The federal budget deficit is the result of importing more than we export.

True

False

If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

True

False

Which of the following statements about the federal budget is true?

The front-page headline of your local newspaper states that the Fed is becoming increasingly worried about the rate of inflation and wants to slow the economy. Which of the following policies is the Fed most likely to pursue?

An economy is said to be in a recession if GDP declines for two or more consecutive quarters.

True

False

__________ is a condition in which the increase in prices is slowing.

In socialist economies basic businesses often are owned by the government.

True

False

Adam Smith felt that incentives to seek personal gain would insure the creation of wealth, but that the government must step in to make sure that this wealth was equitably distributed.

True

False

_____________ refers to a general rise in the price level of goods and services over time.

Meg A. Hertz is concerned about recent forecasts she has received regarding the level of economic growth. Seven years ago, Meg started her own business. Her firm, MEGA Machines, Inc., sold custom-made personal computers at deeply discounted prices over the Internet. Meg and her employees worked hard to provide quality computers, affordable prices, and excellent service. The first couple of years, MEGA Machines struggled and almost went under. However, during the third year, the firm began experiencing success. Meg had to hire several additional employees to keep up with the increasing sales volume. As sales and profits grew, Meg responded by continuing to expand the company. The firm now has over 100 full time employees and many part time workers. Recently, however, MEGA's sales have decreased, as have the sales of other firms in her industry. The drop in sales seems to be related to a decline in the national level of economic activity. A news story last week reported that, for the first time in several years, the nation's total output of goods and services declined during the last three months. If the forecasts she has read are correct, this downward trend may continue for some time. Meg is concerned that she will have to lay off some of her employees, something she does not want to do. She hopes that the government does something soon to put the economy back on track.

MEGA Machines is in a market facing stiff competition from many other firms. Meg's strategy has been to advertise in computer magazines, emphasizing the high quality of MEGA's computers and the number of options her company offers that allow buyers to completely customize their computers. The type of market MEGA Machines appears to be in is called:

During the mid 1990s the CPI in the United States increased each year, but the rate of increase was slowing. This result suggests that the U.S. economy was in a period of deflation.

True

False

Adam Smith believed that when people are free to seek their own self interest, they work hard to improve their own welfare, but their actions are unlikely to benefit society as a whole.

True

False

Kathleen manages a manufacturing plant for ScanRite, Inc., a producer of scanners and other input devices connected to computers. About six months ago, Kathleen asked an assistant to keep track of both work hours and output at her plant. She has compared these figures, and has found that while work hours remained relatively steady over the past six months, the plant's output increased significantly. This indicates that:

A negative consequence of socialism is a reduction in an individual's incentive to work hard.

True

False

The popular name for a free-market economy based on the principles of Adam Smith is:

The trend toward capitalism in socialist countries has slowed recently.

True

False

A strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.

True

False

The total value of a country's output in a given year is known as the nation's gross domestic product (GDP).

True

False

A command system is characterized by:

A potential problem with capitalism is that it: