Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 371:

  The measure most often used to compare standards of living across countries or across time is:

  A. Government spending.

  B. Real GDP.

  C. Real consumption expenditures.

  D. Real GDP per capita.

  Correct Answer: D

  Choice "d" is correct. Real GDP per capita is real GDP divided by population. Real GDP per capita is typically used to compare standards of living across countries or across time. By dividing real GDP by population, this measure adjusts for differences in the size of countries and for differences in population over time. Choice "a" is incorrect. Government spending is not a measure of the standard of living of a country. Choice "b" is incorrect. Countries with larger populations tend to have higher levels of real GDP. This however does not mean they have a higher standard of living. To adjust for differences in population, real GDP per capita is typically used to compare standards of living, not real GDP. Choice "c" is incorrect. Real consumption expenditures are only a part of real GDP and thus do not measure all economic activity. Furthermore, real consumption expenditures do not adjust for differences in population. It is therefore not used as a measure of the standard of living.

• Question 372:

  Frictional unemployment refers to unemployment resulting from:

  A. The skills of workers do not correspond to the skills demanded by employers.

  B. The time needed to match qualified job seekers with available jobs.

  C. Seasonal decreases in demand for labor.

  D. A recession in the economy.

  Correct Answer: B

  Choice "b" is correct. Frictional unemployment is the unemployment that arises from workers routinely

  changing jobs or from workers being temporarily laid off. It results from the time needed to match qualified

  job seekers with available jobs.

  Choice "a" is incorrect. This is structural unemployment.

  Choice "c" is incorrect. This is seasonal unemployment.

  Choice "d" is incorrect. This is cyclical unemployment.

• Question 373:

  During a period of high inflation, which of the following groups in society would be most likely to gain?

  A. Those with a fixed income.

  B. Those with a fixed amount of debt.

  C. Those holding a large amount of money.

  D. Workers under contract without a cost of living adjustment.

  Correct Answer: B

  Choice "b" is correct. During a period of high inflation, those with a fixed amount of debt will repay their debt with inflated dollars and are thus likely to gain. Choice "a" is incorrect. Those with a fixed income will see the purchasing power of their income erode and are thus likely to be hurt. Choice "c" is incorrect. Those holding a large amount of money will see the purchasing power of their money erode and are thus likely to be hurt. Choice "d" is incorrect. Cost of living adjustments take inflation into account, thus these individuals are likely to be unaffected.

• Question 374:

  A sharp rise in the price of oil (a major input), would result in:

  A. Cost (Push) inflation.

  B. Demand (Pull) inflation.

  C. An increase in aggregate demand.

  D. An increase in aggregate supply.

  Correct Answer: A

  Choice "a" is correct. Cost (Push) inflation is inflation caused by a shift left in aggregate supply. An

  increase in input costs, such as a sharp increase in the price of oil, will cause the aggregate supply curve

  to shift left and thus increase the aggregate price level causing inflation.

  Choice "b" is incorrect. Demand (Pull) inflation is inflation caused by a shift right in aggregate demand.

  Choice "c" is incorrect. An increase in the price of oil causes the aggregate supply curve to shift, not the

  aggregate demand curve.

  Choice "d" is incorrect. An increase in the price of oil will cause aggregate supply to decrease (shift left),

  not increase.

• Question 375:

  Cyclical unemployment results from:

  A. Skills of workers not corresponding to jobs available.

  B. The time it takes to match qualified workers with available jobs.

  C. Seasonal decreases in demand for labor.

  D. A recession in the economy.

  Correct Answer: D

  Choice "d" is correct. Cyclical Unemployment is caused by the business cycle. It tends to rise during a

  recession and fall during an expansion.

  Choice "a" is incorrect. This is an example of structural unemployment.

  Choice "b" is incorrect. This is an example of frictional unemployment.

  Choice "c" is incorrect. This is an example of seasonal unemployment.

• Question 376:

  Which of the following is not consistent with full employment?

  A. An unemployment rate greater than zero.

  B. Structural unemployment.

  C. Cyclical unemployment.

  D. Frictional unemployment.

  Correct Answer: C

  Choice "c" is correct. When the economy is operating at full employment, there is no cyclical

  unemployment. When the economy is operating at full employment, there is still some unemployment

  known as the natural rate of unemployment, which does not include cyclical unemployment.

  Choice "a" is incorrect. There is still some unemployment (frictional, structural, and seasonal) when the

  economy is operating at full employment.

  Choice "b" is incorrect, per the above Explanation.

  Choice "d" is incorrect, per the above Explanation.

• Question 377:

  Which of the following would lead to the most inflation?

  A. Both aggregate demand and aggregate supply increase.

  B. Both aggregate demand and aggregate supply decrease.

  C. Aggregate demand increases and aggregate supply decreases.

  D. Aggregate demand decreases and aggregate supply increases.

  Correct Answer: C

  Choice "c" is correct. Choice "c" contains both demand-pull inflation (when the aggregate demand curve

  shifts right) and cost-push inflation (when the aggregate supply curve shifts left). An increase in aggregate

  demand causes output to rise and the price level to rise. A decrease in aggregate supply causes output to

  fall and the price level to rise. Thus, an increase in aggregate demand and a decrease in aggregate supply

  is the most inflationary.

  Choice "a" is incorrect. If aggregate supply increases, the price level will fall (reducing inflation).

  Choice "b" is incorrect. If aggregate demand decreases, the price level will fall (reducing inflation).

  Choice "d" is incorrect per above Explanation.

• Question 378:

  A period of inflation:

  A. Increases the price level, which benefits those who are entitled to receive specific amounts of money.

  B. Enhances the positive relationship between the price level and the purchasing power of money.

  C. Harms anyone who has an obligation to pay a specific amount and benefits anyone who is entitled to receive a specific amount.

  D. Increases the price level, which is negatively related to the purchasing power of money.

  Correct Answer: D

  Choice "d" is correct. A period of inflation increases the price level, which is negatively related to the

  purchasing power of money (inflation erodes the value of money).

  Choice "a" is incorrect. When price levels increase, those with fixed amounts of money are hurt.

  Choice "b" is incorrect. The relationship between price levels and the purchasing power of money is

  negative, or inverse.

  Choice "c" is incorrect. Inflation helps anyone with a fixed obligation since the debt can be repaid in inflated

  dollars. Those receiving a specific fixed amount are harmed.

• Question 379:

  Which of the following statements is correct if there is an increase in the resources available within an economy?

  A. More goods and services will be produced in the economy.

  B. The economy will be capable of producing more goods and services.

  C. The standard of living in the economy will rise.

  D. The technological efficiency of the economy will improve.

  Correct Answer: B

  Choice "b" is correct. If there is an increase in the resources available in an economy, the economy will be capable of producing more goods and services. This increase is really an increase in the long-run aggregate supply (potential GDP). On the aggregate supply and demand chart, the long-run aggregate supply line (LRAS) is the vertical line that represents the potential or equilibrium level of output. If that line shifts to the right, then the economy is capable of expanding, but it will not automatically expand just because the line shifts to the right. Choice "a" is incorrect. Just because there is an increase in the resources available in an economy, it does not mean that more goods and services will automatically be produced. There would have to be increased demand (a shift upward in the aggregate demand line) for more goods and services to actually be produced. Choice "c" is incorrect. If there is an increase in the resources available in an economy, the standard of living in the economy will not necessarily rise. It could rise, but it will not necessarily do that. Choice "d" is incorrect. If there is an increase in the resources available in an economy, the technological efficiency of the economy will not automatically improve. This statement is backwards. An increase in technological efficiency of an economy will normally increase the resources available in the economy by increasing productivity.

• Question 380:

  An auditor is required to obtain an understanding of the entity's business, including business cycles and reasons for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?

  A. To enable the auditor to accurately identify significant deficiencies.

  B. To assist the auditor to accurately interpret information obtained during an audit.

  C. To allow the auditor to more accurately perform tests of controls.

  D. To decide whether it will be necessary to perform analytical procedures.

  Correct Answer: B

  Choice "b" is correct. As part of audit planning, the auditor should obtain an understanding of the entity's business. This understanding enables the auditor to better understand events, transactions, and practices that may affect the financial statements, to plan and perform appropriate audit tests, and to properly understand and evaluate the results of those tests. Choice "a" is incorrect. Obtaining an understanding of the entity's business would not be particularly helpful in identifying significant deficiencies. Significant deficiencies in internal control are typically identified during the fieldwork stage of the audit. Choice "c" is incorrect. Obtaining an understanding of the entity's business would not result in a more accurate performance of tests of controls. Accurate performance of audit tests is dependent upon factors

  such as existence of an appropriate audit trail, client cooperation, training and supervision of audit staff,

  etc.

  Choice "d" is incorrect. Analytical procedures are always required in an audit during the planning and

  overall review stages.