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FREE ENTERPRISE Activities

Free Enterprise 2

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Page 1: Free Enterprise 2

FREE ENTERPRISEActivities

Page 2: Free Enterprise 2

TO THE TEACHER

Free Enterprise Activities relate important economic concepts taught in the text to the

market economy. Each activity reinforces an aspect of the American free enterprise system.

Many activities challenge students to play the role of an entrepreneur, underscoring the key

part played by those who assume the necessary risks to develop a business. Other activities

help students understand the roles of government, labor, consumers, and the global economy

in American free enterprise.

CREATING A CUSTOMIZED FILE

The individual booklets in the Teacher’s Classroom Resources provide a wide variety of

supplemental materials to help make economics meaningful to students. These resources

appear as individual booklets in a carryall file box.

There are a variety of ways to organize your classroom resources.

Three alternatives are given here:

■ Organize by category (all activities, all tests, etc.)

■ Organize by category and chapter (all Chapter 1 activities, all Chapter 1 tests, etc.)

■ Organize sequentially by lesson (activities, quizzes, and other materials for Chapter 1, Section 1; Chapter 1, Section 2, etc.)

Regardless of the organization you choose, you may pull out individual activity sheets from

these booklets, or you may photocopy them directly from the booklets and file the photocopies.

You will then be able to keep original booklets intact in a safe place.

Copyright © by The McGraw-Hill Companies, Inc., All rights reserved. Permission is granted to reproducethe material contained herein on the condition that such material be reproduced only for classroom use;and be provided to students, teachers, and families without charge; and be used solely in conjunction withGlencoe products. Any other reproduction, for use or sale, is prohibited without prior written permission ofthe publisher.

Send all inquiries to:

Glencoe/McGraw-Hill8787 Orion PlaceColumbus, OH 43240

0-07-822466-70-07-822711-9

Printed in the United States of America

2 3 4 5 6 7 8 9 10 047 06 05 04 03 02 01

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(C ONTENTSActivity 1 Productive Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Activity 2 Business and Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Activity 3 Choosing a Business Organization . . . . . . . . . . . . . . . . . . . . . 3

Activity 4 Analyzing Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Activity 5 Needs, Wants, Marketers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Activity 6 Market Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Activity 7 Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Activity 8 Selling Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Activity 9 Responsible Consumerism . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Activity 10 Going Into Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Activity 11 Expressed and Implied Warranties . . . . . . . . . . . . . . . . . . . . . . 11

Activity 12 Speculating in Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Activity 13 Using Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Activity 14 Tax Holiday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Activity 15 The Federal Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Activity 16 Types, Functions, and Characteristics of Money . . . . . . . . . . . 16

Activity 17 Certificates of Deposit or Mutual Funds? . . . . . . . . . . . . . . . . 17

Activity 18 Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Activity 19 Types of Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Activity 20 Decision Making at the Federal Reserve Board . . . . . . . . . . . . 20

Activity 21 Policies for Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Activity 22 Free Trade and Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Activity 23 China’s Bold Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Activity 24 Funding Economic Growth in Developing Nations . . . . . . . . . 24

Activity 25 Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Activity 26 Cybernomics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

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Free Enterprise Activities 1

P RODUCTIVE RESOURCESIn a market economy, individuals are free to choose the way they will make a living. The follow-

ing passage shows how one entrepreneur filled a need and made a profit in a market economy.

Levi’s JeansIn 1850 a 20-year-old immigrant named Levi Strauss sailed for San Francisco. He planned to sell goods to miners who were digging for gold in California. By the time Strauss arrived in San Francisco, however, he had sold most of his goods to other travelers headed for the gold fields. All he had left was canvas, which he planned to sell formaking tents.

When Strauss reached the gold fields, he found that the miners needed tough pants. So instead of selling tents,he hired tailors to make his canvas into trousers. Word spread quickly that Strauss’ pants were durable, and soon thenew pants were in great demand.

Convinced that his product would remain popular, Strauss went into business with his brothers, Jonas and Louis.They founded Levi Strauss and Company in 1853. The brothers bought a building and converted it into a factory. Theypurchased scissors, sewing machines, needles, canvas, thread, and snaps. Finally, they hired workers to cut, sew, anddeliver the jeans to stores. Today Levi Strauss & Co. has production plants around the world and sells more than a billion dollars in jeans each year.

Directions: Use the information above to complete the following exercises.

1. You have learned about the factors of production, or the resources needed to produce goods and services. Listthe major resources that the Strauss brothers needed to make canvas trousers, or jeans.

2. All resources fall under these categories: Land includes natural resources that are used to make a product; laboris made up of the workers; capital includes tools, buildings, and equipment; entrepreneurship is the ability tocombine the other three resources to make or improve a product or service. Place each resource you listed inExercise 1 under the correct heading in the chart.

3. Did the Strauss brothers possess entrepreneurship? Explain.

Land Labor Capital

Name Date Class

1

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2 Free Enterprise Activities

B USINESS AND GOVERNMENTYou have learned that government plays an important role in regulating business and

industry. However, businesses also influence government. For example, national business

associations often use lobbyists to impress their ideas on our elected representatives. Businesses

also contribute money to the election campaigns of people who agree with their ideas. And

government is usually very sensitive to the needs of business, for if businesses are hurt, their

employees are also hurt.

Directions: Assume that you own a factory that makes children’s clothes for both the United States market and for export. State whether you would want your elected representative to support the following proposals, and give your reasons.

1. Stricter pollution controls on electric generating stations

2. Higher standards of quality for clothing

3. A tax on imported clothing that will raise its price by 15 percent

4. Government support for day care for single parents with children

5. An import tax on inexpensive foreign fabrics, raising the price by 20 percent

6. Deregulation of the trucking industry designed to increase competition among firms that transport manufactured goods

7. An increase in the business tax to help reduce the federal budget deficit

Name Date Class

2

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Free Enterprise Activities 3

C HOOSING A BUSINESS ORGANIZATIONThe three main types of business organizations are sole proprietorships, partnerships, and

corporations. The type of business that entrepreneurs choose depends on their tolerance for

risk and appetite for rewards.

Directions: Imagine that you have money to invest in a business. Take the following quiz to determinewhich kind of business organization best fits you.

First name the product or service you will provide.

1. You prefer to

a) get all the profits but take all the risks.

b) share equally with others in the profits and the losses.

c) get only partial profits but have little risk.

2. You want to make

a) all business decisions quickly.

b) joint decisions with competent people.

c) money, not decisions.

3. You plan to

a) take out a small loan against your own assets.

b) get help to borrow a larger amount.

c) borrow a huge sum of money.

4. You prefer paying

a) personal income taxes on all profits.

b) fewer taxes on less profit.

c) a high tax rate rather than having unlimited liability.

5. You would be most satisfied as

a) your own boss.

b) part of a successful team.

c) part owner, but not operator, of a business.

Name Date Class

3

6. You will risk your investment

a) and personal assets on your decisions.

b) and personal assets on a colleague’sdecisions.

c) but not your personal assets.

7. In order to expand your business, you arewilling to

a) buy a computer, but that’s all.

b) agree to a division of duties and profits.

c) file articles of incorporation and sellstock.

8. After you leave the business, you think it will

a) dissolve.

b) operate under a different name.

c) continue as long as it earns a profit.

Did you choose:

• answer a most often?

• answer b most often?

• answer c most often?

If so, you would probably prefer

• a sole proprietorship.

• a partnership.

• a corporation or to simply buy stock.

If your answers show no clear preference, list your priorities. For example, is profit or doing the work your way more

important to you? Then decide which kind of business organization serves your priorities best.

Write your decision here.

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4 Free Enterprise Activities

A NALYZING ADVERTISINGBusinesses have some responsibility in advertising, packaging, and product guarantees.

However, it is still the consumer who must compare products, read labels, and check out

advertising claims. Read the advertisement below and answer the checklist questions.

Directions: Assume you are in the market for this product and complete the following checklist.

1. Does the ad appeal to my emotions, or are there adequate facts? Explain.

2. What are the product’s special features? Do they meet my needs?

3. What does the ad say about the products’ durability? How would I check this?

4. How does the ad’s price compare with similar products? How would I compare prices?

Name Date Class

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First in its class!YOU HAVE THE WHEELS, NOW GET THE NEW SWISHER AUTOSHINE POLISHER.

Variable speeds, light weight, durable (1-year warranty), battery or A/C operated. The polisher of choice for the new car owner, the Swisher will bring a new car shine to anyvehicle. See yourself in the shine!

WHY PAY UP TO $50 FOR SECOND BEST? Get the Swisher on sale at your local hardware.

Now only $39.99!PLUS! A free can of Swisher Gleem with your new polisher.

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Free Enterprise Activities 5

N EEDS, WANTS, MARKETERSWhen shopping for food and clothing, customers look for the best quality at the lowest price.

Store owners are trying to make a good profit by selling more articles or getting higher prices

for the articles. Strategies to encourage shoppers to buy more include sales, special promo-

tions, and displays.

Directions: Explain (a.) the effect the store owner hopes the strategy described below will have on the customers and (b.) the benefit to the store owner if the strategy succeeds.

1. Kramer’s Supermarket sells two brands of English muffins. The name brand, which costs $1.79 for a package, isdisplayed in a special rack in the middle of the bread aisle. The store brand, which costs $1.29, is placed on thefar end of the bread shelves.

(a.)(b.)

2. At the end of summer, Chen’s Clothing Store had this sale: Buy two short-sleeve shirts at full price, and get athird shirt free.

(a.)(b.)

3. Sally’s Food Warehouse ran this promotion: With receipts for $100 worth of food bought at the store, you canget $10 off your next purchase of $10 or more.

(a.)(b.)

4. The Upper Crust Dress Shop is the only retail outlet for the new fashions by Vivette, a popular French dressdesigner. In newspaper and television advertisements, the shop announced that on Saturday afternoon Vivettewould be giving advice in person on what to wear in the coming season.

(a.)(b.)

5. In Rolf’s Men’s Store, the clothes are displayed as ensembles. Shirts are matched with ties, sport jackets withsweaters, and suits with overcoats.

(a.)(b.)

Name Date Class

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Market Number Ease of Entry Product Advertising Influenceof Firms Difference Over Price

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6 Free Enterprise Activities

M ARKET CONDITIONSFour types of market conditions are characterized by different amounts and kinds of

competition. They are perfect or pure competition, monopolistic competition, oligopoly, and monopoly.

Directions: In the chart below, the characteristics of perfect or pure competition are given. Fill in the information for the other three types of markets, and then answer the questions that follow.

Market Characteristics

1. If you owned a business and were concerned only with profits, which market would you like best? Why?

2. If you were starting a business, which market would you like best? Why?

3. As a consumer, which market would you like best? Why?

4. As a business owner, would you rather have oligopoly or monopolistic competition? Explain your answer.

5. If you owned an advertising agency, which market would you like best? Why?

Name Date Class

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Perfect or pure unlimited easy none none nonecompetition

Monopolisticcompetition

Oligopoly

Monopoly

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Free Enterprise Activities 7

M ARKETING STRATEGYA company’s plans to sell a new product are called its marketing strategy. Any good strategy

takes into consideration the “four P’s” of marketing: product, price, place, and promotion.Here are some questions the marketing department might ask in each area.

Product: What services are offered with the product? How will it be packaged? What product identification should be used?

Price: What price should be charged?

Place: Where should the product be sold?

Promotion: What type of promotion should be used to inform consumers that this product or service is available?

Directions: Examine the following advertisement. Decide what it tells you about the marketing strategy ofthe company. On the lines following the ad, write a summary of the strategy, remembering to include thefour P’s.

Name Date Class

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NEW!! MASTERY GAMES

Now get the latest in computergames for your home computerlibrary. Mastery Games puts you a key stroke away from all the gamesyou could want! This special softwareincludes video graphics games as wellas mystery and chase games. Just callup the master menu and tell MasteryGames which game you want to play.No waiting! No submenus! MasteryGames even remembers what levelyou reached the last time you played.

Best of all, you can use Mastery

Games with two terminals at thesame time! Use the hookup so thatyour friends can join in too!

To get all the special features, youwould have to buy more than adozen regular programs worth hundreds of dollars. But for a limitedtime, Mastery Games is available foronly $79.95. So hurry to your favoritecomputer store and look for thebright red box. When you get thisdisk, you will know that you’vereached – MASTERY!

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8 Free Enterprise Activities

S ELLING ASSETSYou have learned that companies in need of money raise it in several ways. One way is to sell

a part of the company in the form of stocks. The following announcement is an offer to sell

stocks in Hollywood Shoes, Inc.

Directions: Use what you have learned to complete the exercises below.

NEW ISSUE 2000990,000 Shares

HOLLYWOOD SHOES, INC.Common Stock

Price $20.25 per Share

Philips, Arnold & Walden, Inc. Craig-Stein, Inc.Bronson, Weill, Labouisse, March Jessup & LaRosa Securities Co., Inc.LaRosa & Co. Rosen, Olmstead, Kennedy & MarcusBranch, Murphy and Company Moore & Kim CorporationB. G. Wykosky & Co. Smith, Herman & Co.Chan Investment, Inc. Schneider, Hall, Sale & Associates, Inc.Fisk Affiliated Securities, Inc. First Oregon Securities, Inc.Shultz & Company, Inc. R. Myers & Co.Krantz, Lesser & Ross Martin, Viner, Gonzalez & Co., Inc.Jeffrey Adams & CompanyBrown & Company, Incorporated

1. The other company names on the announcement represent investment firms that are underwriting the stock.That is, they are distributing new shares to the public. These companies guarantee the sale of the entire 990,000shares. An underwriter will either buy the whole issue itself and sell it to the individual investors, or the firm willform an underwriting syndicate with other dealers, and together they will sell the stock. Do you think underwriting is risky? Explain.

2. Interested investors are urged to send for the company’s prospectus, which gives information about the companyand the stock that will be sold. If you owned Hollywood Shoes, Inc., what would you include about plans for thecompany that might encourage investment?

3. What other methods of raising money might the company use?

Name Date Class

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Free Enterprise Activities 9

R ESPONSIBLE CONSUMERISMConsumers have a responsibility to take action if they feel their rights are being violated. Part of

this responsibility is figuring out which government agency to contact for information or help.

Directions: In the blank before each situation, write the letter of the agency that could probably help the most.

1. While shopping for a certain make and model of car, Ben realizes that the seat belts on all the cars he test drives are difficult to buckle.

2. Irma is planning to buy a home and wants consumer information on everything from mortgage loans to home appliances.

3. Kim wants to know if the government allows cosmetic companies to use live animals to test its products for cancer-causing ingredients.

4. Pedro wants to support a proposed law that will make product labels more informative.

5. Seta is looking for an educational program that will teach employees in her construction company about the safe use of power tools.

6. When Terrence’s grandmother makes dozens of purchases after learning that she is a “million dollar winner,” he wants something done about misleading mailings.

7. Jamal suspects that computer dealers in his area conspire to keep the cost of printers artificially high and wants to report this instance of price fixing to the government.

8. Kayla, the manager of a supermarket meat department, notices that the steaks her wholesaler sells to some clients do not carry a label showing they are government inspected.

a. Consumer Information Center Program e. Department of Agricultureb. Federal Trade Commission f. Office of Consumer Affairsc. Consumer Product Safety Commission g. National Highway Traffic Safety Administrationd. Postal Service h. Food and Drug Administration

Name Date Class

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10 Free Enterprise Activities

G OING INTO DEBTOne of the most important questions to ask when borrowing money is “Can I afford the payments?”

Directions: With this in mind, read the following case study. Then complete the exercises.

Grace has the chance to work as a window dresser at an out-of-town department store for $300 a week, but sheneeds a car to get to the new job. Grace lives at home and her only fixed expense is $350 per month in rent to herparents. She has just enough savings to pay her tuition at night school for the next two years and, therefore, does notwant to use the money as a down payment on a car. The dealer has offered her the purchase options below.

• pay $16,000 with no interest over 18 months in monthly payments of (1) or

• get a rebate of $1,000 and pay off the balance at 9% interest in monthly payments for 1 to 5 years.

1. Use the amortization table to find the total cost of the car when paying it off in the given number of years.

2. Which option is best for Grace? Explain your choice.

1 year 2 years 3 years 4 years 5 years

Monthly $1,311.78 $685.28 $477.00 $373.28 $311.38paymentat 9%Total cost

(a) ___________ (b) ___________ (c) ___________ (d) ___________ (e) ___________of car

Name Date Class

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Free Enterprise Activities 11

E XPRESSED AND IMPLIED WARRANTIESAn expressed warranty is a seller’s guarantee at the time of purchase that a product will work

as promised. In the past, if a product had no expressed warranty, a buyer had no claim under

the law if a product worked poorly or failed to work. Over time lawmakers developed implied

warranties to protect buyers’ rights. These laws guarantee the buyer’s claim on the seller if

the product does not work because of manufacturing defects. In most states, the buyer must

examine the product for defects and notify the seller of any. Then the buyer may demand a

deduction from the purchase price, reject the goods and demand a total refund, or demand

a new product in place of the old. However, the buyer has no rights if he or she knew of the

defect when buying the product or, in some states, failed to demand satisfaction within a

limited time after buying the product.

Directions: Read the following warranty. Then in the blank for each exercise, write E if the situation is covered by an expressed warranty, I if covered by an implied warranty, or N if not covered at all.

One-Year WarrantyMad Mixer, Inc., warrants to the purchaser that the Mad Blender Jr. (except for glass parts) is free from manufacturers’ defects in material and workmanship for a period of one year from the date of original purchase when used according to the manufacturer’s instructions. This warranty does not include damage caused by accidentor misuse. Any implied warranty is limited to the one year stipulated in this expressed warranty.

1. Bob got a discount on his Mad Blender Jr. because the “on” switch was cracked. However, he soon discovered that he could not operate the blender with a broken switch.

2. Beth did not use the Mad Blender Jr. she received at her wedding shower until she tried to make dessert for her second anniversary party. The blender would not blend. But Beth wasn’t worried because her state had no time limitations on implied warranties.

3. As soon as Carl returned from the store, he tried to assemble his Mad Blender Jr. and dropped it. The glass container remained intact but the plastic casing around the motor cracked.

4. Right after Jalal bought a Mad Blender Jr., he realized the cap did not fit the glass container.

5. The bottom of the glass container on Perry’s new Mad Blender Jr. had rough threads and did not seal tightly when screwed into the base. As a result, the blender leaked.

Name Date Class

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12 Free Enterprise Activities

S PECULATING IN STOCKSOne way people make money on a stock is by selling it for more than they paid. Some people

buy stock just to speculate–they hope that the price will increase so they can sell it at a profit.

The following table shows the most active stocks in the New York Stock Exchange during one

day of trading. This means that stockholders bought and sold more shares of these stocks than

of any others.

1 Trading volume in numbers of shares2 Closing price for the day3 Change in price from the previous day’s close

Directions: Use the information above to complete the exercises.

1. Which company names in the table do you recognize? Name at least one service or product for which each com-pany you recognize is known.

2. Which company’s stock is second-highest in price? Did it cost more or less at the beginning of the day’s trading?

3. Based on the table, which stock had the greatest percent change in value? Is it the same as the stock with thegreatest dollar change in value?

4. If you were a speculator that could have invested $1,000 at the beginning of the day, which stock would havegiven you the greatest gains? Explain your choice.

Company Volume1 Close2 Change3

CBS 12,766,000 50 11/16 �1 3/4

CocaCl 10,465,800 54 5/8 �2 3/4

Hilton s 9,625,000 11 3/16 �5/8

AmOnline s 9,597,000 93 5/16 �3 1/2

Lucent s 8,606,000 67 1/4 �1 1/4

NewellRub 8,120,500 31 15/16 �15/16

AT&T s 8,086,300 47 5/17 �13/16

IBM s 7,552,000 132 �3 9/64

PhiMor 7,471,100 37 1/4 �2

Compaq 7,306,400 22 15/16 �5/16

Name Date Class

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Wages 10% raise or $13.20 per hour 3% raise or $12.36 per hour

Hours 36-hour week 40-hour week

Overtime Double time after 36 hours Time and a half after 40 hours;double time on weekends

Breaks 15 minutes, 15 minutesmorning and afternoon in the afternoon

Paid Holidays 10 8

Health Insurance All paid by company First $250 paid by employee

Dental Insurance All paid by company First $500 paid by employee

Uniform Allowance $200 $50

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Free Enterprise Activities 13

U SING ARBITRATIONCollective bargaining between management and unions is a process of compromise. However,

sometimes management and workers are still far apart when a strike deadline is approaching.

If that happens, both parties may agree to submit their cases to an impartial arbitrator. The

arbitrator considers the merits of each side’s arguments as well as the settlements made by

other companies in the industry. The arbitrator then dictates an agreement that both sides

must accept.

In a dispute between Big Board, Inc., the state’s largest producer of finished lumber, and its 200 workers represented by Local 14, the arbitrator received the following information:

The average industry wage is $11.00 per hour, but Big Board now pays$12.00, although employees have not had a raise in two years. Other com-panies (and Big Board) have a 40-hour workweek, and most of them (butnot Big Board) pay double time for work on the weekends. Big Board hasonly one 15-minute break but longer lunchtimes than its competitors. Mostof the industry provides 7 to 8 paid holidays, complete health insurance,no dental insurance, and a $100 uniform allowance. In general the industryis increasingly profitable. However, Big Board has been losing some of itscustomers to younger competitors.

Directions: Assume that you are the arbitrator in this dispute. Which demands and offers below seem reasonable? Which seem unreasonable? Complete the chart with a compromise agreement.

Name Date Class

13

Union Demands Management Offers Agreement

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14 Free Enterprise Activities

T AX HOLIDAYAlmost all states levy sales taxes. Some states try to

make sales taxes easier to pay by not taxing food

because poorer people spend a higher proportion

of their income on this need than do more affluent

people. Suppose, in an effort to make sales taxes

fairer, that one state’s governor declared a “tax

holiday” on its 8.5% sales tax just before school

opened. Any article of clothing that could be worn

to school with a price of less than $100 would be

tax-free for three days.

Directions: Calculate the amount of tax that would be saved onJuanita’s purchases, shown in the chart, during this tax holiday. Thencomplete the exercises.

1. a. How much would the total tax have been on these purchases before the tax holiday?

b. How much is the total tax during the tax holiday?

c. How much did the buyer save in sales tax?

2. Why do you think items priced $100 or more were ineligible for the tax break?

3. How do you think people with limited incomes might have benefited from a tax break on more expensive items? Explain.

4. Choose a taxed item that you think should have been included in the back-to-school tax holiday. Explain yourchoice.

5. Suppose that critics claimed that the tax holiday did little to help poor people and was merely a gimmick toenhance the image of the governor. Would you agree? Why or why not?

Name Date Class

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Hooded sweater $ 40.00

Jeans 45.00

Skirt 35.00

Raincoat 115.00

Digital watch 39.00

Slip-on loafers 36.00

Prescription glasses 58.00

Long-sleeved shirt 25.00

Running shoes 138.00

Perfume 15.00

Leather jacket 159.00

Book bag 40.00

Printer paper 5.00

Juice boxes 4.50

Calculator 10.00

Ballpoint pens 1.80

Subtotal

Tax

Total

Juanita’s School Purchases

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Free Enterprise Activities 15

T HE FEDERAL BUDGETIn 1992 deficits in the federal budget peaked at $290 billion. At that time, no one thought the

budget could be balanced by the year 2000. Unexpectedly, however, the deficit fell to $23 bil-

lion in 1997. In 1998 the federal government issued its first balanced budget since 1960. By

1999 government officials were arguing about how to spend the government’s surplus money.

How would you make federal budget decisions?

Directions: Complete the exercises below to show how you would make budget decisions.

1. Suppose Congress gave the Office of Management and Budget the authority to spend the government’s surplusin the following five main budget areas.

If you were a member of a committee deciding where the surplus money would go, which areas would you target and why?

2. Three members of Congress describe their districts in this way:

Representative A: In my district, almost half the workers are employed by companies that depend on defensecontracts to survive.

Representative B: My district has many old factories, one city that is trying to renew itself, high unemploy-ment, and pollution problems.

Representative C: Many voters in my district are either farmers or retired people.

Which programs would Representative A probably want to expand?

Representative B?

Representative C?

Other socialSocial welfare Other domestic The national

Defense Security programs programs debt

MX missiles Retirement Medicaid Education PrincipalSpacebased benefits Subsidized Energy

weapons Cost of living housing Price supports forNew submarines increases Unemployment farmersNew attack Medicare insurance Public transportation

planes payments Food stamps Public worksForeign military Veterans’ benefits Health research

aid

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T YPES, FUNCTIONS, AND CHARACTERISTICS OF MONEY

Directions: Complete each sentence with vocabulary words relating to money, its types, functions, andcharacteristics. Then complete the crossword puzzle. For example, the word in blank 8A should be writtenin as the word at 8 Across.

• (8A) makes it possible for businesses and customers to obtain the goods and services they want and need.

• For two parties to (5A) goods and services, they must have a double (7D) of (9A), which tends to limit this type of activity.

• In the United States, the dollar is (2A); that is, it must be accepted as repayment for all debts.

• The three functions of money are (6D), (8A), and (14A).• Type of money in use in the United States today is (10D) money. The other two types of money are (4D) and

(11A).• To make the dollar (15A), the smaller unit of (12A) is used.

• Because money is (16A), it can be kept for a long time. Because it is (6A) it will continue to buy about the same amount of goods and services.

• Money retains its value because it is (1D).• The size of money is compact so that it is (17A).• The (13D) is the unit of money (3A) all across the United States.

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Free Enterprise Activities 17

C ERTIFICATES OF DEPOSIT OR MUTUAL FUNDS?Banks offer certificates of deposit (CDs) to their customers as a way of earning greater interest

on their investments than in regular savings accounts, but with the same security of being fed-

erally insured. This means that when you invest in a 1-year CD the bank promises to return to

you your full principal plus the interest you have earned.

The stock market is another way to invest your savings. The easiest way to invest in stocks is by

joining a mutual fund, where professional stock analysts pick the stocks that will be shared by

their investors. Earnings in stocks (and good mutual funds), over a long period of time, have

historically been better than bank accounts, but they are riskier. That means that on any one

day, an investment may have a greater yield than a similar investment in stocks, but on most

days, the stock investment will provide the greater yield.

Directions: Compute the value of each account in the tables below. Then answer the questions. To find the value of an account this year, take the value from last year and multiply by this year’s interest rate. This is the interest for the year. Then add this onto last year’s account value. Round your answers to thenearest dollar.

1. Find the value of a $1,000 investment in two 5-year CDs. For example, to find the account value in 1990, find$1,000 × 0.075 + $1,000.

2. Find the value of a $1,000 investment in a typical stock mutual fund for 10 years.

3. In which years was the money invested in a CD worth more?

4. In which years was the money invested in a mutual fund worth more?

5. If you want to use your savings in 2 years to buy a car, why would a CD be a better place for you to put yoursavings?

6. If you want to save your money for the next 40 years until you retire, why would the stock market be a betterplace to put your savings?

Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Rate 9% –2% 3% 16% 18% 20% 19% 29% 14% 39%Acc’t $1,000value

Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Rate 7.5% 7.5% 7.5% 7.5% 7.5% 5% 5% 5% 5% 5%Acc’t $1,000value

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18 Free Enterprise Activities

E CONOMIC INDICATORSEconomic indicators help businesses and government determine which way the economy is

headed. They also allow businesses to plan their future needs and actions with some degree of

accuracy. There are three types of indicators:

Leading indicators are those whose movement predicts the movement of the economy as a whole.

Coincident indicators are those that move at about the same time as the rest of the economy.

Lagging indicators are those that signal the strength of an upward or downward swing in the economy after the movement has begun.

Directions: In the following chart, check whether each headline is good news or bad news for the economy. Then tell the type of indicator that is referred to by the headline.

Headline Good News Bad News Type of Indicator

1. Housing Starts Lowest in Months

2. Fed Lowers Discount Rate:Interest Rates Tumble

3. Retail Sales Up 3% Over Last Month

4. Business Debt Down From Last Year

5. Unemployed Have Average Two-MonthWait Before Finding New Job:Down From Four-Month Wait Last Year

6. Producer Price Index Rises 0.5%

7. Business Buying More Electronic Office Equipment, Hiring More Clerical Staff

8. Industry Jobs Go Unfilled as Area Unemployment Rate Sinks to 5%

9. Consumer Debt Higher Than at Any Time in History

10. Telephone Company Reports 30-Day Backlog in Installing Business Systems

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Free Enterprise Activities 19

T YPES OF UNEMPLOYMENTThe four types of unemployment are: cyclical unemployment, which is associated with ups

and downs of the business cycle; structural unemployment, which is caused by changes in the

economy such as new technology; seasonal unemployment, which is related to weather pat-

terns; and frictional unemployment, which is temporary unemployment between jobs. Can

you identify these patterns when they occur?

Directions: For each scenario below, write C if the unemployment is cyclical, ST if it is structural, SE if it isseasonal, and F if it is frictional. Underline the key words that support your conclusion.

1. Fifteen hundred workers in Georgia lost their jobs because textile companies have moved their factory operations outside the country.

2. People in a resort area that is busy in the summer and winter try to make enough money during these times of the year to tide them over during the fall and spring.

3. Lumber companies laid off hundreds of workers after reducing their projected output due to a slow-down in housing starts.

4. Hundreds of Mexican immigrants moved to California in the last year, but many remain unemployed because their English is not yet adequate for most jobs.

5. A Broadway musical show had its final run, leaving all the actors unemployed.

6. Hundreds of Texans lost jobs when a jeans manufacturer closed its border town factories and moved itsoperations to Mexico.

7. Many travel agents have left the field because their former customers now go to the Internet for the lowest fares.

8. National unemployment rose to 6% as the economy slumped for the third straight month.

9. Workers at many nuclear power plants lost their jobs when power companies decided not to replace aging plants.

10. A typewriter company let go all its workers and shut down after one hundred years in business because computers made its product obsolete.

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D ECISION MAKING AT THE FEDERAL RESERVEBOARD

The Federal Reserve Board uses three major tools to control the nation’s money supply and to

keep the economy running smoothly: reserve requirements, discount rate, and open market operations.

Directions: Predict which tool the board would use in each situation below and explain how the boardwould use it.

1. The Federal Reserve Board wants to decrease the money supply by limiting the amount of money that bankshave to loan.

2. The Federal Reserve Board wants to increase the money supply by encouraging banks to borrow money from dis-trict Federal Reserve Banks.

3. The Federal Reserve Board wants to decrease the money supply by having banks raise their prime rate to discour-age borrowers.

4. The Federal Reserve Board wants to increase the money supply by adding “new” money.

5. The Federal Reserve Board wants to “loosen up” the money supply by encouraging banks to lend more of theirmoney.

6. The Federal Reserve Board wants to “tighten“ the money supply by removing money from circulation.

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Free Enterprise Activities 21

P OLICIES FOR GROWTHEconomic growth means the expansion of the economy to produce more goods, jobs, and

wealth. In a recent year the Federal Reserve Board cut interest rates by 0.75% each month for

three months. Meanwhile, the following signs of growth occurred in the U.S. economy.

Directions: For each headline below, explain how the reduction in interest rates probably encouraged eachinstance of growth.

1. Retail Sales Up 6.3% Over Last Year and Still Rising!

2. Housing Construction Rising at a Rate of 9% a Year

3. Wages and Salaries Increase More Than 4% This Year

4. Unemployment Rate Reaches a 28-Year Low of 4.3%

5. Gross Domestic Product Up Almost 4% From Last Year

6. High Tax Revenues From Rapidly Growing Economy Produces a National Budget Surplus

7. Choose two of the above signs of growth that you think have a cause-and-effect relationship and explain thatrelationship.

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22 Free Enterprise Activities

F REE TRADE AND JOBSWhen the North American Free Trade Agreement (NAFTA) was signed in 1993, the federal

government established the Trade Adjustment Assistance (TAA) Program. Its purpose is to

retrain people who lose their jobs as a result of NAFTA. The program also provides a tool for

tracking the number of American jobs eliminated because of the agreement. The following

table is based on TAA data from January 1994 to January 1999.

TAA Applicants by Region

Directions: Use the table to complete the following exercises.

1. Which region of the country suffered the most job losses due to NAFTA?

2. How many jobless people nationwide applied to TAA for help?

3. Seventy percent of the jobs lost were high-paying manufacturing jobs. The displaced workers probably will haveto find work in what the U.S. Department of Labor predicts are the fastest growing jobs: cashiers, waitpersons,janitors, and retail clerks. How might this affect the lives of workers and their families?

4. For a while the U.S. Department of Commerce documented NAFTA job creation (1,500 documented), but thenumbers were so low that the department discontinued its surveys. How would you grade NAFTA, based on itsratio of jobs created to workers displaced? Explain.

West South North Central Northeast

Alaska 780 Alabama 6,528 Illinois 5,145 Connecticut 1,131

Arizona 1,960 Arkansas 8,156 Indiana 9,752 Massachusetts 2,635

California 15,017 Florida 4,653 Iowa 454 Maine 1,433

Colorado 2,426 Georgia 12,874 Kansas 1,359 New Hampshire 224

Idaho 3,001 Kentucky 2,855 Michigan 7,293 New Jersey 7,261

Montana 788 Louisiana 4,495 Minnesota 2,102 New York 16,634

Nevada 257 Maryland 390 Missouri 5,408 Pennsylvania 18,163

New Mexico 669 Mississippi 1,100 N. Dakota 300 Vermont 399

Oregon 4,788 N. Carolina 24,530 Nebraska 263

Utah 1,043 Oklahoma 330 Ohio 6,184

Washington 8,330 S. Carolina 5,458 S. Dakota 566

Wyoming 682 Tennessee 12,699 Wisconsin 7,724

Texas 21,294

Virginia 5,561

W. Virginia 1,343

TOTALS 39,741 112,266 46,550 47,880

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Free Enterprise Activities 23

C HINA’S BOLD REFORMSYou have studied the main characteristics of a socialist economy. Many of these were formerly

characteristics of the economy of the People’s Republic of China. However, as the passage

below indicates, China has been incorporating capitalist elements into its economy.

Directions: Read the passage below and answer the questions that follow.

China, which now has the fastest growing economy in Asia, adopted many principles of a market economy in the1990s. Two decades ago, the government told high school graduates whether they would be working or going on tohigher education. Today graduates have more choices about where they will work and what careers they can pursue.

The government also allows individuals to start their own businesses and to adopt capitalist techniques. Unlikestate-run cooperatives that guaranteed workers lifelong employment, independent firms hire and fire workers. As aresult, 20 to 30 million workers have lost their jobs or had their hours and pay cut. Others enjoy a newfound prosperi-ty; they have larger incomes and more buying power.

Recently the Chinese premier announced measures to cut back on government involvement in business. Onemeasure is the elimination or merger of several ministries, including those that control oil, coal, chemicals, andmachine building. The government is also paring 4 million jobs from the government bureaucracy and following athree-year plan to privatize or eliminate the large, noncompetitive state-run businesses.

However, the government has not relinquished all economic control. State-run and some semiprivate businessesmust meet government production quotas. Also, central party members use economic reforms to strengthen the one-party system rather than to encourage political changes.

1. How have China’s reforms made its economy different from a pure socialist economy?

2. What elements of a command economy are still present in China?

3. What have been the advantages and disadvantages of economic reforms for the Chinese?

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24 Free Enterprise Activities

F UNDING ECONOMIC GROWTH IN DEVELOPING NATIONS

Developing nations may seek investments from foreign companies to finance new enterprises,

such as steel mills and mines, to build railroads and highways, and to modernize agriculture.

Developing nations may also seek foreign aid from other governments. Such aid may take the

following forms:

Economic assistance: loans and grants that add to a nation’s capital resources

Humanitarian aid: food, clothing, medical supplies

Technical assistance: services of engineers, technicians, teachers, health care professionals, and others to teach skills in developing nations

Military assistance: economic and technical assistance given to a nation’s armed forces

Directions: Use the information above to complete the following exercises.

1. What is the difference between foreign investment and foreign aid?

2. How might each kind of foreign aid encourage investment in a developing country?

3. Study the following chart. Identify two statistics for each country that indicate that country’s greatest needs.Then identify the type of aid that would help the most and explain why.

Sources: The World Almanac and Book of Facts, 1999

a. Haiti:

b. Burkina Faso:

c. China:

d. Nigeria:

Statistic Haiti Burkina Faso China Nigeria

Infant mortality (deaths per 1,000 births) 99 109 45 71

Population per physician 9,846 27,158 628 4,496

Per capita GDP (dollars) 1,000 740 2,800 1,380

Adult literacy rate 53% 19% 82% 57%

Percent of labor force in agriculture 57% 80% 54% 54%

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Free Enterprise Activities 25

F OREIGN INVESTMENTDirections: Use the following table and the information below to deduce how and why changes in the economic and political policies of the countries or regions listed have affected U.S. investments. Then complete the exercises by describing each statement’s relationship to the chart.

U.S. Direct Foreign Investment

*in millions of dollars

1. Between 1989 and 1991, Poland, the Czech Republic, Romania, and other Eastern European countries held freeelections and ousted their Communist leaders.

2. In 1993 the United States, Canada, and Mexico signed the North American Free Trade Agreement.

3. In 1993 the Chinese began converting state-owned enterprises into joint-stock companies.

4. During the 1990s the continuing harassment and abuse of the East Timorese people in Indonesia destabilizedthe political situation and led to the granting of independence to East Timor.

5. In the late 1990s, Brazil’s government, which had long controlled the nation’s media and utilities, began sellingits holdings in the telecommunications and electrical power industries.

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U.S. Direct Foreign U.S. Direct Foreign Country Investment* 1990 Investment* 1998

Brazil 14,918 37,802

Canada 67,033 103,198

China 0 6,348

Eastern Europe 0 8,143

Egypt 1,465 1,955

Hong Kong 6,187 20,802

Indonesia 3,226 1,480

Mexico 9,398 25,877

South Africa 956 2,363

United Kingdom 68,224 178,648

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C YBERNOMICSComputer sabotage means breaking into computer systems to steal information or to vandal-

ize a network. Sabotage is the computer crime that grabs the headlines. But pirating

software—copying and selling works protected by copyright—is more widespread and costs

software companies billions of dollars in lost sales. A recent study showed that 28% of all soft-

ware sold in North America is pirated, 68% in Latin America, 80% in Eastern Europe, 43%

in Western Europe, and 74% in the Middle East.

Directions: Use the data above to complete the pictograph below. (� � 5%; � � less than 5%) Then supply a title for the graph.

Title:

Below are suggestions to end software pirating. For each suggestion, check yes if you think it would be

effective or no if you think it would not be. Explain your choice.

Yes No

� � 1. A United States law outlawing attempts to bypass electronic anti-copying protection

� � 2. A United States law making Internet service providers liable if their users infringe copyrights

� � 3. International treaties forbidding the pirating of software with copyrights

North AmericaWestern EuropeLatin AmericaMiddle EastEastern Europe

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Activity 1: Productive Resources

1. The major resources that the Strauss brothers needed were workers, canvas, scissors, sewingmachines, needles, thread, snaps, and a factory.

2.

3. Yes, because they successfully combined land, labor,and capital to make their product and to build andexpand their company.

Activity 2: Business and Government

Students’ opinions on these issues will vary, but here aresome reasons for and against each proposal.

1. Not support: Students may say that less pollutionwill help the quality of life, but it will also increasethe cost of electricity and thus the cost of doingbusiness.

2. Not support: Higher quality increases the cost of theclothing but makes for a better product and moresatisfied customers.

3. Support: With the import tax, competition fromabroad will be easier to combat. However, foreigncountries may retaliate with import taxes of theirown.

4. Support: Government support for day care wouldfree more parents to work, increase the labor pool,and keep wages from increasing rapidly.

5. Not support: The import tax will raise the price ofthe raw material needed to make clothes, whichwill cut into profits. However, the tax may help theUnited States fabric producers to compete againstforeign companies, providing more jobs (and moremoney) for Americans, who also buy the clothing.

6. Support: Competition among the truckers will tendto lower transportation costs, which means higherprofits. However, increased competition also willmean greater risks on the road from truckers whohave to drive faster with heavier loads in order tomake money.

7. Not support: Increased taxes will reduce profits,although decreasing the federal budget deficit willhelp the economy overall.

Activity 3: Choosing a BusinessOrganization

Answers to the questions will vary. Check that students choose the type of business organization indi-cated by their answers.

Activity 4: Analyzing Advertising

1. Although there are a few facts, the ad appeals primarily to my emotions.

2. Students’ needs will vary but answers shouldinclude: The product is “lighter” weight, has variable speeds, and operates with battery or a/c electricity.

3. The ad says it has greater durability, but does notgive specifics. I could compare warranties of thisand other products.

4. The ad implies that other brands cost about $10more. I could check out competitors’ prices.

Activity 5: Needs, Wants, Marketers

1. a. By prominently displaying the more expensiveproduct, Kramer’s hopes that customers will buy iton impulse.

b. The store will benefit from a higher profit.

2. a. Chen’s is offering three shirts for the price oftwo in order to get rid of inventory before coldweather sets in.

b. The store will benefit by getting rid of goods itwould not be able to sell later.

3. a. Sally’s Warehouse is encouraging customers tokeep buying until they qualify for the discount.

b. The store will benefit from repeat business andmay also acquire new customers who want the discount.

4. a. The Upper Crust is using the attraction of meet-ing the famous designer to draw customers into the store.

b. Once inside, customers may see things they likeand buy them.

5. a. Rolf’s is trying to get its cutomers to see theclothing not as separate items but as part of anensemble.

b. If a customer likes a particular grouping, he willbe more likely to buy it.C

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ANSWER KEY

Land Labor Capital

property for factory workers to cut canvas

workers to sew needles, thread

workers to deliver sewing machines

snaps

building for factory

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ANSWER KEY

Activity 6: Market Conditions

Information that will complete the chart:

Monopolistic Competition: many; fairly easy; greatdeal; great deal; some

Oligopoly: few; difficult; identical or slight differ-ence; much; some

Monopoly: one; very difficult; none; little or none;total

1. The best market would be monopoly, since thebusiness would be the only one in the market andcould charge whatever price it wanted.

2. The best market would be monopolistic competitionbecause the barriers to entry are not great, thereare many products to specialize in, and there issome control of price. Students should see that per-fect competition is easiest to get into but does nothave the potential of monopolistic competition.

3. The best market for price would be the perfectcompetition, so the prices would be kept low. Thebest market for variety would be monopolistic com-petition, in which each company would try todifferentiate its product from those of other companies.

4. Answers will vary, depending on whether studentslike the freer atmosphere of monopolistic competi-tion or the stability of oligopoly.

5. The best market would be monopolistic competi-tion, in which there is the most advertising.

Activity 7: Marketing Strategy

The product, Mastery Games, is a new computer soft-ware program that runs many computer games. Thestrategy is to point out the program’s ease of use,range of games, and special features (including ahook-up with other terminals so that more than oneperson can play simultaneously). The strategy alsoincludes comparing the relatively expensive price ofthe new program with the even greater amount ofmoney the consumer would have to spend on individ-ual disks for all of the games included in MasteryGames. The marketing department has also decidedto sell the program through computer stores and touse bright red packaging with the name Mastery.

Activity 8: Selling Assets

1. Answers will vary. A possible answer is that thecompany will be introducing new styles and open-ing new stores.

2. Students will probably answer yes because if com-panies do not sell all the stock, they will take a loss.

3. trade credit, unsecured loans, secured loans, intermediate-term loans, and bonds

Activity 9: Responsible Consumerism

1. g

2. a

3. h

4. f

5. c

6. d

7. b

8. e

Activity 10: Going Into Debt

1. $888.89

a. $15,741.36

b. 16,446.72

c. 17,172.00

d. 17,917.44

e. 18,682.80

2. Students may answer two or three years, dependingon how much they think Grace will need to pay forgas, insurance, car maintenance, and discretionarypurposes. The car would cost less after the rebatemonthly payments at 9% interest for 1 year, butGrace could not afford the monthly payment.

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ANSWER KEY

Activity 11: Expressed and ImpliedWarranties

1. N

2. I

3. N

4. E

5. I

Activity 12: Speculating in Stocks

1. Answers will vary. Sample response: CBS, televisionbroadcasting; CocaCl, soft drinks; Hilton s, hotels;AmOnline s, access to the Internet; AT&T, telecom-munication technology; IBM s, computers; PhilMor,cigarettes; Compaq, computers

2. At 93 5/16, America Online has the second-highestclosing price, but it cost more at the beginning ofthe day.

3. PhiMor decreased by 5.7% during the day, agreater percent change than any of the other companies; no, IBM’s increase is a greater amountdollar-wise.

4. CBS, because you could have bought 20 shares ofstock and sold it for a profit of $35 at the end ofthe day. This is more profit than either of the othertwo stocks would have been.

5. Answers will vary. Possible answers: the pride ofownership in a company, the opportunity to supporta product or company of which you approve, or thepower as a stockholder to influence the policies of acompany.

Activity 13: Using Arbitration

Students’ answers will vary. However, they should rep-resent a compromise between the industry averagesand the union demands. A possible agreement lookslike this:

Activity 14: Tax Holiday

Answers for chart: Subtotal: $766.3; Tax: 49.75; Total: 816.05

1. a. 65.14 b. 49.75 c. $15.39

2. Answers will vary. Sample response: The state probably assumed that people on limited incomeswould not be paying high prices for single items but would stretch their money by buying manylower-priced items.

3. Answers will vary. Sample response: Yes, peoplewith limited incomes should get a tax break onexpensive items. Sometimes the expensive item is abetter value because it lasts longer than a less-expensive alternative.

4. Answers will vary. A possible choice are the pre-scription glasses because they are a necessity,especially at work and school.

5. Answers will vary. Sample response: No, because,although the governor’s image might well havebeen enhanced, the tax holiday saved people somemoney, which serves their needs.

Activity 15: The Federal Budget

1. Answers will vary. Sample response: increasedMedicare payments because the population is agingand medical costs are rising and increased spendingon education because the country’s future successdepends on well-educated citizens.

2. Answers should be similar to the following:

To keep the support of voters in their districts,Representative A probably would want to expanddefense programs; Representative B would want toincrease spending on social welfare programs, pub-lic transportation facilities, public works, and healthresearch; and Representative C would probablywant to increase spending on Social Security pro-grams and price supports for farmers.

Wages 10% raise or $13.20 / hour 3% raise or $12.36 / hour 5% raise or $12.60/hour

Hours 36-hour week 40-hour week 40-hour week

Overtime Double time after 36 hours Time and a half after 40 hours; Time and a half after 40 hours;double time on weekends double time on weekends

Breaks 15 minutes, 15 minutes 15 minutesmorning and afternoon in the afternoon in the afternoon

Paid Holidays 10 8 8

Health Insurance All paid by company First $250 paid by employee All paid by company

Dental Insurance All paid by company First $500 paid by employee First $500 paid by employee

Uniform Allowance $200 $50 $100

Union Demands Management Offers Agreement

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ANSWER KEY

Activity 16: Types of Money

Activity 17: Certificates of Deposit orMutual Funds?

Activity 18: Economic Indicators

1. bad news; leading indicator

2. good news; unclassified indicator

3. good news; coincident indicator

4. good news; lagging indicator

5. good news; leading indicator

6. bad news; unclassified indicator

7. good news; leading indicator

8. good news; leading indicator

9. bad news; lagging indicator

10. good news; leading indicator

Activity 19: Types of Unemployment

Some answers may vary. Have students give their reason-ing for answers that differ from the following:

1. ST; companies have moved their factory operationsoutside the country

2. SE; busy in the summer and winter; tide them overduring the fall and spring

3. C; reducing their projected output

4. F; many remain unemployed because their English isnot yet adequate for most jobs

5. F; Broadway show had its final run

6. ST; closed its border town factories and moved itsoperations to Mexico

7. ST; customers now go to the Internet for the lowestfares

8. C; the economy slumped for the third straightmonth

9. ST; when power companies decided not to replaceaging plants

10. ST; because computers had made its product obsolete

s l e g a l t e n d e r

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1. 1990=$1,0751991=$1,155.631992=$1,242.301993=$1,335.471994=$1,435.631995=$1,543.301996=$1,659.051997=$1,783.481998=$1,917.241999=$2,061.03

2. 1990=$1,0901991=$1,068.201992=$1,100.251993=$1,276.291994=$1,506.021995=$1,807.221996=$2,150.591997=$2,774.261998=$3,162.661999=$4,396.10

3. 1991, 1992, and 1993

4. 1990, 1994-1999

5. CDs are a safer place to invest money, especially forshort-term investments.

6. Over the long term, the stock market generally pays ahigher return.

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Activity 20: Decision Making at theFederal Reserve Board

1. The board would increase the reserve requirementto limit the amount of money that banks have toloan.

2. The board would lower the discount rate to encour-age banks to borrow money from district FederalReserve banks.

3. The board would increase the discount rate so thatthe banks would have to raise the prime rate forloans to their customers.

4. The board would use the open market operation ofbuying securities such as Treasury Bills to add“new” money to the economy.

5. The board would lower the reserve requirement toencourage banks to loan more of their money.

6. The board would use the open market operation ofselling securities such as Treasury Bills to removemoney from circulation.

Activity 21: Policies for Growth

Answers will vary but should be similar to the followingresponses:

1. Lower interest rates encouraged consumers to buymore on credit.

2. Lower interest rates made building materials cheap-er for builders, and lower mortgage rates increasedconsumer demand for housing.

3. Lower interest rates increased company’s profits andability to raise wages.

4. The lower interest rates that increased demand forproducts also increased the demand for workers tomake the products. Thus, more jobs were createdand fewer people were left jobless.

5. Lower interest rates increased employment and con-sumer spending, which increased the demand forand production of products, or Gross DomesticProduct.

6. Because lower interest rates encouraged theincrease in employment and production, the taxbase was widened and produced increased revenuesto cover government expenses.

7. Many answers are possible. Sample response:increased employment fueled consumer demand forproducts

Activity 22: Free Trade and Jobs

1. the South

2. 246,437

3. Answers will vary. A possible answer is that workerswill probably earn less at low-paying service jobsthan they did in manufacturing so their standard ofliving will be lower.

4. Answers will vary. A possible answer is that NAFTAshould get “a failing grade” because the agreementeliminated more American jobs than it created andlowered the standard of living for thousands ofworkers and their families.

Activity 23: China’s Bold Reforms

1. Unlike in pure socialist economies, China allows pri-vate ownership and decision making in manybusinesses.

2. Unlike in many market economies, the political envi-ronment is undemocratic and the government is stillsetting quotas for some businesses.

3. The advantages are more choices and, for some,increased incomes and buying power. The disadvan-tages for millions of other Chinese areunemployment or underemployment.

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Activity 24: Funding Economic Growth inDeveloping Nations

Answers may vary. Sample answers are given.

1. Foreign investment comes from companies and for-eign aid comes from governments or organizationssuch as the United Nations.

2. Economic assistance might give the country start-upmoney for businesses in which foreigners mightinvest. Humanitarian aid would contribute to a better workforce for businesses in which foreigncompanies might invest. Technical assistance wouldgive people in developing nations the know-how tobegin businesses for investment. Military assistancemight create stability so that foreign investorswould feel safe investing there.

3. a. Haiti: Infant mortality and the number of med-ical doctors; technical assistance to train doctorsand humanitarian assistance in the form of medicalsupplies

b. Burkina Faso: Per capita GDP and adult literacy;technical assistance to train doctors and teachersand humanitarian assistance in the form of basicfood and clothing needs

c. China: Infant mortality and adult literacy rates;technical assistance to train health care professionalsand educators

d. Nigeria: Infant mortality and the number ofmedical doctors; technical assistance to train doctors and humanitarian assistance in the formof medical supplies

Activity 25: Foreign Investment

Answers will vary. Sample responses are given.

1. United States investors saw opportunities in emerg-ing market systems in Eastern Europe.

2. NAFTA made U.S. investment in Mexico and inCanada more attactive.

3. The Chinese decision to privatize its state-ownedbusinesses created opportunities for U.S. investors.

4. Four years after South Africa ended legalizedracism, Americans were investing more than twicethe money they invested in South Africa in 1990.

5. Once the government showed its willingness toloosen its control over businesses, U.S. investors feltconfident enough to put 250% of their 1990investment in Brazil.

Activity 26: Cybernomics

Titles may vary. Check for accuracy.

Answers for exercises 1–3 will vary. The following arepossible responses.

1. No; because the government would have no way toenforce what people do in their own homes with-out violating basic rights to privacy.

2. No; because most of the pirating is not affected byU.S. laws.

3. Yes; if countries could regulate copyright infringe-ment without violating citizens’ rights.

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ANSWER KEY

NorthAmerica North America ====== [half disk]

Western Europe Western Europe ======== [half disk]

Latin America Latin America ============== [half disk]

Middle East Middle East =============== [half disk]

Eastern Europe Eastern Europe ==================

Software Sales of Pirated Software as a Percent of Total Sales

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Teacher Notes

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Teacher Notes