Republic of the Philippines

NEGROS ORIENTAL STATE UNIVERSITY

Bayawan-Sta. Catalina, Campus
COLLEGE OF BUSINESS ADMINISTRATION
Bachelor of Science in Business Administration

BA 201
MACROECONOMICS

https://images.app.goo.gl/TTwpqnsqQiePMGQK7

Prepared by: MARIA KATHLEER A. TIAMPONG, MBA

 MODULE 1 2. There are learning objectives stated in each lesson, so please read each one
carefully and understand it.
Introduction 3. Each part of the lesson has assessments and activities.
4. Each lesson contains:
This article includes various topics related macroeconomics. In the beginning a. Objectives – These are lessons targeting you A.S.K. or Affective
the nature of macroeconomics is described. Then the article turns describing many (Values and understanding), pSychomotor (General Skills and
terms of this macroeconomics. The utility of macroeconomics will be explained in Technical Skills), and Knowledge (Higher and lower thinking skills).
this article. Besides; scope of macroeconomics is also described in this article. The b. Prompting Questions – These are questions that will give you hint
practical appliance of this Part of economics are described here. and stimulation about the lesson.
The purpose of this topic is to look at the nature and purpose of the science of c. Discussion – The main content of the information of the lesson that
economics. The methodology is studied. A distinction is made between positive (or you need to learn.
descriptive) economics and normative (or political) economics. Different branches of d. Student activities and exercises – These are learning activities and
economics are classified. Some pitfalls of economic analysis are mentioned. exercises given to you based on the discussion to evaluation if you
learn something.
e. Assessment/Practice Tasks – These are the evaluation and
Objectives assessment if you were able to understand the lesson based on the
given learning objectives.
 5.1.1.18 Respond with and/or lead a diverse team toward goal 5. Please feel free to contact me through Facebook (Kathleer Alde Tiampong)
accomplishment. and Email (mkalde26@gmail.com) if you have questions, clarifications,
 6.1.1.12 Know and understand the country’s national developmental thrusts, comments or suggestions regarding the topic.
concerns, and socio-economic indicators. 6. If you have concerns to the college and the College Dean, you may contact the
 7.1.1. Analyze the business environment for strategic direction information below.
 Email: cbabayawan@gmail.com
 7.1.4 Manage a strategic business unit for economic sustainability
 FB: Mayuan Tijing Calijan
7. For other CARE concerns you may also contact these:
Contents of the Module  FB: Wecare norsubayawan
 Email: norsuCARE@gmail.com
This module contains the following discussions:
Lesson 1: INTRODUCTION TO ECONOMICS References:
Lesson 2: MACROECONOMICS FUNDAMENTALS http://www.opentextbooks.org.hk/system/files/export/11/11894/pdf/Macroeconomics
_11894.pdf
https://www.researchgate.net/publication/335282537_An_Overview_on_Macroecono
Directions on How to Use the Module mics_Ideas_Approaches_and_Importance
https://www.learncbse.in/introduction-macroeconomics-concepts-cbse-notes-class-
To increase more benefits to this module, you need to follow all the main 12-macro-economics/
points. You need to familiarize the main points stated here, to vis: https://www.investopedia.com/terms/m/macroeconomics.asp#what-is-
1. This module contains 2 lessons. Make sure you read the lessons carefully so macroeconomics
you will understand all the contents. Each lesson is explained thoroughly.
LESSON 1
 INTRODUCTION TO ECONOMICS

Specific Objectives

 5.1.5 Relate business theories and concepts to practical problems.

 5.1.6 Apply key theories, models and application within the global & local
business context.
 5.1.7 Apply general Management know-how in practical business situations.

Prompting Questions

Why do you think you need to study and relate Macroeconomics to our
economy? What is the difference between Microeconomics and Macroeconomics?

Discussion

This figure illustrates the interaction of limited resources available and the unlimited
wants of the society. If limited resources fall short to meet the unlimited wants of the
society, it will eventually create a problem, which is called, “scarcity”.
Economics

Economics is a science that deals with the management of scarce resources. It

is also described as a specific study on how individuals and the society generally
make choices (Fajardo, 1977). Specifically, it is the study of the problem of using
available economic resources as efficiently as possible so as to attain the maximum
fulfillment of society’s unlimited demand for goods and services. As Slavin (2005)
puts it, economics is simply scarcity and choice.

Scarcity What is the relationship between Economics and Scarcity?

Scarcity refers to the basic economic problem, the gap between limited – that
is, scarce – resources and theoretically limitless wants. This situation requires people The problem of scarcity gave birth to the study of economics. Their
to make decisions about how to allocate resources efficiently, in order to satisfy basic relationship is such that if there is no scarcity, there is no need for economics. The
needs and as many additional wants as possible. Any resource that has a non-zero cost study of economics was essentially founded in order to address the issue of resource
to consume is scarce to some degree, but what matters in practice is relative scarcity. allocation and distribution, in response to scarcity.
Scarcity is also referred to as "paucity."
(https://www.investopedia.com/terms/s/scarcity.asp) Origin of the term “Economics”
 The two Greek roots of the word economics are oikos – meaning household – protect free market competition. Many economic theories today are, at least in part, a
and nomus – meaning system or management. Oikonomia or oikonomus therefore reaction to Smith's pivotal work in the field, namely his 1776 masterpiece The Wealth
means the “management of household.” of Nations. In this book, Smith laid out several of the mechanisms of capitalist
production, free markets, and value. Smith showed that individuals acting in their
Ceteris Paribus own self-interest could, as if guided by an "invisible hand", create social and
economic stability and prosperity for all.
The assumption of “Ceteris Paribus” is important in studying economics. (https://www.investopedia.com/articles/economics/08/economic-thought.asp)
Ceteris Paribus means “all other things held constant or all else equal.” This
assumption is used as a device to analyze the relationship between two variables
while the other factors are held unchanged. It is widely used in economics as an
explanatory technique as it allows economists to isolate the relationship between two Factors of Production
variables.

Brief History of Economics:

 Economics is the science of how goods and services are produced and
consumed. 
 Adam Smith used the ideas of French writers to create a thesis on how
economies should work, while Karl Marx and Thomas Malthus expanded on
his work—focusing on how scarcity drives economies.
 Leon Walras and Alfred Marshall used statistics and mathematics to express
economic concepts, such as economies of scale.
 John Maynard Keynes’ economic theories are still used today by the Federal
Reserve to manage monetary policy.
 Most modern economic theories are based on the work of Milton Friedman,
which suggests more capital in the system lessens the need for government
involvement.

Economic thought goes as far back as the ancient Greeks, and is known to
have been an important topic in the ancient Middle East. However, today, Scottish
thinker Adam Smith is widely credited for creating the field of economics. However,
he was inspired by French writers who shared his hatred of mercantilism. In fact, the
first methodical study of how economies work was undertaken by these French
physiocrats. Smith took many of their ideas and expanded them into a thesis about
how economies should work, as opposed to how they do work.

Smith believed that competition was self-regulating and governments should

take no part in business through tariffs, taxes, or other means unless it was to
Circular Flow Model Concept of Opportunity Cost

Because people cannot have everything they want, they are forced to make
choices between several options. Opportunity cost refers to the foregone value of the
best alternative. It is the value of what is given-up when one makes a choice. The
thing thus given-up is called the opportunity cost of one’s choice.
When one makes choices, there is always an alternative that has to be given
up. A producer, who decides to produce shoes, gives up other goods that he could
have produced using the same resources. A student, who buys a book with his limited
allowance, gives up the chance of eating out or watching a movie.
Opportunity cost is expressed in relative price. This means that the price of
one item should be relative to the price of another.

Types of Economic Systems

What is an Economic System?

The figure shows the microeconomic circular flow model. It presents the basic An economic system is a means by which societies or governments organize and
relationship between households (consumers) and businesses (producers). Households distribute available resources, services, and goods across a geographic region or
primarily provide basic economic resources (land, labor and capital). These economic country. Economic systems regulate the factors of production, including land,
resources are combined so that firms can create goods and services which are capital, labor, and physical resources. An economic system encompasses many
eventually offered back and consumed by households. institutions, agencies, entities, decision-making processes, and patterns of
consumption that comprise the economic structure of a given community. Economic
systems can be categorized into four main types: traditional economies, command control over resources, and it does not interfere with important segments of the
economies, mixed economies, and market economies. economy. Instead, regulation comes from the people and the relationship
between supply and demand.
1. Traditional economic system The market economic system is mostly theoretical. That is to say, a pure
The traditional economic system is based on goods, services, and work, all of market system doesn’t really exist. Why? Well, all economic systems are subject to
which follow certain established trends. It relies a lot on people, and there is very some kind of interference from a central authority. For instance, most governments
little division of labor or specialization. In essence, the traditional economy is very enact laws that regulate fair trade and monopolies.
basic and the most ancient of the four types. From a theoretical point of view, a market economy facilitates substantial
Some parts of the world still function with a traditional economic system. It is growth. Arguably, growth is highest under a market economic system.
commonly found in rural settings in second- and third-world nations, where economic A market economy’s greatest downside is that it allows private entities to
activities are predominantly farming or other traditional income-generating activities. amass a lot of economic power, particularly those who own resources of great value.
There are usually very few resources to share in communities with traditional The distribution of resources is not equitable because those who succeed
economic systems. Either few resources occur naturally in the region or access to economically control most of them.
them is restricted in some way. Thus, the traditional system, unlike the other three,  
lacks the potential to generate a surplus. Nevertheless, precisely because of its 4. Mixed system
primitive nature, the traditional economic system is highly sustainable. In addition, Mixed systems combine the characteristics of the market and command
due to its small output, there is very little wastage compared to the other three economic systems. For this reason, mixed systems are also known as dual systems.
systems. Sometimes the term is used to describe a market system under strict regulatory
  control.
2. Command economic system Many countries in the West follow a mixed system. Most industries are
In a command system, there is a dominant, centralized authority –  usually the private, while the rest, comprised primarily of public services, are under the control of
government – that controls a significant portion of the economic structure. Also the government.
known as a planned system, the command economic system is common in communist Mixed systems are the norm globally. Supposedly, a mixed system combines
societies since production decisions are the preserve of the government. the best features of market and command systems. However, practically speaking,
If an economy enjoys access to many resources, chances are that it may lean mixed economies face the challenge of finding the right balance between free markets
towards a command economic structure. In such a case, the government comes in and and government control. Governments tend to exert much more control than is
exercises control over the resources. Ideally, centralized control covers valuable necessary.
resources such as gold or oil. The people regulate other less important sectors of the (https://corporatefinanceinstitute.com/resources/knowledge/economics/economic-
economy, such as agriculture. system/)
In theory, the command system works very well as long as the central
authority exercises control with the general population’s best interests in mind.
However, that rarely seems to be the case. Command economies are rigid compared Activities
to other systems. They react slowly to change because power is centralized. That
makes them vulnerable to economic crises or emergencies, as they cannot quickly Activities will be found in our google classroom. Please click/copy the link below.
adjust to changed conditions. https://forms.gle/2NKY6Q2HnvhJZkKB7
 
3. Market economic system
Market economic systems are based on the concept of free markets. In other Assessment
words, there is very little government interference. The government exercises little
Please see the link below for our google classroom assessment. Thank you. Macroeconomics deals with the performance, structure, and behavior of the entire
https://classroom.google.com/c/MzEzMzc1MjM2MjEx/a/MzM1NDE3Mjc1NTA3/de economy, in contrast to microeconomics, which is more focused on the choices made
tails by individual actors in the economy (like people, households, industries, etc.).
LESSON 2
MACROECONOMICS FUNDAMENTALS
KEY TAKEAWAYS
 Macroeconomics is the branch of economics that deals with the
Specific Objectives structure, performance, behavior, and decision-making of the whole, or
aggregate, economy.
 5.1.5 Relate business theories and concepts to practical problems.  The two main areas of macroeconomic research are long-term
 5.1.6 Apply key theories, models and application within the global & local economic growth and shorter-term business cycles.
business context.  Macroeconomics in its modern form is often defined as starting with
 5.1.7 Apply general Management know-how in practical business situations. John Maynard Keynes and his theories about market behavior and
 6.1.1.12 Know and understand the country’s national developmental thrusts, governmental policies in the 1930s; several schools of thought have
concerns, and socio-economic indicators developed since.
 In contrast to macroeconomics, microeconomics is more focused on
the influences on and choices made by individual actors in the
Prompting Questions economy (people, companies, industries, etc.).

What do you think is the basic law of demand and supply? Why do you think
the price of goods and services increase and decrease? Understanding Macroeconomics

There are two sides to the study of economics: macroeconomics and

Discussion microeconomics. As the term implies, macroeconomics looks at the overall, big-
picture scenario of the economy. Put simply, it focuses on the way the economy
performs as a whole and then analyzes how different sectors of the economy relate to
What Is Macroeconomics? one another to understand how the aggregate functions. This includes looking at
variables like unemployment, GDP, and inflation. Macroeconomists develop models
Macroeconomics is a branch of economics that studies how an overall explaining relationships between these factors. Such macroeconomic models, and the
economy—the market or other systems that operate on a large scale—behaves. forecasts they produce, are used by government entities to aid in the construction and
Macroeconomics studies economy-wide phenomena such as inflation, price levels, evaluation of economic, monetary, and fiscal policy; by businesses to set strategy in
rate of economic growth, national income, gross domestic product (GDP), and domestic and global markets; and by investors to predict and plan for movements in
changes in unemployment. various asset classes.
Some of the key questions addressed by macroeconomics include: What Given the enormous scale of government budgets and the impact of economic
causes unemployment? What causes inflation? What creates or stimulates economic policy on consumers and businesses, macroeconomics clearly concerns itself with
growth? Macroeconomics attempts to measure how well an economy is performing, significant issues. Properly applied, economic theories can offer illuminating insights
to understand what forces drive it, and to project how performance can improve. on how economies function and the long-term consequences of particular policies and
decisions. Macroeconomic theory can also help individual businesses and investors
make better decisions through a more thorough understanding of the effects of broad consequences of short-term fluctuations in national income and employment, also
economic trends and policies on their own industries. known as the business cycle.

Economic Growth
Limits of Macroeconomics
Economic growth refers to an increase in aggregate production in an
It is also important to understand the limitations of economic theory. Theories economy. Macroeconomists try to understand the factors that either promote or retard
are often created in a vacuum and lack certain real-world details like taxation, economic growth in order to support economic policies that will support
regulation, and transaction costs. The real world is also decidedly complicated and development, progress, and rising living standards.
includes matters of social preference and conscience that do not lend themselves to Adam Smith's classic 18th-century work, An Inquiry into the Nature and
mathematical analysis. Causes of the Wealth of Nations, which advocated free trade, laissez-faire economic
Even with the limits of economic theory, it is important and worthwhile to policy, and expanding the division of labor, was arguably the first, and certainly one
follow the major macroeconomic indicators like GDP, inflation, and unemployment. of the seminal works in this body of research. By the 20th century, macroeconomists
The performance of companies, and by extension their stocks, is significantly began to study growth with more formal mathematical models. Growth is commonly
influenced by the economic conditions in which the companies operate and the study modeled as a function of physical capital, human capital, labor force, and technology.
of macroeconomic statistics can help an investor make better decisions and spot
turning points.
Likewise, it can be invaluable to understand which theories are in favor and Business Cycles
influencing a particular government administration. The underlying economic
principles of a government will say much about how that government will approach Superimposed over long term
taxation, regulation, government spending, and similar policies. By better macroeconomic growth trends, the
understanding economics and the ramifications of economic decisions, investors can levels and rates-of-change of major
get at least a glimpse of the probable future and act accordingly with confidence. macroeconomic variables such as
employment and national output go
through occasional fluctuations up or
Areas of Macroeconomic Research down, expansions and recessions, in
a phenomenon known as the business
Macroeconomics is a cycle. The 2008 financial crisis is a
rather broad field, but two clear recent
specific areas of research are example, and
representative of this discipline. the Great
The first area is the factors that Depression of
determine long-term economic the 1930s was actually the
growth, or increases in the impetus for the development of
national income. The other most modern macroeconomic
involves the causes and theory.
 The field of macroeconomics is organized into many different schools of
thought, with differing views on how the markets and their participants operate.

Classical
Classical economists held that prices, wages, and rates are flexible and
markets tend to clear unless prevented from doing so by government policy, building
on Adam Smith's original theories. The term “classical economists” is not actually a
school of macroeconomic thought, but a label applied first by Karl Marx and later by
Keynes to denote previous economic thinkers with whom they respectively disagreed,
but who themselves did not actually differentiate macroeconomics from
microeconomics at all. 
History of Macroeconomics

While the term "macroeconomics" is not all that old (going back to the Keynesian
1940s), many of the core concepts in macroeconomics have been the focus of study Keynesian economics was largely founded on the basis of the works of John
for much longer. Topics like unemployment, prices, growth, and trade have Maynard Keynes, and was the beginning of macroeconomics as a separate area of
concerned economists almost from the very beginning of the discipline, though their study from microeconomics. Keynesians focus on aggregate demand as the principal
study has become much more focused and specialized through the 20th and 21st factor in issues like unemployment and the business cycle. Keynesian economists
centuries. Elements of earlier work from the likes of Adam Smith and John Stuart believe that the business cycle can be managed by active government intervention
Mill clearly addressed issues that would now be recognized as the domain of through fiscal policy (spending more in recessions to stimulate demand) and
macroeconomics. monetary policy (stimulating demand with lower rates). Keynesian economists also
Macroeconomics, as it is in its modern form, is often defined as starting believe that there are certain rigidities in the system, particularly sticky prices that
with John Maynard Keynes and the publication of his book The General Theory of prevent the proper clearing of supply and demand.
Employment, Interest, and Money in 1936. Keynes offered an explanation for the
fallout from the Great Depression, when goods remained unsold and workers Monetarist
unemployed. Keynes's theory attempted to explain why markets may not clear. The Monetarist school is a branch of Keynesian economics largely credited to
Prior to the popularization of Keynes' theories, economists did not generally the works of Milton Friedman. Working within and extending Keynesian models,
differentiate between micro- and macroeconomics. The same microeconomic laws of Monetarists argue that monetary policy is generally a more effective and more
supply and demand that operate in individual goods markets were understood to desirable policy tool to manage aggregate demand than fiscal policy. Monetarists also
interact between individuals markets to bring the economy into a general equilibrium, acknowledge limits to monetary policy that make fine tuning the economy ill advised
as described by Leon Walras. The link between goods markets and large- and instead tend to prefer adherence to policy rules that promote stable rates of
scale financial variables such as price levels and interest rates was explained through inflation.
the unique role that money plays in the economy as a medium of exchange by
economists such as Knut Wicksell, Irving Fisher, and Ludwig von Mises. New Classical
Throughout the 20th century, Keynesian economics, as Keynes' theories became The New Classical school, along with the New Keynesians, is built largely on
known, diverged into several other schools of thought. the goal of integrating microeconomic foundations into macroeconomics in order to
resolve the glaring theoretical contradictions between the two subjects. The New
Classical school emphasizes the importance of microeconomics and models based on
Macroeconomic Schools of Thought that behavior. New Classical economists assume that all agents try to maximize their
utility and have rational expectations, which they incorporate into macroeconomic Meanwhile, microeconomics looks at economic tendencies, or what can
models. New Classical economists believe that unemployment is largely voluntary happen when individuals make certain choices. Individuals are typically classified
and that discretionary fiscal policy is destabilizing, while inflation can be controlled into subgroups, such as buyers, sellers, and business owners. These actors interact
with monetary policy. with each other according to the laws of supply and demand for resources, using
money and interest rates as pricing mechanisms for coordination.
New Keynesian
The New Keynesian school also attempts to add microeconomic foundations
to traditional Keynesian economic theories. While New Keynesians do accept that Activities
households and firms operate on the basis of rational expectations, they still maintain
that there are a variety of market failures, including sticky prices and wages. Because 1. The supply of goods is most strongly influenced by which of the following? 1.
of this "stickiness", the government can improve macroeconomic conditions through producer expectations, 2. price of related goods, 3. resource prices, 4. number
fiscal and monetary policy. of sellers in the market.
2. True/False: Decreases in both prices of the products included in a budget line
Austrian do not shift that budget line. 1. true, 2. false, 3. no valid answer.
The Austrian School is an older school of economics that is seeing some 3. In the indifference map, equilibrium occurs where the indifference curve is 1.
resurgence in popularity. Austrian economic theories mostly apply to microeconomic tangent to the budget line, 2. at its minimum point, 3. intersected by the
phenomena, but because they, like the so-called classical economists never strictly budget line, 4. at its maximum point.
separated micro- and macroeconomics, Austrian theories also have important 4. When the quantity demanded of a good increases, its price is most likely
implications for what are otherwise considered macroeconomic subjects. In particular to ............ . 1. increase, 2. decrease, 3. remain unchanged.
the Austrian business cycle theory explains broadly synchronized (macroeconomic) 5. An indifference curve represents 1. purchasing patterns from two different
swings in economic activity across markets as a result of monetary policy and the role suppliers, 2. what two individuals would be willing to trade, 3. how purchases
that money and banking play in linking (microeconomic) markets to each other and are unaffected by prices, 4. combinations of two goods giving identical
across time.  satisfaction.
6. True/False: The law of supply proves there is no relationship between price
and the quantity of a good supplied. 1. true, 2. false, 3. no valid answer.
Macroeconomics vs. Microeconomics 7. True/False: Technological improvements in the production of goods may
result in a increase in quantity supplied and a lower selling price. 1. true, 2.
Macroeconomics differs from microeconomics, which focuses on smaller false, 3. no valid answer.
factors that affect choices made by individuals and companies. Factors studied in both 8. Which of the following is not an explanation of the law of demand 1.
microeconomics and macroeconomics typically have an influence on one another. For substitution effect, 2. diminishing marginal utility, 3. bargain sales attitude, 4.
example, the unemployment level in the economy as a whole has an effect on the tastes change through time. 29
supply of workers from which a company can hire. 9. Which of the following statements is false concerning the marginal rate of
A key distinction between micro- and macroeconomics is that macroeconomic substitution? 1. it verifies that indifference curves are concave as viewed from
aggregates can sometimes behave in ways that are very different or even the opposite the origin, 2. it indicates a consumer's willingness to substitute goods, 3. it is
of the way that analogous microeconomic variables do. For example, Keynes the slope of the tangent to an indifference curve, 4. all of the answers are
referenced the so-called Paradox of Thrift, which argues that while for an individual, correct.
saving money may be the key building wealth, when everyone tries to increase their 10. True/False: Indifference curves are used to explain consumer behavior. 1. true,
savings at once it can contribute to a slowdown in the economy and less wealth in the 2. false, 3. no valid answer.
aggregate.
11. When more buyers enter a market, prices tend to ............ . 1. increase, 2. 28. Which of the following are necessary for mass production? 44 1. substitute
decrease, 3. remain the same. goods, 2. public goods, 3. complementary goods, 4. capital goods.
12. Which of the following pairs is most likely to be made of substitutes? 1. tea 29. True or False: In proportion to their income, the wealthy families spend less
and sugar, 2. bread and butter, 3. bus and subway, 4. hat and glove. on consumption than the low income 1. families. 2. true, 3. false, 4. no valid
13. True/False: More goods are supplied at higher prices than at lower prices. 1. answer.
true, 2. false, 3. no valid answer. 30. With bartering without using money, the level of economic activity will 1.
14. A milk price support higher than the free market equilibrium price results in 1. become more stable, 2. decrease, 3. increase, 4. increase or decrease.
more demand than supply, 2. recurring surplus, 3. periodic shortage, 4. 31. The process by which firms make decisions about production, seeking their
droughts affecting supply. selfish interests but ending up providing consumers with the goods most
15. True/False: An inverse relationship exists between the demand for substitute wanted, is known as the 1. invisible hand, 2. production possibilities, 3.
goods and changes in income. 1. true, 2. false, 3. no valid answer. spillover effect, 4. redistribution of output.
16. An inverse relationship between price and quantity is stated in the law of 1. 32. Competition, essential for capitalism, requires 1. few firms of equal and large
demand; 2. supply; 3. diminishing returns; 4. mutual attraction. size, 2. free entry and exit of many small firms, 3. firms producing products
17. A shortage is present when which of the following occurs? 1. price above which are not quite the same, 4. government setting official prices.
equilibrium, 30 2. supply exceeds demand, 3. price below equilibrium, 4. a 33. The presence of clear benefits and hidden costs, makes 1. public goods more
government price support is present. profitable, 2. politicians more sensitive, 3. profits more accurate, 4.
18. Which of the above figures shows the presence market equilibrium? 1. Figure government role easier to evaluate.
A 2. Figure B 3. Figure C 4. Figure D 34. What principle of taxation is based on the observation that the sacrifice from
19. The demand for ........ goods varies inversely with income. foregone consumption is greater for poorer families? 1. ability to pay, 2. tax
20. The name given to the observable occurrence which leads buyers to buy more incidence, 3. benefit received, 4. revenue sharing.
of the items which have just been reduced in price, while cutting on their 35. The personal distribution of income is affected above all by 1. season, 2.
purchases of the items which remained at old prices, is ............. effect. government intervention, 3. region, 4. resource ownership.
21. Which of the following is NOT an income redistribution government role? 1. 36. Which of the following is not characteristic of mixed capitalism? 45 1.
unemployment benefits, 2. antitrust laws, 3. social security, 4. welfare. division of labor, 2. self interest, 3. no government intervention in the
22. Which of the following activity is part of the social framework role of economy, 4. use of money.
government? 1. labelling of products, 2. national defense, 3. social security, 4. 37. A higher tax rate on a higher income causes a tax to be 1. proportional, 2.
medicaid. progressive, 3. regressive, 4. incident.
23. The incidence of the property tax is commonly shifted to 1. renters, 2. 38. Which is not characteristic of pure capitalism? 1. private property, 2. freedom,
landlords, 3. government agencies, 4. tax assessors. 3. self interest, 4. important government role.
24. The Federal Government derives most of its revenues from 1. corporate 39. The largest portion of the Federal Government expenditures is 1. education, 2.
income tax, 2. sales tax, 3. property tax, 4. personal income tax. police protection, 3. social security and health, 4. NASA.
25. What proportion of income comes from human resources? 1. 2O%, 2. 33%, 3.
5O%, 4. 8O%. 6. An example of tax based on the benefit received principle is
1. tobacco excise tax, 2. inheritance tax, 3. sales tax on non-food items, 4. Assessments
gasoline excise tax to finance highway construction.
26. The major advantage of the corporate form of business is 1. limited liability, 1. Study the functional and personal distribution of income. Indicate how these
2. combining skills, 3. decision effectiveness, 4. avoidance of double taxation. can affect the overall level of economic activity.
27. Taking advantage of allowable deductions to reduce taxes is known as 1. tax 2. Compare the various forms of business organization. Prove that the corporate
avoidance, 2. underground economy, 3. tax evasion, 4. fraud. form is dominant in any capitalistic society.
3. Outline the 2 principles of taxation. Give examples of each. Show how the
principles are applied in income and sales taxes.
4. Explain what is the incidence of a tax. Show how the incidence of various
taxes is indeed shifted.
5. Outline the major revenue sources and expenses of the Federal Government.
Do the same for state and local governments.