Chapter 1:

The Production Era

As demand for manufactured goods continued to increase through the 1920s, businesses focused even
greater attention on the activities involved in producing those goods. Work became increasingly
specialized, and huge, labor-intensive factories dominated U.S. business.Assembly lines, introduced by
Henry Ford, became commonplace in major industries. Business owners turned over their
responsibilities to a new class of managers trained in operating established companies. Their activities
emphasized efforts to produce even more goods through quicker methods.
During the production era, business focused attention on internal processes rather than external
influences. Marketing was almost an afterthought, designed solely to distribute items generated by
production activities. Little attention was paid to consumer wants or needs. Instead, businesses tended to
make decisions about what the market would get. If you wanted to buy a Ford Model T automobile, your
color choice was black—the only color produced by the company.

Value​—customer’s perception of the balance between the positive traits of a good or service and its
price.
Customer satisfaction​—ability of a good service to meet or exceed a buyer’s needs and expectations

■ Transaction management​—building and promoting products in hopes of covering costs and

earning acceptable profits
■ Relationship management​—collection of activities that build and maintain ongoing, mutually
beneficial ties between a business and its customers and other parties.

Basic Rights in the Private Enterprise System 

The right to ​private property ​is the most basic freedom under the private enterprise system. Every
participant has the right to own, use, buy, sell, and bequeath most forms of property, including land,
buildings, machinery, and equipment, patents on inventions, individual possessions, and intangible
properties.
The private enterprise system also guarantees ​business owners the right to all profits​—after
taxes—they earn through their activities. Although a business is not assured of earning a profit, its owner
is legally and ethically entitled to any income it generates in excess of costs.
Freedom of choice​ means that a private enterprise system relies on the potential for citizens to choose
their own employment, purchases, and investments. They can change jobs, negotiate wages, join labor
unions, and choose among many different brands of goods and services. People living in the capitalist
nations of North America, Europe, and other parts of the world are so accustomed to this freedom of
choice that they sometimes forget its importance. A private enterprise economy maximizes individual
prosperity by providing alternatives. Other economic systems sometimes limit freedom of choice to
accomplish government goals, such as increasing industrial production of certain items or military
strength.
The private enterprise system also permits ​fair competition by​ allowing the public to set rules for
competitive activity. For this reason, the U.S. government has passed laws to prohibit “cutthroat”
competition—excessively aggressive competitive practices designed to eliminate competition. It also has
established ground rules that outlaw price discrimination, fraud in financial markets, and deceptive
advertising and packaging. The Federal Communications Commission (FCC) recently closed a loophole
in its rules that will help increase competition in the cable industry by forcing major companies to give up
their exclusive rights to broadcast certain sports channels. “Consumers who want to switch video
providers shouldn’t have to give up their favorite team in the process,”the FCC chairperson said. “Today
the Commission levels the competitive playing field.
Chapter 2:
Short:
1.What do the terms ​business ethics a​ nd ​social responsibility ​mean? Why are they important components of a
firm’s overall philosophy in conducting business?
Ans: ​An organization that wants to prosper over the long term is well advised to consider ​business
ethics​, the standards of conduct and moral values governing actions and decisions in the work
environment. Businesses also must take into account a wide range of social issues, including
how a decision will affect the environment, employees, and customers. These issues are at the
heart of ​social responsibility​, whose primary objective is the enhancement of society’s welfare
through philosophies, policies, procedures, and actions. In short, businesses must find the
delicate balance between doing what is right and doing what is profitable.

In 2010, General Motors announced that it would begin full-scale production of the fully electric plug-in
hybrid Chevrolet Volt. The Volt will run for 40 miles after its battery pack is charged at an ordinary
household outlet. After that, an internal-combustion engine takes over—to generate electricity to power
the car farther. Planning to offer the car in limited markets at first, GM hopes to woo buyers with the
prospect of owning a car that can achieve an astonishing 150 miles per gallon of liquid fuel.

In business, as in life, deciding what is right or wrong in a given situation does not always involve
a clear-cut choice. Firms have many responsibilities—to customers, to employees, to investors,
and to society as a whole. Sometimes conflicts arise in trying to serve the different needs of these
separate constituencies. The ethical values of executives and individual employees at all levels
can influence the decisions and actions a business takes. Throughout your own career, you will
encounter many situations in which you will need to weigh right and wrong before making a
decision or taking action. So we begin our discussion of business ethics by focusing on
individual ethics. Business ethics are also shaped by the ethical climate within an organization.
Codes of conduct and ethical standards play increasingly significant roles in businesses in which
doing the right thing is both supported and applauded. This chapter demonstrates how a firm can
create a framework to encourage—and even demand—high standards of ethical behavior and
social responsibility from its employees​. The chapter also considers the complex question of what
business owes to society and how societal forces mold the actions of businesses. Finally, it examines the
influence of business ethics and social responsibility on global business.

6.What are the four major areas in which businesses have responsibilities to the general public? In what ways
can meeting these responsibilities give a firm a competitive edge?
 • Protecting the Environment :
Recycling​—reprocessing of used materials for reuse.
Green marketing​—marketing strategy that promotes environmentally safe products
and production methods.

✓ Corporate Philanthropy​—act of an organization giving something back to the communities in

which it earns profits.

7. ​Identify and describe the four basic rights that consumerism tries to protect. How has consumerism improved
the contemporary business environment? What challenges has it created for businesses?
Ans:

Responsibilities to Customers 
Businesspeople share a social and ethical responsibility to treat their customers fairly and
act in a manner that is not harmful to them. ​Consumerism​—the public demand that a business consider
the wants and needs of its customers in making decisions—has gained widespread acceptance.
Consumerism is based on the belief that consumers have certain rights. A frequently quoted statement of
consumer rights was made by President John F. Kennedy in 1962. Figure 2.7 summarizes these
consumer rights. Numerous state and federal laws have been implemented since then to protect these
rights.
The Right to Be Safe ​Contemporary businesspeople must recognize obligations, both moral and
legal, to ensure the safe operation of their products. Consumers should feel assured that the products
they purchase will not cause injuries in normal use.
Product liability ​refers to the responsibility of manufacturers for injuries and damages
caused by their products. Items that lead to injuries, either directly or indirectly, can have disastrous
consequences for their makers. Many companies put their products through rigorous testing to avoid
safety problems. Still, testing alone cannot foresee every eventuality. Companies must try to consider all
possibilities and provide adequate warning of potential dangers. When a product does pose a threat to
customer safety, a responsible manufacturer responds quickly to either correct the problem or recall the
dangerous product. Although we take for granted that our food supply is safe, sometimes contamination
leaks in, causing illness or even death among some consumers. Ippolito International Once voluntarily
recalled more than 1,700 cartons of bunched spinach after random testing found that some bunches were
contaminated with salmonella, a microorganism that produces infections and sometimes death in young
children, the elderly, and those with weakened immune systems. Fortunately, no illnesses were reported.
The Right to Be Informed ​Consumers should have access to enough education and product
information to make responsible buying decisions. In their efforts to promote and sell their goods and
services, companies can easily neglect consumers’ right to be fully informed. False or misleading
advertising is a violation of the Wheeler- Lea Act, a federal law enacted in 1938. The FTC and other
federal and state agencies have established rules and regulations that govern advertising truthfulness.
These rules prohibit businesses from making unsubstantiated claims about the performance or superiority
of their merchandise. They also require businesses to avoid misleading consumers. Businesses that fail
to comply face scrutiny from the FTC and consumer protection organizations. For instance, Dannon
Company settled a class-action lawsuit that charged the company with false advertising. Dannon claimed
that two of its yogurt products, Activia, and DanActive, improved the immune system of the digestive tract.
The company agreed to make changes in the labeling and advertising of those products, claiming instead
that they merely interact with the immune system. Dannon also set up a Web site with information about
the settlement and agreed to refund customers up to $100, depending on how much yogurt each
customer bought.The Food and Drug Administration (FDA), which sets standards for advertising
conducted by drug manufacturers, eased restrictions for prescription drug advertising on television.
In print ads, drug makers are required to spell out potential side effects and the proper uses of
prescription drugs. Because of the requirement to disclose this information, prescription drug television
advertising was limited. Now, however, the FDA says drug ads on radio and television can directly
promote a prescription drug’s benefits if they provide a quick way for consumers to learn about
side-effects, such as displaying a toll-free number or Internet address. As we have seen, the “Solving an
Ethical Controversy” feature on page 51 discusses the pros and cons of such advertising.
The FDA also monitors “dietary supplements,” including vitamins and herbs. This includes protecting
consumers against fake and sometimes harmful versions of name-brand supplements. In 2010, the FDA
issued a public alert to warn consumers about counterfeit versions of Alli, an over-the-counter weight-loss
supplement. Instead of the correct active ingredient, the counterfeit Alli contained a controlled substance
that should not be used without a doctor’s supervision and that may actually harm certain patients. In
addition, the packaging of the counterfeit was missing a “lot” code and differed in other, subtle ways from
the genuine packaging. The fake capsules were different in size and shape from the real ones, too.
Apparently all the fake Alli had been sold over the Internet rather than in stores, so customers could not
inspect the packaging or the capsules before receiving the product.The responsibility of business to
preserve consumers’ right to be informed extends beyond avoiding misleading advertising. All
communications with customers—from salespeople’s comments to warranties and invoices—must be
controlled to clearly and accurately inform customers. Most packaged-goods firms, personal-computer
makers, and other makers of products bought for personal use by consumers include toll-free customer
service numbers on their product labels so that consumers can get answers to questions about a product.
To protect their customers and avoid claims of insufficient disclosure, businesses often include warnings
on products. As Figure 2.8 shows, sometimes these warnings go far beyond what a reasonable consumer
would expect. Others are downright funny.
The Right to Choose ​Consumers should have the right to choose which goods and services they
need and want to purchase. Socially responsible firms attempt to preserve this right, even if they reduce
their own sales and profits in the process. Brand-name drug makers have recently gone on the defensive
in a battle being waged by state governments, insurance companies, consumer groups, unions, and
major employers such as General Motors and Verizon. These groups want to force down the rising price
of prescription drugs by ensuring that consumers have the right and the opportunity to select cheaper
generic brands.
The Right to Be Heard ​Consumers should be able to express legitimate complaints to appropriate
parties. Many companies expend considerable effort to ensure full hearings for consumer complaints. The
auction Web site eBay assists buyers and sellers who believe they were victimized in transactions
conducted through the site. It deploys a
200-employee team to work with users and law enforcement agencies to combat fraud. The company has
strict guidelines for buyers and sellers and rules for leaving feedback about a buyer or seller. For
example, buyers must operate within a list of acceptable goods for sale and may not offer such items as
alcohol, pornography, drugs, counterfeit currency, or artifacts from cave formations, graves, or Native
American sites. The protection of copyrights is also an important part of eBay’s policy.

8. ​What are the five major areas in which companies have responsibilities to their employees? What types of
changes in society are now affecting these responsibilities?
Ans:
✓ Workplace Safety.
✓ Quality of Life Issues.
✓ Ensuring Equal Opportunity in the Job.
✓ Age Discrimination.
✓ Sexual Harassment and Sexism—inappropriate actions of a sexual nature in the workplace.

9. ​Identify which Equal Opportunity law (or laws) protects workers in the following categories:
a. ​an employee who must care for an elderly parent
b. ​a National Guard member who is returning from deployment overseas
c. ​a job applicant who is HIV positive
d. ​a person who is over 40 years old
e. ​a woman who has been sexually harassed on the job
f. ​a woman with a family history of breast cancer

BROAD QUESTIONS:
2. I​ n what ways do individuals make a difference in a firm’s commitment to ethics? Describe the three stages in
which an individual develops ethical standards.

Development of Individual Ethics 

Individuals typically develop ethical standards in the three stages shown in
Figure 2.2: the preconventional, conventional, and post conventional stages.
In stage 1, the preconventional stage,
individuals primarily consider their own
needs and desires in making decisions.
They obey external rules only because they
are afraid of punishment or hope to receive
rewards if they comply.
In stage 2, the conventional stage,
individuals are aware of and act in
response to their duty to others, including
their obligations to their family members,
coworkers, and organizations. The
expectations of these groups influence how
they choose between what is acceptable
and unacceptable in certain situations.
Self-interest, however, continues to play a
role in decisions.
Stage 3, the postconventional stage,
represents the highest level of ethical and
moral behavior. The individual is able to
move beyond mere self-interest and duty
and take the larger needs of society into
account as well. He or she has developed
personal ethical principles for determining
what is right and can apply those principles in a wide variety of situations. One issue that you may face at
work is an ethically compromised or “sticky” situation; the “Business Etiquette” feature lists some tips to
consider in deciding how to handle such a dilemma.
An individual’s stage in moral and ethical development is determined by a huge number of factors.
Experiences help shape responses to different situations.

3. ​What type of ethical dilemma does each of the following illustrate? (A situation might involve more than one
dilemma.)

■ On-the-Job Ethical Dilemmas

✓ Conflict of Interest​—situation in which a business decision may be influenced for personal
gain.
✓ Honesty and Integrity​—telling the truth and adhering to deeply felt ethical principles in
business decisions.
■ On-the-Job Ethical Dilemmas
✓ Loyalty vs. Truth​—businesspeople expect their employees to be loyal and truthful. But
ethical conflicts may arise.
✓ Whistleblowing​—employee’s disclosure to government authorities or the media of illegal,
immoral, or unethical practices in the organization.

a. ​Due to the breakup with a client, an advertising agency suddenly finds itself representing rival companies.
b. ​A newly hired employee learns that the office manager plays computer games on company time.
c. ​A drug manufacturer offers a doctor an expensive gift as an inducement to prescribe a new brand-name
drug.
d. ​An employee is asked to destroy documents that implicate his or her firm in widespread pollution.
e. ​A company spokesperson agrees to give a press conference that puts a positive spin on his or her firm’s use
of sweatshop labor.

Chapter-3
Short:
1.How does microeconomics impact business? How does macroeconomics affect business? Why is it
important for businesspeople to understand the fundamentals of each?
Microeconomics—study of small economic units, such as individual consumers, families, and businesses.
Macroeconomics—study of a nation’s overall economic issues, such as how an economy maintains and
allocates resources and how government policies affect the standards of living of its citizens.

5. ​What are the four stages of the business cycle? In which stage do you believe the U.S. economy is now?
Why?

Four Phases of Business Cycle

Business Cycle (or Trade Cycle) is divided into the following four phases :-
Prosperity Phase : Expansion or Boom or Upswing of economy.
Recession Phase : from prosperity to recession (upper turning point).
Depression Phase : Contraction or Downswing of economy.
Recovery Phase : from depression to prosperity (lower turning Point).
The four phases of business cycles are shown in the following diagram :-

Four Phases of Business Cycle

The business cycle starts from a trough (lower point) and passes through a recovery phase followed by a
period of expansion (upper turning point) and prosperity. After the peak point is reached there is a declining
phase of recession followed by a depression. Again the business cycle continues similarly with ups and downs.
The four phases of a business cycle are briefly explained as follows :-

1. Prosperity Phase

When there is an expansion of output, income, employment, prices and profits, there is also a rise in the
standard of living. This period is termed as Prosperity phase.
The features of prosperity are :-
High level of output and trade.
High level of effective demand.
High level of income and employment.
Rising interest rates.
Inflation.
Large expansion of bank credit.
Overall business optimism.
A high level of MEC (Marginal efficiency of capital) and investment.
Due to full employment of resources, the level of production is Maximum and there is a rise in GNP (Gross
National Product). Due to a high level of economic activity, it causes a rise in prices and profits. There is an
upswing in the economic activity and economy reaches its Peak. This is also called as a Boom Period.

2. Recession Phase

The turning point from prosperity to depression is termed as Recession Phase.

During a recession period, the economic activities slow down. When demand starts falling, the overproduction
and future investment plans are also given up. There is a steady decline in the output, income, employment,
prices and profits. The businessmen lose confidence and become pessimistic (Negative). It reduces
investment. The banks and the people try to get greater liquidity, so credit also contracts. Expansion of
business stops, stock market falls. Orders are cancelled and people start losing their jobs. The increase in
unemployment causes a sharp decline in income and aggregate demand. Generally, recession lasts for a short
period.

3. Depression Phase

When there is a continuous decrease of output, income, employment, prices and profits, there is a fall in the
standard of living and depression sets in.
The features of depression are :-
Fall in volume of output and trade.
Fall in income and rise in unemployment.
Decline in consumption and demand.
Fall in interest rate.
Deflation.
Contraction of bank credit.
Overall business pessimism.
Fall in MEC (Marginal efficiency of capital) and investment.
In depression, there is under-utilization of resources and fall in GNP (Gross National Product). The aggregate
economic activity is at the lowest, causing a decline in prices and profits until the economy reaches its Trough
(low point).

4. Recovery Phase

The turning point from depression to expansion is termed as Recovery or Revival Phase.
During the period of revival or recovery, there are expansions and rise in economic activities. When demand
starts rising, production increases and this causes an increase in investment. There is a steady rise in output,
income, employment, prices and profits. The businessmen gain confidence and become optimistic (Positive).
This increases investments. The stimulation of investment brings about the revival or recovery of the economy.
The banks expand credit, business expansion takes place and stock markets are activated. There is an
increase in employment, production, income and aggregate demand, prices and profits start rising, and
business expands. Revival slowly emerges into prosperity, and the business cycle is repeated.
Thus we see that, during the expansionary or prosperity phase, there is inflation and during the contraction or
depression phase, there is a deflation

6. ​What is the gross domestic product? What is its relationship to productivity?

Productivity and the Nation’s Gross Domestic Product:

An important concern for every economy is productivity, the relationship between the goods and services
produced in a nation each year and the inputs needed to produce them. In general, as productivity rises, so
does an economy’s growth and the wealth of its citizens. In a recession, productivity stalls or even declines.
Productivity describes the relationship between the number of units produced and the number of human and
other production inputs necessary to produce them. Productivity is a ratio of output to input.
When a constant amount of inputs generates increased outputs, an increase in productivity occurs.Total
productivity considers all inputs necessary to produce a specific amount of out-puts. Stated in equation form, it
can be written as follows:Total Productivity=
Output (goods or services produced)/ Input (human / natural resources, capital)
Many productivity ratios focus on only one of the inputs in the equation: labor pro-ductivity or output per
labor-hour. An increase in labor productivity means that the same amount of work produces more goods and
services than before. Many of the gains in U.S. productivity are attributed to technology, and in recent years the
United States appears to be enjoying the fruit of technology and productivity.Productivity is a widely recognized
measure of a company’s efficiency. In turn, the total productivity of a nation’s businesses has become a
measure of its economic strength and standard of living. Economists refer to this measure as a country’s gross
domestic product (GDP)—the sum of all goods and services produced within its boundaries. The GDP is based
on the per-capita output of a country—in other words, total national output divided by the number of citizens.
7. ​What are the effects of inflation on an economy? What are the effects of deflation? How does the Consumer
Price Index work?
Effects of Inflation :
Income redistribution: One risk of higher inflation is that it has a regressive effect on lower-income families and
older people in society. This happen when prices for food and domestic utilities such as water and heating rises
at a rapid rate
Falling real incomes: With millions of people facing a cut in their wages or at best a pay freeze, rising inflation
leads to a fall in real incomes.
Negative real interest rates: If interest rates on savings accounts are lower than the rate of inflation, then
people who rely on interest from their savings will be poorer. Real interest rates for millions of savers in the UK
and many other countries have been negative for at least four years
Cost of borrowing: High inflation may also lead to higher borrowing costs for businesses and people needing
loans and mortgages as financial markets protect themselves against rising prices and increase the cost of
borrowing on short and longer-term debt. There is also pressure on the government to increase the value of the
state pension and unemployment benefits and other welfare payments as the cost of living climbs higher.
Risks of wage inflation: High inflation can lead to an increase in pay claims as people look to protect their real
incomes. This can lead to a rise in unit labor costs and lower profits for businesses
Business competitiveness: If one country has a much higher rate of inflation than others for a considerable
period of time, this will make its exports less price competitive in world markets. Eventually this may show
through in reduced export orders, lower profits and fewer jobs, and also in a worsening of a country’s trade
balance. A fall in exports can trigger negative multiplier and accelerator effects on national income and
employment.
Business uncertainty: High and volatile inflation is not good for business confidence partly because they cannot
be sure of what their costs and prices are likely to be. This uncertainty might lead to a lower level of capital
investment spending.
Inflation rising prices caused by a combination of excess consumer demand and increases in the costs of raw
materials, component parts, human resources, and other factors of production.

Effects of Deflation
Deflation may have any of the following impacts on an economy:

1. Reduced Business Revenues

Businesses must significantly reduce the prices of their products in order to stay competitive. Obviously, as
they reduce their prices, their revenues start to drop. Business revenues frequently fall and recover, but
deflationary cycles tend to repeat themselves multiple times.

Unfortunately, this means businesses will need to increasingly cut their prices as the period of deflation
continues. Although these businesses operate with improved production efficiency, their profit margins will
eventually drop, as savings from material costs are offset by reduced revenues.

2. Wage Cutbacks and Layoffs

When revenues start to drop, companies need to find ways to reduce their expenses to meet their bottom line.
They can make these cuts by reducing wages and cutting positions. Understandably, this exacerbates the
cycle of inflation, as more would-be consumers have less to spend.

3. Changes in Customer Spending

The relationship between deflation and consumer spending is complex and often difficult to predict. When the
economy undergoes a period of deflation, customers often take advantage of the substantially lower prices.
Initially, consumer spending may increase greatly; however, once businesses start looking for ways to bolster
their bottom line, consumers who have lost their jobs or taken pay cuts must start reducing their spending as
well. Of course, when they reduce their spending, the cycle of deflation worsens.

4. Reduced Stake in Investments

When the economy goes through a series of deflation, investors tend to view cash as one of their best possible
investments. Investors will watch their money grow simply by holding onto it. Additionally, the interest rates
investors earn often decrease significantly as central banks attempt to fight deflation by reducing interest rates,
which in turn reduces the amount of money they have available for spending.

In the meantime, many other investments may yield a negative return or are highly volatile, since investors are
scared and companies aren’t posting profits. As investors pull out of stocks, the stock market inevitably drops.

5. Reduced Credit
When deflation rears its head, financial lenders quickly start to pull the plugs on many of their lending
operations for a variety of reasons. First of all, as assets such as houses decline in value, customers cannot
back their debt with the same collateral. In the event a borrower is unable to make their debt obligations, the
lenders will be unable to recover their full investment through foreclosures or property seizures.

CPI:
The government tracks changes in price levels with the Consumer Price Index (CPI), which measures the
monthly average change in prices of goods and services. The federal Bureau of Labor Statistics (BLS)
calculates the CPI monthly based on prices of a “market basket,” a compila-tion of the goods and services most
commonly purchased by urban consumers

Why It's Important 

The CPI measures inflation, one of the greatest threats to a healthy economy.

Therefore, the Federal government uses it to determine whether ​economic policies need
to be modified to prevent inflation​. Second, government agencies use the CPI to adjust
prices in other government economic indicators, such as ​gross domestic product​. Third,
the government uses it to improve benefit levels for recipients of Social Security and
other government programs.
The CPI is used as an economic indicator, a deflator of other economic series, and a means of
adjusting income payments (e.g., over 2 million workers are covered by collective bargaining
agreements that tie wages to the CPI).

While sometimes referred to as a cost-of-living index, the CPI differs in important ways from a
complete index because it does not take into account changes in other factors that affect
consumer well-being and are difficult to quantify, such as safety, health, water quality, and
crime.

8. ​What does a nation’s unemployment rate indicate? Describe what type of unemployment you think each of
the following illustrates:
a. ​discharged armed forces veteran
b. ​bus driver who has been laid off due to cuts in his or her city’s transit budget
c. ​worker who was injured on the job and must start a new career
d. ​lifeguard
e. ​dental hygienist who has quit one job and is looking for another

The​ unemployment rate​ measures the percentage of employable people in a country's

workforce who are over the age of 16 and who have either lost their jobs or have
unsuccessfully sought jobs in the last month and are still actively seeking work.
The formula for unemployment rate is:
Unemployment Rate = Number of Unemployed / Total Labor Force

WHY IT MATTERS:
Employment is the primary source of ​personal income​ in the U.S. and has a major
influence on consumer spending and overall economic growth. Thus, the unemployment
rate, which is a ​lagging indicator​, can provide considerable information about the state
of the ​economy​ or the health of particular business sectors. For example,
high ​unemployment​ generally indicates that an economy is underperforming or has a
falling gross domestic product. Conversely, low or falling unemployment may reflect an
expanding economy. At the same time, unemployment data can also point to changes
in certain industries. For example, an increase in construction jobs might signal
improving ​housing starts​. For these reasons, the unemployment rate is one of the most
widely followed ​economic indicators
While there is some controversy over the different methodologies used to measure
unemployment, nearly all recognize its importance. Because unemployment statistics
are so closely watched and heavily relied upon, differences between the expected
unemployment rate and the reported rate may have a wide impact, not only in the
securities markets, but also in the value of the U.S. dollar (which tends to rise in a
strengthening labor ​market​). Furthermore, unexpectedly low unemployment may
motivate the Federal Reserve to increase interest rates in order to curb a possibly
overheating economy, and vice-versa. This ​will​ also influence ​stock​ and ​bond​ prices.

9. ​Explain the difference between monetary policy and fiscal policy. How does the government raise funds to
cover the costs of its annual budget?
Monetary Policy—government actions to increase or decrease the money supply and change banking
requirements and interest rates to influence banker’s willingness to make loans.

Fiscal Policy—government spending and taxation decisions designed to control inflations, reduce
unemployment, improve the general welfare of citizens, and encourage economic growth.

The following points highlight the nine main sources of government

revenue. The sources are: 1. Tax 2. Rates 3. Fees 4. Licence Fee 5.
Surplus of the public sector units 6. Fine and penalties 7. Gifts and
grants 8. Printing of paper money 9. Borrowings.
Broad :
3. ​Describe the four different types of competition in the private enterprise system. In which type of competition
would each of the following businesses be likely to engage?
a. ​large drug stores chain
b. ​small yoga studio
c. ​steel mill
d. ​large farm whose major crop is corn
e. ​Microsoft

CQ:
2. ​Draw supply and demand graphs that estimate what will happen to demand, supply, and the equilibrium
price of coffee if these events occur:
a. ​Widely reported medical studies suggest that coffee drinkers are less likely to develop certain diseases.
b. ​The cost of manufacturing paper cups increases.
c. ​The state imposes a new tax on takeout beverages.
d. ​The biggest coffee chain leaves the area.

4. ​Distinguish between the two types of planned economies. What factors do you think keep them from
flourishing in today’s environment?