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Exploring Economics
Answer Key
 Note to parents:
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Exploring Economics Answer Key

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Exploring Economics Answer Key 1

Unit 1 5. List five things you use frequently for which you
rely on the specialized labor of other people and
which you do not know how to create or prepare
yourself. Answers will vary.
Lesson 1
6. The simplest circle-flow diagram includes what
1. How did Alfred Marshall define economics in two entities? Households and businesses (12)
Principles of Economics? A study of mankind in the 7. On what principle does a market operate? Supply
ordinary business of life (3) and demand (14)
2. What is the meaning of the Greek word oikonomos 8. The exchange of goods or services in which
from which we get the word economics? steward (5) people determine equivalent values is called
3. In previous generations, the word economy what? Bartering (15)
primarily referred to the management of what? A 9. How is price important to suppliers? Prices
household (6) determine whether an individual or a company can
4. Today the words economize and economical usually survive in the marketplace by supplying goods or
refer to what? being wise or frugal—that is, being a services at a certain price and then obtaining other
good manager—in financial matters (6) goods and services from other suppliers at certain
5. List three jobs that economists do. Students are prices. (15)
to list three of these: teach in universities, work for 10. Because money enables a person to obtain goods
investment companies, write books, give speeches, hold and services that he or she wants or needs, in
positions in government that enable them to influence America it is called a medium of what? Exchange (16)
economic activity. (6)
6. How does Merriam-Webster’s Eleventh Collegiate Lesson 3
Dictionary define economics? A social science
concerned chiefly with description and analysis of the 1. Why do many American companies choose to
production, distribution, and consumption of goods have their products made overseas? Cheaper labor
and services (7) (17)
7. Production involves the supply of what? Goods 2. Give four examples of how war can negatively
and services available in a society (7) affect trade? Workers might have to leave their work
8. Getting goods and services to the public is called to go fight in the army; workers might be wounded
what? Distribution (7) or killed; factories and farmland might be destroyed;
9. Individuals, households, businesses, and business within the country and trade with other
governments purchasing and using goods and countries might be disrupted. (17)
services is called what? Consumption (7) 3. A group of workers who organize themselves and
10. What would you like to learn from your study of negotiate with business owners for higher wages
economics? Answers will vary. and benefits is called what? Labor union (18)
4. Why do high taxes on income discourage efforts
by individuals to generate more income? Much of
Lesson 2 what they earn has to go to the government. (18)
1. An economy in which some authority (usually 5. How might regulation increase the cost of goods?
the government) dictates what and how much Companies pass on the costs of regulation to consumers
producers will produce is what type of economy? in the form of higher prices. (18)
Command (9) 6. What are three examples of institutions that help
2. Would you prefer living in a free economy or an economy operate? Corporations, labor unions,
a command economy? Explain your answer. banks (20)
Answers will vary. 7. What term describes economic effects external to
3. A society moves toward economic interdepen- the direct production of goods? Externalities (19)
dence when workers do what? Specialize in certain 8. What is the meaning of the term gross domestic
kinds of work that they perform for others for which product (GDP)? A measure of the value of all of the
they receive payment of some kind (11) finished goods and services produced within a country
4. When people realize that they are better off (21)
concentrating on certain skills and depending on 9. Define poverty rate. The percentage of the population
others for other goods and services, they begin that lives below what the government determines to
to experience the principle of what? Comparative be the minimum income to provide needed goods and
advantage (12) services (21)
2 Exploring Economics Answer Key

10. What is microeconomics? Microeconomics looks 4. The Road to Serfdom by Friedrich Hayek influenced
at how individual households and companies make what two world leaders? U.S. President Ronald
decisions and how buyers and sellers interact in the Reagan and British Prime Minister Margaret Thatcher
market. (21) (32)
5. Who is considered the father of the modern study
Lesson 4 of macroeconomics? John Maynard Keynes (32)
6. In The General Theory of Employment, Interest, and
1. Who is often called the father of modern Money, what kind of government action did John
economics? Adam Smith (23) Maynard Keynes advocate to stimulate demand
2. What book by Adam Smith was published in 1776? in times of emergency? Deficit spending and the
The Wealth of Nations (or An Inquiry into the funding of public works (32)
Nature and Causes of the Wealth of Nations) (23) 7. The conference at Bretton Woods, New Hampshire,
3. The prevailing economic philosophy when led to the creation of what three organizations?
Smith published The Wealth of Nations was what? World Bank, the International Monetary Fund, and
Mercantilism (24) the General Agreement on Tariffs and Trade (33)
4. How did Smith challenge the prevailing view of 8. In his 1981 inaugural address, what did Ronald
how nations build and acquire wealth? He said Reagan say about government? It is not the solution,
that the economy actually developed from the bottom but the problem. (33)
up rather than from the top down. (24) 9. What term describes a key idea of Milton
5. What do those who advocate laissez faire Friedman which highlights the role of money in
economics want government to do? To refrain from the economy? Monetarism (35)
any regulation of economic activity (25) 10. Milton Friedman believed that the Great
6. Where was Karl Marx born? Prussia (26) Depression was primarily caused by what? A
7. What book did Karl Marx write with Friedrich failure of the Federal Reserve System to maintain an
Engels? The Communist Manifesto (27) adequate supply of money to help the economy grow
8. Marx divided society into what two classes? The (35)
working class (the proletariat) and the ownership class
(the bourgeoisie) (27) Unit 1 Quiz
9. What question is the basic divide between
capitalism and socialism? Who should make 1. c (5) 6. b (9)
economic decisions? (29) 2. c (19) 7. a (24)
10. Contrast how Adam Smith and Karl Marx believed 3. d (21) 8. c (27)
economic decisions should be made. Smith believed 4. b (21) 9. d (33)
they should be spread as widely as possible throughout 5. b (16) 10. b (33)
the economy, while Marx believed that a select few
should make them. (29)
Unit 2
Lesson 5
1. What is seen as the starting point of the influence Lesson 6
of the Austrian School of Economics? The 1871
publication of Principles of Economics by Carl 1. According to Deuteronomy 8:7-9, God was
Menger (31) bringing the Israelites to a land in which they
2. Ludwig von Mises believed a command economic would eat food how? Without scarcity (39)
system would be unworkable because of the 2. A basic principle of economics is that people have
absence of what? Free-market competition (31-32) to make choices about what? Scarce or limited
3. What events vindicated Ludwig von Mises’ belief resources (39)
that the absence of competition in a free market 3. Describe the location where God placed Adam. He
would make a socialist system unworkable? The placed him in a well-watered garden which produced
downfall of the Soviet Union and Eastern European everything of a material nature that Adam needed. (39)
Communism (32) 4. In Psalm 37, what does the psalmist say about the
righteous and their descendants? He has not seen
the righteous forsaken or their descendants begging
bread. (40)
Exploring Economics Answer Key 3

5. The conditions in Egypt during the famine 3. What three things are mentioned in Proverbs 22:4
mentioned in Genesis 42 and 43 illustrate what as being the reward of humility and the fear of the
economic principle? Supply and demand (41) Lord? Riches, honor, and life (49)
6. According to Deuteronomy 8:18, how do people 4. According to Proverbs 12:11, what will happen
get the power to make wealth? God gives it to them. to the one who tills his land and what does the
(41) person who lacks sense do? The one who tills his
7. What were the Israelites commanded to do with land will have plenty of bread; the one who lacks sense
their fields every seven years? Let them rest. (42) pursues worthless things. (49)
8. What were the Israelites forbidden to do when 5. According to Proverbs 24:27, what should
they loaned money to their fellow Israelites? someone do before he builds his house? Prepare
Charge interest (43) his work outside and make his fields ready (50)
9. God promised to bless the land of the Israelites if 6. According to Proverbs 6:10-11, what is the result
they would do what? Obey (44) of too much sleep and rest? Poverty and need (50)
10. List three things that Leviticus 19 taught the 7. According to Proverbs 13:18, what will come to
Israelites to do as they conducted business and him who neglects discipline? Poverty and shame
economics. Leave gleanings in the fields for the poor; (50)
use accurate weights and measures; and pay hired men 8. According to Proverbs 13:18, what happens to the
at the end of the day. (43) person who regards reproof? He will be honored.
(50)
Lesson 7 9. According to Proverbs 10:2, what does not profit?
Ill-gotten gain (50)
In 1 Samuel 8:10-18 the Lord warned the Israelites 10. Before he saw their destruction, how did the
about what a king would do. Summarize what the Psalmist react to the prosperity of the wicked? He
king would do to the Israelites: was envious. (51)
1. Sons — Make them part of the army (45)
2. Daughters — Make them perfumers, cooks, and Lesson 9
bakers (45)
3. Best fields, vineyards, and olive groves — Give 1. According to Proverbs 11:1, how does God feel
them to the king’s servants (45) about a false balance and a just weight? A false
4. Male and female servants — Make them work for balance is an abomination to the Lord; a just weight is
him (45) His delight. (53)
5. Flocks — Take one tenth of them (45) 2. According to Proverbs 17:23, what perverts the
6. In addition to wisdom, what did the Lord give ways of justice? A bribe (53)
Solomon? Riches and honor (46) 3. What does Proverbs 22:7 say the borrower
7. Who told Solomon that his wisdom and prosperity becomes? The lender’s slave (53)
exceeded the reports she had heard about him? 4. What is the modern term used for becoming
Queen of Sheba (46) surety for the debt of another? Co-signing a loan
8. Who made the government even more (54)
economically oppressive for the people of Israel 5. In Proverbs 6, the writer tells his son not even to
than his father had? Solomon’s son Rehoboam (46) do what before he delivers himself from being
9. What generous gifts from God did the Northern surety for his neighbor? Sleep or slumber (54)
Kingdom of Israel use for the false god Baal? 6. According to Proverbs 29:7, what does the wicked
Grain, new wine, oil, silver, and gold (46) not understand? Concern for the poor (54)
10. What word picture is used to describe how Judah 7. According to Proverbs 19:17, what will be the
and Israel lived in safety all the days of Solomon? reward for the man who is gracious to a poor
Every man under his vine and his fig tree (47) man? The Lord will repay him for his good deed. (54)
8. According to Proverbs 15:16, what is better than
great treasure and turmoil with it? Little with the
Lesson 8
fear of the Lord (54)
1. What is the most important attitude to have 9. Proverbs 22:1 says that we should desire what
concerning financial matters? Humility (49) more than great wealth? A good name (54)
2. According to Proverbs 22:2, what common bond
do the rich and poor have? The Lord is the maker of
them all. (49)
4 Exploring Economics Answer Key

10. What did the writer of Proverbs 30:7-9 ask of the

Lord so that the writer would not be full and Unit 3
deny Him, or be in want and steal, and profane
the name of God? Keep deception and lies far from
Lesson 11
me; give me neither poverty nor riches; feed me with the
food that is my portion. (Wording may vary according 1. According to Acts 4:32-35, how did the first
to the Bible translation used by the student throughout believers in Jerusalem see their possessions? Not
this course.) (55) one of them claimed that anything belonging to him
was his own, but all things were common property to
Lesson 10 them. (65)
2. What happened to the money the early Christians
1. What group did Jesus describe as “lovers of brought to the apostles from the sale of their
money”? Pharisees (57) homes and land? It was distributed to each as any
2. The scribes and Pharisees encouraged people to had need. (65)
make contributions to the temple instead of doing 3. List the three ways that the early church’s economic
what? Using their money to take care of their parents practices were different from Communism. The
(57) government did not carry out the distribution; the
3. Other than the kingdom of God, what subject did early church did not take over the operation of farms
Jesus address the most in His teaching? Money and shops that Christians owned; and the sharing of
(57) resources was not compulsory. (65)
4. What two masters did Jesus say you could not 4. Describe what the apostle Paul said in Philippians
serve? God and wealth (58) 4:11-13 about contentment. He learned to be content
5. What two things did Jesus say would choke the in whatever circumstances he was in—with humble
word in a person’s life? The worry of the world and means and prosperity; being filled and going hungry;
the deceitfulness of wealth (58) having abundance and suffering need. (66)
6. What did Jesus tell people to do instead of 5. What promise did Paul share with the Philippians
worrying about food and clothing? Seek first God’s in Philippians 4:19? God will supply all your needs
kingdom and righteousness. (58) according to His riches in glory in Christ Jesus. (66)
7. What did Jesus say about people’s responsibility 6. What did Paul tell slaves and masters about how
to government and to God? Render to Caesar the they should treat one another? Slaves should serve
things that are Caesar’s; and to God the things that are their masters as though they were serving the Lord;
God’s. (58) masters should treat their slaves with justice and
8. What was the sin of the rich fool? He had stored kindness, remembering that they too had a Master in
up treasure for himself but had not been rich toward heaven. (66)
God. (60) 7. What did Paul do to keep from being a burden to
9. In Luke 4:18, Jesus said He came to preach the the Thessalonians? Kept working night and day (67)
gospel to whom? The poor (61) 8. What command and exhortation in the Lord
10. Jesus warned about a man gaining the whole Jesus Christ did Paul give to people leading an
world and forfeiting what? His soul (62) undisciplined life, not working and acting like
busybodies? Work in quiet fashion and eat their own
Unit 2 Quiz bread. (67)
9. Summarize James 4:13-17. Answers will vary, but
1. d (39) 6. j (50) may include these ideas: We can make plans about what
2. i (41) 7. f (50) business we plan to do in the future, but we don’t know
3. a (46) 8. c (55) what our lives will be like tomorrow. We ought to say,
4. g (47) 9. h (58) “If the Lord wills, we live and do this or that.” (68)
5. b (49) 10. e (58) 10. What does 2 Corinthians 8:9 teach about what
the Lord Jesus Christ did for us? He was rich but
became poor for our sakes, so that through His poverty
we might become rich. (68)
Exploring Economics Answer Key 5

Lesson 12 6. List four aspects of Protestant thought that

Weber believed influenced the development of
1. Do you agree with Tertullian’s statement that capitalism. The idea of seeing one’s vocation in life
“Nothing that is God’s is obtainable by money”? as a calling; the belief that discipline and hard work
Explain your answer. Answers will vary. (69) were legitimate ways to honor God and to fulfill one’s
2. Why did some early believers decide to become calling; the rejection of personal luxury; and the worth
hermits? To escape the influence and defilement of the of the individual (74)
world (70) 7. What theology supports liberating the poor
3. What is the meaning of the Greek word monos? from their poverty by opposing those seen as
One or alone (70) oppressing the poor? Liberation theology (74)
4. The communities where people who wanted to 8. What place does the lesson mention as the main
escape the influence and defilement of the world location where liberation theology developed?
gathered were called what? Monasteries (70) Latin America (74)
5. After Christianity became legal in the Roman 9. Why were people who expected political
Empire, how did many in the church begin to revolution in Jesus’ own day disappointed? Jesus
see the monastics? As possessing a higher level of did not come to bring about a political revolution. (75)
spirituality compared to others (70) 10. What two terms are used to describe the school of
6. During the Middle Ages, what was the richest thought promoted by R. J. Rushdoony? Theonomy
institution in Europe? The Roman Catholic Church or reconstructionism (or Christian reconstructionism)
(71) (76)
7. Name a former monk who led a movement that
rejected traditional Roman Catholic teachings
Lesson 14
and practices, including the idea that poverty
was especially meritorious in God’s eyes? Martin The lesson raised these nine questions. Please answer
Luther (71) with your opinions.
8. On the whole, how did Puritans see money?
1. What standard of living should be a Christian’s
They saw it as a good thing because it is part of God’s
goal? Answers will vary.
creation and they saw it as a gift from God. (71)
2. How should a Christian be engaged with the
9. Puritans thought that enduring poverty could be a
world in terms of economics? Answers will vary.
trial to bring about what? Needed spiritual growth (72)
3. What principles should a Christian businessperson
10. What three Puritan priorities led to economic
follow in his business? Answers will vary.
success? Hard work, a simple lifestyle, moderation
4. How should a Christian businessperson use his or
(72)
her profit? Answers will vary.
5. Is a Christian guaranteed financial success?
Lesson 13 Explain your answer. Answers will vary.
1. The focus on social and economic causes in the 6. What standards characterize a just economy?
name of Christ came to be called what? Social Answers will vary.
gospel (73) 7. Explain whether you want to see a smaller, more
2. Give three examples of Christian causes for social efficient, and less intrusive government, or a
reform that occurred during the last quarter of larger, more activist government? Answers will
the nineteenth century and the first quarter of vary.
the twentieth century. Prohibition, better working 8. Should wealth be redistributed? Why or why not?
conditions, and a graduated income tax (73) Answers will vary.
3. Give two examples of Christian causes that 9. What is your view of corporate executives who
wealthy businessmen helped fund. YMCA, Moody have large pay and benefits packages? Answers
Bible Institute (73) will vary.
4. What was the occupation of Max Weber, the 10. List the three things Micah 6:8 says that God
German who published The Protestant Ethic and wants from us. To do justice, to love kindness, to walk
the Spirit of Capitalism? Economist and sociologist humbly with our God. (80)
(73)
5. How did Max Weber define capitalism? An
economic activity that expects a profit through peaceful,
voluntary, and mutually beneficial exchanges (74)
6 Exploring Economics Answer Key

Lesson 15 innocent and vulnerable. When his best friend betrays

him, Silas Marner offers little defense, but permanently
1. What modern day example of greed begins this leaves his community. He is angry at the injustice he
lesson? A Walmart employee was trampled when has suffered. He moves to a distant, remote village, lives
shoppers broke down the front door on the morning alone, and only interacts with people as necessary for
after Thanksgiving. (82) his trade. Silas Marner becomes obsessed with the gold
2. How does Merriam-Webster define greed? A that he earns. It becomes the thing that he lives for. His
selfish and excessive desire for more of something than fear, isolation, and distrust only increase as he hoards
is needed. (82) his money. He is shattered when his money is stolen.
3. What does the prophet Amos condemn in Amos The arrival of a toddler, Eppie, completely changes
8:4-6? Those who trampled the needy, those who were Silas’ life. As he cares for her, his world is opened to the
eager for the religious festival to be over so that they power of giving and receiving love. He devotes his life
could trade dishonestly again, and those who were to her well-being, and through her, returns to his faith
willing to treat the poor as things in order to have more in God and to healthy connections with other people.
themselves (82) His relationship with her leads to peace and wholeness
4. How did John the Baptist say that people should for him.
feel about their wages? Content (82) 2. Refer to Freytag’s Pyramid shown on page 4.
5. What did Jesus teach the man who was being Write down what you think is the element, event,
greedy about an inheritance? To be on his guard or section of Silas Marner that correlates with each
against every form of greed, for not even when one has element of the pyramid: exposition; narrative hook;
an abundance does his life consist of his possessions inciting incident; rising action; climax; falling action;
(82) resolution; denouement. Answers will vary, but may
6. What does Paul say greed amounts to? Idolatry include:
(83)
7. How did greed manifest itself during the building Exposition: the description of Marner’s life with his
of the transcontinental railroad in the 1860s? The religious community, his betrayal, and his settling in
men who oversaw companies received huge fortunes; Raveloe
workers were paid relatively little and sometimes late.
(83) Narrative hook: the conflict between Dunstan and
8. Greed was a factor in what historic event in Godfrey, the revelation of Godfrey’s secret marriage
America in 1929? The stock market crash (84) and child
9. According to 1 Timothy 6:6-10, what happens to
those who want to get rich? They fall into temptation Inciting incident: Dunstan steals Silas’ money and
and a snare and many foolish and harmful desires disappears.
which plunge men into ruin and destruction. (86)
10. What does 1 Timothy 6:9-10 say is the root of all Rising action: Silas and the community search for and
evil? The love of money (86) speculate about the money; the party at the Cass home
Unit 3 Quiz
Climax: Molly dies and Eppie comes into Silas’ life.
1. d (65) 6. e (74)
2. h (65) 7. i (73) Falling action: Eppie’s life with Silas, Godfrey’s life
3. a (70) 8. f (80) without her
4. b (71) 9. g (83)
5. j (74) 10. c (82) Resolution: Dunstan’s body and Silas’ money are
discovered

Questions on Silas Marner Denouement: Eppie’s refusal of Godfrey’s offer and her
marriage to Aaron
1. In two or three paragraphs, examine how the
author develops the character of Silas Marner
through the story. How does Marner change, and
what are the causes? Answers will vary, but may
include: At the beginning of the book, Silas Marner is
strong in faith in God and in other people. He seems
Exploring Economics Answer Key 7

3. Write two or three paragraphs about the mood 5. What action did King George III take in 1763 that
or tone of Silas Marner. Why do you think the frustrated colonists? He forbade settlements between
author employs this mood? How does it help the Appalachian Mountains and the Mississippi River.
make the story effective? Are there any exceptions (91)
to the general mood in the narrative? Answers will 6. What weakness did the Articles of Confederation
vary, but may include: The mood of Silas Marner is have in regard to taxes? The national government
generally dark and sad. The story begins with William had no power to tax; it could only request payments
Dane’s unhappy betrayal of Silas. Silas withdraws to from the states and the states were free to ignore those
Raveloe and withdraws into his work. The descriptions requests. (92)
of his apparent epileptic seizures add to his strangeness 7. How did the U.S. government issue bonds to fight
and distance from people. Meanwhile, the Cass family the American Revolution? Wealthy individuals
is dysfunctional: Squire Cass is detached, his sons are loaned money to the United States by buying bonds,
in conflict and they both lack character. Dunstan’s with the expectation of getting their money back plus
thievery and disappearance are shrouded in darkness. interest. (93)
The townspeople engage in idle speculation and 8. What is hard money? Gold or silver (93)
arguments. The New Year's Eve dance at Squire Cass’ 9. What was the grievance that farmers had that
house should have been a festive occasion, but it was resulted in their rebellion under the leadership of
marred by Godfrey’s troubling situation. Molly’s death Daniel Shays? What they felt was unfair treatment by
and Marner’s shocking appearance holding Eppie in creditors to whom they owed money (93)
his arms upset the entire community. 10. What economic difficulty worried people who
lived between the Appalachian Mountains and
The narrative brightens as Silas rears Eppie. Eppie the Mississippi River? The federal government could
brings Silas happiness. Dolly Winthrop and her simple not guarantee them access to the port of New Orleans.
faith and kindness bring brightness to the story. (93-94)
Godfrey and Nancy get married, but their marriage
has shadows: they are not able to have children, and Lesson 17
Godfrey hides the secret of his being Eppie’s father.
Eppie’s statement of devotion to Silas is a victory of 1. The fiscal powers given to Congress in the
love over money. The marriage of Eppie and Aaron Constitution were significant but were also what?
ends the story on a bright and hopeful note. Limited (95)
2. According to the Constitution, the national
The point is that money does not buy happiness, neither government could regulate commerce with what
for the Cass family nor for Silas. Only human love and three entities? With foreign nations, with Indian
genuine relationships bring true happiness. tribes, and among the states (95)
3. Why do you think it is important that the
national government fix standards of weights and

Unit 4 measures? Answers will vary.

4. What crime involving money did the Constitution
specify that the federal government could punish?
Counterfeiting (96)
Lesson 16
5. What prohibition in the Constitution helped to
1. What was the economic purpose of the first unify the nation’s economy? A ban on internal
Spanish settlements in the New World? To extract tariffs (96)
as much wealth from the land as possible and return it 6. Name three benefits of the federal government
to Spain (89) issuing bonds, as Alexander Hamilton suggested.
2. An economic system in which a government The bonds would provide revenue for government
encourages and assists businessmen in expenditures, demonstrate that the new government
establishing colonial outposts is called what? would stand by its obligations, and give bond buyers a
Mercantilism (89) strong reason to support the new government. (96-97)
3. Before the American Revolution, the basis of the 7. What was the main source of income for the
economy in the American colonies was what? federal government for many years? Tariffs (97)
Agriculture (90) 8. What controversial institution did Congress
4. What was the primary standard of wealth in the charter in 1791? Bank of the United States (97)
English colonies in America? Land (90)
8 Exploring Economics Answer Key

9. List three innovations that spurred economic 3. What did the American economy become by the
growth in America in the late 1700s and early 1890s? The largest economy in the world (107)
1800s. Water-powered spinning frame, cotton gin, 4. What was the first big business in the U.S., which
steamboat (98-99) grew dramatically after the Civil War? Railroads
10. What waterway enabled New York City to become (107)
the chief financial center of the United States? Erie 5. Bankers such as J. P. Morgan participated in
Canal (99) what type of business in which they built large
enterprises that did not make things themselves,
Lesson 18 but invested huge sums of money in companies
that did? Investment capitalism (107)
1. What French and British practice hurt American 6. What two tentative steps did the federal
trade during the war they fought against one government take in 1887 and 1890 to guide
another in the early 1800s? Intercepting American business along ethical lines? Interstate Commerce
vessels (101) Commission and the Sherman Anti-Trust Act (108)
2. What did the Embargo Act of 1807 require of 7. What type of company precipitated the Panics of
American ships? They couldn’t leave port bound for 1873 and 1893? Railroad (109)
Britain unless they paid a large bond. (101) 8. A leader in what industry caused the Panic of
3. What was the effect of the Embargo Act on 1907? Copper mining (110)
American business? It caused a serious loss of trade. 9. What did Congress establish in 1913 to serve as
(101) the central bank for the United States? Federal
4. How did the federal government fund the War of Reserve System (110)
1812? By borrowing from state banks (102) 10. How did federal involvement in the economy
5. What was rechartered in 1816? Bank of the United change as a result of President Franklin Roosevelt’s
States (102) policies during the Great Depression? The federal
6. What did the federal government sell to help pay government played an active role in trying to recover
off debt after the War of 1812? Frontier lands (102) from the collapse. (110)
7. What international events contributed to the
Panic of 1819? The Napoleonic Wars ended, causing a Lesson 20
decline in demand for American agricultural products,
and Britain found a cheaper source for cotton in the 1. What two sources of credit encouraged consumers
East Indies. (103) to spend more during the 1950s? Credit cards and
8. What was the outcome of the Supreme Court’s home mortgages (112)
decision in Gibbons v. Ogden (1824) on the U.S. 2. What U.S. president encouraged a large tax cut
economy? It created a national economy based on in the early 1960s in order to spur the economy?
free trade and guided only by Congress instead of a What was his party? President John Kennedy,
patchwork of conflicting state regulations. (103) Democratic (112)
9. What was Andrew Jackson’s response to 3. What programs of the 1960s greatly increased
congressional renewal of the Bank of the United federal spending and deficits? President Lyndon
States in 1832? He vetoed it. (103) Johnson’s social programs, such as Medicare and
10. What was the name of the system begun in Medicaid, and the war in Vietnam (112-113)
1840 to hold federal funds and pay the federal 4. What was the major economic problem of the
government’s bills? Independent Treasury or 1970s? Inflation (113)
Subtreasury System (105) 5. What type of economics did President Ronald
Reagan propose in 1980? Supply-side (114)
Lesson 19 6. Describe how the type of economics Reagan
proposed is supposed to work. When government
1. What was the economic impact of the Civil War in cuts taxes, people work harder and generate more
the North and in the South? The northern economy income which in turn increases the amount of taxes
grew and the southern economy was largely destroyed. available to the government. (114)
(106) 7. What industry had many failures during the late
2. The Morrill Land Grant Act enabled public 1980s and early 1990s? Savings and loan institutions
lands to be sold in order to establish what? State (115)
agricultural and mechanical universities (107)
Exploring Economics Answer Key 9

8. What made it possible for people to become and the consequences. The Treaty of Versailles
millionaires quickly in the 1990s? The dot-com helped cause World War II. Loans that were too large
boom in Internet businesses (115) for people to pay back helped cause the Great Recession.
9. What was the average annual growth in the gross (121)
domestic product of the United States for the fifty
years following World War II? 3% (112) Lesson 22
10. What are the reassuring words of Jesus from 1. What are three basic economic questions that
Matthew 6:34? So do not worry about tomorrow; people in a society decide? What goods and services,
for tomorrow will care for itself. Each day has enough and in what quantities, will an economy produce?
trouble of its own. (116) How will people produce goods and services? How
will people distribute the goods and services across the
Unit 4 Quiz population? (123)
2. What is involved in a cost-benefit analysis?
1. f (89) 11. g (107)
Determining the cost and the benefit of taking a
2. j (90) 12. b (107)
particular step before you take it to determine if the
3. a (93) 13. p (107)
benefit outweighs the cost. (125)
4. c (97) 14. l (108)
3. Give an example of a cost-benefit analysis by an
5. d (95) 15. h (110)
individual (one not given in the lesson). Answers
6. n (99) 16. o (112)
will vary.
7. i (99) 17. t (116)
4. Give an example of a cost-benefit analysis by a
8. m (101) 18. r (114)
business (one not given in the lesson). Answers
9. e (97) 19. q (115)
will vary.
10. k (101) 20. s (113)
5. Give an example of a cost-benefit analysis by
government (one not given in the lesson). Answers

Unit 5 will vary.

6. In economics, what is a margin? A small step that
makes a big difference in an action being taken (127)
Lesson 21 7. What is a marginal cost-benefit decision?
1. List three simple decisions you have made so far Determining the point where a change in behavior
today. Answers will vary. occurs (127)
2. List three of the most important decisions you 8. What is a marginal benefit? The change in total
have made in your life thus far. Answers will vary. benefit that results from an action (127)
3. List five of the most important decisions you 9. What is marginal cost? The change in total cost that
expect to make in the future. Answers will vary. results from an action (127)
4. Imagine that you have to choose whom you 10. What is the marginal propensity to consume?
are going to marry today. List three traits you The fraction or decimal part of extra income that an
consider to be essential for that person to have. individual or household is likely to spend instead of
Answers will vary. save (127)
5. Name one decision you have made in the past that
you would change now if you could. Answers will Lesson 23
vary.
1. Define goods. Tangible items that companies or
6. Imagine that you have an important decision to
individuals produce for consumption (129)
make today. Name three people you would trust
2. Define services. Intangible duties that people perform
to give you wise counsel. Answers will vary.
for pay (129)
7. Name five decisions your parents have to make
3. What are production resources? The elements that
that you don’t have to make yet. Answers will vary.
producers use to create goods and services (129)
8. What is the best decision you have made in your
4. What are material resources? Those things found in
life thus far? Answers will vary.
nature or processed from things found in nature that
9. List the consequences you have experienced so far
people use to manufacture goods (129)
from that decision. Answers will vary.
5. What do human resources include? Labor,
10. The lesson mentioned two historic events in
creativity, and technology (130)
which the results turned out differently from how
the decision-makers intended. Name the events
10 Exploring Economics Answer Key

6. How is the word capital used in terms of 7. Businesses want to know what four factors
economics? Materials used to produce goods (130) involved in consumer choice? What consumers
7. Define production possibilities curve and draw a want, what they can afford, what they choose, and how
production possibilities curve for a society which changes in price and income affect their choices (137)
can make two products: 1,000 pounds of ice 8. How many potato chips in an individual serving
cream and 1,000 pounds of cake. The production bag do you think you could eat before the
possibilities curve is the maximum production that economic law of diminishing marginal utility
an economy can have, given its production resources. would come into play for you? Answers will vary.
(130) 9. Do you agree or disagree with the idea that a
dollar of benefits to the poor will increase their
1000 utility (satisfaction) more than a dollar more in
taxes will decrease the utility of the wealthy?
Quantity of Pounds of Ice Cream

Answers will vary.

750 10. After reading the section about looking at college
from an economic standpoint, what are you
currently thinking about your own decision
500
regarding college? Answers will vary.

Lesson 25
250
1. How do capitalism and socialism differ in terms
of who makes economic decisions? In a market
0 economy, the people who participate in the market
0 250 500 750 1000 of buying and selling goods and services make the
Quantity of Pounds of Cake decisions about who gets what and for what price. In
8. Define opportunity cost. The greatest benefit that a a command economy, government officials make the
producer gives up when he makes a choice. (131) decisions about who gets what and for what price. (141)
9. When does economy of scale occur? When the 2. Define economic efficiency. The goal of encouraging
average total cost per item decreases as the number of the people in an economy to be as productive as possible
units produced increases. (132) in making goods and services available for consumers
10. When does economy of scope occur? When a (141)
company’s average total cost of production decreases as 3. Define economic equity. The goal of having people
it produces more related products. (133) in a society share goods and services as equally as
possible. (142)
4. What does the principle of economic freedom
Lesson 24
involve? Allowing people to do what they want to do
1. What percentage of economic activity in the U.S. in an economy (143)
consists of personal consumption? About 70% 5. How does the promise of economic security relate
(135) to economic freedom? The promise of economic
2. What is an economic incentive? An economic benefit security means that you give up a degree of economic
that motivates action (135) freedom. (143)
3. Name two common incentives for consumers. 6. What is the relationship between growth and
Lower prices and subsidies, such as a rebate (135) stability in both a market economy and a
4. Name two disincentives related to cigarettes. command economy? Market economies enable
Additional tax and warning labels (136) growth by risking stability. Command economies try
5. What is involved in marginal rate of substitution? to insure stability while sacrificing the possibility of
How much of one product a consumer is willing to give significant growth. (143)
up in exchange for another product to maintain the 7. Name one way the U.S. government provides an
same level of satisfaction (137) incentive for people who own a home. By allowing
6. What does consumer choice theory examine? How homeowners to deduct from their taxable income the
consumers decide what to buy (137) interest they pay on a home mortgage loan (144)
Exploring Economics Answer Key 11

8. What is the basic question a government must Fill in the Blanks (2 points per word):
answer in relation to the allocation of goods and
33-34. supply, demand (41)
services? Will goods and services be available only to
35-36. God, wealth (58)
those who can afford them, or will they be available
37-38. kingdom, righteousness (58)
to all, regardless of their ability to pay, by means of
39. monasteries (70)
government funding for them? (144)
40-42. justice, kindness, humbly (80)
9. Government policies that place limitations on
43. possessions (82)
business activity limit the choices that producers
44-45. poverty, riches (55)
and consumers have in order to do what? Meet
other goals that the people in government value (144)
10. According to public choice theory, what is the basic
motivation for voters and elected government
Unit 6
officials? Self-interest (145) Lesson 26
Unit 5 Quiz 1. What is a market? Anywhere sellers offer goods and
services and buyers purchase them (150)
1. k (121) 11. b (129) 2. Define these terms:
2. h (125) 12. d (130)
• capital goods—Things for which people make a
3. a (127) 13. n (136)
major investment and use to produce other items
4. l (127) 14. s (141)
5. i (129) 15. m (145) • producer goods—Items such as tools and raw
6. c (129) 16. r (141) materials that people use to make other products
7. e (130) 17. o (142) • consumer goods—What end users purchase to
8. f (131) 18. t (143) meet their wants and needs and what they consume
9. g (135) 19. p (144) • durable goods—Goods intended to last a long
10. j (137) 20. q (143) time (150-151)
3. Name three indicators of economic freedom. The
First Exam (Units 1-5) kinds and amounts of the goods and services that are
Matching (2 points each): available in the market, the ability of consumers to
obtain those goods and services in the market, and the
1. c (5) 11. a (127) ability of producers to bring new and improved goods
2. g (19) 12. e (129) and services to the market (151)
3. n (24) 13. b (127) 4. Why is a market economy sometimes called
4. j (97) 14. d (135)
a consumer economy or consumer-driven
5. o (142) 15. l (129)
economy? Because the driving force in a market
6. p (107) 16. h (110)
7. f (116) 17. k (131) economy is what consumers want and are willing and
8. m (114) 18. q (137) able to buy (151)
9. i (129) 19. t (141) 5. When does imperfect competition take place?
10. r (139) 20. s (145) When there is a limited number of suppliers or buyers
and one of either can have a significant effect on price
True/False (2 points each): (152)
6. How does competition among “widgets” lead to
21. F (9) 26. F (29) a better quality of life? People benefit from owning
22. T (16) 27. T (136) widgets and more people have jobs producing them.
23. T (21) 28. T (130)
(153)
24. T (143) 29. T (130)
7. Define these terms:
25. F (143) 30. F (89)
• collusion—Secret cooperation for a dishonest
purpose
Questions (7 points each):
• cartel—A group of providers that engage in
31. Microeconomics is the examination of how individual collusion to increase profits (153)
households and companies make decisions and how 8. What is a boycott? An organized action by buyers to
buyers and sellers interact in the market. (21) bring attention to what they see as a wrong policy in an
32. In a command economy, some authority (usually the attempt to change that policy (153)
government) dictates what and how much producers 9. Define restraint of trade. Coercion to enforce a
will produce. (9) boycott (153)
12 Exploring Economics Answer Key

10. What do you believe is the fairest economic system 4. Define price taker. A producer who has little influence
for people who are poor? Answers will vary. on the market by itself and is forced to charge the
prevailing price for its product or service (165)
Lesson 27 5. What does a relative price demonstrate? The value
that one product or service has compared to another
1. Define supply. The total amount of a product or (166)
service that is available for purchase (156) 6. What price factor has contributed to America’s
2. Define determinants of supply. The factors that a great wealth and economic strength? Businesses
producer considers when deciding what product or have lowered prices for goods and services, which has
service to supply in the market and in what amount to brought more buyers into the market. (166)
supply it (156) 7. What is price discrimination? Selling the same
3. What is the law of supply? All else being constant, as product to different consumers at different prices (166)
the price for a product or service increases, production 8. What is a price ceiling? A maximum-allowable price
will increase. (156) set by the government that is below the market-clearing
4. Define demand. The total amount of a product or price (168)
service that consumers are willing to purchase at a 9. What is a price floor? A minimum-allowable price
given price (158) set by law that is above the market-clearing price (168)
5. Define determinants of demand. The factors 10. What is another way to express the diamond-
involved in causing consumers to purchase goods and water paradox? Paradox of value (168)
services (158)
6. What is the law of demand? All else being equal,
Lesson 29
when the price of a product or service rises, demand
falls. (158) 1. What causes markets to change constantly? The
7. What is the law of supply and demand? The price goods and services that producers supply and the
of a product or service adjusts to bring supply and goods and services that consumers want are constantly
demand into balance. (159) changing (171)
8. What does Say’s Law assert? That the production, 2. When does price stability exist? When prices in an
or supply, of products creates a demand for products economy do not change significantly over a long period
(161) of time (174)
9. Define the macroeconomics term aggregate supply. 3. What is elasticity? A measure of how much supply or
The total quantity of goods and services that all sellers demand changes as a result of changes in other factors
are willing and able to provide at any price. (163) (175)
10. Define the macroeconomics term aggregate 4. What is price elasticity of demand? A measure of
demand, and list its four components. The total of how much demand changes in response to changes in
all goods and services that all households, companies, price (175)
and the government are willing and able to buy at any 5. What happens to demand if the price changes for
given price in a given period of time. Its components a product or service consumers see as a necessity?
are consumption, investment, government spending, Demand will change little. (175)
and net exports. (163) 6. What is cross-price elasticity of demand? A
measure of how much demand for one product changes
Lesson 28 because of a price change for another product (176)
7. What does income elasticity of demand show?
1. Define price in economic terms. What consumers How much demand changes with regard to consumers’
pay when they buy a product or service and what income (176)
suppliers receive when they sell a product or service 8. What does price elasticity of supply show? How
(164) much the quantity supplied changes because of price
2. Define cost in economic terms. The supplier’s cost of (176)
production (165) 9. What is the meaning of the term sticky in
3. Define price maker. A producer who has enough economics? Sticky means slow to change. (177)
influence in the market to have an impact on what price 10. When does a supply shock occur and when does
is charged for its product or service (165) a demand shock occur? A supply shock occurs
when the amount of goods or services available for sale
increases dramatically or when the amount of goods
and services decreases dramatically. A demand shock
 Exploring Economics Answer Key 13

occurs when there are dramatic increases in demand Unit 6 Quiz

for a product or service or when there are dramatic
decreases in demand for a product or service. (178) 1. Imperfect competition 11. price (164)
(152) 12. cost (165)
Lesson 30 2. oligopsony (182) 13. Relative price (166)
3. market (150) 14. price floor (168)
1. When does market failure occur? When the market 4. cartel (153) 15. Price discrimination
fails to allocate resources efficiently (179) 5. Supply (156) (166)
2. What advantage does the seller of a product or 6. law of supply (156) 16. Price elasticity of
service have when that seller has a monopoly? 7. law of demand (158) demand (175)
The seller controls the entire supply of goods or the 8. law of supply and 17. Cross-price (176)
service in a certain region without other suppliers or demand (159) 18. market failure (179)
customers having a close substitute. (179) 9. Aggregate supply (163) 19. Public goods (183)
3. Define these terms and give an example of each: 10. Aggregate demand (163) 20. Externalities (183)
• oligopoly—An oligopoly is where there are only a
few large providers, and any one of those providers
can have an impact on the market. Example: the
passenger jet construction industry. (181)
• monopsony—A monopsony is a market in which
there is only one buyer or only one significant Unit 7
buyer. Example: the military aircraft industry or
the National Football League. (182) Lesson 31
• oligopsony—An oligopsony is a market in which
there are only a few major buyers, any of which 1. Define money. Assets that are immediately available
can exert a significant influence on the market. for exchange in a transaction, including currency,
Example: large national grocery store chains or coins, and deposits in bank accounts (189)
tobacco companies (182) 2. To what does liquidity refer? The ease with which
4. Why does a monopoly cause market failure? an asset can be turned into money (189)
Because a company with a monopoly does not have to 3. What is the significant value of money? What it
set its price as a result of competition (182) represents and what it can do (190)
5. What is the position of a monopolist or of 4. What does it mean that money is a “medium of
oligopolists sometimes called? Market power (182) exchange”? It is a commonly agreed-upon object of
6. How can taxes cause market failure? By increasing value to both parties in an exchange. (190)
the cost of goods and services (182) 5. How is money a representation of value? It is a
7. Define externalities and give two examples. way to show value to those with whom you are doing
Externalities are the effects from supply and demand business. (190)
activity that affect people who are not the actual buyers 6. How does money serve as a store of value? Money
and sellers in a transaction. Examples of externalities gives you a way to store up value so that you can make
are pollution and smoking. (183) purchases in the future. (190)
8. Define private goods and public goods. Private 7. How is money a unit of accounting? Money is a
goods are goods that one person, household, or way to demonstrate success or failure in a business or
company owns and consumes. Public goods are goods other endeavor. (191)
and services that more than one person, household, or 8. What is commodity money? Give the most
company can use at a time. (183) common example. Money backed by a commodity
9. What knowledge did Communist bureaucrats that has value in itself. Gold is the most common
lack? All of the knowledge diffused throughout millions example. (191)
of producers and consumers that enables markets to 9. When is a currency based on the gold standard?
work (184) When paper money that a government issues represents
10. What do we need to keep in mind regarding gold (191)
markets and an uncertain economy? All markets 10. What is fiat currency? Money that has value not
will eventually fail, so we should be sure that our most based on its relation to a commodity but by a nation’s
important investment—our very self—is in the hands government declaring that its money is legal tender
of the One who will never leave us nor forsake us. (185) (193)
14 Exploring Economics Answer Key

Lesson 32 2. What is a bond, what entities usually issue bonds,

and what is the issuer of the bond obliged to do?
1. How do banks help increase productivity and how A bond is a certificate of indebtedness. The issuer of a
do they create wealth? Banks increase productivity bond is usually a business or a unit of government. The
by using people’s savings to make loans to businesses issuer of the bond is obligated to pay back the face value
so that the businesses can grow. Banks create wealth by plus the interest stated in the bond. (203)
enabling the buying and selling of goods and service. 3. What is a purchaser of stock purchasing? A small
(197) part of the ownership of the company that issues the stock
2. What is the process of banks creating wealth (204)
called? Multiple-deposit expansion (197) 4. What is the broad term that encompasses stocks,
3. What is fractional reserve banking? A bank’s bonds, and other financial investments? Securities
practice of loaning out the majority of money that it (205)
has on deposit. (198) 5. What are mutual funds and how do they work?
4. What is the FDIC and how does it help individual Investment companies that offer shares to the public.
depositors? Federal Deposit Insurance Corporation. Many individuals invest in a mutual fund, and the
It guarantees that the deposits people have made in a fund pools the money so that all investors in the fund
bank will be there (up to a certain maximum dollar share mutually in its growth or decline. (205-206)
amount) and that depositors can withdraw it. (198) 6. What is a money market fund? Mutual funds that
5. Name four financial products that a retail bank make investments in safe but low-yield investments
offers. Savings accounts, checking accounts, money such as savings bonds or certificates of deposit that
market accounts, and certificates of deposit (198) have a relatively short time until maturity (207)
6. What are credit and interest? Credit is the ability to 7. What are two popular forms of mutual fund
carry debt. Interest is the price of borrowing money. investments that are used for retirement? IRA (or
(198) individual retirement account) and 401K fund (206)
7. Describe the unique function or structure 8. What type of funds take risks by buying and selling
associated with each of these financial institutions: securities in anticipation of what fund managers
Savings and loan or thrift —Make mortgage loans to think the securities are going to be worth in the
home buyers (199) future and are usually available only to wealthy or
Credit union — Functions like a bank, but are highly trained investors? Hedge funds (207)
cooperative ventures that depositors own (199) 9. What does stock or commodity futures trading
Mortgage company — Make mortgage loans to home involve? Buying stock or commodities (which are often
buyers (199) agricultural products) in anticipation of what the future
Investment bank — Make loans to larger businesses price will be. (207)
for capital projects (199) 10. What are capital gains taxes? Taxes on the gain or
8. In terms of the money supply of the United States, increase in value of capital assets such as stocks and
what do M1 and M2 include? M1 is the total of property (207)
currency, traveler’s checks, deposits payable upon
demand, and other checkable deposits. M2 includes the
Lesson 34
items of M1 plus money market mutual funds, savings,
and small time deposits. (201) 1. How do economists define inflation? A general,
9. What does the velocity of money tell? How often across-the-board increase in prices throughout the
the same money is used in transactions during a given economy, to the point that it affects almost all people
period of time. (201) (209)
10. What is the meaning of credit rating? A 2. Define hyperinflation and give an historic
determination of a person’s credit worthiness in the example. A huge and rapid increase in the cost of
eyes of the financial system. (201) living, such as what people in Germany experienced in
the early 1920s. (210)
Lesson 33 3. What two factors were the main causes of
increased government expenditures in the 1960s?
1. What is the simplest form of investment? A loan The federal government dramatically expanded social
(203) programs such as Medicare, Medicaid, and welfare and
it spent huge sums on the war in Vietnam. (211)
Exploring Economics Answer Key 15

4. How did the federal government pay for those? 8. Why is the money supply said to be elastic? The
The government borrowed money to cover some of the amount of money available in the economy can rise or
debt, but it also simply printed more money to pay for fall depending on conditions. (219)
the increased spending. (211) 9. What three primary tools does the Federal
5. What two factors caused stagflation in the Reserve System use to manage the money supply
early 1970s? Significant inflation along with rising and accomplish the nation’s economic goals? 1. It
unemployment (211) can adjust the reserve requirements for how much cash
6. What is deflation? An overall decline in prices (211) banks must have on hand. 2. It adjusts the discount
7. What causes demand-pull inflation? An increase rate that it charges banks for loans of its funds. 3. It
in aggregate demand that is not accompanied by an conducts open market operations, in which it buys and
increase in aggregate supply (212) sells U.S. Treasury bonds and other federally-issued
8. What is cost-push inflation? A decrease in aggregate securities to inject money into or to withdraw money
supply which leads to a decrease in productivity, a from the economy. (220)
decrease in supply, and a resulting increase in prices 10. What is the federal funds rate, who sets a target
for scarce resources (212) federal funds rate, and how often do they meet?
9. When does a wage-price spiral occur? When The federal funds rate is the interest that banks charge
producers and consumers both try to protect themselves each other for overnight loans. The Federal Open
from the effects of expected inflation (213) Market Committee meets about every six weeks and
10. What is purchasing power? The ability of individual sets a target federal funds rate. (220-221)
consumers to buy goods and services, at least in the
short run (213) Unit 7 Quiz
Lesson 35 1. e (190) 8. d (203) 15. k (209)
2. q (191) 9. b (204) 16. t (213)
1. Though the Federal Reserve System is essentially
3. a (193) 10. n (205) 17. o (217)
a private bank, what is its relationship to the
4. i (198) 11. g (205) 18. m (219)
federal government? The federal government created
5. c (199) 12. r (207) 19. s (220-221)
it; the president nominates its leaders and the Senate
6. j (200) 13. l (207) 20. p (220)
approves them; it submits regular reports to the Speaker
7. f (203) 14. h (207)
of the U.S. House of Representatives. (216-217)
2. What entity oversees the Federal Reserve System?
A seven-member board of governors whose offices are Questions on The Rise of Silas Lapham
in Washington, D.C. (217)
3. What entity oversees the Federal Reserve System’s 1. What do you think is the theme of The Rise of Silas
main tool for implementing national monetary Lapham? (Theme refers to the universal idea that
policy? The Federal Open Market Committee (FOMC) the story conveys.) Write a paragraph explaining
(217) your reasons, referring to specific elements of the
4. What entities of the Federal Reserve System are novel. Answers will vary. Themes suggested may be
located in major cities across the country? The similar to the following: Character is more important
twelve Federal Reserve regional banks (217) than status; happiness is not found in material success;
5. What banks maintain accounts in the Federal love for other people must trump other priorities; one
Reserve regional banks and are members of the only finds peace when he is true to himself. Student
system? All federally-chartered banks and some state- should have written a paragraph explaining evidence
chartered banks (217) for the theme they suggest.
6. What are the four areas of responsibility of the 2. A feeling of pity by one character for another is a
Federal Reserve System? To implement federal thread running through the novel. Identify three
monetary policy; to supervise and regulate the banking instances of this, and explain what happens as a
industry; to maintain stability in financial markets; result. Answers will vary, but may include:
and to provide financial services to banks, the United
Silas Lapham felt pity toward Zerilla and her mother.
States government, and foreign entities (218-219)
He helped them with money and advice over many
7. What does the Federal Reserve officially issue?
years. He provided Zerilla a job. He kept this a secret
The coins and currency that the United States Treasury
from his wife, which was a strain on their relationship.
Department produces. (219)
16 Exploring Economics Answer Key

Mrs. Corey subtly expresses pity toward the Lapham 9. From your knowledge of climate and geography,
family. She can easily see they are not genteel society. explain why Canada has an absolute advantage
She half-heartedly attempts to accept their friendship. over Honduras in making maple syrup and
Honduras has an absolute advantage over Canada
Mrs. Lapham pities her younger daughter Irene for her in growing bananas. Maple trees need a cooler climate
broken heart over Tom Corey. She neglects and slights and bananas need a warmer one.
Penelope because she is overwhelmed with pity for 10. What is the difference between comparative
Irene. The Laphams take great care to help Irene recover advantage and absolute advantage? Comparative
from the disappointment, yet fail to support Penelope. advantage compares what producers give up to produce
Tom Corey feels pity for Silas Lapham, though he tries something, while absolute advantage compares what
to hide it and maintain a respectful demeanor. He producers use to produce something. (230)
patiently listens to Silas’ boasting and bluster. Tom is
gracious about Silas’ behavior at the dinner party. He Lesson 37
tries to help him out of his financial difficulties. Tom is
1. What are trade restrictions? Government policies
loyal to Silas through his downfall. that hinder, complicate, or eliminate trade between
3. Write a letter of advice to one of the characters nations (231)
in the story as they face a crucial decision or 2. What is the purpose of protectionist laws? To
situation. Write at least two or three paragraphs. protect domestic industries from what the government
Answers will vary. in that country sees as unfair competition from foreign
industries (231)
3. What is an import tariff? A tax placed on goods that
Unit 8 businesses import into a country (231)
4. Name two purposes of import tariffs. To raise
revenue for a government and to protect domestic
Lesson 36 industry (231)
5. Name three negative consequences of American
1. In economics, what does the term trade most often import tariffs. 1. They lead to higher prices for
describe? Purchases between countries. (226) consumers. 2. They lead to decreased consumption
2. Define export. Goods and services that producers which lowers production, which can lead to fewer jobs.
create within a country and then sell and send to 3. They make other countries less likely to buy the
people, companies, or governments in other countries goods and services of American companies. (232-233)
(226) 6. How do import quotas affect the amount of goods
3. Define import. Goods and services that producers that can be brought into a country? They allow only
in other countries make and then people, companies, a certain number to be brought in. (233)
and governments purchase and bring into a different 7. What is a sanction? An order forbidding citizens from
country (226) trading with another country (233)
4. How is trade a voluntary exchange? It involves 8. Name one country that has experienced sanctions
decisions that people make freely and that no one forces protesting one of its policies and tell what policy
onto someone else. (226) was protested. Student may answer either South
5. When does a person practice specialization? When Africa, apartheid (or racial segregation); Iraq, the
he or she concentrates on one kind of work and uses the invasion of Kuwait; or North Korea, development of a
profits from that work to buy the other things he or she nuclear weapons program (234)
needs (228) 9. What are subsidies? Government payments to
6. What do people who go against the tide of industries that have to compete in a world market
specialization by trying to be self-sustaining do? where prices are lower than they are in the producing
Produce as many goods and services themselves as they country (235)
can (228) 10. Give an example of American products that
7. When does comparative advantage exist? When one receive subsidies. Agricultural products (235)
producer has a smaller opportunity cost of producing a
good or service compared to another producer (229)
8. When does absolute advantage exist? When one
person or country can produce goods with a smaller
input of resources than another (230)
Exploring Economics Answer Key 17

Lesson 38 7. What is the balance of payments? The record of all

transactions between the people of one country and the
1. Name three results of the Smoot-Hawley Tariff rest of the world (245)
of 1930. Other countries retaliated with tariffs on 8. What is included in the U.S. current account or net
American goods, America’s foreign trade fell by more foreign assets? The sum of the U.S. trade balance, the
than half, and the law cost American jobs and probably net factor income (interest and dividends Americans
contributed to the severity of the Great Depression. receive from foreign investments plus money Americans
(238) living in another country send back to their families in
2. What new pattern of trade did Franklin Roosevelt this country), and net transfer payments such as direct
begin? Negotiating reciprocal trade agreements with foreign aid (245)
individual nations (238) 9. What has been the main motivation for American
3. GATT and WTO are abbreviations for what? businesses “moving production offshore”? To
General Agreement on Tariffs and Trade and World reduce labor costs (246)
Trade Organization (238) 10. What often happens to individual workers and to
4. NAFTA is an abbreviation for what? North communities when an American company moves
American Free Trade Agreement (238) production offshore? Workers lose their jobs and
5. NTR is an abbreviation for what term? Normal communities are hurt. (248)
Trade Relations (238)
6. NTR replaced MFN, which means what? Most
Favored Nation (238)
Lesson 40
7. How extensively has the U.S. extended NTR 1. What is a currency exchange rate? The price of
status? The U.S. has extended NTR status to most one country’s currency expressed in terms of another
nations of the world. (238) country’s currency (251)
8. Give four examples of transaction costs. Import 2. How do the forces of supply and demand
tariffs, fuel expenses, business taxes, and costs of determine the price for money? When the supply of
complying with regulations. (240) a currency in currency exchange markets is greater, its
9. What is the purpose of the fair trade movement? value is less. When demand increases for a currency, its
To help families and small companies in less-developed value increases. (251)
countries compete in the world economy (240) 3. What is the equilibrium exchange rate? The
10. What are your thoughts about the Milton Friedman exchange rate at which currency demand equals
quote at the beginning of Lesson 38: “Underlying currency supply (251)
most arguments against the free market is a lack 4. What is the nominal exchange rate? The rate at
of belief in freedom itself”? Answers will vary. which you can exchange one currency for another (252)
5. In terms of money, how do businesses make
Lesson 39 purchases of products from other countries? They
use their own currency to buy the currency of the
1. What are two typical ways that Americans invest country from which they are buying. (253)
in foreign business? 1. American companies invest 6. How do higher interest rates set by the Federal
money to build factories or set up businesses in other Reserve’s Federal Open Market Committee
countries. 2. Americans buy the stocks or bonds of affect foreign investment? They encourage foreign
foreign companies. (243) investment in the United States. (253)
2. As of June 2016, what was the value of U.S. 7. What is the real exchange rate? The rate of exchange
Treasury securities held by foreign investors? for goods and services between one country and another
More than $6 trillion (244) (254)
3. As of June 2016, what two countries held the most 8. What is arbitrage? A term used for taking advantage
U.S. Treasury securities? Mainland China and Japan of price differences (254)
(244) 9. What was China accused of doing some years ago
4. What is a country’s balance of trade? The difference to manipulate the value of its currency to its own
between its imports and exports (245) advantage? Pegging the value of the yuan artificially
5. When does a country have a trade deficit? When it low and then buying huge amounts of American
imports more than it exports (245) currency (255)
6. When does a country have a trade surplus? When 10. How did this policy encourage other countries to
it exports more than it imports (245) buy Chinese goods? Those other countries could buy
the yuan cheaply to pay for Chinese products. (255)
18 Exploring Economics Answer Key

Unit 8 Quiz Lesson 42

1. Define small business. A small business is privately
1. j (230) 11. f (238) owned and operated, has under 500 employees, and
2. e (229) 12. h (238) is not dominant in its field. It can be either a sole
3. m (226) 13. d (240) proprietorship, a partnership, or a corporation. (265)
4. a (226) 14. i (240) 2. What is another term for a very small business?
5. g (226) 15. p (245) Microbusiness (265)
6. o (228) 16. k (245) 3. If you could own your own small business, what
7. b (231) 17. s (251) would you like to offer as goods or services?
8. t (231) 18. l (245) Answers will vary.
9. c (233) 19. n (252) 4. What is a colloquial term for a family-owned
10. q (235) 20. r (254) business, usually with no more than ten
employees? Name a small family-owned business

Unit 9
that your family uses. A “mom and pop operation”;
answers will vary. (265)
5. How many employees are usually employed by
a mid-sized small business? Between 100 and 500
Lesson 41
(265)
1. In the United States, we usually refer to the 6. What percentage of U.S. companies hire less than
producers and distributors of goods and services 500 people? 99.7% (266)
as what? Businesses, companies, or firms (259) 7. How many new small businesses survive for five
2. What is the most common type of business years? About half (267)
organization in the United States? Sole 8. What term is often used for an individual who
proprietorship (260) starts a new business? An entrepreneur (267)
3. Describe how a business partnership is organized. 9. The practice of a local business purchasing the
Two or more people agree to start a business and share right to use the name and business model of a
in the profit or the loss. (261) large company is called what? Franchising (266)
4. What form of business organization involves 10. What was the name and occupation of the woman
a charter, a board of directors, and officers? A who became a believer in Jesus in Acts 16? Lydia, a
corporation (262) seller of purple fabric (268)
5. Describe the difference between a private and
a public corporation. A private corporation is a Lesson 43
company that a relatively few people, often just family
members, own. This kind of corporation rarely sells its 1. On average in the U.S., how many businesses start
stock to anyone else. A public corporation usually has every day? Over 1,700 (269)
many shareholders who buy and sell shares of stock in 2. If you were going to start a small business, from
the stock market. (263) whom would you seek advice? Answers will vary.
6. What does LLC stand for? Limited liability company 3. When someone wants to start a business, they
(261) should make an appraisal of what? Their talents
7. What is a PC? A professional corporation, which and interests (270)
physicians, attorneys, or other professionals form to 4. What is a Unique Selling Proposition or USP?
separate their professional liabilities from their personal Something a business can advertise to potential buyers
finances (263) that will help those buyers know how its product is
8. What is the purpose of a non-profit corporation? different from and better than products its competitors
It exists to provide or promote services for the public offer (271)
good. (263) 5. Who are the best and most important customers
9. What is a 501(c)(3)? A federally-recognized charitable for a business? Those they already have (271)
organization (263) 6-10. List five key factors that usually determine
10. Give examples of three types of non-profit whether a business will succeed or fail.
corporations. Hospitals, charities, and groups that 6. Management, 7. Planning, 8. Money, 9. Location,
promote the arts (263) 10. Overexpansion (Student can list answers 6-10 in
any order.) (272-273)
Exploring Economics Answer Key 19

Lesson 44 7. What calendar time does a complete business

cycle encompass? The time between two peaks or two
1. How does a businessperson determine profit? By troughs (284)
calculating total revenue and subtracting total cost 8. What term do some economists prefer over
(275) business cycle? Economic fluctuations (284)
2. How is revenue calculated? The selling price of the 9. How can a natural disaster, such as a hurricane
goods times the quantity sold (276) or earthquake, lead to a contraction or slowing
3. What is accounting profit? The profit that an down of the economy? By interrupting supply (284)
accountant determines and that shows up on the 10. What did Milton Friedman believe was the cause
books: revenue minus the costs (rent, utilities, price of of economic fluctuations? The money supply not
materials, labor, and so forth), which he can enter into keeping pace with output (284)
a ledger (276)
4. How does an economist determine economic
Unit 9 Quiz
profit? By subtracting the opportunity cost as well as
the ledger costs from the revenue (276) 1. sole proprietorship (260)
5. Define fixed costs and give two examples. Expenses 2. business partnership (260)
that have to be paid regardless of the rate of production. 3. corporation (262)
Rent payments and insurance are examples of fixed 4. 501(c)(3) (263)
costs; other answers possible. (277) 5. small business (265)
6. Variable costs are expenses that change depending 6. microbusiness (265)
on what? The amount of production taking place (277) 7. entrepreneur (267)
7. What is marginal analysis? A study of factors that 8. Franchising (266)
lead to a change in business behavior (277) 9. money (273)
8. What does the law of diminishing marginal 10. unique selling proposition (271)
returns state? That the productivity of an input 11. Revenue (276)
decreases as the quantity of the input increases (278) 12. Fixed costs (277)
9. What is the production function? A comparison of 13. Marginal analysis (277)
the quantity of inputs to the quantity of outputs (279) 14. Deadweight loss (280)
10. What is a deadweight loss? A reduction in efficiency 15. economic profit (276)
that leads to a loss in profit or a loss to society (280) 16. business cycle (282)
17. trough (283)
Lesson 45 18. economic fluctuations (284)
19. supply (284)
1. What are a series of economic expansions and 20. money supply (284)
contractions called? The business cycle (282)
2. What is the first phase of a business cycle?
Expansion (282)
3. What characterizes a business expansion? Unit 10
Increases in the real gross domestic product, growth
in the number of jobs, higher average household
income, greater business profits, numerous business Lesson 46
expansions, and the formation of many new businesses 1. How do people earn income? By exchanging their
(282) work for pay (289)
4. What is the turning point of a business cycle when 2. What is the price of labor? Wages or salary (290)
the GDP, household income, and profits have 3. What determines the price that buyers (namely,
reached their highest level and unemployment is employers) pay for labor? Supply and demand (290)
at a relatively low level? A peak (282) 4. Define total labor demand. The aggregate demand
5. What is the phase of significant decline in real GDP, for labor by all firms in an economy (290)
income, and profits and of rising unemployment? 5. Define total labor supply. The aggregate of choices
Recession (283) that individuals make to enter the labor market (290)
6. What is a trough? The turning point in the cycle at
which economic activity reaches a low ebb and from
which an expansion follows (283)
20 Exploring Economics Answer Key

6. List five reasons that changes in the labor supply 7. List three changes that may be either causes or
occur in a perfectly competitive labor market. 1. effects of a greater percentage of women entering
Population growth or decline (involving rates of birth the workforce. An increase in daycare businesses,
and immigration), 2. the age of the work force (the fast food restaurants, and processed food products in
ages that the labor force encompasses), 3. changes in grocery stores (296)
training possibilities, 4. changes in benefits, 5. changes 8. What does assuming that certain people do not
in the nature of the work force (such as more women or deserve the same pay or the same opportunities
minorities becoming part of the labor force) (290) introduce into the labor market? Inequity (297)
7. Give four examples of factors that cause 9. When discrimination based on prejudice leads to
deviations from the labor supply in a perfectly a misallocation of resources, what is the result? An
competitive labor market. 1. Wage restrictions (such economy that dishonors God, dishonors people made in
as a minimum wage law), 2. unions that dictate the His image, and is less than optimally efficient (297)
price of labor, 3. monopsonies (a single buyer for labor 10. What do artificial limitations such as
that can dictate wages), 4. product monopolies (a single discrimination prevent in the economy? They
supplier that again can set wage rates) (290) keep it from growing as fully as it could without those
8. How does the U.S. Department of Labor define limitations. (298)
the labor force in the United States? All people
sixteen or older who are employed or actively seeking Lesson 48
work (291)
9. List four reasons why a person may decide to 1. Workers organized unions to bargain collectively
become a worker. Desire for income, wanting with industry owners regarding what three issues.
personal fulfillment, wanting to serve others, wanting Wages, hours, and working conditions (299)
to serve God (291) 2. What does a state’s closed shop laws require? In
10. What is the highest purpose of work? Glorifying certain industries, workers have to be members of a
God (292) labor union. (300)
3. States that do not require union membership are
Lesson 47 called what? Open shop or right to work states (300)
4. Define featherbedding. Requiring a certain number
1. For most of the twentieth century, how did of workers for a particular task or location, even if the
economists define white collar positions? job did not require that many workers (300)
Professional occupations in which people received 5. What type of workers do today’s largest and
an annual salary, worked in an office, and had an strongest unions represent? Government workers
administrative or oversight role (293) (301)
2. For most of the twentieth century, what did blue 6. List two labor unions which represent government
collar jobs involve and how were they paid? workers. National Education Association (NEA)
Manual labor, often performed in a factory setting or and the American Federation of State, County, and
outdoors; they generally received an hourly wage. (293) Municipal Employees (AFSCME) (301)
3. What types of jobs have people described as 7. Why do economists call unions a cartel? Because
pink collar and green collar? Pink collar — Jobs they are organizations that limit the supply of labor in
that women have traditionally held; Green collar — the market (302)
Jobs related to producing goods and services that are 8. Unions have contributed to a decline in the
environmentally friendly (294) number of workers hired in what two industries
4. Of the twenty-three Standard Occupational mentioned in the lesson? Mining, railroading (302)
Classifications the federal government has 9. How have unions impacted union wages and
established, which two interest you the most and non-union wages? They have helped to raise union
which two interest you the least? Answers will wages and lower non-union wages. (303)
vary. (294) 10. How are unions examples of tradeoffs? Certain
5. Name two common ways that companies unions have enabled their workers to earn a higher
eliminate positions on their payrolls. Outsourcing income, but at the price of fewer people working in
and downsizing (295) those industries and crafts. (304)
6. Define outsourcing. Having a private contractor
outside the company perform certain tasks (295)
Exploring Economics Answer Key 21

Lesson 49 7. How is the rate of unemployment calculated? By

dividing the number of people who are without a job
1. What is the difference between a wage and but wanting to work by the total work force (314)
a salary? A wage is an hourly rate paid for labor 8. What is the generally accepted range of the natural
rendered; a salary is pay for a job performed regardless rate of unemployment? 1% to 5% (315)
of how long it takes to do the work (305) 9. The term underemployment refers to whom? People
2. What are benefits? Things of value that employers who are working at jobs that are beneath their skill level
provide which are usually not taxable (305) but that are the only work they can find (315)
3. Give two examples of benefits. Employer 10. What is meant by discouraged workers? Those
contributions toward health insurance coverage and who have not been able to find work and have stopped
contributions to a retirement fund (305) actively looking (315)
4. List three things employers automatically
withhold from employee paychecks and send Unit 10 Quiz
to the government. Income taxes, Social Security
contributions, and Medicare contributions (306)
1. g (305) 11. l (305)
5. What is a person’s gross income? The total of the
2. n (290) 12. f (308)
person's taxable income (306)
3. a (291) 13. i (313)
6. What is another term for take-home pay? Net
4. s (295) 14. o (313)
income (306)
5. c (299) 15. b (314)
7. What does functional distribution of income
6. k (300) 16. t (314)
measure? Income among different businesses and
7. d (300) 17. r (314)
occupations in the economy (306)
8. q (301) 18. j (314)
8. What does household distribution of income
9. h (302) 19. m (315)
measure? The distribution of income among groups
10. e (305) 20. p (315)
of households according to income ranges, regardless of
what jobs the people in those households do (307) Second Exam (Units 6-10)
9. What is the minimum wage? A legally mandated
minimum hourly wage that all employers (with some Terms (3 points each):
exceptions) must pay workers. (308)
1. g (150) 10. h (231)
10. Considering the pros and cons of a minimum
2. d (163) 11. f (235)
wage, do you think the federal government
3. a (156) 12. i (245)
should require employers to pay a minimum
4. j (158) 13. k (245)
wage or not? Answers will vary.
5. b (183) 14. p (282)
6. q (193) 15. r (305)
Lesson 50
7. c (200) 16. o (290)
1. What does the level of employment in an economy 8. m (209) 17. l (315)
indicate? Productivity (313) 9. e (228) 18. n (313)
2. To whom does frictional unemployment refer?
Those who simply have not had the time to find a job. Fill-in-the-blank (2 points each):
(313)
19. sole proprietorship 30. Supply (156)
3. Why does structural unemployment occur?
(260) 31. price (164)
Because of a mismatch between the skills that people
20. small business (265) 32. Public goods (183)
have and the needs than employers have. (313)
21. entrepreneur (267) 33. Credit (199)
4. Why does seasonal unemployment occur?
22. value (190) 34. currency (219)
Employers let go employees they hired temporarily
23. securities (220) 35. Underemployment (315)
during a particular season, and those workers may
24. fluctuations (284) 36. Fixed (277)
need time to find other work. (314)
25. union (300) 37. Franchising (266)
5. What causes cyclical unemployment? Downturns
26. government (301) 38. Exports (226)
in the business cycle (314)
27. comparative (245) 39. sanction (233)
6. What causes classical unemployment? Wages being
28. Trade (238) 40. deficit (245)
above the equilibrium rate (314)
29. cartel (153) 41. floor (168)
22 Exploring Economics Answer Key

Unit 11 3. What kind of environmental policy might a

government enact when a market failure occurs?
Taxing or charging fines to polluters, requiring
Lesson 51
companies to clean up toxic waste dumps, requiring
1. What is economic freedom? Freedom to work, companies to pay the expenses for reducing their level
buy, save, and engage in all other economic activity of pollution (326)
without any hindrance, regulation, or oversight by the 4. What did the federal government do when corn-
government (319) based ethanol did not prove to be an economically
2. What do people who believe in economic security feasible energy alternative to petroleum? The
think that a country’s economic system should government began paying subsidies to farmers and
provide? The essentials of life for every member of producers for its production. (326)
society whether or not they can afford to pay for those 5. What are the two reasons that the free market
essentials themselves (319) does not provide some goods and services?
3. How does Congress participate in fiscal policy? 1. Private companies cannot make a profit doing so;
Enacting laws related to taxing, spending, and 2. it would be inefficient or unreliable for a private
regulations (320) company to do so. (326)
4. How does the executive branch participate in 6. What two security services do most people believe
fiscal policy? Through the executing of laws, through that government should provide? National defense
regulatory activities, and through implementing policy and local law enforcement (327)
goals (321-322) 7. What role do government and private contractors
5. What is the responsibility of the Congressional play in building roads and bridges? Government
Budget Office? Providing “independent analyses funds them with tax revenue; private contractors
of budgetary and economic issues to support the usually do the construction work. (327)
Congressional budget process” (321) 8. What are the limits to the Temporary Assistance
6. What is the Council of Economic Advisors? A for Needy Families program? The program has
three-member group of economists that advises the a five-year limit; recipients must actively search for
president on domestic and international economic employment. (329)
policy (322) 9. What do the acronyms SNAP and EBT stand for?
7. What is the responsibility of the United States Where do recipients use EBT cards? Supplemental
Trade Representative? Developing trade and Nutrition Assistance Program (SNAP) and Electronic
conducting trade negotiations with other countries Benefit Transfer (EBT). Recipients use EBT cards at
(322) participating grocery stores. (329)
8. What does the Office of Management and Budget 10. What role do you believe government should play
do? Heads the development of the federal budget and in helping the poor? Answers will vary.
sees that the executive departments follow through on
budget guidelines (322) Lesson 53
9. What Cabinet department is most involved in
federal economic policy? Treasury (322) 1. What happened at Love Canal? A chemical
10. What is the purpose of the Internal Revenue company dumped toxic waste there. Developers later
Service? To enforce the tax code (322) built housing on the land and the city of Niagara Falls
bought land for a school. People living there had health
problems. The federal government undertook a major
Lesson 52
cleanup and relocated residents. (331)
1. Name the four purposes of the fiscal and 2. The Federal Register contains hundreds of
monetary policies of the federal government. To thousands of pages of standards, guidelines, and
promote economic growth and stabilization (that is, rules that have the power of law in areas such as
seeking to avoid significant upswings and downturns), what? Worker safety, product labeling, food handling,
to reduce inflation and unemployment, to encourage drug warnings, and advertising (332)
international trade, and to preserve the fairness of the 3. Regulations are a limitation on what? The free
free market, as well as equal access to the free market market (332)
(325) 4. What is the purpose of regulations? The public
2. When market failure occurs, what is a rare welfare (332)
response that involves bureaucrats? Nationalizing
an industry (326)
Exploring Economics Answer Key 23

5. Why do regulations generally affect prices? 9. Do you believe that a flat tax is fair? Explain your
Producers pass the cost of complying with them on to answer. Answers will vary.
consumers. (332) 10. What is a Pigovian tax? A tax that attempts to correct
6. What was the result of the deregulation of the for negative externalities in market activity. (341)
trucking industry? Competition increased and
transportation costs fell dramatically. (333) Lesson 55
7. What was the result of the deregulation of the
airline industry? The reforms led to lower fares by 1. What date marks the beginning of the federal
increasing the ability of airlines to compete in a freer government’s fiscal year? October 1 (344)
market. (333) 2. What is discretionary spending? Funding for non-
8. What was the purpose of the Americans with entitlement programs (345)
Disabilities Act? More equal physical access for all 3. What is the multiplier effect? Increased spending by
(333) the government which increases aggregate demand as
9. What is the meaning of caveat emptor? Let the buyer those who receive federal dollars then use those dollars
beware. (335) to buy goods and services (345)
10. Do you believe that government regulation 4. What is a deficit? A deficit is the amount that the
is more effective than self-regulation in a free government spends each year which exceeds revenue
market in which producers and consumers police that it receives. (345)
themselves? Explain your answer. Answers will 5. What is the accumulated annual deficits of the
vary. United States called? The national debt (345)
6. When does the crowding out effect occur? When
deficit spending takes loanable funds from the money
Lesson 54
supply that could be used by businesses and allocates
1. Oliver Wendell Holmes Jr. said taxes are the price them to government programs (346)
we pay for what? Civilization (337) 7. How is the federal deficit a moral issue? To finance
2. Give examples of itemized deductions. Charitable current expenses by imposing a legacy of debt on future
contributions, medical expenses that exceed a certain generations is morally irresponsible (347)
percentage of taxable income, property and sales taxes 8. In philosophical terms, deficits are the
paid, interest paid on a home mortgage (338) government’s attempt to defy what economic
3. What does the term progressive tax mean? The principle? The principle of scarcity (346)
percentage of taxes to be paid increases as income rises. 9. What politically unpopular remedies for
(339) eradicating the national debt does the lesson
4. What does the term regressive tax mean? A higher mention? Spending cuts, tax increases, or some
percentage of income is paid in taxes at lower income combination of both (346)
levels. (339) 10. Copy the verse at the end of the lesson.
5. How does a taxpayer determine his gross income? The rich rules over the poor,
By adding up all taxable income from wages, salaries, And the borrower becomes the lender’s slave.
self-employment income, taxable investment income, Proverbs 22:7 (348)
and so forth (338)
6. How does a taxpayer determine his taxable Unit 11 Quiz
income? By subtracting all exemptions and deductions
from his or her gross income (338) 6 points each
7. How are payroll taxes different from an actual
contribution to an account from which a person 1. government (319) 9. increased (333)
could draw from later? They do not go into separate 2. Advisors (322) 10. itemized (338)
funds earmarked for Social Security and Medicare, 3. Trade Representative (320) 11. progressive (339)
but into the federal government’s general revenue to 4. Management (322) 12. discretionary (345)
pay for current expenses; some employees and self- 5. Revenue (322) 13. deficit (345)
employed persons will never receive the payments or 6. subsidies (326) 14. debt (345)
services these taxes are supposed to fund. (340) 7. fines (326) 15. price (332)
8. Do you believe that it is better to tax income, 8. defense (327)
consumption, or savings? Explain your answer.
Answers will vary. Opinion Question (10 points): Answers will vary.
24 Exploring Economics Answer Key

Questions on The Travels of a T-Shirt 3. What is considered a healthy annual rate of

in the Global Economy growth in the GDP? 3% (352)
4. What is the nominal GDP? The actual total figure
1. From what perspective does the author write? of the value of the nation’s output in terms of current
What is her place in history and geography, her prices (353)
background, her point of view and experience? 5. What does the real GDP express? Output in terms
How does her perspective influence the way she of a comparison with the prices of goods and services in
assesses and responds to her topic? Write one the previous year. (353)
paragraph which includes your answers to all of 6. What is the statistic produced when the nominal
these questions. Answers will vary, but may include: GDP and the real GDP are compared? GDP
Pietra Rivoli is a white American woman. Her life has deflator (353)
spanned the late 20th and early 21st century. She is 7. What does seasonal adjustment take into
a professor in the Georgetown University business account? Changes in economic activity that occur
school in Washington, D.C. She has been trained in routinely throughout the year (353)
academic research. She is most likely accustomed to 8. What five countries have the largest economies?
the American lifestyle, which is more prosperous than United States, China, Japan, Germany, United
most of the rest of the world and the rest of history. Kingdom (352-353)
Finding profitable work, providing for her basic 9. How do economists calculate per capita GDP? By
needs, and buying a T-shirt are comparatively easy dividing a country’s GDP by its population (353)
for someone like her. She obviously has compassion 10. What does purchasing power parity (PPP) take
for the suffering of people and respect for hard work, into account? The differences in the cost of living in
innovation, and integrity. She traveled a great deal and various countries by using the long-term exchange rate
spoke face-to-face with many people involved in the between currencies to arrive at a common currency of
textile industry. She brings an open mind and is able expression (354)
to draw compassionate but honest conclusions.
2. What do you feel are the key passages in the
Lesson 57
book? Think about the main conclusions and what
supports them. What do these passages convey? 1. What are the three most important macroeconomic
What difference should these conclusions make variables? The gross domestic product, the rate of
in the thoughts and actions of the reader? Write inflation, and the rate of unemployment (356)
three paragraphs. Answers will vary, 2. What is the Consumer Price Index (CPI)? An
3. What other industry needs a treatment like The estimate of what a typical urban consumer has to pay
Travels of a T-shirt in the Global Economy? Why for a sampling of typical goods and services (356)
do you think so? What would you like to know 3. What is the basis for the CPI called? A market
about the truth of the industry? How do you basket of goods and services (357)
think society would benefit? Write two or three 4. What method does the Bureau of Labor Statistics
paragraphs. Answers will vary, use to measure unemployment? A monthly survey
of 60,000 homes (357)
5. When was the Conference Board founded and
Unit 12 what does it publish? 1916; Leading Economic
Index, or Index of Leading Economic Indicators (358)
Lesson 56 6. Why is unemployment a lagging indicator?
Because layoffs generally occur after sales have started
1. The gross domestic product is the market value of to decline (358)
a nation’s total domestic output of all final goods 7. What is disposable personal income (DPI)? The
and services over a period of time. The gross money that households have available for discretionary
domestic product consists of what components? spending after taxes (359)
Purchases by consumers, purchases of capital goods 8. What does the Producer Price Index (PPI) reflect?
by businesses, purchases of goods and services by Wholesale prices that producers charge to retail
government, and net exports (total exports minus total establishments (359)
imports) (351) 9. What organization reports each month on the sale
2. What is the gross national product? The production of of new and existing homes and how the rate of
a nation’s permanent residents, whether that production sales compares with one year earlier? The National
occurs within the country or elsewhere (351) Association of Realtors (359)
Exploring Economics Answer Key 25

10. What does the Bureau of Labor Statistics’ 2. Why do many economists not like that definition?
quarterly reading of worker productivity reveal? It does not consider any other variables such as
The average output per labor-hour (359) unemployment or consumer confidence; they like to
identify a more precise starting point for a recession.
Lesson 58 (367)
3. List major measures of economic activity which
1. What do people purchase in a stock market?
decline or show only small growth during an
Shares of stock (that is, shares of ownership) in publicly
economic downturn. Stock prices, employment,
traded corporations (361)
personal income, business profits (367)
2. What determines the prices of shares of stock? The
4. What is the NBER? The National Bureau of Economic
supply and demand of those stocks in the market (361)
Research (NBER) is a private, non-partisan, and non-
3. What is the largest actual stock market in the
profit organization founded in 1920 that conducts
world and when did it begin? The New York Stock
research on the economy. (368)
Exchange (NYSE), which began in 1792. (361)
5. When did it publish its first business cycle dates?
4. What company owns the New York Stock
1929 (368)
Exchange, where is its base, and what else does
6. What is the official definition of a recession by the
it own? Intercontinental Exchange, based in Atlanta,
NBER? “A significant decline in economic activity
owns the NYSE and other exchanges in Canada,
spread across the economy, lasting more than a few
Europe, and Singapore. (361)
months, normally visible in real GDP, real income,
5. What does the Dow Jones Industrial Average do
employment, industrial production, and wholesale-
to create it’s composite index? It takes the stock
retail sales.” (368)
values of thirty key companies out of the thousands
7. What is the average length of a recession since
traded on the NYSE and uses a formula to determine a
World War II? Eleven months (368)
cumulative value for those stocks. (362)
8. What has been the trend since World War II
6. What is the origin of the S&P 500? In 1860, H. V.
regarding the length of time between economic
Poor published his first reference book with information
troughs? They have gotten longer. (368)
on railroad companies. In 1906, the Standard Statistics
9. What did the Business Cycle Dating Committee of
Bureau company was organized to publish information
NBER determine were the two main factors in the
about businesses other than railroads. (363)
recession that began in December 2007? Domestic
7. What is NASDAQ, where is it headquartered,
production and employment (368)
when was it founded, and what type of stock
10. What is the generally understood definition of
market is it? The National Association of Securities
a depression? A period of economic downturn that
Dealers Automated Quotations, headquartered in New
is more severe than a recession. One common rule of
York City, is an electronic stock market founded in
thumb is that a depression involves a decline in the
1971. (364)
GDP of more than 10%. (369)
8. How do futures investors try to make money? By
taking risks on what stock and commodity prices will
be in the future (365)
Lesson 60
9. What major commodities market is located in 1. As of 2014, what was the median household
Chicago? The Chicago Mercantile Exchange (364) income in the United States? $53,657 (371)
10. The Dow Jones Industrial Average, the NASDAQ 2. Approximately what percentage of American
index, and the S&P 500 are fairly good indicators households have an income of $100,000 or more?
of what? What important portions of the economy What percentage of American households have
are left out of those indices? They indicate the an income under $20,000? 20%; 20% (371)
perceived success of large companies that employ 3. What was Mollie Orshansky’s standard for
millions of people and that have a major impact on defining poverty? Three times the amount of income
the economy. They do not take into account small needed for an economical food budget, adjusted for the
businesses or the self-employed. (365-366) number of persons in a household (371)
4. How has the percentage of Americans living in
Lesson 59 poverty changed since the federal government
began the War on Poverty in 1964? It is not
1. What is the traditional definition of a recession? significantly different. (372)
When the gross domestic product has declined for at 5. Define income. Income is what a person earns during
least two consecutive quarters or six months (367) a certain period, usually one year. (373)
26 Exploring Economics Answer Key

6. Define wealth. Wealth is the total value of a person’s 8. What does the Affordable Care Act of 2010
assets, which often includes a house and property, require of every American (with few exceptions)?
investments, bank accounts, and other useful goods, They must have health insurance coverage or face the
acquired over several years. (373) disincentive of having to pay a penalty. (384)
7. How do the poor in America compare to the 9. Government involvement causes health care to be
poor in other countries? Most of those who live in what kind of market? Distorted (386)
the lowest income quintile in the U.S. live in conditions 10. Do you believe that the federal government
that are vastly superior to the conditions in which most should be involved in health care? Explain your
impoverished people in the world live. (373) answer. Answers will vary.
8. Describe the typical home of a poor person,
according to a 2005 survey. It has three bedrooms, Lesson 62
one and a half bathrooms, a garage, a porch or patio,
and is in good repair. (373) 1. What was the original purpose of Social Security?
9. What is the key issue for determining wealth and To provide retirement benefits for workers and survivor
poverty? Productivity (374) benefits to families of deceased workers (388)
10. Are the poor poor because the rich are rich? 2. On what basis does the Social Security
Explain your answer. Answers will vary. Administration calculate retirement benefits? A
worker’s income during his years of work (388)
3. Name two other terms used for Social Security
Unit 12 Quiz
taxes. FICA which stands for Federal Insurance
1. 20% (371) 11. b (359) Contributions Act and payroll taxes (388)
2. 3% (352) 12. p (361) 4. What type of benefits did Social Security begin
3. 20% (371) 13. o (361) paying in 1957? Disability payments (388)
4. 10% (369) 14. f (362) 5. What was the amount of Treasury bonds in the
5. e (351) 15. d (364) Social Security Trust Fund at the end of 2015? $2.8
6. j (351) 16. g (364) trillion (389)
7. n (354) 17. i (367) 6. What are three reasons why Social Security is
8. a (356) 18. k (368) facing disaster? More retirees are now living longer.
9. h (356) 19. l (372)
The pool of workers paying into Social Security is
10. c (358) 20. m (373)
shrinking. The first members of the Baby Boomer
generation have become eligible for retirement. (389)

Unit 13 7. Of the five potential solutions for Social Security

mentioned in the lesson, which one do you think
Congress should choose for America and why?
The answers to the why question will vary, but the
Lesson 61
five possible potential solutions are: Raise the full
1. What fraction of the U.S. gross domestic product retirement age; use a means test to determine what
is devoted to health care? One-sixth (381) level of benefits a person actually needs; lower the
2. What fraction of the federal budget goes to health amount of benefits to individuals; increase the payroll
care? One-fourth (381) tax rate; or raise the income ceiling above $118,500 or
3. What is the purpose of insurance? To share the risk eliminate it. (391-392)
of expense (382) 8. What was the original purpose of Medicare? To
4. The growth of health insurance caused what two provide coverage for hospitalization and physician
effects? Demand for medical treatment increased; visits for Americans age 65 and older (391)
increased demand drove up prices. (382) 9. What benefit did Congress add in 2003? A
5. What is the meaning of moral hazard? The tendency prescription drug benefit (391)
of people to engage in riskier behavior if other people 10. List five sources of revenue for Medicare. Payroll
bear or share the cost of that behavior. (383) taxes paid by working Americans; premiums paid by
6. What government programs provide medical participants; general federal tax revenues; payments
coverage for the elderly and for the poor? Medicare from states; interest earned by a trust fund devoted to
for the elderly; Medicaid for the poor (383) the program (391)
7. What is the comparison between the rise in medical
costs and the rise of the overall rate of inflation?
Medical costs rise faster than inflation. (383)
Exploring Economics Answer Key 27

Lesson 63 6. Cars from what country began competing with

American car manufacturing companies in the
1. What did coal make possible in the 1700s and 1970s and 1980s? Japan (401)
1800s? The Industrial Revolution (394) 7. What companies are the Big Three U.S.
2. When and where was the first petroleum well automakers? General Motors, Ford, and Chrysler
drilled in the United States? Titusville, Pennsylvania, (401)
in 1859 (395) 8. List five businesses besides auto manufacturing
3. What is OPEC? The Organization of Petroleum that are dependent on vehicles. Student should list
Exporting Countries (395) five of these: new car dealers, used car dealers, repair
4. What countries are members of OPEC? Algeria, shops, auto insurance companies, parts stores, gas
Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, stations, car washes, drive-in restaurants. (402)
Qatar, Saudi Arabia, United Arab Emirates, and 9. Name two ways that government regulations
Venezuela (395) influence the automotive industry. Exhaust
5. What four main factors determined the price emission standards and fuel efficiency regulations
of gasoline in 2015? The cost of crude oil; refining; (403)
federal and state taxes; and distribution, marketing, 10. Name the state that once had the most auto-
and dealer costs and profits (396) related jobs and the state that now has the most
6. What country is the world’s leading consumer of auto-related jobs. Michigan; Tennessee (404)
petroleum products? The United States (396)
7. What is the Strategic Petroleum Reserve? An
Lesson 65
emergency supply of oil that the United States
government has maintained in underground storage 1. Why can houses, made of exactly the same
facilities along the Gulf of Mexico since 1975 (396) building materials and with the same floor plan
8. What are the two main problems associated with have widely varying values? Location (406)
the use of fossil fuels for energy? The supply that 2. What is a loan to purchase a home called? Mortgage
oil companies can recover is expected eventually to (406)
run out, and burning fossil fuels to produce energy 3. Historically what has been the most common type
generates atmospheric pollution. (394,397) of mortgage? A loan for thirty years at a fixed rate of
9. What are two tradeoffs involved with the use of interest (406)
nuclear power? The possibility of an accident that 4. What is an amortization table? A chart showing
could release harmful radiation and the problem of the relative amounts of principal and interest in each
what to do with radioactive waste that nuclear plants payment over the life of the loan (406)
generate. (397) 5. Why is borrowing money to buy a home often
10. What has changed the market dynamics of considered to be a better idea than borrowing
alternative energy sources, such as wind and money to buy a car? Because a home is expected
solar? Developers have depended on large government to increase in value while a car will almost certainly
subsidies. (398) decrease in value over time (407)
6. How does the Federal Housing Authority
Lesson 64 encourage and assist home ownership? By
insuring some mortgages that private banks make to
1. What was the key to Henry Ford’s success with homeowners (408)
the Model T? Making the car available to the mass 7. What two government-sponsored investment
market at a price that many people could afford (400) corporations buy mortgages that lending
2. How much of the new car market did General institutions issue and what are their nicknames?
Motors control in the 1950s? Over half (400) Federal National Mortgage Association (nicknamed
3. What reduced the popularity of large American Fannie Mae) and the Federal Home Loan Mortgage
cars in the 1970s? The price of gasoline (400) Corporation (nicknamed Freddie Mac) (408)
4. Why did the price of gasoline rise? Oil-producing 8. What government-owned corporation guarantees
countries in the Middle East stopped selling oil to the bonds that are backed by home mortgages that
United States because of this country’s support of are insured by a government agency? What is
Israel. (400) its nickname? The Government National Mortgage
5. What vehicle did Chrysler introduce in 1983 that Association (Ginnie Mae) (409)
revolutionized American car buying? The minivan
(401)
28 Exploring Economics Answer Key

9. What three tax incentives does the federal 5. What were the primary means by which the
government give to people who buy a home? The federal government became involved in farming
ability to deduct home mortgage interest; the ability to during the New Deal? Price supports and crop
deduct property taxes from taxable income; and when restrictions (414)
a person sells a house, not having to pay capital gains 6. How many farms did America have in the 1940s
taxes on the first $250,000 that the house has gained in and in 2014? About six million; just over two million
value (409) (414)
10. When can home mortgages have a negative 7. List ten technological and scientific advancements
impact on the economy? When a family has such a that helped to increase farm yield. Steel-tipped
large mortgage, it must cut back on other purchases plow, the reaper, the combine, railroads, motorized
and when a homeowner defaults on a mortgage and the farm equipment, seeds, fertilizer, pesticides, computers,
lending agency has to sell the home for less than it is satellite technology, other answers possible (415)
worth (409) 8. What is America’s largest crop? What fuel do
American companies produce from it? Corn,
Unit 13 Quiz ethanol (416)
1. moral hazard (383) 9. What is the Renewable Fuel Mandate? A
2. Medicare (383) requirement by Congress that oil refiners include
3. Medicaid (383) ethanol in an increasing percentage of the gasoline they
4. Affordable Care Act of 2010 (384) produce (416)
5. Social Security (388) 10. How is organic farming different from
6. disability payments (388) conventional farming? Organic farmers use non-
7. Baby Boomer generation (389) chemical means to produce foods. (416)
8. hospitalization, physician visits (391)
9. Industrial Revolution (394) Lesson 67
10. Petroleum, Qatar (395)
11. Strategic (396) 1. What environmental catastrophe happened in
12. subsidies (398) Flint, Michigan, in 2014? The city began utilizing the
13. minivan (401) Flint River for city water, but officials had not properly
14. Japan (401) treated the water for contaminants. (419)
15. General Motors, Chrysler (401) 2. What federal agency was founded in 1970? The
16. Michigan, Tennessee (404) Environmental Protection Agency (419)
17. mortgage (406) 3. What two groups have been the main adversaries
18. interest (406) in the debate over environmental policy?
19. Fannie Mae (408) Environmentalists and conservationists, and business
20. capital gains (409) interests (419)
4. What 1962 book by Rachel Carson pointed to the
serious negative environmental consequences of
Unit 14 widespread use of DDT? Silent Spring (419)
5. Describe the tradeoffs involved in mining gold and
copper at the open-pit Pebble Mine in southwest
Lesson 66 Alaska. The mine would ruin a salmon habitat, release
1. How many farms did America have in 1860? toxic mine waste into the environment, damage a
About two million (413) beautiful location, and cause the loss of thousands of
2. How did states finance land grant universities? jobs in the salmon fishing industry. (420)
Selling public lands (414) 6. What is cost-benefit analysis about? Deciding if
3. How did land grant universities aid farming? the cost of doing something is worth making the choice
Teaching college courses in improved farming methods (420)
and conducting scientific research to aid farming (414) 7. What do economic activity and growth require
4. Give two examples of groups which worked to and what is the result of economic activity and
aid farmers in the late 1800s. The Grange and the growth? They require energy; they result in waste.
Populist Party (414) (420)
Exploring Economics Answer Key 29

8. What are three negative consequences to 2. On what day did the stock market lose 13% of its
the government formulating regulations? A value? October 29, 1929 (431)
bureaucracy must enforce them, they result in endless 3. In the 1930s, why did banks not have enough
legal battles, and they usually wind up costing money to satisfy depositors’ demands? Because
everybody money that could be put to better use. (421) they operated on a fractional reserve basis, they did not
9. How does cap and trade work in theory? have money to give to depositors who began wanting
Government grants allotments to industries of how their money in cash. (431)
much carbon emissions the industries can produce (the 4. What was the result of the Smoot-Hawley Tariff
cap), and then issues permits that companies buy at Congress passed in 1930? A sharp drop in trade with
auction which allow the companies to produce carbon other countries (431)
emissions above their initial allotments (the trade). 5. Why had Congress lowered income tax rates
(422) during the 1920s? Because the federal government
10. What is your personal opinion about climate had begun running a surplus (432)
change? Answers will vary. 6. Why did the Roosevelt Administration try to
decrease production? Because they believed that too
Lesson 68 much competition had led to overproduction (433)
7. How did the length of the Great Depression in the
1. What two formulas are used to express United States compare with its length in many
productivity? Output/inputs and output/hours other countries? It was several years longer in the
worked (425) U.S. than it was in many other countries. (433)
2. What formula expresses productivity for an 8. What is the top marginal income tax rate? The rate
economy as a whole? GDP/aggregate hours worked paid by people with the highest income (433)
(425) 9. Why did raising taxes to 90% by 1944 hurt the
3. List three factors involved in inputs. Time, number possibility of investment? Those with the highest
of people employed, resources used (425) incomes had less money to invest (434)
4. How did technology affect the productivity of 10. When did production and employment increase
Betty the seamstress? The sewing machine made her significantly? When military production increased
more productive than Carol, who sewed by hand. (426) dramatically during World War II (433)
5. Who helped staff the growing number of factories
in the United States, especially in the late 1800s
Lesson 70
and early 1900s? Immigrants (427)
6. If you were starting a landscaping business or a 1. What were three factors that contributed to the
babysitting service, do you think you would be Great Recession? Debt, government encouragement
more like Tom or Hank? Answers will vary. of homeownership, and greed (436)
7. What limitations does the lesson mention as 2. What was the economic boom of the late 1990s
examples of why a country might have low called? The high-tech bubble (436)
productivity? Insufficient materials, unreliable 3. What is a subprime mortgage? A mortgage given to
electrical service, poorly-maintained machines (427) a borrower who is not a prime candidate for a mortgage
8. How can a national government encourage (436)
investment? By keeping tax, debt, and inflation rates 4. What term refers to investment instruments
low and by maintaining stable financial markets (428) containing a bundle of mortgage loans? Mortgage-
9. How does economic growth lessen poverty? By backed securities (436)
creating new opportunities for employment and for 5. What is a derivative? A financial instrument whose
entrepreneurs to make profits (428) value is determined by or derived from an underlying
10. Copy Proverbs 10:4. Poor is he who works with a asset (436)
negligent hand, but the hand of the diligent makes rich. 6. What is the term for a bank taking over a home
Proverbs 10:4 (429) that has a mortgage? A foreclosure (436)
7. What is commercial paper? Short-term loans
Lesson 69 companies obtain to make their payroll (437)
8. What did taxpayers receive as a result of the
1. What was the process of buying stocks on margin Economic Stimulus Act Congress passed in
in the 1920s? People only put down 10-25 percent of February 2008? Checks totaling about $152 billion
the stock values and borrowed the rest from the broker. (437)
(430)
30 Exploring Economics Answer Key

9. What did the federal government do for Bear thing regardless of what others do? Specific
Stearns in 2008 and GM in 2009? It assumed $30 circumstances will vary.
billion in liabilities from Bear Stearns and took 8. Name one activity in which you are involved that
controlling interest in GM. (438) reveals your commitment to God. Answers will
10. What is a credit default swap? A kind of insurance vary.
arrangement in which a bank or investment company 9. Name a business practice that you have witnessed
that holds a debt makes a payment like a premium to an that you believe revealed a lack of integrity and tell
insurance company, for which the insurance company how you would handle that situation differently.
assumes the risk if the debt goes bad (437-438) Answers will vary.
10. Do you plan to vote when you reach the legal
Unit 14 Quiz voting age? Why or why not? Answers will vary.

1. Land grant (414) 14. poverty (428) Lesson 72

2. satellite (415) 15. margin (430) 1. Define moral economy. Economic activity based on
3. corn (416) 16. fractional (431) moral principles such as goodness, fairness, honesty,
4. ethanol (416) 17. marginal (433) and justice (447)
5. Mandate (416) 18. spend (432) 2. What is necessary for markets to bring about
6. Organic (416) 19. greed (435) mutually satisfying exchanges? Trust (447)
7. Flint (419) 20. bubble (436) 3. When was the moral economy easier to maintain?
8. Protection (419) 21. subprime (436) When market activity was concentrated in local
9. business (419) 22. securities (436) communities (447)
10. cost-benefit (420) 23. commercial (437) 4. What is one practical way that you keep the long
11. inputs (422) 24. General Motors (438) term in mind? Answers will vary.
12. productivity (427) 25. stock market (431) 5. How does paying bills on time show respect for
13. investment (428) others? Answers will vary.
6. How could someone who works in government

Unit 15 bless others in his work? Answers will vary.

7. Name three needs that you would like to help
through charitable giving. Answers will vary.
8. In what ways have your parents worked to train
Lesson 71
your conscience? Answers will vary.
1. How do individuals make a difference in the 9. Why might elderly people benefit from having a
economy? Individuals make economic decisions, small local grocery store available? Answers will
develop products and services, consider opportunity vary.
costs, face tradeoffs, and deal with unintended 10. What does your own conscience tell you about
consequences. (443) socially responsible or conscience funds? Answers
2. In what tension between two realities do will vary.
Christians live? The spiritual realm and the physical
world (443-444) Lesson 73
3. What are some economic responsibilities that 1. What is Charlie Shedd’s financial plan? Give ten
Christians have? To have hearts of compassion percent, save ten percent, and live on the rest with
for the poor and for victims of injustice, to provide thanksgiving and praise. (451)
for themselves, to teach others to do the same, other 2. List five of your own financial goals. Answers will
answers possible (444) vary.
4. Give an example of an area of your life where you 3. What are the two most important elements of a
depend on God while also working. Answers will budget? Making it and keeping it (452)
vary. 4. List six components of housing expenses. Rent or
5. Why is it better to be a contributor instead of being mortgage payment, utilities, insurance, maintenance,
dependent on the government? Answers will vary. furnishings, and improvements (452)
6. In what way(s) would you like to be a contributor 5. What does it mean to live within your means?
to the economy and to the betterment of society? Avoid debt. Don't spend more than you make. (452)
Answers will vary. 6. Define what it means for a borrower to be the
7. In what ways are you called on to do the right slave of a lender. Answers will vary.
Exploring Economics Answer Key 31

7. What does insurance manage? Risk (453) Unit 15 Quiz

8. What do many Christians purchase as an
alternative to health insurance? A health expense 1. a, i, n, s, y (443) 7. d, f, h, j, o, x (452)
sharing plan (453) 2. c, p (444) 8. q (453)
9. What is bankruptcy? The inability to pay one’s debts 3. v (447) 9. l (453)
4. e (447) 10. u (462)
(453)
5. b, k, t (451) 11. m, z (459)
10. What is the standard of living that Jesus offers?
6. w, g (452) 12. r (454)
Eternal life (454)

Questions on Mover of Men and Mountains

Lesson 74
1. In two or three paragraphs, write a synopsis and
1. What is a leader? Someone who influences others
review of Mover of Men and Mountains. Answers
(457)
will vary, but may be similar to the following. Students
2. List three leaders whom you respect. Answers will
are encouraged to express their own opinions as part of
vary.
the review.
3. In what sense is impacting the economy from
the home returning economics to its roots? The
R. G. LeTourneau rose from humble beginnings to
English word economics used to mean the management
achieve great wealth and influence as an inventor and
of a home. (457)
business owner. He tells his own life story in Mover
4-10. Taking off from the quotation by Frederich
of Men and Mountains. He was raised in a Christian
Buechner at the beginning of this lesson, what
family and worked hard from his early years. He was
is your deep gladness? What great need in the
rebellious in his youth and caused his parents much
world do you believe you can fill? Answer with a
concern. He gave his life to God in his teens, however,
paragraph. Answers will vary.
and was devoted to the Lord's kingdom throughout the
rest of his life.
Lesson 75
1. Where do we go for a field trip for this lesson? To LeTourneau showed an early aptitude for working with
the Sermon on the Mount (on a mountain in Israel) machines. Gradually, he developed his skills inventing,
(459) manufacturing, and repairing machines, eventually
2. What kind of righteousness does Jesus call for? A building a successful business. He enthusiastically
righteousness of the heart and not just outward actions describes the way his machines worked. He invented
(459) many large machines that were used in multiple
3. What does Jesus say about the practice of religion? industries such as farming, construction, land-
Not to make a show of it (459) clearing, oil-drilling, and also in war. He was
4. What does Jesus want us to store up? Heavenly personally influential in the development of the
riches (460) modern world through the sale of his machines in many
5. What does your treasure show? Where your heart different countries. LeTourneau and his wife acquired
is (460) great wealth through their business success. They gave
6. What is the way to spiritual wealth? Putting God nearly all of it away to mission and charitable works,
first (460) many of which they were involved in personally.
7. What two illustrations in the created world does
Jesus use? Birds, flowers (460-461) Mover of Men and Mountains inspires the reader
8. What should be your first priority? To make sure to work hard, be creative, and pursue the things he is
that God is your king and that His way of righteousness passionate about, all while obeying and glorifying the
is your way of living (461) Lord. Sometimes LeTourneau's detailed descriptions
9. How does Jesus expect us to respond to His of machinery can be tedious, but one can't help but
words? He expects us to act upon His words, to put appreciate his enthusiasm and enjoyment of his work.
them into practice, to do them. (462) The ultimate purpose of his life, his work, and his book
10. How can Christians most effectively participate in was to praise the Lord and build His kingdom, making
the economy? When they see themselves as oikonomoi, the story significant and well worth reading.
stewards of the resources that God places in their care
(462)
32 Exploring Economics Answer Key

2. What do you think was LeTourneau’s purpose in Third Exam (Units 11-15)
writing his autobiography? Write one paragraph
answering this question. Answers will vary, but (3 points each):
may be similar to the following. 1. Council of Economic Advisors (322)
2. United States Trade Representative (322)
LeTourneau sought to give glory to God through 3. Office of Management and Budget (322)
his autobiography. He honors his parents and other 4. Internal Revenue Service (322)
family members, his wife and children, and friends 5. New York Stock Exchange (361)
and associates whom he respected. He shares his 6. NASDAQ (364)
enthusiasm for his work with large machinery and 7. Chicago Mercantile Exchange (364)
what it can accomplish. He shows that business can 8. Fannie Mae (408)
be an act of worship when people deal honestly, devote 9. Medicare (328)
their talents to God's work, and give as the Lord gives. 10. Medicaid (328)
LeTourneau's overarching message was praising God 11. Social Security (388)
for His saving work within himself and for what the 12. War on Poverty (372)
Lord accomplished through his business.
True/False (2 points each):
3. Write two or three paragraphs about a person you 13. True (322, 398)
know who is a servant of the Lord in a “secular” 14. True (338)
job. How does this person honor God through his 15. False (the term is deficit) (345)
or her work? What special opportunities does his 16. False (Chrysler introduced the minivan) (401)
or her career provide for ministry? Answers will 17. True (351)
vary. 18. True (351)
19. False (typical urban consumer) (356)
20. True (361)
21. False (moral hazard) (383)
22. False (2010) (384)
23. False (eleven months) (368)
24. False (Organization of Petroleum Exporting
Countries) (395)
25. False (mortgage) (406)
26. True (409)
27. False (corn) (416)
28. True (425)
29. False (less money) (337)
30. True (437)
31. True (447)
32. True (454)
33. True (453)
34. False (the spiritual and the physical) (444)
35. True (452)
36. True (453)
37. False (high-tech) (436)

Summarize five main things you have learned from

Exploring Economics (14 points total). Answers will vary.
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