BUS 150, Exam 1 Study Guide Questions With Correct Answers
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Course
BUS 150
Institution
BUS 150
ns by the Federal Reserve System (the Fed) to control the
money supply. When the Fed restricts the money supply, interest rates rise, the inflation rate drops, and
economic growth slows. By expanding the money supply, the Fed stimulates economic growth. The
government also uses fiscal policy— ...
BUS 150, Exam 1 Study Guide Questions
With Correct Answers
How do businesses and not-for-profit organizations help create our standard of living? -
answer✔Businesses attempt to earn a profit by providing goods and services desired by their customers.
Not-for-profit organizations, though not striving for a profit, still deliver many needed services for our
society. Our standard of living is measured by the output of goods and services. Thus, businesses and
not-for-profit organizations help create our standard of living.
What are the sectors of the business environment, and how do changes in them influence business
decisions? - answer✔The external business environment consists of economic, political and legal,
demographic, social, competitive, global, and technological sectors.
How do economic growth, full employment, price stability, and inflation indicate a nation's economic
health? - answer✔A nation's economy is growing when the level of business activity, as measured by
gross domestic product (GDP) is rising. GDP is the total value of all goods and services produced in a
year. The goal of full employment is to have a job for all who can and want to work. How well a nation is
meeting its employment goals is measured by the unemployment rate. There are four types of
unemployment: frictional, structural, cyclical, and seasonal. With price stability, the overall prices of
goods and services are not moving very much either up or down. Inflation is the general upward
movement of prices. When prices rise, purchasing power falls. The rate of inflation is measured by
changes in the consumer price index (CPI) and the producer price index (PPI).
How does the government use monetary policy and fiscal policy to achieve its macroeconomic goals? -
answer✔Monetary policy refers to actions by the Federal Reserve System (the Fed) to control the
money supply. When the Fed restricts the money supply, interest rates rise, the inflation rate drops, and
economic growth slows. By expanding the money supply, the Fed stimulates economic growth. The
government also uses fiscal policy— changes in levels of taxation and spending—to control the
economy.
What are the basic microeconomic concepts of demand and supply, and how do they establish prices? -
answer✔Demand is the quantity of a good or service that people will buy at a given price. Supply is the
quantity of a good or service that firms will make available at a given price. When the price increases,
the quantity demanded falls, but the quantity supplied rises. A price decrease leads to increased
demand but a lower supply. At the point where the quantity demanded equals the quantity supplied,
demand and supply are in balance. This equilibrium point is achieved by market adjustments of quantity
and price.
What are the four types of market structure? - answer✔Perfect competition, pure monopoly,
monopolistic competition, and oligopoly
Which trends are reshaping the business, microeconomic, and macroeconomic environments and
competitive arena? - answer✔To remain competitive, businesses must identify and respond to trends in
the various sectors of the business environment.
Capitalism - answer✔An economic system based on competition in the marketplace and private
ownership of the factors of production (resources); also known as the private enterprise system.
Communism - answer✔An economic system characterized by government ownership of virtually all
resources, government control of all markets, and economic decision-making by central government
planning.
Socialism - answer✔An economic system in which the basic industries are owned either by the
government itself or by the private sector under strong government control.
Demand - answer✔The quantity of a good or service that people are willing to buy at various prices.
Supply - answer✔The quantity of a good or service that businesses will make available at various prices.
Market structure - answer✔The number of suppliers in a market.
Perfect competition - answer✔A market structure in which a large number of small firms sell similar
products, buyers and sellers have good information, and businesses can be easily opened or closed.
Pure monopoly - answer✔A market structure in which a single firm accounts for all industry sales of a
particular good or service and in which there are barriers to entry.
Monopolistic competition - answer✔A market structure in which many firms offer products that are
close substitutes and in which entry is relatively easy.
Oligopoly - answer✔A market structure in which a few firms produce most or all of the output and in
which large capital requirements or other factors limit the number of firms.
Macroeconomics - answer✔The subarea of economics that focuses on the economy as a whole by
looking at
aggregate data for large groups of people, companies, or products.
Microeconomics - answer✔The subarea of economics that focuses on individual parts of the economy,
such as households or firms.
Recession - answer✔A decline in GDP that lasts for at least two consecutive quarters.
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