Question 1

An economic model is useful only if it:

Accepted Answer

A) contains no positive statements. 
B) captures all the complexities of reality. 
C) yields accurate predictions. 
D) has both macro- and microeconomic applications. 
A) contains no positive statements. 
B) captures all the complexities of reality. 
C) yields accurate predictions. 
D) has both macro- and microeconomic applications.

Question 2

The television network newscaster reports that the national inflation rate the past year equaled 4 percent. This report would be of particular interest to a ____.

Accepted Answer

A) microeconomist. 
B) normative economist. 
C) macroeconomist. 
D) Ceteris paribus . 
E) social science economist. 
A) microeconomist. 
B) normative economist. 
C) macroeconomist. 
D) Ceteris paribus . 
E) social science economist.

Question 3

Which of the following is closest to the definition of capital?

Accepted Answer

A) c and e. 
B) c and d. 
C) Tools, equipment, means of transportation 
D) Factories and machinery. 
E) Borrowed money. 
A) c and e. 
B) c and d. 
C) Tools, equipment, means of transportation 
D) Factories and machinery. 
E) Borrowed money.

Question 4

A theory is:

Accepted Answer

A) based only on critical factors or variables. 
B) a simplified abstraction of the real world. 
C) a detailed description of reality. 
D) a and b. 
A) based only on critical factors or variables. 
B) a simplified abstraction of the real world. 
C) a detailed description of reality. 
D) a and b.

Question 5

The statement "American workers are lazy" is an example of positive economic analysis.

Accepted Answer

A) True 
 B)False

Question 6

Positive economics:

Accepted Answer

A) will usually tell us which policy is best. 
B) reveals "what ought to be" in economic matters. 
C) is of little use to policy makers. 
D) is the scientific study of "what is" among economic relationships. 
A) will usually tell us which policy is best. 
B) reveals "what ought to be" in economic matters. 
C) is of little use to policy makers. 
D) is the scientific study of "what is" among economic relationships.

Question 7

Which of the following is an example of a positive economic statement?

Accepted Answer

A) The economy's real output increased at about 3 percent last year and the unemployment rate decreased. 
B) A central bank should not print too much money because inflation could result. 
C) Congress should stabilize the social security system by raising taxes now. 
D) The government farm products surplus should be distributed to the needy. 
A) The economy's real output increased at about 3 percent last year and the unemployment rate decreased. 
B) A central bank should not print too much money because inflation could result. 
C) Congress should stabilize the social security system by raising taxes now. 
D) The government farm products surplus should be distributed to the needy.

Question 8

Which of the following is included in the study of macroeconomics?

Accepted Answer

A) Wage rate of college students. 
B) Prices of automobiles. 
C) Unemployment in the nation. 
D) Price of silver and gold. 
A) Wage rate of college students. 
B) Prices of automobiles. 
C) Unemployment in the nation. 
D) Price of silver and gold.

Question 9

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

Accepted Answer

A) confused association and causation. 
B) misunderstood the Ceteris paribus assumption. 
C) used normative economics to answer a positive question. 
D) built an untestable model. 
A) confused association and causation. 
B) misunderstood the Ceteris paribus assumption. 
C) used normative economics to answer a positive question. 
D) built an untestable model.

Question 10

Which of the following is a statement of positive economics?

Accepted Answer

A) I hope unemployment comes down soon. 
B) President X's way of dealing with unemployment is better than President Y's. 
C) I think everyone should sacrifice to reduce the deficit. 
D) If taxes are reduced, unemployment will drop. 
A) I hope unemployment comes down soon. 
B) President X's way of dealing with unemployment is better than President Y's. 
C) I think everyone should sacrifice to reduce the deficit. 
D) If taxes are reduced, unemployment will drop.

Question 11

What is scarcity and why does it exist? How is scarcity related to the study of economics?

Accepted Answer

Scarcity exists because resources are li

Question 12

Macroeconomics studies economywide issues like inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 13

A review of the performance of the economy during the Bush administration is the concern of:

Accepted Answer

A) macroeconomics. 
B) microeconomics. 
C) both macroeconomics and microeconomics. 
D) neither macroeconomics nor microeconomics. 
A) macroeconomics. 
B) microeconomics. 
C) both macroeconomics and microeconomics. 
D) neither macroeconomics nor microeconomics.

Question 14

"As soon as a mayor announced his\her 'get tough on crime' policy on New Year's day, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January ¾ it was just too cold for anybody to be out robbing other people. Which fundamental hazard of the economic way of thinking did the mayor make?

Accepted Answer

A) believing that what's good for one person is good for the whole group (the fallacy of composition) 
B) failing to take into account the benefits of crime (the payoff fallacy) 
C) believing that association is the same as causation 
D) failing to understand the difference between positive and normative economics. 
A) believing that what's good for one person is good for the whole group (the fallacy of composition) 
B) failing to take into account the benefits of crime (the payoff fallacy) 
C) believing that association is the same as causation 
D) failing to understand the difference between positive and normative economics.

Question 15

The statement "A tax cut would be the fairest way to stimulate the economy" is an example of positive economic analysis.

Accepted Answer

A) True 
 B)False

Question 16

An economic model is:

Accepted Answer

A) a plastic scaled version of the economy. 
B) a complete depiction of reality. 
C) an abstraction from reality. 
D) applicable to consumer behavior but not to producer behavior. 
E) not an accepted tool of the economics profession. 
A) a plastic scaled version of the economy. 
B) a complete depiction of reality. 
C) an abstraction from reality. 
D) applicable to consumer behavior but not to producer behavior. 
E) not an accepted tool of the economics profession.

Question 17

An economics textbook is an example of:

Accepted Answer

A) capital. 
B) labor. 
C) a natural resource. 
D) entrepreneurship. 
A) capital. 
B) labor. 
C) a natural resource. 
D) entrepreneurship.

Question 18

The silly clothes worn by a circus clown are an example of:

Accepted Answer

A) a natural resource. 
B) capital goods. 
C) labor. 
D) entrepreneurship. 
A) a natural resource. 
B) capital goods. 
C) labor. 
D) entrepreneurship.

Question 19

Normative economics is:

Accepted Answer

A) usually incorrect. 
B) a statement of fact. 
C) the analysis of what is. 
D) the study of what ought to be. 
E) free of value judgments. 
A) usually incorrect. 
B) a statement of fact. 
C) the analysis of what is. 
D) the study of what ought to be. 
E) free of value judgments.

Question 20

Economics could be defined as the study of scarcity.

Accepted Answer

A) True 
 B)False

Exam 1: Introducing the Economic Way of Thinking

An economic model is useful only if it:

The television network newscaster reports that the national inflation rate the past year equaled 4 percent. This report would be of particular interest to a ____.

Which of the following is closest to the definition of capital?

A theory is:

The statement "American workers are lazy" is an example of positive economic analysis.

Positive economics:

Which of the following is an example of a positive economic statement?

Which of the following is included in the study of macroeconomics?

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

Which of the following is a statement of positive economics?

What is scarcity and why does it exist? How is scarcity related to the study of economics?

Macroeconomics studies economywide issues like inflation and unemployment.

A review of the performance of the economy during the Bush administration is the concern of:

The statement "A tax cut would be the fairest way to stimulate the economy" is an example of positive economic analysis.

An economic model is:

An economics textbook is an example of:

The silly clothes worn by a circus clown are an example of:

Normative economics is:

Economics could be defined as the study of scarcity.

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

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