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Chapter 10- Money and banking

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                               Economics Final Exam Review

Chapter 1- What is Economics

Define the following terms
1. Scarcity- limited quantities of resources to meet unlimited wants

2. Opportunity cost- the most desirable alternative given up as the result of a decision

3. Guns or butter- a phrase that refers to the trade-offs that nations face when
choosing whether to produce more or less military or consumer goods




4. According to the Production Possibilities Curve above, if you produced 16 units of Butter you
could produce __10_______________ units of Guns.

5. The production of 18 units of Butter and 15 units of Guns is _not possible_____________.

6. What are the 4 factors of production? Next to each factor give one example.
a.    Land (coal, water, etc.)               c. Human Capital (teacher knowledge)
b.    Labor (teacher)                        d. Physical Capital (plumber tools)

7. How do companies that invest in their human capital benefit?
Higher skilled workers, more efficient workers

Chapters 2 and 3 - Economic Systems

8. The U.S. is a free enterprise________ system with features like private property, choice,
competition, economic incentives, and _contracts, voluntary exchange_. (pg. 52)
9. Which feature allows business to challenge each other in order to win over customers, which
also benefits both workers and consumers?
Competition (allows sellers to attract customers while lowering costs)

10. How does specialization affect the economy?
It makes it more efficient

11. How is the government involved in the U.S. Capitalism system? (pg. 54)
Protects citizens by using government information from public disclosure laws to
make decisions; government protects by imposing various restrictions

12. Karl Marx is to the Command System as _Adam Smith_________ is to the Market System.




13 .What do households purchase from businesses?
Goods and services

14. Which two economic systems do not include private ownership, individual freedom, and
economic incentive?
a. Traditional economy
b. Command economy

15. Who answers the three key economic questions in a Command system?
Central government alone
16. Define public property or goods and give two examples.
Public good is a shared good or service for which it would be inefficient or
impractical to make consumers pay individually or exclude nonpayers.
a. Roads                      Schools              Police & Fire
b. National Parks             Military


Chapters 4, 5, and 6 - Supply and Demand

17. According to the law of demand, if price rises, consumers will purchase _less______

18. According to the law of supply, if price rises producers make _more____ of a product.




19. The Equilibrium price is _$1.50________ and the equilibrium quantity is _600________.

20. How many slices of pizza are supplied at $2? _800____ How many are demanded at $2.00?
_400____. At $ 2.00 is there is a shortage or surplus? Surplus of pizza slices

21. How much is the shortage at $.50? 800

22. Place the correct shift on the graph below after reading the following scenario

Scenario: Last year an Arctic freeze destroyed the orange crops in the U.S.
Chapter 7- Market Structure

23. What are the four market structures? Underline the market structure which best identifies the
competition faced between U.S. automobile manufacturers? Circle the structure that has the least
competition (in italics)?
a. Perfect Competition                     c. Monopolistic Competition

b. Monopoly                                  d. Oligopoly

24. Microsoft control over Windows operating system in the 1990s was an example of which
market structure? Monopoly

Chapter 8- Business Structures

25. What are the four business organizations? Underline the organization that produces the
highest revenue.
a. Sole Proprietorships                   c. Corporation

b. Partnership                               d. Mergers/Multi-Nationals/Franchise

26. Firms that wish to incorporate must first file for a state license known as Articles of
Incorporation (p.197)

27. If a company obtained a license from the government to operate with hazardous materials
such as chemicals what are they responsible for if a spill or an accident occurs such as the BP oil
rig incident in the Gulf of Mexico?
All property polluted by their spill or accident

28. List two disadvantages and two advantages of a sole proprietorship.
Disadvantages                              Advantages
a. Lack of permanence                      a. Ease of start up
b. Unlimited liability                     b. Total control of company operations

29. One advantage of Corporations is that they can sell _stocks_______________ and
_bonds______________ to raise money.
30. Stockholders are the _owners__________ of corporations.

31. Enron, an energy corporation, was found guilty of what before its board of Governors and
CEO were sued in court? fraud

32. What are three types of partnerships? Underline the partnership where all partners are
responsible if the business fails. (p. 190)
a. General Partnership
b. Limited Partnership
c. Limited Liability Partnership

33. What is the major difference between a corporation and other business organizations? (p.195)
A corporation has a legal identity separate from its owners

Chapter 9- Labor

34. In the twentieth century which American automobile company popularized assembly lines
and succeeded in increasing productivity?
Ford Motor Company

35. Why did factories adopt the assembly line? What did that do to the economy’s GDP?
Factories adopted the assembly line because it allowed them to be more efficient
and produce more goods. It increased the GDP.

36. The assembly line is process that focuses on each person _specializing____________ in a
certain role in production.

37. In the education and income figure on page 214, what are the 4 major college degrees?
a. Associate degree                         c. Master’s degree
b. Bachelor’s degree                        d. Doctorate degree

38. What is the learning effect?
Education increases productivity and results in higher wages

39. What happened to unemployment following the 1929 stock market crash which was one of
the reasons for the start of the Great Depression?
Unemployment rose significantly
40. According to the chart above what was created when the 3rd through 9th workers were hired?
(pg. 109)
A diminishing marginal return

41. Is there a negative marginal return created if so at what input of labor? (pg. 109)
There is no negative marginal return in this chart.


Chapter 10- Money and Banking

42. What is another name for Banks? p. 259
Financial Institutions

43. What happens to consumers and business when banks raise rates?
Consumers and businesses borrow less money

44. How would the economy be affected if Americans placed more money in their saving
account?
There would be more money available for banks to loan

45. Which of the following is the riskiest, but can offer the best rate of return on your
investment?
a. savings account                              c. stocks
b. checking account                             d. certificate of deposit

46. Describe the six characteristics of money.
a. Durability (it lasts)                              d. Uniformity (money is the same)
b. Portability (you can take it with you)             e. Limited Supply ($ in circulation)
c. Divisibility (it can be divided)                   f. Acceptability (money is taken)
                             Wal-Mart Stores Inc. (NYSE: WMT)
Last Trade:                55.73               52-week Hi:                    57.90
Previous Close:            55.17               52-week Low:                   47.77
Open:                      55.23               Dividend:                      1.46
Change:                    +0.56               Volume:                       8.035 million
Today’s Hi                 55.83               P/E:                          12.49
Today’s Low                 54.91

47. What is the symbol for Wal-Mart? WMT

48. What was the highest price of Wal-Mart stock today? $55.83

49. What was the volume of Wal-Mart stock traded today? 8.035 million

50. What price did Wal-Mart close at today? $55.73

51. If you bought 10 shares of Wal-Mart at the highest price in the last 52 weeks and sold it for
the close price today, would your portfolio have increased or decreased? Decreased


Chapter 12 and 13- Gross Domestic Product and Growth

52. Define GDP. Gross Domestic Product – the amount of final goods and services
produced within a country’s border in a given year

53. What is inflation and explain its effects on the purchasing power of a country’s currency?
Inflation is the increase in prices over time
The higher inflation, the less purchasing power a country has

54. Draw and label the 4 phases of a business cycle.

Expansion (economic growth)
Peak (top of economic growth)
Contraction (economic decline – falling GDP)
Trough (bottom of economic decline)

Chapter 14- Taxes

55. What are the two limits on Congress power to tax? p.360
 Common Defense and General Welfare
Taxes must be uniform throughout the US

56. Define the three types of taxes on figure 14.1. p. 360
a. Proportional – everyone pays the same percentage
b. Progressive – the more you make, the higher your percentage
c. Regressive – the more you make, the lower your percentage
57. What are the four federal programs the government spends the most on? Figure 14.6 (p. 371)
a. Social Security & Medicare
b. Defense
c. Income security
d. Net interest

58. How can the federal government reduce the national debt?
Reduce spending, raise taxes, or both together

59. What would happen to the deficit if the government increased spending, but did not raise
taxes?
The deficit would grow

Chapter 16- The Federal Reserve

60. What are the main functions of the Federal Reserve?
Serving Government
Serving Banks
Regulating the Banking System
Regulating the Money Supply

61. Which groups runs the Federal Reserve System?
Board of Governors

62. Why does the FED use monetary policy?
To control inflation and unemployment


Chapter 17- International Trade

63. Why do nations trade? (pg. 441)
a. Resources are unevenly distributed

b. Have different abilities to produce goods & services

c. Countries specialize in products they can grow more efficiently

d. Countries cannot efficiently produce everything their citizens need and want

64. What is an absolute advantage?
When a person or country can produce more of a given product using a given
amount of resources

65. What is NAFTA? What is the main outcome of NAFTA?
North American Free Trade Agreement - Increased trade between US, Canada and
Mexico

66. What does EU stand for?
European Union

Personal Finance

67. What type of car insurance would you need if you caused a car wreck?
Collision Insurance

68. What are two factors that can increase your credit rating?
Timely payments, few requests for new credit, paying down credit cards

69. What are two factors that can lower your credit rating?
Too many requests for new credit
Multiple credit card accounts
Bankruptcy, Collections, Judgments, Defaults, Liens, Foreclosures
Late payments, missed payments

70. What would happen to you if you could not pay all of your debts?
You might have to file bankruptcy

				
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