security in the picture?
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Chapter 19: Economics of Energy, the Environment, and Global Climate Change Glossary
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Q1) The cost of getting one more ton of coal or one more barrel of oil out of the ground is called the
A) marginal cost of capital.
B) energy renewal rate.
C) marginal cost of extraction.
D) energy mitigation rate.
Q2) Adjusting GDP downward for the impact industry has on the environment results in a number that is greatly disputed,but is often referred to as
A) "eco-output."
B) "environment-neutral GDP."
C) "resource-adjusted GDP."
D) "green GDP."
Q3) Which of the following would occur if the marginal cost of extracting oil rose?
A) People would use less oil.
B) People would use more oil.
C) Oil producers would increase their production of oil.
D) Oil company profits would rise.
Q4) Describe the difference between a command-and-control approach and a market-based approach to reducing pollution.
Page 21
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