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Questions from chapter 2 of the textbook...

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Mitch Wolford Intro to Business Chapter 02 Economics: The Framework for Business 1. How did the global economic crisis unfold? ●

The last half of the 1990s America enjoyed unprecedented growth. Than the dotcom bubble burst in 2000, followed by the 9/11 “terrorist” attacks. The stock market dropped and unemployment rose.

2. What steps did the federal government and the federal reserve take to mitigate the crisis? ●

The Federal reserve decreased interest rates from 6.5% in mid-2000 to 1,25% by the end of 2002.

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

Macroeconomics deals with country’s overall economic dynamics such as the employment rate, while microeconomics deals with the smaller economic units such as individual consumers and businesses. Aggregate production and consumption levels are the result of choices made by individual households and businesses. Supply and demand is an example because both branches look at how changes in either supply or demand affect and impact the other.

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

Monetary involves changing the interest rate and influencing the money supply, while fiscal involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. Politics play 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 right 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. Businesses can thrive by profiting from these by getting extra money after taxes by owning their own property.

6. Describe the difference between a monopolistic competition and a monopoly. ●

A monopolistic competition is a market structure with many competitors selling different products, while a monopoly is a market structure with one producer completely dominating the industry.

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. There is sometimes competition, and sometimes there is not.

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

Socialism is based on the principle that the government should own and operate key enterprises that directly affect public welfare, while communism is based on the principle that calls for public ownership of virtually all enterprises , under the direction of a strong central government. Less economic opportunity, because, 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 their 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 employment rate, and the inflation rate relate to the business cycle? Why is it difficult to predict changes in the business cycle? ●

Because they are all always changing. It is difficult to predict changes in the business cycle because there are always changes going on whether they are for the good or the bad....