SAMPLE TEST – M4 – FN46

SECTION 1: Vocabulary and Structure (30 marks, 1 mark/answer)

1. ________________ is referred to as government C. consumptions

actions concerning taxation and public expenditure D. demand decline
A. Monetary policy
B. Economic policy 7. ________________ is the economic theory that
C. Fiscal policy supports governmental intervention in the economy,
D. Tax policy to counteract the business cycle.
A. Keynesianism
2. During a(n) ________________, the demand for B. Monetarism
goods and services will decline and the economy will C. Classical economic theory
begin to work below its potential. D. Friedman theory
A. upturn
B. boom 8. The period during which radical innovations
C. downturn destroy established companies or industries is called
D. expansion ________________.
A. creative destruction
3. The fact that people start saving money and B. technological invention
consuming less leads to a ________________ in C. trough
demand, production, and employment. D. endogenous
A. equilibrium
B. surplus 9. If the economy's turning down, it may make sense
C. rise for governments to have ________________, and to
D. fall keep expenditure in the economy.
A. budget surplus
4. The company increased its production of the new B. budget deficit
shoes after a recent advertising campaign made the C. budget equilibrium
________________ for the product increase rapidly. D. budget supply
A. trough
B. demand 10. The upward and downward movement of
C. deficit aggregate output produced in the economy is referred
D. surplus to as the ________________.
A. long-lasting recession
5. The difference between the funds a country B. negative growth
receives and those it pays for all internal transactions C. business cycle
is called ________________. D. monetary expansion
A. balance of payments
B. consumption decisions 11. Groups of people with a stake in or an interest in
C. equilibrium or a claim on the firm are called ________________.
D. gross domestic product A. stockholders
B. shareholders
6. The total market value of all the goods and services C. bondholders
produced in a country during a given period is called D. stakeholders
________________.
A. gross domestic product
B. balance of payments

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12. Countries where taxes are low, where 18. Selling your company's secrets to a rival is called
multinational companies often set up their head industrial ________________.
offices, are known as ________________. A. fraud
A. tax launderers B. espionage
B. tax harbors C. pollution
C. tax havens D. trading
D. tax evasion
19. ________________ means a country's ability to
13. The model where companies have an obligation produce particular goods more efficiently than some
to maximize profits because shareholders expect the other countries.
maximum return on their investments is called A. Absolute advantage
________________. B. Comparative advantage
A. stockholder model C. Relative advantage
B. stakeholder model D. Competitive advantage
C. caveat emptor
D. classical theory 20. ________________ means restricting imports by
way of trade barriers such as tariffs and quotas.
14. The community or outside society can be referred A. Consumerism
to as ________________ stakeholders. B. Strategic industry
A. interval C. Protectionism
B. internal D. Absolute advantage
C. external
D. extended 21. ________________ is referred to as a maximum
quantity of goods of a specific kind that can be
15. The contract requires managers imported into a country.
________________ to high standards of personal A. A quota
ethics. B. An output
A. to eliminate C. A tariff
B. to maximize D. A sales target
C. to provide
D. to conform 22. ________________ helps to identify a product
made by a particular producer and cannot be legally
16. An economic system in which anyone can raise used by anyone else.
capital, form a business, and offer goods or services A. A generic
is called ________________. B. A trademark
A. free society C. A brand
B. free expenditure D. A symbol
C. free enterprise
D. free corporate 23. A tax collected at each stage of production,
excluding the already-taxed costs from previous
17. It is clearly shown that their products are designed stages, is called a/an ________________.
to ________________ profit rather than behave A. added-value tax
according to consumer expectations. B. sales tax
A. provide C. value-added tax
B. maximize D. capital gains tax
C. optimize
D. localize 24. WTO policies allow rich countries to
________________ heavily subsidized industrially

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produced food in poor countries, which damages C. calculation
local production. D. collaboration
A. dump
B. copy 28. He also maintained that increases in public
C. protect expenditure would lead to increased
D. deny ________________ and higher unemployment.
A. intervention
25. ________________ is referred to as basic systems B. taxation
and services such as transport and power supplies. C. proportion
A. Facilities D. restriction
B. Infrastructure
C. Superstructure 29. The business cycle or trade cycle is a
D. Asset ________________ feature of market economies:
GDP alternately grows and contracts.
26. ________________ penalizes all income- A. temporary
generating activity, which makes everyone poorer. B. permanent
A. Value-added tax C. alternative
B. Income tax D. expansive
C. Inheritance tax
D. Capital gains tax 30. During a(n) ________________, parts of the
economy expand to the point where they are working
27. Unfettered free markets can ensure the long- term at full capacity.
optimal ________________ of resources and long- A. upturn
term economic growth. B. downturn
A. provision C. consumption
B. allocation D. balance of payment

SECTION 2: Reading Cloze (20 marks, 2 marks/answer) 

Fill in each blank with one suitable word/phrase. You don’t need to use all the words provided.

designing protecting advanced committed

environment impact schedule related
economic business managed progression
 
Business and the environment
These days in business, people have to face many challenging questions when (31) ___ designing
_____________ and implementing new projects in undeveloped areas of the countryside. One issue which has to be
faced is whether it is possible to introduce new technology without destroying the local (32)
___environment________.

(33) __economic_________ development and environmental conservation are often seen as natural enemies. It is
unfortunate that in the past this has often been true, and it has been necessary to choose between running the project
or (34) _protecting__ the environment. However, by taking environmental considerations seriously at an early stage
in a project, companies can significantly reduce any (35) __impact___ on local plants and animals.

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For example, in southern Africa, a company called CEL was asked to put up 410 km of a power transmission line
without disturbing the rare birds which inhabit that area. The project was carried out with minimal disturbance last
summer. What may surprise many (36) ___business___ people is the fact that this consideration for local wildlife
did not in any way slow down the project. Indeed, the necessary advance planning, combined with local knowledge
and (37) __advanced____ technology, meant that the project was actually completed ahead of (38) ___schedule___.
CEL was contracted to finish the job by October and (39) ___manage___ to do so two months earlier.

CEL is one of those companies which is (40) ____committed___ to the principle of environmental conservation.
Many other companies have yet to be convinced of the importance of balancing the needs of people with those of
the environment. However, it may be the only realistic way forward.

SECTION 3: Reading Comprehension (30 marks, 2 marks/answer)

 
Profits and social responsibility
 1 Pure free-market theorists argue that the function of a business is to make profits. Milton Friedman, for example,
argued that any corporate action inspired by “social responsibility”, rather than the attempt to maximize profits,
is “unbusinesslike”. In an article called “The social responsibility of business is to increase its profits”, he argued
that people who say that business has “responsibilities for providing employment, eliminating discrimination,
avoiding pollution”, and so on, are “undermining the basis of a free society”. For Friedman, “only people can
have responsibilities”, and not corporations:
 
2 In a free enterprise, private-property system, a corporate executive is an employee of the owners of the business.
He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with
their desires, which generally will be to make as much money as possible, while of course conforming to the
basic rules of the society, both those embodied in law and those embodied in ethical custom.
 
3 Therefore, “to say that the corporate executive has a “social responsibility” in his capacity as businessman” is to
say that “he is to act in some way that is not in the interest of his employers”. Because if an executive makes
“social” expenditures he is spending someone else’s money ... Insofar as his actions in accord with his “social
responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to
customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is
spending their money.
 
4 Furthermore, such actions are “undemocratic” as they involve corporations taking on responsibilities that should
be the government’s: taxation and expenditure, and solving social problems. If the elected government is not
taking certain actions, it is because the voters did not want it to do so. Any such action “harms the foundations of
a free society” and reveals an unfortunate “suicidal impulse” in businessmen.
 
5 Friedman does not seem to consider the possibility that stockholders might prefer to receive lower dividends but
live in a society with less pollution or less unemployment and fewer social problems.
 
6 An alternative view to the “stockholder model” exemplified by Friedman’s article is the stakeholder model.
According to this approach, business managers have responsibilities to all the groups of people with a stake in or
an interest in or a claim on the firm. These will include employees, suppliers, customers and the local
community, as well as the stockholders. Proponents of the stakeholder approach argue that all these groups
should be represented on a company’s board of directors.
 
Based on the information in the article, say whether the following statements are True (T), False (F).
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41. Free market theorists think that people do business to make money.
True False

42. Friedman believes both people and corporations can have responsibilities.
True False

43. Friedman describes social responsible actions of corporations as an undemocraticy €.

True False

44. Friedman argues that the social responsibility of business is to solve social problems.
True False

Choose the best answer.

45. According to Friedman, in what way are "social responsible" actions by businesses "undemocratic"?
A. Because this is generally what the owners of the business want, and what they employ executives to do.
B. Because they involve doing things that should be done by governments.
C. Because only people can have responsibilities, and not corporations.

46. According to the text, what other desires might stockholders have, apart from making as much money as
possible?
A. Lower dividends, higher prices, or lower wages.
B. A society with less pollution or less unemployment and fewer social problems.
C. A government that takes on social responsibilities.

What does each of the underlined words refer to?

47 “… he argued that people who say that business has …” (Para. 1) Milton Friedman/ Milton/ Friedman
48 “… to say that he is to act in some way that is not …” (Para. 3) the corporate executive/ corporate executive

Find words from the text which mean:

49. complying with or following (rules, etc.) (Para. 2) conforming to
50. treating some people in a worse way than you treat other people (Para. 1) discrimination
51. making something weaker (Para. 1) undermine
52. causes damage to (Para. 4) harms
53. according to generally accepted beliefs based on morals (Para. 2) ethical

Fill in each gap of these sentences with one suitable word from the text:
54. The new factory will _provide__ employment for about a hundred local people.

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55. According to the _____stakeholder___ model, business managers have responsibilities to all the groups of
people with a stake in or an interest in or a claim on the firm.

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