Building on Economics Basics Pretest
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Question
How does the existence of a single type of accepted money help consumers?
(1 point)
Responses
It makes it possible to make large purchases.
It makes it possible to make large purchases.
It makes it easy to make a profit on savings accounts.
It makes it easy to make a profit on savings accounts.
It makes it easy to compare the price of goods and services.
It makes it easy to compare the price of goods and services.
It makes it possible for producers to adjust prices down for sales.
It makes it possible for producers to adjust prices down for sales.
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Having a single type of accepted money primarily helps consumers in that it makes it easy to compare the price of goods and services.
When there is a standard medium of exchange, such as a nation's currency, consumers can directly compare the cost of items from different sellers. Without this standardization, comparing prices would be more complex, as each good or service might be priced in terms of different goods or services, or different types of money.
While having a single currency can indeed make it possible to make large purchases, this is not its primary function or exclusive benefit, as large transactions can be made through various means of payment or through barter if necessary, albeit less conveniently.
The ease of making a profit on savings accounts is related to financial infrastructure such as banking systems and interest rates, rather than the existence of a single type of money.
The possibility for producers to adjust prices down for sales doesn't depend on the existence of a single type of money. They can adjust prices based on demand and supply dynamics, cost of production, and competitive strategies, regardless of the type of money used.
So, the best response to the question is:
It makes it easy to compare the price of goods and services.
About 90% of technology and media companies fail within the first three years of business.
Question
Use the passage to answer the question.
How does this tendency affect the loans granted to new technology and media companies?
(1 point)
Responses
These companies’ loans are smaller.
These companies’ loans are smaller.
These companies are unable to obtain loans.
These companies are unable to obtain loans.
These companies’ loans have higher interest rates.
These companies’ loans have higher interest rates.
These companies are loaned money by many different institutions.
The passage suggests that new technology and media companies are very risky investments, with a high failure rate within the first three years of operation. Given this high-risk profile, lenders would likely perceive these businesses as less creditworthy, or as having a higher chance of defaulting on their loans.
As a consequence, lenders might protect themselves from potential losses by either offering smaller loans (to reduce the exposed risk) or charging higher interest rates to compensate for the increased risk of default. Since the passage doesn’t specifically mention the size of the loans, but the failure rate would certainly affect the risk calculation of any lender, the most directly related response would be:
These companies’ loans have higher interest rates.
Higher interest rates are a common way for lenders to compensate for higher risk. It is possible that some companies might have trouble obtaining loans at all, but the passage does not specifically state that they are unable to obtain loans. Also, the distribution of loans across many different institutions is a separate issue and not directly related to the failure rate of the companies.
How do most people in the United States earn income?
(1 point)
Responses
being paid per hour of labor
being paid per hour of labor
taking money for sales of goods or services
taking money for sales of goods or services
taking a percentage of their corporation’s profits
taking a percentage of their corporation’s profits
being paid a yearly salary for meeting certain objectives
Most people in the United States earn income through compensation for their labor. This can take the form of both hourly wages and annual salaries. For the purpose of this question, it seems to be asking for the most common method among these.
Hourly wages are common in many entry-level, service, and manual labor positions, while salaried positions are often found in professional, managerial, or specialized occupations. While taking money for sales of goods or services typically describes income for businesses or self-employed individuals, and taking a percentage of a corporation's profits usually pertains to business owners, shareholders, or high-level executives, which represent a smaller portion of the population.
Considering that the scope includes the most common form for "most people," and without more specific detail about the makeup of the workforce, the broader and more inclusive response would likely be:
being paid per hour of labor
However, it's worth noting that in reality, both hourly and salaried employment are very common methods of earning income in the U.S., and which one is more widespread can vary depending on economic conditions, industry, and other factors. If the specific demographic or economic context is known, the answer could potentially change. If a different context is provided or if there has been a significant shift in employment patterns, the answer might be different.
What is the biggest risk of starting your own business?
(1 point)
Responses
damaging your reputation as a productive worker
damaging your reputation as a productive worker
going bankrupt trying to meet the business’s costs
going bankrupt trying to meet the business’s costs
being forced to forfeit personal property to investors
being forced to forfeit personal property to investors
losing out on opportunities to work in higher-paying jobs
The biggest risk of starting your own business is typically financial in nature. The most severe of these financial risks is usually:
going bankrupt trying to meet the business’s costs
Starting a new business requires capital and ongoing investment, and if the business fails to generate enough revenue to cover its expenses, including any debts it has incurred, the owner may face bankruptcy. Bankruptcy can result from a range of issues such as inadequate capital, poor business management, insufficient demand, competition, or broader economic downturns.
The other options listed can also be risks associated with starting a business, but they are generally less immediate and severe compared to the financial risk of bankruptcy:
- While one's reputation might be affected if a business fails, this is a more subjective risk and can potentially be mitigated or rebuilt over time.
- Personal property forfeiture is a risk but is typically safeguarded against by choosing the appropriate legal structure for the business (e.g., forming a limited liability company to protect personal assets).
- While opportunity cost, such as losing out on other job opportunities, is a consideration, it is a more intangible risk compared to the immediate and tangible financial risks of running a business.
Increased productivity most often leads to which of the following?
(1 point)
Responses
higher standards of living
higher standards of living
better educational opportunities
better educational opportunities
shorter working hours
shorter working hours
lower profits and outputs
Increased productivity most often leads to:
higher standards of living
Productivity measures how efficiently goods and services are produced. When productivity increases, more can be produced with the same amount of labor, capital, and resources. This can lead to economic growth, lower production costs, higher incomes, more competitive pricing, and ultimately an overall increase in the standard of living for the population as businesses are able to pay higher wages and consumers can afford more goods and services.
The other options can be influenced by productivity but are less direct than the increase in standard of living:
- Better educational opportunities may follow from a higher standard of living and increased public and private investment, but it's not the most direct result of increased productivity.
- Shorter working hours could be a potential outcome of increased productivity but this is not always the case, as it depends on economic policies, labor market dynamics, and business decisions.
- Lower profits and outputs are not typically associated with increased productivity. On the contrary, increased productivity usually aims to maximize outputs and profits.
Which of the following collects payroll tax?
(1 point)
Responses
state and local governments
state and local governments
federal government only
federal government only
state government only
state government only
local and federal governments