NES Profile: Business Education (309)

The graph below shows the supply and demand curves for chicken.

The supply curve, labeled S sub 0, starts at the lower left and curves upward to the right. The demand curve, labeled D sub 0, starts at the upper left and curves downward to the right.

Which of the following graphs best illustrates the likely change in the supply and/or demand curves for chicken shortly after a sharp decrease in the price of fish?

Each response is the same graph as above with one or two additional curves.

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C. This question requires the examinee to apply concepts related to business economics, such as supply and demand. Supply and demand curves illustrate how demand for the item and the supply of the item affect the item's price. As demand increases for an item, price will also increase, and the demand curve will move to the right. As demand decreases, price will decrease, and the demand curve will move to the left. The price for a particular item may also be sensitive to the supply and demand of a related item. In this case, a sharp decrease in the price of fish is likely to increase the demand for fish. Since fish often competes with chicken for a place at the family dinner table, the increased demand for fish should lead to decreased demand for chicken, which will lead to a reduction in the price of chicken and movement of the demand curve to the left.

The Federal Reserve Board would be most likely to recommend a series of interest rate cuts in order to help accomplish which of the following goals?

1. bringing the economy out of a recession
2. preventing devaluation of the dollar
3. slowing down a too-rapid expansion of the economy
4. reducing inflation

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A. This question requires the examinee to analyze government monetary policy. The Federal Reserve Board uses its power to set certain interest rates to affect the rate of economic growth and the rate of inflation. By reducing interest rates, the Federal Reserve makes it easier for both businesses and consumers to borrow money. Easy credit allows businesses to expand, production to increase, and more workers to be hired, thus initiating the growth phase of the business cycle and helping to bring the national economy out of recession.

Which of the following changes in the U.S. economy would most likely lead to a decrease in exports from the United States to other countries?

1. a rise in the value of the U.S. dollar relative to other currencies
2. an increase in the productivity of U.S. workers
3. a decrease in the unemployment rate of U.S. workers
4. a reduction in short-term interest rates charged by U.S. banks

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A. This question requires the examinee to analyze factors that affect international trade and the economy of the United States. One important factor that helps determine the success of a nation in exporting its goods and services is the price of those goods and services in other countries. Many factors influence the prices of a nation's goods and services, including the value of the nation's currency relative to the currencies of other nations. A rise in the value of the U.S. dollar relative to the European euro, for example, would lead to higher prices for U.S. goods and services on European markets. Demand for U.S. goods and services in Europe would fall and the amount of U.S. exports to Europe would decrease.