Which of the following would mostly likely cause the demand for salsa to increase?
A.
An increase in the price of tomatoes
B.
A decrease in consumer income
C.
A decrease in the price of chips
D.
An increase in the price of chips
C. A decrease in the price of chips. When the price of chips decreases, consumers may be more likely to purchase them and thus more likely to purchase salsa as well. This is an example of complementary goods, where the demand for one good (salsa) is influenced by the price change of another good (chips).
When the gross domestic product (GDP) is shrinking, what is most likely happening to the unemployment rate?
A.
The unemployment rate is increasing.
B.
The unemployment rate is decreasing.
C.
The unemployment rate is stagnant.
D.
The unemployment rate is not affected.
A. The unemployment rate is increasing. When GDP is shrinking, it usually means that businesses are producing fewer goods and services and therefore may need to cut back on their workforce. This results in an increase in the number of unemployed individuals, causing the unemployment rate to rise.
If prices have increased according to the Consumer Price Index (CPI), what has occurred in the economy?
A.
Gross Domestic Product (GDP) has declined.
B.
Inflation has increased.
C.
Unemployment has increased.
D.
Taxation has decreased.
B. Inflation has increased. When the Consumer Price Index (CPI) increases, it indicates that the prices of goods and services have increased over a certain period of time. This means that the purchasing power of a unit of currency has decreased, resulting in inflation. This can be caused by a variety of factors, such as an increase in demand for certain goods, a decrease in the supply of goods, or an increase in the cost of production.
The replacement of workers in assembly line production with robotic technology would be considered which type of unemployment?
A.
Structural
B.
Frictional
C.
Cyclical
D.
Seasonal
A. Structural. The replacement of workers in assembly line production with robotic technology is an example of structural unemployment. Structural unemployment occurs when there is a mismatch between the skills workers possess and the skills in demand by employers. The introduction of new technology can make workers' skills obsolete and reduce the demand for certain types of jobs, resulting in long-term unemployment and a need for education and training to acquire new skills.
How does inflation affect a person's purchasing power?
A.
It increases their purchasing power.
B.
It decreases their purchasing power.
C.
It does not affect their purchasing power.
D.
It raises their standard of living.
B. It decreases their purchasing power. Inflation reduces the purchasing power of money over time. As the general price level of goods and services increases, the same amount of money can buy fewer goods and services. This means that people will need to spend more money to purchase the same goods and services they could previously purchase for less. As a result, inflation decreases the value of money and reduces people's purchasing power.
Joe and his wife are both retired and they live on Social Security. When asked about their greatest economic worry both replied "inflation." Why?
A.
Because inflation increases their rate of savings.
B.
Because inflation reduces profit motive.
C.
Because inflation increases their marginal utility.
D.
Because inflation reduces their spending power.
D. Because inflation reduces their spending power. Joe and his wife, like other retirees, are likely on a fixed income from Social Security, pensions, or retirement savings. Inflation reduces the purchasing power of their fixed income, meaning that they have to spend more money to maintain their standard of living. If their income does not keep up with inflation, they may have to reduce their spending or draw down their savings more quickly than they had planned. This can put a strain on their retirement finances and make it more difficult for them to cover their necessary expenses, leading to worry and financial stress.
When the economy is in a recession, what fiscal policy tool will be used to lessen the effects of the recession?
A.
The Federal Reserve is likely to increase the discount rate.
B.
Government spending is most likely to decrease.
C.
The Federal Reserve is most likely to increase reserve requirements.
D.
Government spending is most likely to increase.