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Contemporary Economics 2nd Edition William A. McEachern - Solutions
__?__ are profits that a corporation earns but does not pay to its stockholders in dividends.
A(n) __?__ is extended to businesses by banks to provide them with funds during those months when their sales are low.
When the quantity of money supplied for loans exceeds the quantity of money demanded for loans, there will be aa. shortage of loans, and interest rates will soon fall.b. surplus of loans, and interest rates will soon grow.c. shortage of loans, and interest rates will soon grow.d. surplus of loans,
True or False The more valuable the collateral backing a loan, the higher the interest rate charged on the loan.
The __?__ brings together borrowers and savers to determine the market interest rate.
The fact that people generally prefer to consume now rather than in the future is shown by their willingness toa. pay tuition to attend college.b. pay interest for an automobile loan.c. pay for life insurance.d. deposit their savings in a bank account.
True or False Production depends on saving because it requires time to produce consumer goods.
Business Management Many firms that offer franchise opportunities promote their organizations on the Internet. Identify a particular franchise business that exists in your community. Search the Internet for information about this franchise. What does the organization offer its members? What is the
Mergers have an important impact on the U.S. economy, and they can be a sign of economic activity as well. More mergers tend to take place when the economy is booming and stock prices are high. They are less likely to occur when businesses are not earning good profits or when it is difficult to
Why have multinationals tended to “level the playing field” among workers and businesses in different nations?
When firms merge, they often lay off some workers to reduce their costs. Is it possible that this could be good for the economy?
Do you think mergers are more often helpful or harmful for consumers?Explain your reasons.
Suppose you have inherited $50,000 and want to use the money to start a business. Would you rather organize the business by yourself or purchase a franchise? Explain your reasons.
Why are some people willing to invest in new firms that have not yet made any profit and do not expect to earn a profit for several years?
Suppose Congress passes a law that eliminates the federal income tax on interest income. As a result, individuals and banks are able to keep all the interest income they receive. What would this do to the supply of loans available and the prevailing interest rates charged to those who borrow?
Suppose that economic conditions improve by 2012 and the economy is booming. What would this do to the demand for loans, the supply of loans, and the level of interest rates that the Fed would like to have banks change?Considering all of these factors, what would you expect to happen to interest
Communication Identify a publicly traded corporation that does business in your community. Imagine that this firm wants to raise funds by issuing new stock. Write a letter that could be sent to potential investors that explains why they should consider buying shares of this firm’s newly issued
History Investigate the development of the NASDAQ market. Why have many high-tech corporations chosen to be listed on the NASDAQ rather than on a centralized exchange, such as the New York Stock Exchange?
Corporations sell new issues of stock to the public to finance expansion and to obtain operating funds. The amount of new stock sold is one indicator of how much business activity is taking place in the economy. Construct a bar graph from the data in the table that shows the value of new stock sold
Why are stock exchanges necessary for corporations to successfully market stocks to the public?
Why would a corporation prefer to raise funds by selling stock than by borrowing money from a bank?
Would you rather lend a friend $50 until she gets paid tomorrow or until the end of the school year when she hopes to find a summer job? What does this tell you about the interest rates that are charged for short- and long-term loans?
Why are banks often unwilling to provide mortgage loans to people who want to purchase homes in urban neighborhoods with high crime rates and decreasing home values?
Advertising Businesses that market expensive consumer products such as refrigerators, computers, and home furnishings typically include statements about“easy payment plans” in their ads. Why do they include this information? If many consumers choose to borrow to finance their purchases, what
Financial Management Most businesses rely on borrowed money. In the early 1980s, interest rates were very high in the United States, reaching levels of 20 percent or more. How would such high interest rates affect businesses and, therefore, the overall economy?
Home mortgage interest rates change over time with changes in the demand and supply for loans. Use data given in the table to draw a line graph that shows the annual average for new-home mortgage interest rates from 1999 through 2005. How much did this interest rate fall from 2001 through 2004?How
What happens to the demand for loans that causes the equilibrium interest rate to fall during a downturn in the economy?
Why do most people borrow funds to purchase a home or an automobile rather than wait until they can afford to pay cash?
Why were many more consumers willing to buy automobiles when manufacturers offered special 0 percent interest rates?
Before the 1970s there were no hand-held electronic calculators. When these products first became available, they cost about $100 each. Why were people willing to invest so much in a calculator that could only add, subtract, multiply, and divide? How did the calculator change workers’
Why couldn’t you open up a pizza restaurant tomorrow if you wanted to?
Why do banks charge a higher interest rate on car loans than on home loans?
Why is a bank more likely to be called Security Trust than Benny’s Bank?
Why do you repeatedly burn your mouth eating pizza, despite knowing the risk?
Why are you willing to pay more at a movie theater than wait to rent the DVD?
What’s seed money, and why can’t Farmer Patel grow anything without it?
Access EconDebate Online at thomsonedu.com/school/econxtra. Click on the following policy debate: “Does an increase in the minimum wage result in a higher unemployment rate?” Choose one article that argues in support of increasing the minimum wage and one that argues against it.Summarize each
Sharpen Your Skills: Working with Percentages The Bureau of Labor Statistics reports the average hourly wage rate for nonagricultural workers each year. Use the data in the table to calculate the percentage rate of change in the years from 2001 through 2005. Does there appear to be any relationship
Assess a Strike Garbage collectors in several cities in a state went on strike for better wages and a continuation of their employerpaid medical insurance coverage. At that time, the state and many of its local governments had large budget deficits. They argued that they could not afford to pay the
Binding Arbitration You are the president of a fire fighter’s union in a large city. There is a law that provides for binding arbitration for vital public employees in your state. The current contract between your union and the city is about to expire. Your members want at least a 4 percent
Labor Unions Interview a friend or relative who is a member of a labor union. Ask why this person joined a union. Ask what the biggest benefit is of union membership.Write a paragraph summarizing your interview.
Minimum Wage Laws Imagine that you own a fast-food restaurant, which is in a competitive industry. The restaurant employs 20 workers, who are paid the minimum wage.Next month, Congress passes a law that will increase the minimum wage you must pay your workers by $1 per hour. What steps could you
Resource Substitutes The Apex Pot company manufactures high-quality kitchen pans. Currently it employs 500 workers, who produce stainless steel pans one at a time on individual machines. It takes a worker six minutes to produce each item.The workers are paid $12 per hour for their labor. Apex
True or False In recent decades, union membership has declined.
__?__ takes place when unions and management negotiate to reach a labor contract.
A craft union is formed when workers who all __?__ join together to form a union.a. have the same employerb. work in the same locationc. work in a particular industryd. have the same skill
__?__ takes place when a contract requires management to hire more workers than it feels are necessary.
When a labor settlement is imposed on management and a union by a neutral third party,a. there is a right-to-work law.b. binding arbitration has taken place.c. there has been mediation.d. there is likely to be a strike.
True or False Membership in industrial unions is limited to workers with a particular skill.
__?__ takes place when a person is not employed because of his or her race, ethnicity, or gender.
Which of the following workers would be best paid?a. a worker who has not graduated from high schoolb. a worker who just completed a master’s degree in English literaturec. a worker who is willing to stay up all night to guard a bank’s deposit boxd. a worker who helped design Microsoft’s
True or False Some workers are better paid because they have acquired special training that makes their labor more valuable to employers.
The market supply of labor will change as a result of each of the following excepta. a change in the amount of wealth workers hold.b. a change in the conditions in which employees are expected to work.c. a change in the demand for products workers produce.d. a change in workers’ tastes for being
If two resources are __?__, an increase in the price of one will cause businesses to demand less of the other.
True or False Resource prices provide information to producers that allows them to use resources in a way that maximizes their value.
The demand for resources is derived froma. the demand for products the resources are used to produce.b. the demand for higher wages for workers.c. the demand for profits by business owners.d. the demand for taxes to pay for government services.
Research Investigate a recent strike in your state. What issues were involved?What was the result of the strike?
In the late 1950s, nearly one-third of workers in the United States belonged to a labor union. Since then the share of organized workers has declined steadily.Use the following data to draw a line graph to show the decline in the percent of union-organized workers in the labor force from 1985 to
Why is union membership often lower in states that passed right-to-work laws?How did this affect the effectiveness of unions in these states?
Why are unions more often successful in negotiating for higher wages with firms that have monopoly power than with firms that face strong competition?
What are the potential costs and benefits for striking union members?
Government In 1968, the federal minimum wage was $1.60 per hour. This might seem to be a small amount. However, when adjusted for inflation it had the same purchasing power as $7.92 per hour in 2000 dollars. In 2000, the federal minimum wage was $5.15 per hour. Therefore, the real (adjusted for
When data are gathered about the labor supply in the United States, people are divided into several categories. Some people are not considered because they are too young or unable to work for other reasons. The remaining people comprise the civilian noninstitutional population (CNP). Of this group,
Why might an increase in the minimum wage cause greater unemployment among low-skill workers?
Why does job discrimination harm not only the people who are discriminated against but also society in general?
Why is the earning power of a college liberal arts major less than that of an electrical engineering major?
Why are people who are trained to repair computers paid more than people who are trained to mend clothing?
Suppose you earned $10.00 per hour in July 2006. Further, suppose that by July 2009, the CPI would be 222.4. If you earn $14.00 per hour at that time, what would the real value of your wage be in terms of July 2006 dollars?Would you be better off or worse off than in July 2006?
In 1990, the CPI was 130.7 and the average price for an eight-foot 2-by-4 used to construct houses was $1.59. In July 2006, the same 2-by-4 cost $2.29. Use the method demonstrated above to calculate whether the price of 2-by-4s increased more or less rapidly than the CPI.
Science Identify scientific developments that have taken place in the last 50 years that have changed the demand for labor in the marketplace.
Management Make a list of nonwage determinants of labor supply that managers could use to increase the supply of labor.
Draw a labor supply curve for students who are willing to work, based on the data in the table. Explain what would happen to the location of this labor supply curve as a result of each of the listed events.a. A large employer in town closes and thousands of workers are laid off.b. Wearing old
Why might the supply of high-school students who are willing to work in fastfood restaurants decrease if there was an economic boom and a huge increase in stock values?
What would happen to the demand for technicians who produce computer chips if a new chip-manufacturing process using only half as much raw material was introduced?
Why would an increase in the price of heating oil along a given supply curve increase the quantity of heating oil supplied to the market?
Why would the demand for roofers increase if the price of shingles fell by 50 percent?
What is the demand for workers in your school cafeteria derived from?
In what sense have labor unions become victims of their own success?
What’s the payoff for a college education?
Among physicians, why do surgeons earn twice as much as general practitioners?
Why do some professional basketball players earn 50 times more than others?
Why do truck drivers in the United States earn at least 20 times more than rickshaw drivers in Asia?
Access EconLinks Online through thomsonedu.com/school/econxtra. In the Government listing, click on “Federal Independent Agencies and Organizations.” Then click on the link to the Securities and Exchange Commission web site. Under “About the SEC,” click on“Laws and Regulations.” Read
Sharpen Your Skills: Draw Conclusions After five years, Rita’s business has become very successful. Her annual sales have reached$450,000 and she employs three full-time workers. She is convinced she could double her sales if she employed three more workers and spent $500,000 to purchase
Forms of Business Organization Identify the type of business organization Gretchen should form to be able to produce and market 10,000,000 gallons of her lubricant each year.
Limited Liability Gretchen has successfully tested her lubricant on small engines. She has not tried to use it in large engines or for extended periods of time. To complete these tests, she needs many thousands of dollars to buy equipment and run the tests. If the tests are successful, Gretchen
Assess Limitations of Sole Proprietorships Paul opened a florist business that marketed tropical flowers as a sole proprietorship. His idea was that by offering flowers that no other local store sold, he could charge high prices and earn a good profit. This may have been a good idea, but his
Entrepreneurship Gretchen has invented a new lubricant that reduces friction between moving parts in an engine to almost nothing.This product should increase automobile gas mileage by at least 50 percent and make automobile engines last almost forever. Explain how Gretchen could become an
True or False Use of the abbreviations “Inc.”or “Corp.” in a company name indicates that the owners are personally liable for the company’s debts.
Which of the following is not true of private corporations?a. They exist to earn a profit.b. They must reorganize when an owner dies.c. Their income is taxed more than employee earnings.d. They are treated as an individual separate from their owners by the law.
Which of the following does not describe a disadvantage of a corporation?a. difficult to startb. less regulatedc. owners have little controld. earnings are taxed twice
True or False An important disadvantage of corporations is the fact that their profits are taxed twice.
Publicly traded corporations must issue financial reports and file them with the __?__, a federal agency that regulates trading of corporate stocks.
Which of the following types of business organizations cannot have a foreign owner?a. S corporationb. limited liability companyc. limited liability partnershipd. not-for-profit organization
True or False Almost all corporations in the United States are publicly traded corporations.
A consumer cooperative generally is formed toa. earn a profit for its owners.b. reduce costs of buying goods or services for its members.c. avoid paying income tax on its profits.d. limit the type of people who can shop at specific stores.
True or False A corporation’s stockholders are held responsible to pay off all the firm’s debts if the firm files for bankruptcy.
True or False Most large businesses in the United States are corporations.
Corporations area. the most common type of business organization.b. the easiest form of business to start.c. the type of business organization that is best able to raise financial capital.b. the least-regulated form of business organization.
Owners of sole proprietorships and partners both have __?__ for the firm’s debts if the firm fails to pay its bills.
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