Chapter 02

Topics: United States public debt, Economics, Monetary policy Pages: 8 (1790 words) Published: November 19, 2014
Chapter Two
Economics: The Framework for Business

Review Questions

1. How did the global economic crisis unfold?

The economy changed for the worse when the bubble burst in 2000, and 9/11 terrorist attacks happened in 2001.

2. What steps did the Federal government and the Federal Reserve take to mitigate the crisis?

They decreased interest rates, and subprime mortgage came into play. They seized a few companies that controlled a lot of the mortgage. The congress passed a 700 billion dollar bailout plan. As the new administration began Obama passed a 825 billion dollar bailout plan.

3. Compare and contrast microeconomics and macroeconomics. How do the two approaches interrelate? Use a specific example to explain.

Macroeconomics is the study of a country's overall economic issues such as performance, structure, behavior, decision making, and study rates. Microeconomics focuses on smaller economic units such as individual consumers, families and businesses. They can affect how much and what you can buy for your family.

4. What is the difference between fiscal and monetary policy? What role does politics play in shaping these policies?

Fiscal policies refer to government efforts to influence the economy through taxation without representation and spending decisions that are designed to encourage growth. Monetary policies refer to actions that shape the economy by influencing interest rates and the supply of money. Politics plays a role by making taxes higher and by influencing interest rates.

5. What are the fundamental elements of the free market economic system? How can businesses thrive within this system?

The fundamental elements are rights to own a business and keep after-tax profits, the right to private property, the right to free choice, and the right to fair competition. They can profit from these by getting extra money after taxes by owning their own property, and have some freedom to do what they like.

6. Describe the 4 degrees of competition within the free market system. Offer 2 to 3 examples of each type of competition.

Degree of competition

perfect competition

apples, corn, potatoes

monopolistic competition

hot dogs, candy, personal computers, T-shirts


prices for products from different companies tend to be close to the same.


occurs when there is only one seller for a product or service.

7. Why does quantity supplied tend to increase when prices go up and decrease when prices go down? Why does quantity demanded move in the opposite direction?

Because, if there isn't any competition customers will buy it. If there is competition the prices have to go down to sell it and there isn't as many because other businesses are making money to and they may not want to overstock. Because there is sometimes competition and sometimes there isn't.

8. Describe the key principles of socialist and communist economic systems. Does more government control mean less economic opportunity? Why or why not?

The government should own and operate key enterprises that directly affect public welfare such as utilities and healthcare. Free healthcare. System that calls for public ownership of virtually all enterprises. The Communist Manifesto. Yes, it calls for less economic opportunity. For example they can control how much healthcare one could get.

9. Why do most countries have neither “pure” market nor “pure” planned economies? Is the trend toward the market end of the spectrum likely to continue? Why?

Because, it would make insufficient provision for the old, the young, the sick, and the environment. A pure planned economy would not create enough value to support its people over the long term. Yes, so corruption can be cut down and so economic rights can be protected.

10. How do gross domestic product, the...
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