Adv Eco final review
1. What is the difference between a scarcity and a shortage?
2. According to the “guns and butter”example, what will happen if a country decides to spend
more money on military goods?
3. How does a society answer the three economic questions about the production and
consumption of goods and services?
4. What relies on habit, custom, or ritual to decide what to produce, how to produce it and to
whom to distribute it?
5. In a free market economy, the factor market involves which type of exchange?
6. Centrally planned economies can work effectively toward stated goals but what are the
disadvantages?
7. What is true of market economies evolving since Adam Smith’s time?
8. What is a statement that would best describe the change in China’s mixed economy system?
9. What is the purpose of a free enterprise system?
10. What are the basic principles of free enterprise?
11. In which way does a public disclosure law help consumers?
12. What is a good indicator of economic stability?
13. What are the reasons a government should provide a good or service?
14. How does improved technology help create a higher standard of living for future generations?
15. What explains the relationship between the income effect and consumption?
16. What are the factors affecting elasticity?
17. What happens the higher the price in the law of supply?
18. What is a government action that attempts to control the high cost of rent for lower income
families, and what is a result of that action?
19. What illustrates the economic impact of a holiday fad?
20. What explains why rationing, not a priced-based system, was used during WWII?
21. What are factors that make it difficult for new firms to enter a market?
22. Why can an industry that enjoys economies of scale easily become a natural monopoly?
23. What is an oligopoly?
24. What is one market trend that results when a monopolistically competitive firm starts earning
profits well above its costs?
25. Although a sole proprietorship is the least-regulated form of business organization, what types
of regulation do these business owners face that may keep them from operating in their homes?
26. What is the difference between a general partnership and limited liability partnership?
27. In which kind of business organization should you participate if you can afford to lose only the
amount of your initial investment?
28. Who faces limited liability for the firm’s debts in a corporation?
29. What is an important personal financial consideration that keeps many firms from
incorporating?
30. When two giant automakers, Chrysler and Daimler-Benz, merged to form a single corporation in
1998, what type of merger was it?
31. What is a reason that franchising has become popular?
32. How can competition in a scarce labor market affect wages?
33. What event and industry initiated the labor union movement in the US?
34. What was an effect of the Taft-Hartley Act of 1947?
35. In what categories do collective bargaining, mediation, and arbitration belong?
36. What does the concept of divisibility in currency mean?
37. What is the difference between commodity money and representative money?
38. What is an important power given to the federal government by the National Banking Acts of
1863 and 1864?
39. How did the Federal Reserve System improve the banking industry in the 20th century?
40. What is a financial intermediary?
41. Why should you consider liquidity, not just return, when making savings and investment
decisions?
42. Which type of bond carries the least amount of risk?
43. How do investors usually act in a bear market?
44. Why might someone consider the Standard & Poor’s 500 a better measurement of stock
performance than the Dow Jones Industrial Average?
45. What is money an investor receives above and beyond the money initially invested?
46. What is the Securities and Exchange Commission?
47. What is the gold standard?
48. Why would an economist use real GDP rather than nominal GDP to measure growth?
49. What activities illustrate the limitations of calculating GDP?
50. In a real economy, what two factors can change the level of nominal GDP?
51. What four factors, both expected and unexpected, perpetuate the business cycle?
52. According to the principles of cyclical unemployment, what will occur when the demand for
goods and services drops during a recession?
53. If a person decided that they would put 25% of their income in savings and investments, an
increase of 5% from the previous year, how would the economy be affected if a majority of the
people did this?
54. During a war, the government puts pressure on producers for heavy equipment, supplies and
services, making each more valuable. What theory about inflation does this condition
represent?
55. If you lived on a fixed income, how would you be affected by inflation?
56. What is the Consumer Price Index?
57. The Constitution places what two limits on the government’s power to tax?
58. Entitlement programs such as Social Security fall into what type of federal spending category?
59. Which two types of taxes provide the largest amount of revenue to states?
60. What is the role of the Congressional Budget Office in the federal budgetary process?
61. What is one important distinction between classical economies and Keynesian economies?
62. How does the crowding out effect influence business?
63. In the mid 1980’s, Congress passed the Gramm-Rudman-Hollings Act. What was the effect of
this legislation?
64. How did the Federal Reserve System hold up during the Great Depression?
65. What role does the Federal Reserve play in regulating the banking system?
66. What effects does the money multiplier formula show?
67. How would an increase in the required reserve ratio affect borrowers?
68. What is the primary difference between inside and outside policy lags?
69. How is a comparative advantage obtained when the law of comparative advantage states that a
nation is better off when it produces goods and services for which it has a comparative
advantage?
70. What is a good statement that describes the current status of the US as an exporter and
importer?
71. How do tariffs work to protect infant industries?
72. NAFTA sought to eliminate all tariffs and other trade barriers between member countries, what
is a result of this agreement?
73. When a nations currency appreciates, how is trade with other countries affected?
74. In contrast to a fixed-rate system, what does a flexible exchange-rate system allow?
75. When considering developed nations and less-developed nations, one should remember that
“development” refers to what?
76. Why do development experts use per capita GDP instead of gross GDP to determine the value of
production and measure of income for an economy?
77. What are the consequences of rapid population growth for less developed countries?
78. Why do women’s literacy lag behind men in less developed countries?
79. Why are foreign investors attracted to less developed countries in their search of increased
profits?
80. Aside from humanitarian concerns, what is a reason a nation is motivated to provide foreign aid
to a less developed country?