Business Economics Finals Prep

Which type of innovation relies on a significant change in thinking?

• Product
• Process
• Psychological
• Paradigm

The United Association of Plumbers and Pipefitters is an example of a(n)

• industrial union.
• craft/trade union.
• union federation.
• professional union.

Answer explanation

Craft/Trade union. The United Association of Plumbers and Pipefitters is an example of a craft union, also called a trade union. Craft unions include skilled laborers working in specific occupations, such as plumbing. Professional unions are common in the public sector and include teachers, nurses, etc. Union federations are groups of national/international unions working together to further their common purposes. An industrial union includes a wide range of workers across one industry.

Which of the following would provide you with information about the health of the U.S. economy:

• Medium of exchange
• Population data
• Economic order quantity
• Gross domestic product

Answer explanation

Gross domestic product. Gross domestic product, or GDP, is the final market value of the total output of all goods and services produced within a country’s geographic boundaries during a year’s time. GDP is used by economists to measure the health of the economy. Economic order quantity is the amount of stock that can be ordered at the greatest advantage to the business. A medium of exchange is something of value that can be used to obtain goods and services. Population data is information pertaining to the residents of an area including vital statistics, types of households, ethnic or racial backgrounds, numbers of residents, and forecasts of future increases or decreases.

Which of the following is a benefit of low, controlled inflation:

• The strength of labor unions
• The government’s ability to adjust interest rates
• The scarcity of certain commodities
• The reduced purchasing power of the dollar

Answer explanation

The government’s ability to adjust interest rates. With low, controlled inflation, the government has the “wiggle room” to adjust interest rates as needed in the best interest of the economy. Inflation does reduce the purchasing power of the dollar, but this is not a benefit. Inflation does not make commodities scarce or labor unions strong.

The unemployment rate is a(n) __________ indicator.

• irrelevant
• leading
• coincident
• lagging

Answer explanation

Lagging. The unemployment rate is a lagging economic indicator. This means that it confirms what we already know about the economy but does not predict future trends. Leading indicators predict future economic trends. Coincident indicators show what is currently happening in the economy. Irrelevant economic indicator is not a commonly used term.

A company decides to start marketing its health food bar as a candy bar. Which type of innovation is taking place?

• Practical
• Positioning
• Paradigm
• Product

The main result of inflation is

• increasing consumer demand.
• reducing the purchasing power of the dollar.
• pushing most prices down.
• making everyday products unaffordable.

Answer explanation

Reducing the purchasing power of the dollar. Inflation is an increase in the general price levels of goods and services over time. Its main result is reducing the purchasing power of the dollar. Though inflation pushes prices up, not down, it doesn’t necessarily make everyday products unaffordable. Increased consumer demand may be a contributing factor to inflation, but it is not a result of inflation.

What category of GDP would include the money Kathy’s family pays to the state university for her college tuition?

• Gross private domestic investment
• Net exports of goods and services
• Government purchases of goods and services
• Personal consumption expenditures

Answer explanation

Personal consumption expenditures. This category of GDP includes the final market value of all services and new and used goods purchased for consumption by individuals. This would include such payments as tuition for higher education. Gross private domestic investment includes investments in both residential and nonresidential capital goods and changes in business inventories. Government purchases of goods and services includes everything purchased by local, state, and federal governments. Net exports of goods and services is the difference between what a country sells to other countries and what it buys from other countries.

An exchange rate indicates one currency’s value in relation to

• an average of all world currencies.
• its value from a year ago.
• another currency.
• the U.S. dollar.

Answer explanation

Another currency. An exchange rate is the rate at which one currency can be exchanged for another, or a measure of one currency’s value in relation to another currency. Exchange rates do not measure a currency’s value in relation to an average of world currencies, in relation to its prior value from any time, or in relation to the U.S. dollar.

A country’s net exports are a negative figure in GDP calculations whenever

• uncounted production declines.
• there is a trade surplus.
• imports are greater than exports.
• business inventories decrease.

Answer explanation

Imports are greater than exports. Net exports are the difference between what a country sells to other countries and what it buys from them. Net exports are a negative figure whenever imports exceed exports. This situation is known as a trade deficit rather than a trade surplus. The value of business inventories and uncounted production would not affect the net export figure.