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Exam 2: Understanding Economics and How It Affects Business

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Question 121

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Which of the following statements provides the most accurate comparison of socialism and communism?

A) Under socialism, the government owns most businesses, while under communism the church owns most businesses.
B) Both socialism and communism want to achieve a more equal distribution of income and wealth, but under communism, the government takes more control over people's lives.
C) Socialism strives for an equal distribution of income but communism wants income to go primarily to those who own and operate private businesses.
D) Communism believes that the government should always strive to balance its budget, while socialism accepts deficit spending as the price of achieving true equality.

E) None of the above
F) C) and D)

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Question 122

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Fiscal policy refers to the federal government's efforts to keep the economy stable by controlling the amount of money in circulation.

A) True
B) False

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Question 123

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Free-market capitalism has made it more difficult for individuals to gain wealth.

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

Adam Smith believed that incentives to seek personal gain would create wealth, but that the government must then step in to make sure that this wealth is equitably distributed.

Under the basic principle of supply, as the price goes down, manufacturers and suppliers of a product tend to supply less of the product to the market.

In the long run, the market price tends to adjust toward the equilibrium point.

For many years, Congressman Ricardo Perez has called for more government regulation of business. "After all," the Congressman said recently, "businesspeople are out to make a profit, not to create jobs or serve their customers. The government must pass more laws to require businesses to take the interests of consumers and workers into account." From these comments, it is clear that Congressman Perez:

Economics was known as the "Dismal Science" because:

Glamour Gal is a popular cosmetics company. Although it is gaining in popularity among younger women, its promotional strategy continues to focus on the shadow-free finish that it produces on almost any skin type. Due to the fact that its industry faces monopolistic competition, the company knows that it must continue to differentiate itself from the competition.

Productivity of workers in the U.S. is helped by the use of better machinery.

A collapse in Buldovia's banking system eventually led to companies unable to borrow money to run their businesses. Firms terminated employees. These circumstances cut into consumer's purchasing power, causing a severe decline in the prices of goods and services, better known as _______.

_________ is the name of a free-market economic system in which most of the factors of production and distribution - such as land, factories, railroads, and stores - are owned by individuals.

Today, the economic systems of most nations could most accurately be classified as:

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

In the past, socialist nations have realized that some of the government-run businesses do not grow as quickly as businesses that operate for a profit.

____________ refers to the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending.

One of the greatest concerns associated with capitalism is that:

Senator Spendital made a speech deploring the continuous deficits in the federal budget. He is proposing an increase in tax rates to raise more revenue for the government and thus gradually reduce the size of the national debt over a period of several years. The strategy Senator Spendital is proposing is a common type of monetary policy.

A rising GDP, rising unemployment rate, and rising inflation rate signify a healthy economy.