Legal, Economic, and Regulatory Issues

Question 1

Is a promise or an agreement that the law recognizes as establishing a duty of performance. It is enforceable by applying a remedy for its breach.

Answer 1

Contract

Question 2

The basic elements of a contract are:

Answer 2

1) Mutual Assent
2) Consideration,
3) Capacity, and
4) Legality

Question 3

May require that some contracts be in writing to be enforeceable.

Answer 3

Statute of frauds

Question 4

Is the principal measure of national economic performance. It is the total market value of all final goods and services produced within the boundaries of a country, whether by domestic or foreign-owned sources, during a specified period of time (usually a year).

Answer 4

Gross domestic product (GDP)

Question 5

Calculates GDP as the sum of all expenditures in the economy.

Personal consumption expenditures + Investment expenditures by business + Governmental expenditures for goods & services + Net exports (Total exports - Total imports)

Answer 5

Expenditures approach GDP

Question 6

Arrives at the same total GDP as the expenditures approach through a different calculation

Salaries & Wages + Rental income + Interest income + Profits of corporations, proprietors, and partnerships = National Income + Indirect business taxes + Net Income of foreigners = Net Domestic Product (NDP) + Depreciation (consumption of fixed capital)

Answer 6

Income approach

Question 7

Involves adding the total market value of all final goods & services in current dollars

Answer 7

Nominal GDP

Question 8

= Nominal GDP divided by Price index (in hundredths)

Answer 8

Real GDP

Question 9

The overall trend of growth is periodically interrupted by periods of instability. This tendency toward instability within the context of overall growth is termed

Answer 9

The business cycle

Question 10

The economy is at full employment and produces maximum output for the current level of resources and technology.

Answer 10

Peak

Question 11

Is defined as a period during which real GDP falls and unemployment rises.

Answer 11

Recession

Question 12

Economic activity reaches its lowest ebb.

Answer 12

Trough

Question 13

Output and employment rise.

Answer 13

Recovery

Question 14

Are variables that in the past have had a high correlation with the change in GDP. Forecast changes in economic activity.

Answer 14

Economic indicators

Question 15

Types of economic indicators.

Answer 15

1) Leading economic indicator
2) Lagging indicator
3) Coincident indicator

Question 16

Is a forecast of future economic trends.

Answer 16

Leading economic indicator

Question 17

Changes after the change in the economic activity has occurred.

Answer 17

Lagging indicator

Question 18

Changes at the same time as the change in the economic activity

Answer 18

Coincident indicator

Question 19

Is an increase in the general level of prices in the economy.

Answer 19

Inflation

Question 20

An inflation in currency is a

Answer 20

Decrease in the purchasing power of that currency.

Question 21

Is a measure of the price of a market basket of goods and services in 1 year compared with the price in a designated base year.

Answer 21

Consumer price index (CPI)

Question 22

= (Cost of market basket in current year divided by Cost of market base in base year) x 100

Answer 22

Consumer price index (CPI)

Question 23

Is calculated by comparing the change in the 2 years’ consumer price indexes.

Answer 23

Rate of inflation

Question 24

= (Current-year price index minus Prior-year price index) divided by Prior-year price index

Answer 24

Rate of inflation

Question 25

Unemployment can be categorized as:

Answer 25

1) Frictional unemployment 2) Structural unemployment 3) Cyclical unemployment 4) Full employment

Question 26

Is the amount of unemployment caused by the normal operation of the labor market.

Answer 26

Frictional unemployment

Question 27

Results when the composition of the workforce does not match the need. It is the result of changes in consumer demand, technology, and geographical location.

Answer 27

Structural unemployment

Question 28

Is directly related to the level of an economy's output. As consumers slow their spending, entities cut back production and lay off workers.

Answer 28

Cyclical unemployment

Question 29

The natural rate of unemployment consist of the sum of frictional and structural unemployment.

Answer 29

Full employment

Question 30

A change in the money supply affects the economy by changing the

Answer 30

Interest rate

Question 31

Stimulates investment spending by businesses and increases GDP.

Answer 31

An increase in the money supply (expansionary monetary policy) decreases the interest rate in the economy.

Question 32

A fall in investment spending reduces GDP, which decreases the price level and reduces inflation.

Answer 32

A decrease in the money supply (tight monetary policy) increases the interest rate in the economy

Question 33

A nation's central bank has the following three main tools of monetary policy:

Answer 33

1) Open-Market operations 2) Changes in the Required reserve ratio 3) Changing the Discount rate

Question 34

Is the most valuable tool. The central bank can either purchase government securities from, or sell them to, commercial banks.

Answer 34

Open-market operations

Question 35

Are used less frequently. A commercial bank must have a certain percentage of its total deposits on reserve. Is the percentage of deposits that must be kept on hand.

Answer 35

Required reserve ratio

Question 36

Rate at which banks can borrow money from the central bank.

Answer 36

Changing the discount rate

Question 37

Countries can mutually benefit from international trade due to

Answer 37

Comparative advantages

Question 38

A country has a comparative advantage in the production of a good when it has a

Answer 38

Lower opportunity cost than another producer

Question 39

Is any measure taken by a government to protect domestic producers.

Answer 39

Protectionism

Question 40

Protectionism takes many forms, such as:

Answer 40

1) Tariffs 2) Import quotas 3) Domestic content rules

Question 41

Are consumption taxes designed to restrict imports.

Answer 41

Tariffs

Question 42

Set fixed limits on different products.

Answer 42

Import quotas

Question 43

Require that at least a portion of any imported product be constructed from parts manufactured in the importing nation.

Answer 43

Domestic content rules

Question 44

Set one unit of currency equal to a given number of units of another currency by law.

Answer 44

Fixed exchange rates

Question 45

Allow the market to determine the exchange rate of two currencies.

Answer 45

Floating exchange rates

Question 46

When the demand for a foreign country's product rises, demand for its currency

Answer 46

Also rises

Question 47

The following factors affect currency exchange rates:

Answer 47

1) Relative income levels 2) Relative interest levels 3) Relative inflation rates

Question 48

Citizens with higher incomes look for new consumption opportunities in other countries, driving up the demand for those currencies.

Answer 48

Relative income levels

Question 49

When the interest rates in a given country rise relative to those of other countries, more investors purchase the high-interest country's currency to make investments, driving up the demand for this currency.

Answer 49

Relative interest rates

Question 50

When the rate of inflation in a given country rises relative to the rates of other countries, the countries, the products of that country become relatively expensive and the demand for that country's currency falls.

Answer 50

Relative inflation rates

Question 51

Tax rate structures include:

Answer 51

1) Progressive 2) Proportional 3) regressive

Question 52

Higher income persons pay a higher percentage of their income in taxes

Answer 52

Progressive

Question 53

At all levels of income, the percentage paid in taxes is constant.

Answer 53

Proportional

Question 54

As income increases, the percentage paid in taxes decreases.

Answer 54

Regressive

Question 55

Is the rate applied to the last unit of taxable income.

Answer 55

Marginal tax rate

Question 56

Is the total tax liability divided by the amount of taxable income.

Answer 56

Average tax rate

Question 57

Is the total tax liability divided by total economic income

Answer 57

Effective tax rate

Question 58

Addresses quality of life issues that are difficult for market forces to remedy, such as workplace and product safety, pollution, and fair employment practices.

Answer 58

Social regulation

Question 59

One purpose, is to provide complete and fair disclosure to potential investors in the initial issuance of securities.

Answer 59

Securities law

Question 60

Restraints of trade in domestic or foreign commerce may be prohibited by

Answer 60

Antitrust law

Question 61

A government agency may help to maintain the safety of drugs, food, cosmetics, etc., and may also enforces laws requiring the labeling of hazardous substances.

Answer 61

Consumer protection laws

Question 62

An agency may be created to centralize environmental control functions of the national government.

Answer 62

Environmental protection