Econ Test 5

Question 1

In a free market society, who makes the majority of the economic choices?

Answer 1

Private sector

Question 2

Welfare capitalism and managed capitalism are different terms for what economic system?

Answer 2

Socialism

Question 3

What is the value of all finished goods and services produced by a nation’s citizens during a year’s time?

Answer 3

GNP

Question 4

What is the value of all finished goods and services produced within a country during a year’s time?

Answer 4

GDP

Question 5

What is a tool to measure a nation’s inflation?

Answer 5

CPI

Question 6

Who believed that government should pump money into an economy during recessions?

Answer 6

John Maynard Keynes

Question 7

Who attempted to lift the American economy out of its slump by implementing policies based upon supply-side economics?

Answer 7

Ronald Reagan

Question 8

Who increased governmental control of the economy during the Great Depression through the New Deal?

Answer 8

Franklin Roosevelt

Question 9

A complex organization made up of appointed officials and their departments

Answer 9

Bureaucracy

Question 10

Components of the economy that normally change before the rest of the economy

Answer 10

Leading Indicators

Question 11

An established system of political administration by which a nation is ruled

Answer 11

Government

Question 12

Demand becomes greater than the supply, creating shortages

Answer 12

Demand-Pull Inflation

Question 13

High inflation combined with high unemployment

Answer 13

Stagflation

Question 14

What are the two primary aims of government?

Answer 14

1. Punish Evil
2. Reward Good

Question 15

What are the five ways by which governments can damage their economies? (NAME FOUR)

Answer 15

1. excessive taxation*
2. inflation and debasement of money*
3. excessive public expenditure*
4. excessive regulation*
5. political plundering*

Question 16

What are the four parts of a business cycle?

Answer 16

1. expansion*
2. peak*
3. recession*
4. trough*

Question 17

Which part of the business cycle is the boom?

Answer 17

Expansion

Question 18

Who is considered to be the Father of Communism?

Answer 18

Karl Marx

Question 19

What divided city displayed the poverty and lack of freedom typically found in command economies?

Answer 19

Berlin

Question 20

What event in 1917 began the rise of Communism?

Answer 20

Bolshevik Revolution

Question 21

What term refers to a perfect society under Marxist ideas?

Answer 21

Utopia

Question 22

Reduction of taxes makes more money available for private investment in capital and research.

Answer 22

Supply-Side Economics

Question 23

Promotion of one’s own nation regardless of moral considerations.

Answer 23

Nationalism

Question 24

Any system of collective ownership and control of national resources.

Answer 24

Socialism

Question 25

Public ownership and government control of the production and distribution of nearly all national resources.

Answer 25

Communism

Question 26

"Expert planners" can better solve economic problems than natural corrections.

Answer 26

Keynesianism

Question 27

When an economy reaches the peak of its expansion, it is immediately followed by a ___________.

Answer 27

Recession

Question 28

The subject of government's role in an economy is part of the field of ___________________.

Answer 28

Macroeconomics

Question 29

One of the main dangers of ___________ is its deceptiveness, a quality that allows it to creep into an economy without people realizing what is happening.

Answer 29

Socialism

Question 30

When state planners in a command economy underestimate or overestimate the demand for various goods, shortages and ___________ usually result.

Answer 30

Surpluses

Question 31

_____________ was a pamphlet written to outline the Communist philosophy and describe the steps to establish Communism worldwide.

Answer 31

The Communist Manifesto

Question 32

_________________ is unusually severe and long-lasting.

Answer 32

A Depression

Question 33

According to Communism, the ________________ must be overthrown.

Answer 33

Bourgeois

Question 34

Edmund Burke wrote that the state ought to confine its activity to "everything that is truly and properly __________."

Answer 34

Public

Question 35

The CPI compares prices to a _____________ which is arbitrarily set to 100 percent.

Answer 35

Base Period

Question 36

Communist governments forbid ____________ in an effort to control distribution.

Answer 36

Competition

Question 37

Marx saw _________ as a "necessary evil" in the transition from feudalism to Communism.

Answer 37

Capitalism

Question 38

Cost-push inflation occurs when businesses increase their prices to compensate for rising ____________ costs.

Answer 38

Production

Question 39

ESSAY: Explain how excessive taxation can seriously harm or even destroy an economy.

Answer 39

- When taxes are too high, the private sector cannot save enough money to provide for the replacement of capital goods or for new capital investments. - When there is little investment in capital goods, production of goods and services diminishes. - When the supply of goods diminishes, prices go up and needs are not adequately satisfied. - When needs are not adequately satisfied, government often increases its role in the economy resulting in a further increase in taxes.

Question 40

Discuss some of the problems inherent in socialism. Why do people continue to accept socialistic policies in spite of the dangers?

Answer 40

- Socialism is deceptive because its goals can sound noble and good; people often do not realize until too late that their political and economic freedoms have been taken away. - People are taken in by the idea that they can get "something for nothing." In reality, private individuals and businesses pay high prices for the programs sponsored by a socialistic government. A government funds projects through raising taxes, increasing the money supply (and inflation), and going into debt - all of which are measures that harm an economy. - Socialism erodes personal freedoms. As a government increases its regulations of an economy, it limits the freedom people have to make their own decisions.