Economics and Personal Finance

Unit 2 Test Study Guide

1. Use the quotes to answer
the question.
Use the map to answer the question.
How does the geography of North
Carolina influence the economic
activity that occurs within the state?

a. The Piedmont region part of

the state has a high
concentration of tobacco sales
because it has a large labor
market making the production
of tobacco easier.
b. The Outer Banks Region produces more tobacco because the area has easy access for shipping and
trade with other countries.
c. The Coastal Plains region state sells the most tobacco because the weather and soil are ideally suited
for agricultural production.
d. The majority of North Carolina counties sell tobacco because of the state’s focus on the cigarette
industry and long cultural history of tobacco production.

2. Use the quotes to answer the question.

“Too much and for too long, we seem to have surrendered personal excellence and community value in the
mere accumulation of material things. Our Gross Domestic Product (GDP)... ...counts air pollution and
cigarette advertising and ambulances that clear our highways of carnage. It counts special locks for our doors
and the jails for the people who break them. It counts the destruction of the redwoods and the loss of our
natural wonder in chaotic sprawl. It counts napalm and it counts nuclear warheads, and armored cars for the
police to fight riots in our cities.”
--Robert F. Kennedy

“Real GDP, an estimate of total production in the economy, has risen at an annual rate of 2.2 percent,
employment has risen by almost 12 million jobs and the unemployment rate has fallen from a high of 10
percent to the current rate of 5 percent.”
--Jeffrey M. Lacker, President, Federal Reserve Bank of Richmond, January 2016

What are the limitations of using a nation’s GDP as the only measure of the nation’s economic prosperity?

a. While the GDPs of most countries are public record, countries produce different products so the GDPs
are not comparable.
b. While GDP provides insight into a nation’s employment rate, GDP does not address civil rights
violations that occur within a nation.
c. GDP is often easily accessible to the public, however most citizens do not understand GDP or what it
represents.

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 d. GDP provides a measure of a country’s economic production but GDP does not address possible
negative aspects of the production.

3. According to the Bureau of Labor Statistics, unemployment in the United States rose steadily from a
low of 4.4% in March 2007 to a peak of 10.2% in October of 2009. Which statement supports this
information?

a. The data put monetary policy pressure on central banks to raise their interest rates.
b. The trend indicated that the country transitioned to period of economic recession.
c. The statistics include those who stopped actively seeking work or settled for part-time jobs.
d. The change signified an economy with rising income levels for the middle class.

4. Group of works who collective bargain to get higher pay, more rights and better working conditions
are known as what?

a. The Federal Reserve

b. Economic Commune
c. Labor Union
d. Trade Federation\

5. How are unemployment rates and interest rates connected?

a. When unemployment rates are low, consumer fraud declines and business profits go up as a result
interest rates are increased.
b. When unemployment rates increase, fewer people are purchasing products so the interest rates are
lowered to encourage spending.
c. When unemployment rates increase, the use of credit for everyday purchases goes up so the interest
rates increase.
d. When unemployment rates are low, there is an increase in income tax revenue resulting in a lowering
of interest rates.

6. Use the list to answer the question.

● The economy has contracted in three consecutive quarters.

● Annual Gross Domestic Product (GDP) fell 1.4% compared with the year before.
● Estimates report that the economy will continue to contract in the fourth quarter.

How would the federal reserve most likely respond to this economic situation?

a. The Federal Reserve would increase the discount rate to discourage banks from loaning money thus,
preventing excessive expansion.
b. The Federal Reserve would increase reserve requirements to discourage banks from loaning more
money thus, preventing excessive expansion.
c. The Federal Reserve would lower the discount rate to discourage banks from loaning more money
thus, increasing economic activity.
d. The Federal Reserve would lower the reserve requirement to encourage banks to loan more money
thus, increasing economic activity.

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7. Use the chart to answer the question.

What statement best represents the role national

parks play in the United States’ economy?

a. The cultivation and sale of natural resources

grown in national parks provides income for the
United States to fund other federal projects.
b. While national parks were established to
preserve the United States’ landscape, they
provide cost effective vacation destinations for
all citizens.
c. The National Park system is used as a tourist attraction, which provides income for the United States
and employment opportunities.
d. The United States uses the income generated from visitors to the national parks and the sale of
national park land to help reduce the national debt.

8. Use the excerpt to answer the question.

“...The economic success of nations worldwide is the result of encouraging and rewarding the entrepreneurial
instinct...

Because it's entrepreneurial energy, creativity and motivation that trigger the production and sale of new
products and services. It is the entrepreneur who undertakes the risk of the enterprise in search of profit and
who seeks opportunities to profit by satisfying as yet unsatisfied needs.

Entrepreneurs seek disequilibrium--a gap between the wants and needs of customers and the products and
services that are currently available. The entrepreneur then brings together the factors of production necessary
to produce, offer and sell desired products and services. They invest and risk their money--and other people's
money--to produce a product or service that can be sold at a profit.”

-Brian Tracy https://www.entrepreneur.com/article/78478

What do entrepreneurs need to fulfill their role in the economy?

a. Entrepreneurs need capital, which is often attained through financial loans granted by banks.
b. Entrepreneurs need to attend college to learn how to use the factors of production to their advantage.
c. Entrepreneurs need a motivated labor force, which is why they often work closely with labor unions.
d. Entrepreneurs need government safeguards to protect their businesses from excessive financial risk.

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10. Use the graphic to answer the question.
Which statement provides the best description of
the relationship between savers/borrowers and
banking institutions?

a. Savers place their money in banks, which

then loan that money out to borrowers and
charge interest. Some of the interest earned is
then placed into the savers' accounts to gain
money
b. Both savers and borrowers use banks to
take out loans in order to make investments to increase their wealth.
c. Borrowers loan money to banks, then banks place the money into savers' accounts so savings
accounts can accrue interest.
d. Borrowers place their money in banks, which then loan that money out to savers and charge interest.
Some of the interest earned is then placed into the borrowers' accounts to gain money

11. Match the clues to the correct terms found in the answer key. Write the letter of each term in the
space provided.

a. Excise Tax b. Sin Tax c. Gasoline Excise Tax d. Luxury Tax e. Sales Tax
f. Individual Income Tax g. Property Tax h. Corporate Tax

____ Communities sometimes waive this to bring new businesses to town

____ What homeowners pay based on the value of the residence
____ Where the largest share of federal tax revenue comes from
____ Taxes collected on the sale of clothes are an example of this type of tax.
____ This is placed on goods that are expensive and considered nonessential.
____ This has generated millions for road repair for more than sixty years
____ The point of this is to discourage the purchase of goods that do not promote consumers’ health.
____ The purpose of this is to make consumers pay the price of manufacturing and distribution of certain
products.

12. Match state and local expenditures to

the percentage of spending. Write the
letters of the correct percentages on the
lines provided. Consult the pie above
below for help.

a. Medicare
b. Transportation
c. Public Assistance
d. Corrections
e. Elementary/Secondary Education

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____ 24.4% ____ 7.9% ____ 1.4% ____ 3.1% ____ 19.8%

13. On July 11, 2000, Lars Ulrich of the band Metallica spoke before the US Judiciary Committee (a
committee of the US Congress) about the then new online music download site Napster. On the behalf
of artists, musicians, etc, what was Lars Ulrich fighting for?
a. Taxation without representation
b. Civil rights
c. Intellectual property rights
d. Property rights

14. Why are well-defined property rights so important?

a. Contribute to economic growth
b. Encourage innovation
c. Encourage investment
d. All of these options

15. If you download music from the Internet without paying for it, what property right are you infringing
upon?
a. Trademark
b. Plagiarism
c. Copyright
d. Patent

16. Budget deficits increase the ____________ ___________ (the total unpaid borrowed funds, carried
by the federal government).
a. National surplus
b. National debt
c. State debt

17. Match each economic term with the correct description.

a. Market Failure b. Public Good c. Non-Exclusion d. Non-Rivalry

____ The idea that you cannot limit access to a good or service to solely those who paid for it
____ When markets alone do not provide enough of things like fire protection, schools, and national defense
____ Anything having the characteristics of non-exclusion and non-rivalry
____ The idea that one person's consumption of the good doesn't ruin it for others

18. A ____________ ___________ occurs in years the government's outlays (spending) are greater than
its revenues (tax receipts)
a. Budget deficit
b. Budget surplus
c. Balanced budget

19. The taxing and spending plan of the national government is…
a. State Budget
b. Federal Budget
c. Local Government Budget

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20. Based on the excerpt below, what ended the Joe Camel marketing campaign by RJ Reynolds?
Joe Camel, the cartoon character that became the focus of perhaps the most intense attacks ever leveled
against an American advertising campaign, is being sent packing by the R. J. Reynolds Tobacco Company,
which will replace it with stylized versions of Camel cigarettes' original camel trademark.

The unexpected decision, announced yesterday, ends a nine-year run in this country for Joe Camel. The
embattled ad figure and his brethren, bearing names like Buster, Max and Floyd, will disappear from
billboards, print advertisements, display signs and even store-door stickers. Joe Camel's goofy grin, oversized
nose and exaggerated depictions of masculine behavior had helped Reynolds stem a decades-long sales slide
for Camel by imbuing the brand with a hipper image.

But the gains in sales and market share for Camel, the nation's No. 7 cigarette brand, came only at a high cost
as anti-smoking activists convinced President Clinton, the American Medical Association, several Surgeons
General, the Federal Trade Commission and other authorities that Joe Camel was emblematic of what they
maintained were the insidious, underhanded marketing gimmicks by which cigarettes are sold in America.
Particularly, the activists hit home with contentions that slick, colorful presentations of a grinning cartoon
animal were intended to appeal specifically to children to take up smoking.
-New York Times 7/11/1997

a. Low demand for cigarettes leading into massive surpluses in RJR warehouses
b. Government regulations on how tobacco companies can advertise
c. Competition in the tobacco industry creating an oversaturated market
d. An increase in sin taxes passed by the NC General Assembly