Exam 1 Study guide
Exam 1 Study guide BUS - 10123 - 002
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This 13 page Study Guide was uploaded by Armani Lindsay on Wednesday February 10, 2016. The Study Guide belongs to BUS - 10123 - 002 at Kent State University taught by Eric Von Hendrix (P) in Winter 2016. Since its upload, it has received 103 views.
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Date Created: 02/10/16
Exam 1 chapters 1, 2, 20 In class the professor said that Learning objectives are really important and to study the charts. The exam will not cover the types of banking but it will cover the history of the fed and why it is there and regulating money supply. The questions will be situational. There will be about 4 questions from chapter 1, 24 questions from chapter 2, and 22 questions from chapter 20. Learning objectives 3, 4, and 5 from chapter 2 are really important. Chapter 1 Learning objectives 1. Describe the relationship between profit and risk, and show how businesses and nonprofits can raise the standard of living for all. 2. Compare and contrast being an entrepreneur and working for others. 3. Analyze the effects of the economic environment and taxes on businesses. 4. Describe the effects of technology on businesses. 5. Demonstrate how businesses can meet and beat competition. 6. Analyze the social changes affecting businesses. 7. Identify what businesses must do to meet global challenges, including war and terrorism. 8. Review how past trends are being repeated in the present and what those trends mean for tomorrow’s college graduates. Test prep 1. What is the difference between revenue and profit? Answer: Revenue is the total amount of money a business takes in during a given period of time. Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses during a given period. 2. What is the difference between standard of living and quality of life? Answer: Standard of living is the amount of good and services a person can buy with the money they have. Quality of life refers to the general well-being of society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. 3. What is risk? How is it related to profit? Answer: Risk is the chance an entrepreneur takes in losing time and money on a business that may not prove profitable. Usually, entrepreneurs willing to take the most risk make the highest profit. 4. What do the terms stakeholders, outsourcing and insourcing mean? Answer: Stakeholders are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. Outsourcing is contracting with other companies (often in other countries) to do some or all the functions of a firm, like its production or accounting tasks. Insourcing is when foreign companies set up design and production facilities in the United States. 5. What are some of the advantages of working for others? Answer: When working for others, someone else assumes the entrepreneurial risk and provides you with benefits (life health insurance, vacation time, etc.). 6. What benefits do you lose as an entrepreneur, and what do you gain? Answer: As an entrepreneur you have the freedom to make your own decisions and the potential for creating wealth, while sacrificing the benefits that working for others often provides. 7. What are the five factors of production? Which ones seem to be the most important for creating wealth? Answer: The factors of production are land, labor, capital, entrepreneurship, and knowledge. Of these, entrepreneurship and knowledge seem to be the most important for creating. 1. What are four ways the government can foster entrepreneurship? Answer: The government can foster entrepreneurship by: ---Allowing private ownership of business. ---Passing laws that enable businesses to write enforceable contracts. ---Establishing a currency that is tradable in world markets. ---Minimizing corruption in business and in its own ranks. 2. What is the difference between effectiveness, efficiency and productivity? Answer: Effectiveness means producing the desired results. Efficiency means producing goods and services using the least amount of resources. Productivity is the amount of output you generate given the amount of input, such as the number of hours you work. 3. What is empowerment? Answer: Empowerment is allowing workers to make decisions essential to producing high-quality goods and services. 4. What are some of the major issues affecting the economy today? Answer: Technology changes, identity theft, changing demographics, diversity, climate change, war and terrorism are just several issues affecting the economy today. Chapter 2 Learning objectives 1. Explain basic economics. 2. Explain what capitalism is and how free markets work. 3. Compare socialism and communism. 4. Analyze the trend toward mixed economies. 5. Describe the economic system of the U.S., including the significance of key economic indicators (especially GDP), productivity and the business cycle. 6. Contrast fiscal policy and monetary policy, and explain how each affects the economy. Test prep 1. What is the difference between macroeconomics and microeconomics? Answer: Macroeconomics looks at the operations of a nation’s economy as a whole. Microeconomics looks at the behavior of people and organizations in markets for particular products or services. 2. What is better for an economy than teaching a man to fish? Answer: To create wealth in an economy, it is better to teach a man to start a fish farm, whereby he will be able to feed a village for a lifetime. 3. What does Adam Smith’s term invisible hand mean? How does the invisible hand create wealth for a country? Answer: The invisible hand is the term used by Adam Smith to describe the processes that turn self-directed gains into social and economic benefits for all. To become wealthy, people working in their own self-interest producing goods and services expand by hiring others to provide employment and increases the well-being of others. They also tend to reach out to help the less fortunate over time. 4. What are the four basic rights that people have under free- market capitalism? Answer: The four basic rights are: the right to own private property, the right to own a business and keep all that business’s profits, the right to freedom of choice, and the right to freedom of competition. 5. How do businesspeople know what to produce and in what quantity? Answer: Decisions about what to produce and in what quantity are decided by the market, consumers sending signals about what to make, how many, in what color and so on. 6. How are prices determined? Answer: Prices are determined by the economic concepts of supply and demand. 7. What are the four degrees of competition and what are some examples of each? Answer: The four degrees of competition are: • Perfect competition – such as a farmer’s market where goods are indistinguishable. Today, however, there are no good examples of perfect competition. • Monopolistic competition – such as fast-food restaurants where products are similar but consumers perceive the products to be different. Product differentiation is a key here. • Oligopoly – a situation where just a few major producers dominate a market such as tobacco, gasoline, automobiles, etc. A few sellers dominate because the initial investment to enter such a market is significant. • Monopoly – a situation where only one producer exists in a market. U.S. law prohibits monopolies. 1. What led to the emergence of socialism? Answer: Socialists believe that wealth should be more evenly distributed than in free-market capitalism. Government should be empowered to carry out the distribution of wealth. 2. What are the benefits and drawbacks of socialism? Answer: Free education through college, free health care, and free child-care are some of the benefits of socialism. The key drawback of socialism is high taxes often causing a “brain drain” in the economy. Socialism also tends to inspire less innovation. 3. What countries still practice communism? Answer: Most nations have drifted away from communism but North Korea and Cuba still espouse communism. Russia, Vietnam, and China still have some communist practices in place. 4. What are the characteristics of a mixed economy? Answer: Mixed economies have systems where the allocation of resources is made by the market and some by the government. Like most nations of the world, the United States is a mixed economy. • 1. Name the three economic indicators and describe how well the U.S. is doing based on each indicator. Answer: The three key economic indicators are the Gross Domestic Product (GDP), the unemployment rate, and the price indexes. The U.S. GDP is approximately $14 trillion. Our high GDP allows citizens to enjoy a high standard of living. In 2000, the U.S. reached its lowest unemployment rate in over 30 years. However, the recent recession could lead unemployment to at least 10 percent. The consumer price index (CPI) has not risen to high levels keeping inflation in check. However the recession has caused fears of deflation. 2. What is the difference between a recession and a depression? Answer: A recession is two or more consecutive quarters of decline in the GDP. A depression is a severe recession, usually accompanied by deflation. 3. How does the government manage the economy using fiscal policy? Answer: Fiscal policy refers to the government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending. 4. What does the term monetary policy mean? What organization is responsible for monetary policy? Answer: Monetary policy is the management of the nation’s money supply and interest rates. The Federal Reserve controls the money supply in the United States. Chapter 20 Learning objectives: 1. Explain what money is and what makes money useful. 2. Describe how the Federal Reserve controls the money supply. 3. Trace the history of banking and the Federal Reserve System. 4. Classify the various institutions in the U.S. banking system. 5. Briefly trace the causes of the banking crisis, and explain how the government protects your funds during such crises. 6. Describe how technology helps make banking more efficient. 7. Evaluate the role and importance of international banking, the World Bank, and the International Monetary Fund. Test Prep 1. What is money? Answer: Money can be anything that people accept as payment for goods and services. 2. What are the five characteristics of useful money? Answer: The five characteristics of useful money are: Portability, divisibility, stability, durability, and uniqueness. 3. What is Bitcoin? Answer: Bitcoin is a form of digital currency created in 2008. It has no central authority regulating its use and can be difficult to compute a dollar value. 4. What is the money supply, and why is it important? Answer: The money supply is the amount of money available for people to buy goods and services. It is important to manage the money supply, since too much money could cause inflation and too little money may cause deflation. 5. How does the Federal Reserve control the money supply? Answer: To control the money supply the Federal Reserve can increase or decrease the reserve requirement, buy or sell government securities, or change the discount rate. 6. What are the major functions of the Federal Reserve? What other functions does it perform? Answer: The Federal Reserve is responsible for creating an environment that fosters stable prices and full employment. It attempts to manage these two goals with monetary policy. The Federal Reserve is also responsible for the clearing of checks. 1. Why did the U.S. need a Federal Reserve Bank? Answer: The Federal Reserve emerged after the banking crisis of 1907 and was organized originally to be a lender of last resort. 2. What is the difference between a bank, a savings and loan association, and a credit union? Answer: After bank deregulation, the services offered by banks and S&Ls are now similar. They both offer many of the same services. Credit Unions are tax-exempt member-owned cooperatives that operate like banks. 3. What is a consumer finance company? Answer: Consumer finance companies offer short-term loans to those who cannot meet the credit requirements of regular banks. 1. What are some of the causes for the banking crisis? Answer: After the internet bubble of the late 1990s, the Federal Reserve lowered interest rates creating a situation in which mortgage rates were low thus fueling a housing boom. Banks relaxed their underwriting standards and created mortgage-backed securities and sold them to organizations throughout the world. The government did not regulate these transactions well and banks collapsed as housing values fell and individuals defaulted on their loans. 2. What is the role of the FDIC? Answer: The role of the FDIC is to insure bank deposits if a bank were to fail. Bank deposits are currently insured up to $250,000. 3. How does a debit card differ from a credit card? Answer: Unlike a credit card a debit card functions as a check, withdrawing funds directly from a checking account. The debit card only allows you to spend money that is in your account; once the balance is zero the card cannot be used. If the card is used with a zero balance, it will result in overdrafts. 4. What is the World Bank and what does it do? Answer: The World Bank, also called the International Bank for Reconstruction and Development, is responsible for financing economic development. 5. What is the IMF and what does it do? Answer: The IMF was established to assist the smooth flow of money among nations. Nations must join the IMF and allow for flexible exchange rates, inform the IMF of changes in a country's monetary policy, and to modify policies on the advice of the IMF. KNOW YOUR VOCABULARY Charts Bank Year Assets Washington Mutual Bank 2008 $307 Billion Continental Illinois NB&T 1984 $67 Billion First Republic Bank Corp 1986 $49 Billion IndyMac Bank 2008 $32 Billion American Savings & Loan 1988 $30 Billion Assn Colonial Bank 2009 $25 Billion
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