Text of the Econ Quiz I
Who makes all the important decisions in a command economy?
the government, or Kojak
Who makes all the decisions in a free market economy? Who is the
father of this type of economics?
individuals, Adam Smeeeth
What is the driving motivating factor in a market economy?
self interest, actors respond to incentives
Give three examples of nations with capitalist economies.
United States, Canada, Great Britain, Japan, Mexico
Identify three of the key rights that individuals have in the United
private property, enter contracts, economic competition, act on self
interest, limited government involvement
What are 4 of the main economic goals of the United States? Which
of these is most difficult to achieve?
freedom, efficiency, equity, security, stability, and growth; equity is
most difficult to achieve
What are the two main measures of economic stability?
price stability & full employment
What is used to measure the total productivity (all goods and services)
of an economy?
Gross Domestic Product (GDP)
What is Real GDP? Per capita GDP?
GDP adjusted for inflation; GDP divided by population
What are the four components of the business cycle?
expansion, peak, contraction, trough
What does a leading indicator tell economists.
The direction the economy is headed in the future
What are two key leading indicators?
housing starts, orders for durable goods, investment in capital
In a laissez faire system, what determines the price of a given product?
Interaction of supply and demand
What almost always happens to quantity demanded as price drops?
it goes up
If demand for a product increases, what happens to the demand curve?
It shifts to the right, showing a higher quantity demanded at every
What impact does increasing income have on demand?
it increases purchasing power which increases demand
What are two other factors that greatly impact overall demand?
market size (population), tastes and preferences, prices of related
goods, consumer expectations
What is the substitution effect?
consumers will purchase a lower priced substitute if it’s effective
What is the name for reduced satisfaction achieved from continued
consumption of a particular good?
diminishing marginal return
What does elasticity of demand measure?
the impact on demand of a price change in a particular good
If demand for a good changes little with changes in price then demand
is elastic or inelastic?
What are three key factors that affect elasticity?
availability of substitutes, relative importance, need or want, how
quickly price changes over time
What does a demand or supply schedule measure?
the amount demanded or supplied at a given price
If producers are willing to produce a much larger quantity with a small
increase in price supply is considered elastic or inelastic?
What are two factors that cause shifts in supply?
price of resources, technology, competition, price of related goods,
What will suppliers do when there is excess demand? Excess supply?
Raise their price to match equilibrium
Lower their price to match equilibrium
What is the amount of additional cost required to produce one more unit?
Where is market equilibrium?
where the demand curve hits the supply curve
What is a shortage? a surplus?
a shortfall in the amount supplied, an excess of the amount supplied
What are the two ways of making money on a share of stock?
Dividends (share of the profit) and appreciation (capital gain)
What does a “future” represent?
the right to buy a commodity (oil, pork bellies, corn, etc.) in the
future at a set price
What are the two main types of bonds? Are they generally more or less
risky than stocks?
government and corporate, less
What are low risk ways to invest money?
Money market account, CD’s, savings bonds, savings accounts
What is a “blue chip” stock?
An established company with a proven earnings record
(profits/dividends) and steady price appreciation
What is the strategy that spreads out investments to reduce risk?
Diversification (investing in a variety of different things)
What do mutual funds do?
Pool the savings of many individuals and invests money in a variety of
What are the contracts that give investors the choice to buy or sell
stock at a set price in the future?
What is a publicly held company? What are these companies
required to do with their key financial information?
A company who’s stock is traded on a public exchange (e.g. NYSE), must
make it available to the public
What is the primary reason a corporation sells stock?
Gives them easy access to additional capital to expand/grow their
What is insider trading? Why is it illegal?
Making a stock sale based on information that has not been made public;
unfair to rest of market
In what two key ways was Enron deceiving its investors?
Using questionable accounting practices to hide losses and moving bad
debts to shell companies to make Enron look healthier
Why did Enron pursue increasing risky trading strategies in the early
2000’s? What was the most infamous example of this?
Enron needed larger payouts to cover all its bad investments/trades,
their manipulation of the CA electricity markets (rolling blackouts)
What is the primary influence the FED has over the economy?
They can regulate the money supply by setting key interests rates,
buying/selling securities, and setting reserve requirements
Who prepares the initial budget proposed to Congress?
Which office manages development of this budget and negotiates between
the President and the various agencies?
Office of Management and Budget (OMB)
Name two entitlements. What portion of the federal budget do they
Medicare, Medicaid, Social Security; more than half
What funds are supposed to pay for all current Social Security and
Social Security and Medicare taxes paid by current workers
What does Congress’ concurrent budget resolution do?
Sets forth the spending and tax plan for the upcoming fiscal year
What is happening when House and Senate budget committees fit the
concurrent budget resolutions to the specific needs of agencies and
What is the final step in the budgeting process after reconciliation?
The House must issue an appropriations bill approving the money to fund
What government agency is charged with maintaining high standards for
worker health and workplace safety?
Occupational Safety and Health Administration (OSHA)
What government agency has primary responsibility for overseeing
investments and financial markets?
Securities Exchange Commission (SEC)
What is the FTC responsible for?
Maintaining the needed conditions for fair trade, enforcing anti-trust
When gov’t revenues exceed expenditures it’s called a ____. When
expenditures exceed revenue it’s a ______.
What does the FDA do?
Responsible for maintaining and enforcing government standards for the
purity and safety of food and drugs
What agency insures bank deposits up to $250,000?
Which agency works to ensure fairness in employment and hiring
Equal Employment Opportunity Commission (EEOC)
Which agency controls everything from broadcast spectrum to standards
for broadcast content?\
Federal Communications Commission (FCC)