Economics U2 Market Economies & Banking Test Review

Which is NOT a component of the free enterprise system?

• freedom from all government involvement

• competition

• the pursuit of profit

• private property

Answer explanation

The free enterprise system allows for some government involvement to ensure fair competition and protect property rights. Therefore, 'freedom from all government involvement' is NOT a component of this system.

An example of ___ is increasing government spending.

Answer explanation

An example of expansionary fiscal policy is increasing government spending. This approach aims to stimulate economic growth by boosting demand through higher public expenditure.

The free enterprise system is based primarily upon Americans’ right to ___.

• own their own businesses

• vote in primary elections

• constitutional liberties

• travel throughout the country

Answer explanation

The free enterprise system emphasizes the right to own businesses, allowing individuals to operate and profit from their enterprises, which is fundamental to economic freedom in America.

The importance of the Constitutional right to private property lies mainly in the ability to ___.

• make profit in the sale or operation of private property

• call property your own

• create social status

• own the factors of production

Answer explanation

The right to private property primarily enables individuals to make profit through the sale or operation of their property, which is essential for economic growth and personal wealth.

The Takings Clause is a part of the ___.

• Fifth Amendment

• First Amendment

• Fourth Amendment

• Sixth Amendment

Answer explanation

The Takings Clause is part of the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation.

(a)   is an example of money.

Answer explanation

A jar of coins is an example of money because it contains currency that can be used for transactions. Coins are a physical form of money, representing value and accepted as a medium of exchange.

What was the importance of the Supreme Court case Kelo v. New London (2005)?

• It gave the government more power in practicing eminent domain.

• It gave citizens the right to sue the government to prevent eminent domain.

• It limited the rights of government to practice eminent domain.

• It outlawed the practice of eminent domain.

Answer explanation

The Supreme Court case Kelo v. New London (2005) was significant because it expanded the government's power to use eminent domain for economic development, allowing private property to be taken for public benefit.

In a market or free enterprise economy, competition ensures ___.

• reasonable prices and consumer choice

• profit

• equal access to products

• higher prices

Answer explanation

In a market economy, competition drives businesses to offer better prices and more choices to attract consumers, ensuring reasonable prices and a variety of options in the marketplace.

Who makes the fundamental economic decisions that drive a market (capitalist) economy?

• the consumers

• the President’s director of economic affairs

• those in the United States making over $1 million a year

• the companies

Answer explanation

In a capitalist economy, consumers drive demand by making choices about what to buy, influencing production and pricing. This makes them the fundamental decision-makers, unlike the other options listed.

A company that can offer a product at a much lower price due to some advantage holds ___.

• a natural monopoly

• a store of value

• a legal monopoly

• perfect competition

Answer explanation

A natural monopoly occurs when a company can produce goods at a lower cost than competitors due to economies of scale, allowing it to offer lower prices. This is the case described in the question.