Sample Study Guide
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This is Chapter 9 of the Boyes/Melvin Fundamentals of Economics Study Guide. Copies are available through your college bookstore -- ask them to order the Study Guide if they do not currently stock it. Chapter 9: An Overview of the National and International Economies 1. What is a household, and what is household income and spending? A household consists of one or more persons who occupy a unit of housing. Household spending is called consumption and is the largest component of total spending in the economy. 2. What is a business firm, and what is business spending? A business firm is a business organization controlled by a single management. Business firms can be organized as sole proprietorships, partnerships, or corporations. Business spending by firms is called investment and consists of expenditures of capital goods that are used in producing goods and services. 3. How does the international sector affect the economy? The nations of the world can be divided into two categories: industrial countries and developing countries. The economies of industrial nations are highly interdependent. As business conditions change in one country, business firms shift resources among countries so that economic conditions in one country spread to other countries. The international trade of the United States occurs primarily with the industrial countries, especially Canada and Japan. Exports are products the United States sells to foreign countries. Imports are products it buys from other countries. 4. What does government do? The economic role of government can be divided into two categories: microeconomic policy and macroeconomic policy. Microeconomic policy deals with providing public goods, correcting externalities, and promoting competition. Macroeconomic policy is divided into two categories: fiscal policy and monetary policy. Monetary policy is directed toward control of money and credit, and fiscal policy is directed toward government spending and taxation. 5. How do the three private sectors-households, businesses, and the international sector-interact in the economy? Households own the factors of production and sell them to firms in return for income. Business firms combine the factors of production into goods and services and sell them to households and the international sector in exchange for revenue. The international sector buys and sells goods and services to business firms. The circular flow diagram illustrates these relationships. 6. How does the government interact with the other sectors of the economy? Households sell resources to the government-which uses those resources to produce government services-in return for income. Business firms sell the goods and services they produce to the government for revenue. Taxes are the income the government receives from households and business firms. In reality, the government may interact directly with foreign consumers and businesses, but most government activity with the international sector occurs when the government uses business firms as intermediaries.
Key Terms Household
Quick-Check Quiz Section l: Households 1. Householders ________________ years old make up the largest number of households.
2. Householders ________________ years old have the largest median annual income.
3. The largest percentage of households consists of ________________ person(s).
4. Household spending, or consumption, is the ________________ component of total spending in the economy.
Section 2: Business Firms 1. In ________________ the owner(s) of the business is(are) responsible for all the debts incurred by the business and may have to pay those debts from his/her(their) personal wealth.
2. ________________ are the most common form of business organization, but ________________ account for the largest share of total revenues.
3. Investment as used in the text is
Section 3: The International Sector 1. The United States tends to import primary products such as agricultural produce and minerals from ________________ countries.
2. About one-third of U.S. imports and more than one-third of U.S. exports came from trade between the United States and
3. A trade surplus occurs when
4. Low-income countries are concentrated heavily in
5. Which of the following statements is false?
Section 4: Overview of the United States Government 1. Combined government spending on goods and services is larger than ________________ but smaller than ________________.
2. A budget deficit
3. Which of the following is a macroeconomic function of government?
4. The ________________ is(are) responsible for fiscal policy, and the ________________ is(are) responsible for monetary policy.
Section 5: Linking the Sectors 1. Which of the following statements is false?
2. ________________ own(s) the factors of production.
Practice Questions and Problems Section 1: Households 1. A(n) ________________ consists of one or more persons who occupy a unit of housing. 2. Household spending is called ________________. 3. Householders between ________ and ________ years old have the largest median incomes. 4. A household is most likely to consist of ________ persons. Section 2: Business Firms 1. A(n) ________________ is a business organization controlled by a single management. 2. A(n) ________________ is a business owned by one person. 3. A(n) ________________ is a business owned by two or more individuals who share both the profits of the business and the responsibility for the firm's losses. 4. A(n) ________________ is a legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. 5. A(n) ________________ business is a firm that owns and operates producing units in foreign countries. 6. In the United States, the most common form of business organization is the ________________. 7. ________________ is the expenditure by business firms for capital goods. 8. ________________ account for the largest percentage of business revenue. Section 3: The International Sector 1. The ________________ is an international organization that makes loans to developing countries. 2. Low-income economies are heavily concentrated in ________________ and ________________. 3. Products that a country buys from another country are called ________________. 4. Products that a country sells to another country are called ________________. 5. The United States trades the most with two countries, ________________ and ________________. 6. A trade ________________ exists when exports exceed imports. 7. A trade ________________ exists when imports exceed exports. 8. ________________ equal exports minus imports. 9. ________________ net exports signal a trade surplus; ________________ net exports signal a trade deficit. Section 4: Overview of the United States Government 1. List three microeconomic functions of government. _________________________________ _________________________________________ __________________________________________ 2. The macroeconomic functions of government are ________________ and ________________ policy. 3. The ________________ is the central bank of the United States. 4. Monetary policy is directed toward control of ________________ and ________________. Section 5: Linking the Sectors 1. List the three factors of production _____________________________________ 2. ________________ own the factors of production. 3. The ________________ is a model showing the flow of output and income from one sector of the economy to another. Thinking About and Applying An Overview of the National and International Economies The Circular Flow Diagram Use the diagram below to see if you understand how the three sectors of the economy are linked together. In the blanks below, fill in the appropriate labels. Money flows are represented by broken lines. Flows of physical goods and services are represented by solid lines.
a. ___________________________________ b. ___________________________________ c. ___________________________________ d. ___________________________________ e. ___________________________________ f. ___________________________________ g. ___________________________________ h. ___________________________________ i. ___________________________________ j. ___________________________________ k. ___________________________________ l. ___________________________________ m. ___________________________________ n. ___________________________________ o. ___________________________________ p. ___________________________________ Answers Quick-Check Quiz Section 1: Households 1. c; 2. d; 3. b; 4. a If you missed any of these questions, you should go back and review Section 1 in Chapter 9. Section 2: Business Firms 1. d; 2. b; 3. b If you missed any of these questions, you should go back and review Section 2 in Chapter 9. Section 3: The International Sector 1. e; 2. c; 3 a; 4. d; 5. d If you missed any of these questions, you should go back and review Section 3 in Chapter 9. Section 4: Overview of the United States Government 1. e; 2. c; 3. c; 4. d If you missed any of these questions, you should go back and review Section 4 in Chapter 9. Section 5: Linking the Sectors 1. d; 2. e If you missed either of these questions, you should go back and review Section 5 in Chapter 9. Practice Questions and Problems Section 1: Households 1. household 2. consumption 3. 45; 54 4. two Section 2: Business Firms 1. business firm 2. sole proprietorship 3. partnership 4. corporation 5. multinational 6. sole proprietorship 7. Investment 8. Corporations Section 3: The International Sector 1. World Bank 2. Africa; Asia 3. imports 4. exports 5. Canada; Japan 6. surplus 7. deficit 8. Net exports 9. Positive; negative Section 4: Overview of the United States Government 1. provision of police protection provision of military protection correction of a problem such as pollution 2. fiscal; monetary 3. Federal Reserve 4. money; credit Section 5: Linking the Sectors 1. land labor capital 2. Households 3. circular flow diagram Thinking About and Applying An Overview of the National and International Economies The Circular Flow Diagram a. saving b. investment c. payments for goods and services d. goods and services e. taxes f. government services g. resource services h. payments for resource services i. taxes j. government services k. goods and services l. payments for goods and services m. resource services n. payments for resource services o. net exports p. payments for net exports |
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