Economics (Practice)

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What are the three factors of production?
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The three factors of production are land, labor and capital.
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What do entrepreneurs do?
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They create a market of new goods by combining together land, labor and capital.
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What is land?
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All natural resources used to produce goods and services.
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What is the distinction between a need and a want?
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A need is something that is required for survival, whereas a want is a desire.
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What is a service?
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Something that is done by someone, to or for you.
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Give an example of a need.
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Examples of needs include air, water, food and shelter.
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What is the difference between scarcity and a shortage?
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Shortages are for a short period of time, whereas scarcity means that all resources will eventually run out.
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Provide a definition of the term Economics.
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Economics is the study of how people make choices when they are faced with a limited supply of resources.
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Because resources are scarce, what three questions must be asked of every economy?
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The three questions are: what to produce, how to produce, and for whom to produce.
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The use of __________ has increasingly replaced human and mechanical labor in production lines in recent times.
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Computers
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Why are there trade-offs?
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Because there are a limited number of resources.
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Tom had to choose between spending $45 on a concert ticket or on groceries. Since he bought the groceries, we know that the opportunity cost of getting the ticket was __________
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Too High.
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Give an example of a business trade-off.
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An example would be an increase use of technology or an increase use of labor.
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Give an example of a society trade-off.
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The government an spend money on national defense or money on welfare.
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What is opportunity cost?
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The most desirable alternative given up as a result of a decision.
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The government is trying to maintain the infrastructure of the country, provide Social Security benefits to citizens, and regulate airline security. Congress has a budget for spending on all three of $1 billion. They decide to spend 45% on infrastructure, 45% on Social Security Benefits, and 10% on regulating airline security. Based on the information provided in this situation, which of the following best describes the opportunity cost?
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The government will be able to improve the road system, encouraging more people to drive on vacations. Social Security benefits will provide income for the elderly and disabled, allowing them to spend money, thus boosting the economy. Airline security might be slightly improved because of the ability to hire, but there will not be enough money to provide the latest equipment.
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When a decision is made, what two things is a decision maker considering?
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The cost and benefit at the margin.
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Define the phrase “Thinking at the Margin.”
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The decision on whether or not to use an additional unit of something.
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If you had a choice between playing golf or going to the movies and you chose to go to the movies, what is the opportunity cost of your decision.
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The opportunity cost is not playing golf.
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What does the phrase “Choosing is Refusing” mean?
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It means that one faces an opportunity cost for each decision that is made and that when a choice is made between alternatives one is accepted the other is refused.
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An underutilization of a country’s resources means what?
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The country is inefficient in the use of its resources.
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What is growth?
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The number of resources that a country has and how these resources constantly change throughout time. An outward movement of the production possibilities curve.
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If a country uses up a good portion of its available resources what happens to its production possibilities curve?
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The curve moves inward.
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What is a production possibilities frontier?
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The maximum amount of the combination of goods that a country can produce given its available resources and technology. It represents the different choices or trade-offs that society faces.
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What affects does increased technology have on the production possibilities curve?
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It shifts to the right.
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What does a country’s production possibilities curves depend on?
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It depends on available resources and technology.
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What does the law of increasing costs explain?
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It explains why production possibilities frontiers usually curve.
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A point that lies outside a country’s production possibilities curve means what?
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The Country, given its current technology and available resources cannot produce this combination of goods. Presently it is unobtainable.
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With respect to a graph of a production possibilities curve, what does it mean to be at a point inside the production possibilities frontier?
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It means underutilization of resources.
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What are some examples of heavy industry?
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Chemical and steel farms are examples of heavy industry.
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What does the government control in a centrally planned economy?
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The government basically controls everything. They control land, labor and capital.
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Describe three problems that occur in a centrally planned economy.
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Problems that occur in a centrally planned economy include; poor quality of work, shortages of non priority goods and services, diminishing production, workers lack incentive, individual freedoms are sacrificed, and most fail.
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Where does the political and economic power lie in an authoritarian government?
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The political and economic power lies with the dictator or ruler in an authoritarian government.
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Why was there a housing shortage in the former Soviet Union?
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There was a housing shortage in the former Soviet Union, because the government did not produce enough houses.
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Who introduced communism to the former Soviet Union?
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Vladimir Lenin introduced communism to the former Soviet Union.
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Define communism.
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Communism is the political system where all economic and political power rest in the hands of the central government.
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Define socialism.
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Socialism is defined as a social and political philosophy that believes that democratic means should be used to evenly distribute wealth throughout society.
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Define collective.
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A collective is a large Soviet farm leased from the State to groups of peasant farmers.
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What does laissez-faire mean?
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Laissez-faire means that the government needs to keep their hands off the economy.
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What is a continuum?
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A continuum is a range with no clear division.
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What does privatize mean?
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Privatize means to sell a state-run firm to an individual.
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Give an example of government intervention being appropriate in a free market.
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Some examples of appropriate government intervention in a free market are; building a bridge, building a highway, or after a natural disaster.
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Who owns private property?
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Private property is owned by individuals, companies, and businesses.
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What is an example of a country that is privatizing?
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An example of a country that is privatizing is China.
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Who owns the property in a centrally planned economy?
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The government owns the property in a centrally planned economy.
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Is the United Stated economy considered a centrally planned economy, a free market, or a mix market economy? Explain your answer.
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The United States is considered a mixed market economy. This is because the United States does have limited government regulation within the marketplace. Generally speaking, the United States follows the laissez-faire thinking within economics.
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The terms Socialism and Communism can be used interchangeably. True or False.
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False.
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Free enterprise is characterized by government ownership of capital goods with investments determined by state control. True or False.
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False.
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Laissez faire is the economic doctrine developed from The Communist Manifesto. True or False.
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False.
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Communism is a political system where all economic and political power rest in the hands of the central government. True or False.
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True.
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Which of the following economic systems is characterized by private or corporate ownership of capital goods?
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Free enterprise.
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In his book, The Wealth of Nations, Adam Smith wrote about _________ and the idea that the government should not be involved in answering the questions of production.
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Laissez faire
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What do public disclosure laws do?
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Public disclosure laws require companies to provide full information about their products.
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What does eminent domain mean?
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Eminent domain refers to the government’s inability to take away an individual’s property without providing just compensation.
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Where are property rights found in the Constitution?
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Property rights are found in the 5th Amendment’s due process and eminent domain or takings clauses.
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What are interest groups?
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Interest groups are private organizations that try to persuade public officials to act or vote in a certain way.
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Describe the concept of free contract.
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Free contract allows individuals to decide what agreements they want to enter when operating within a free enterprise economy.
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What are five basic principles found in a free enterprise system?
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Five basic principles found in a free enterprise system are; legal equality, private property rights, free contract, voluntary exchange and competition.
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What is profit motive?
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Profit motive is the force that encourages people and organizations to improve their material well-being.
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What does open opportunity mean?
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Open opportunity means that everyone can compete in the marketplace.
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Where is taxation found in the Constitution?
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Taxation is found in Article I of the Constitution. Although not mentioned in the lesson, it is also found in the 16th Amendment.
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What are four things that can be looked at when promoting economic strength?
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Four things that can be looked at when promoting economic strength are; employment, growth, stability and citizenship.
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What is a business cycle?
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A business cycle is a period of macroeconomic expansion followed by a period of contraction.
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What does GDP stand for?
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GDP stands for Gross Domestic Product.
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Define microeconomics.
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Microeconomics is the study of the behavior and decision making of small units such as families, individuals, or businesses.
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Explain growth.
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Growth means each generation is going to have a greater standard of living.
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Explain work ethic.
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Work ethic is the commitment to the value of work and purposeful activity.
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Define macroeconomics.
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Macroeconomics is the study of the behavior and decision making of entire economies.
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Why is technology beneficial in economics?
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Technology is beneficial in economics, because it brings with it the ability to be more efficient.
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Explain GDP.
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GDP is the total value of goods and services produced in a particular economy.
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Define welfare.
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Welfare is government aid to the poor.
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Who does the government feel they have a particular responsibility to?
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The government feels they have a particular responsibility to the young, old, sick, poor and disabled.
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Who was the President in office when the welfare system was created?
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Franklin D. Roosevelt was the President in office, when the welfare system was created.
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When was the welfare system established?
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The welfare system was established in the 1930’s under FDR’s administration.
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Name two examples of redistribution programs.
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Two examples of redistribution programs are: cash transfers, in-kind benefits, medical benefits, education and faith-based initiatives.
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What is a cash transfer?
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A cash transfer is a direct payment of money to the poor.
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What are in-kind benefits?
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They are things that are given free or at a greatly reduced price. An example would be food stamps.
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What is poverty threshold?
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Income level below what is needed to support families or households.
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Who sets the poverty threshold?
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The government sets the poverty threshold.
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What is a lockout?
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A refusal to let employees work until management’s demands are met.
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What is a boycott?
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A mass refusal to buy products from certain employers or companies.
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Define civilian labor force.
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Men and women 16 years and older who are working or are actively looking for a job.
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What is macroeconomics?
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A branch of economics that deals with the economy as a whole.
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What is a craft or trade union?
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An association of skilled workers who perform the same kind of work.
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What does it mean to strike?
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A strike is a refusal to work until demands are met.
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What are the two types of unions?
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The two types of unions are trade unions and industrial unions.
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What are some pro-Union Legislative Acts that grew out of the Great Depression?
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Pro-Union Legislative Acts that grew out of the Great Depression include; Norris-LaGuardia Act 1932, Wagner Act of 1935, and Fair Labor Standards Act of 1938.
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What happened to unemployment and wages during the Great Depression?
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There were large increases in unemployment and large decreases in wages.
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Unions continue to grow stronger in the United States. True or False?
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False
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What is fiat money?
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Money that has value because the government has ordered it is an acceptable means to pay debts.
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What is representative money?
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Objects that have value because the holder can exchange them for something else of value.
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What is money?
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Money is anything that serves as a medium of exchange, a unit of account and a store of value.
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What happens to the value of money, if an unlimited supply of currency is injected into the economy?
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The value of money will go down.
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What are the three uses of money?
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Three uses are; as a medium of exchange, a unit of account and a store of value.
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Objects that have value because the holder can exchange them for something else of value is called:
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Representative money.
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When talking about money, uniformity means:
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people must be able to count and measure money accurately.
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Money that has value because the government has ordered it is an acceptable means to pay debts is:
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Fiat money
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What is money that has value because the government has ordered that it is an acceptable means to pay debts?
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Fiat money
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What correctly defines money as a unit of account?
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It provides a means for comparing the values of goods and services.
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The six characteristics of money are; durability, portability, divisibility, uniformity, limited supply and acceptability. True or False
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True.
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Why is using coins as money easier than using gold bars?
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Coins are more portable
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One of the six characteristics economists use to judge how well an item serves as currency is divisibility. What does this concept mean?
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Money must be easily divided into smaller denominations.
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What is the correct term for “coins and paper bills used as money?”
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Currency
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What is the difference between commodity money and representative money?
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Commodity money consists of objects that have value in and of themselves, but representative money makes use of objects because the holder can exchange them for something else of value.
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What were the two views of American banking before the Civil War?
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The Federalist viewpoint was that a strong centralized banking system was necessary to develop healthy industry and trade. The Anti-Federalist viewpoint was that a decentralized banking system where the states would establish and regulate all banks within their boundaries.
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What is a national bank?
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A bank chartered or licensed by the national government.
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What is the Gold Standard?
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A monetary system in which paper money and coins are equal to the value of a certain amount of gold.
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What backed government bills and currency before the Civil War?
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It was backed by gold and silver.
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What government agency insures customer deposits up to a certain amount if a bank fails?
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The Federal Deposit Insurance Corporation (FDIC).
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Define the term bank run.
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Widespread panic in which great numbers of people try to redeem their paper money.
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What is a bank?
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An institution for receiving, keeping and lending money.
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What are greenbacks?
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Paper currency issued during the Civil War.
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Penny is an artist, and John is a carpenter. Penny agrees to paint a portrait of John’s family in exchange for a handmade table created by John. How did Penny and John pay for the goods in their transaction?
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through bartering
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The six characteristics of money are; durability, portability, divisibility, uniformity, limited supply and acceptability. True or False?
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True.
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Before the Civil War, government currency was backed by copper. True or False?
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False.
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What did the Federalists believe about banking?
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They believed that a centralized banking system was necessary.
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How long was the Charter for the First Bank of the United States?
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It was for 20 years.
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What is commodity money?
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Objects that have value in themselves and that are also used as money.
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What are bonds?
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Long term obligations that pay a stated rate of interest for a specific number of years.
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What determines bond prices?
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The market demand and market supply of bonds.
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What does the term tax exempt mean?
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The federal government does not tax the interest paid to individuals.
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What is a 401 k Plan?
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A tax deferred investment and savings plan that acts as a personal pension fund for employees.
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Define the term risk.
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A situation in which the outcome is not certain but probabilities for each possible outcome can be estimated.
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Which two major companies rate and publish bond ratings.
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The two companies are Standard and Poor’s and Moody’s.
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Define par value.
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Principal or total amount initially borrowed that must be repaid to the lender at maturity.
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What are Treasury Notes?
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They are U.S. government obligations with maturities of two to ten years.
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What is the largest stock exchange in the United States?
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The New York Stock Exchange is the largest stock exchange in the United States.
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What are the different types of stock?
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They are income stock, growth stock, common stock and preferred stock.
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Define the term stock split.
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The division of a single share of stock into more than one share.
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What is speculation?
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The practice of making high risk investments with borrowed money in hopes of getting a big return.
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What are equities?
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They are claims of ownership in a corporation.
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What is a bear market?
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A steady drop in the market for stocks over time.
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What are futures?
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Contracts to buy or sell on a specific date in the future at a price specified today.
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Define the term capital gain.
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It is the difference between a higher selling price and a lower purchase price.
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What is a call option?
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An option to buy shares of stock at a specified time in the future.
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What is a depression as applied to the business cycle?
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State of economy with large numbers of people who are out of work, has acute shortages and an excess capacity on manufacturing plants.
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What are business cycles?
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Business cycles are the largely systematic ups and downs of real GDP.
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List the phases of the business cycle.
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They are recession, trough, expansion, and peak.
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List the five causes of the business cycle.
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They are capital expenditure, inventory adjustments, innovation and imitation, monetary factors and external shocks.
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What is the econometric model?
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A macroeconomic model that uses algebraic equations to describe how the economy behaves.
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Define the term recession.
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Period in which real GDP declines for two consecutive quarters.
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What is the equation for the output expenditure model?
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The equation is; GDP = C + I + G + (x – m).
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A decline in the real GDP that occurs for at least two or more quarters is called a _______.
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Recession.
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What are business fluctuations?
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The rise and fall of real GDP over time in a non-systematic manner.
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List one reason as to why historical growth has slowed in recent years.
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Smaller family units is one reason that historical growth has slowed in recent years.
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What three factors affect Population Growth?
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The three factors that affect Population Growth are; fertility, life expectancy, and net immigration.
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How often is the American Census taken?
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Our Census is taken every ten years.
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What is a Census?
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A Census is a counting of our population.
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Define baby boom.
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The baby boom was the high concentrated birth rates from 1946 to 1964.
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Who are demographers?
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Demographers are people who study growth, density and other characteristics of population.
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The counting of the population is broken into what two categories?
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It is broken into urban population and rural population.
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What is a population pyramid?
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A population pyramid is a type of bar/graph that shows the breakdown of population by age and gender.
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Since the 1970’s regional change the growth of the population has moved where?
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Since the 1970’s people have moved to the West and South.
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What makes up the Public Sector?
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The federal government, state governments and local governments make up the public sector.
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What sector of the economy do private individuals and private businesses make up?
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They make up the private sector.
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Define transfer payment.
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A payment for which the government receives neither goods nor services in return.
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What does Per Capita mean?
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Per Capita means per person.
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Define distribution of income.
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The way in which income is allocated among families, individuals, or other designated groups in the economy.
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What are the two types of government spending?
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The two types of government spending are goods and services and transfer payments.
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What is a grant-in-aid?
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A grant-in-aid is a transfer payment one level of government makes to another level of government.
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Give an example of an impact of government spending.
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Government spending affects resource allocation. It also affects the redistribution of income.
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Who does the government compete with when they produce goods and services?
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The government competes with the private sector when they produce goods and services.
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Payments to individuals or industries to encourage or discourage certain activities are called _______.
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subsidies and incentives.
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Do all States approve spending the same way?
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No, each individual State can approve spending the way it wants to.
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What is the largest category of spending by local governments?
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The largest category of spending by local governments is elementary and secondary education.
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Give an example of a State intergovernmental expenditure.
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An example would be a State giving funds to a local municipality for highway repairs.
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Define intergovernmental expenditures.
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These are funds that one level of government transfers to another level for spending.
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If a State has a balanced budget amendment and expenditures exceed revenues, what must the State do?
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The State must reduce expenditures to match the level of revenue.
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What is a balanced budget amendment?
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A State constitutional amendment that requires annual spending not exceed revenues.
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What is the largest category of State expenditures?
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The largest category of State expenditures are intergovernmental expenditures.
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List three of the largest categories of local government expenditures.
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The largest categories include; elementary and secondary education, utilities, hospitals, police protection, interest on debt, public welfare and highways.
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How long is a fiscal year?
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A fiscal year is twelve months.
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Define Federal Budget.
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It is a plan for the federal government’s revenue and spending for the coming year.
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What are two ways in which government fiscal policy can stimulate income and employment?
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Government fiscal policy can stimulate income and employment by reducing taxes and increasing government expenditures.
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What are the limits of fiscal policy?
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The limits of fiscal policy include; difficulty of changing spending levels, predicting the future, delayed results, political pressures, and coordinating fiscal policy.
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What type of policy is the government undertaking when they raise taxes and.or reduce federal expenditures?
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The government is undertaking a contractionary policy.
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What can the Federal government do to induce a contractionary fiscal policy?
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The Federal government could increase taxes and reduce government expenditures.
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What does an expansionary fiscal policy normally do to economic growth?
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It increases economic growth.
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What agency is responsible for managing the Federal Budget?
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The Office of Management and Budget (OMB) is responsible for managing the Federal Budget.
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What are expansionary policies?
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They are fiscal policies, such as higher spending and tax cuts, that encourage economic growth.
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Who is responsible for monitoring the reserves of State Member Banks?
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The Federal Reserve is responsible for the monitoring.
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How many Federal Reserve District Banks are there?
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There are twelve Federal Reserve District Banks.
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What are bank holding companies?
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They are corporations that own more than one bank.
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Who owns the Federal Reserve?
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Member banks own the Federal Reserve.
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What is Regulation Z?
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It is a provision extending truth in lending disclosures to consumers.
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The Federal Reserve System’s main responsibility is to safeguard the proper functioning of our money system. It is the _______ of our money supply, our interest rates, and the economy’s price level.
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watchdog
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How long do members of the Board of Governors serve?
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They serve a fourteen year term.
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The nucleus of the Federal Reserve System is its Board of Governors, which meets in Washington, D.C. The Board consists of _______ members, appointed by the President and confirmed by the Senate. Each serves a 14-year term.
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seven
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What is the Federal Open Market Committee?
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It is the committee that makes decisions about the growth of the money supply and the level of interest rates.
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How many members are on the Board of Governors and who appoints them?
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There are seven members and they are appointed by the President.
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The Federal Reserve System is supervised by a Board of Governors whose members are appointed by the president for life. True or False?
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False.
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The Fed regulates banks but has little authority over bank holding companies. True or False?
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False.
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Under Regulation Z, the Fed can extend truth-in-lending disclosures to benefit millions of individuals when they borrow money or make purchases. True or False?
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True.
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Regulation Z regulates the Federal Reserve. True or False?
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False.
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The Fed’s Federal Open Market Committee _____.
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is the Fed’s primary monetary policymaking body.
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The Federal Reserve
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is made up of 12 district banks and 25 branch banks.
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Before signing the loan to purchase her new car, Veronica read over the terms of her loan. She wanted to learn about the annual percentage rate and the total cost to her, the borrower. This is an example of which Federal Reserve service in action?
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Truth in Lending Act.
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The Fed’s structure is simple. It consists of _______ District Federal Reserve Banks, each serving a region of the country.
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twelve.
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Why do economists differ regarding their views on fiscal and monetary policy?
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They differ due to different criteria and different eras.
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What is the Council of Economic Advisers?
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It is a three member group that reports on economic developments and proposes strategies. They advise the President.
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What are structural fiscal policies?
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They are policies designed to go ahead and strengthen the economy in the long run, but not designed o deal with short run problems.
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Give one reason, why, today, there is a decline in the use of discretionary fiscal policy.
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Reasons why, today, there is a decline in the use of discretionary fiscal policy include; recognition lag, implementation lag, and the relative short durations of recessions.
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The dispute among economists about how monetary policy should be measured reflects a division on how they view _______.
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the economy.
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What are two examples of automatic stabilizers?
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Two examples are; unemployment insurance, and progressive individual income tax rate.
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What is a recognition lag?
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It is the time between the beginning of a recession or a period of inflation and the awareness of it actually happening.
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What is an implementation lag?
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It is the amount of time it takes to do something once the problem has been identified.
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Explain how monetary policy could conflict with fiscal policy in trying to resolve stagflation.
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Monetary policy could decide to attack inflation by reducing the money supply, while fiscal policy could decide to attack a stagnating economy by increasing government expenditures.
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Given today’s economy, where discretionary fiscal policy is declining and where monetary policy is dominating, what can be said about potential conflicts between the two policies?
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There will be less conflicts or clashes.
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Initially, when a country move from Communism to Capitalism, what is likely to occur with employment and production?
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Typically more unemployment and a reduction in production will occur.
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What indications are there that China is becoming more capitalistic?
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China is privatizing most of its industry and is introducing market reform.
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What is solidarity?
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It is an independent Polish labor union founded in 1980 by Lech Walesa.
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Why do people have difficulty responding to new incentives when a country transitions from Communism to Capitalism?
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The people are not use to making decisions since the State has always been making the decisions for them.
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Name two countries or regions that are making the transition from Communism to Capitalism.
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Countries or regions that are making the transition from Communism to Capitalism include; Soviet Union, and Eastern Europe.
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List at least two problems associated with the transition from communism to capitalism.
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Problems associated with the transition from communism to capitalism include; privatization, loss of political power, discipline of capitalism, and responding to new incentives.
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What is a black market?
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A market in which economic products are sold illegally.
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What is privatization?
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Conversion of state owned factories and other property to private ownership.
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What was the Great Leap Forward?
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This was China’s disastrous second five-year plan, it began in 1958 and forced collectivization of agriculture and rapid industrialization.
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The World Bank, the United Nations Development Program, and the International Monetary Fund
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provide development assistance to less developed countries.
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Internal financing is derived from foreign nations. True or False?
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False.
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Financing derived from the savings of a country’s citizens is called:
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internal financing
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A true statement about the World Bank would be that it
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raises money on the financial markets and from member nations.
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Why are foreign investors attracted to less-developed countries in their search for increased profits?
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They can take advantage of the natural resources available and the large, inexpensive labor force.
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Suppose a less developed country is having difficulty making payments on its foreign debts. What option does this nation have?
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It may ask its lenders for debt rescheduling in exchange for accepting a stabilization program from the International Monetary Fund.
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The largest provider of development assistance is
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the World Bank.
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An example of foreign direct investment would be
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a factory that is built in an LDC but owned by a foreign company.
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Aside from humanitarian concerns, which of the following is one reason a nation is motivated to provide foreign aid to a less-developed country?
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Foreign aid can increase a nation’s market for its own goods.
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What organization offers a stabilization program in which the debtor nation agrees to revise its economic policy?
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International Monetary Fund

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