Deck 2: Economic Theories, Data, and Graphs

Question 1

An economic theory

A) will be useful only if all human behaviour is rational.
B) will be useful as long as it is logically consistent.
C) is only useful if its underlying assumptions are realistic.
D) will predict more accurately if it contains a greater number of mathematical equations.
E) must be judged on its ability to explain and predict real- world phenomena.

Answer 1

E

Question 2

FIGURE 2- 4
Refer to Figure 2- 4. The slope of the non- linear function changes as we move along the curve. The slope is

A) negative and decreasing, indicating a diminishing marginal response.
B) constant at all points, indicating a constant marginal response.
C) negative and increasing, indicating an increasing marginal response.
D) positive and increasing, indicating an increasing marginal response.
E) positive and decreasing, indicating a diminishing marginal response.

Answer 2

E

Question 3

Of the following, which is the most important characteristic of a successful theory?

A) the theory could never be refuted.
B) the theory allows us to predict behaviour reasonably accurately.
C) all assumptions on which the theory is based are true.
D) the theory adequately explains all economic behaviour.
E) the theory provides a basis for facts about economic behaviour.

Answer 3

B

Question 4

Choose the answer that best explains why economists build models that abstract from the complexities of reality.

A) Because the complexities of reality are unimportant.
B) Because economists are not interested in reality.
C) Because this allows economists to conduct controlled experiments to test their theories.
D) Because they believe they gain a greater understanding of reality.
E) Because economics deals only in the abstract.

Question 5

The table below shows hypothetical tuition costs at a Canadian university. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Year } & \text { Tuition } \\\hline 2005 & \$ 5000 \\\hline 2006 & \$ 5050 \\\hline 2007 & \$ 5100 \\\hline 2008 & \$ 5150 \\\hline 2009 & \$ 5200 \\\hline\end{array}\\\text { TABLE 2- } 1\end{array}$$

-Refer to Table 2- 1. Assume that 2005 is used as the base year, with the index number = 100. The value of the index number in 2007 is calculated as follows:

A) (5000/5100) × 100 = 98
B) (5100/5000) × 100 = 102
C) 5100/5000 = 1.02
D) 5100/5100 = 100
E) 5000/5100 = 0.98

Question 6

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is

A) a stock, as it influences the quantity of fish caught.
B) an endogenous variable, as it influences the price of fish.
C) an endogenous variable, as it is determined within the theory.
D) an exogenous variable, as it is determined outside the theory.
E) an act of God and, therefore, has no legitimate connection with the theory.

Question 7

An index number is used to

A) compare the same variable in two different situations.
B) compare two different variables in two different situations.
C) designate a specific value for further reference.
D) compare two different variables in the same situation.
E) measure the absolute value of a variable.

Question 8

Which of the following is a normative statement?

A) Tuition fees should be waived for low- income students.
B) A free- trade agreement between two countries will result in an increase in trade.
C) The higher is the level of taxes, the higher are wage demands.
D) A reduction in export taxes on petroleum would result in higher wages.
E) The higher is the level of taxes, the lower is consumption spending.

Question 9

A hypothesis (or a prediction) is a statement about

A) how assumptions affect theories.
B) what will happen in the future.
C) those things which we believe to be true, but cannot prove.
D) the relationship between facts explained by the hypothesis.
E) how two or more variables are related to each other.

Question 10

The slope of a straight line is necessarily

A) negative.
B) zero.
C) positive.
D) constant.
E) increasing as one moves up the line.

Question 11

FIGURE 2- 3
Refer to Figure 2- 3. The slope of curve B is

A) negative from Y1 to Y2 and positive between Y2 and Y3.
B) undefined at X2.
C) always negative but variable.
D) zero at X2.
E) always positive but variable.

Question 12

Suppose an individual wheat farmer's income is influenced by the region's average daily temperature. When examining the determinants of individual farmer income, the average daily temperature is a(n) variable.

A) flow
B) induced
C) dependent
D) endogenous
E) exogenous

Question 13

FIGURE 2- 2
Refer to Figure 2- 2. The slope of curve D is

A) positive and constant.
B) undefined.
C) negative and constant.
D) positive and changing.
E) negative and changing.

Question 14

Economic theories

A) can be used to help explain and predict economic behaviour.
B) cannot be tested because we cannot do economic "experiments".
C) must apply to all economies to be true.
D) are not useful because of the unrealistic assumptions they contain.
E) cannot help to predict future behaviour.

Question 15

The table below shows hypothetical per- minute cell phone charges for "pay- and- talk" service over several years. $$\begin{array}{l}\begin{array} { | l | l | } \hline 2005 & 0.55 \\\hline 2006 & 0.50 \\\hline 2007 & 0.40 \\\hline 2008 & 0.35 \\\hline 2009 & 0.25 \\\hline\end{array}\\\text { TABLE 2- } 2\end{array}$$

-Refer to Table 2- 2. Assume that 2005 is used as the base year, with the index number = 100. Which of the following series is the correct set of index numbers for the per- minute cell phone charges from 2005 to 2009?

A) 1.0; 0.91; 0.73; 0.64; 0.45
B) 100; 91; 73; 64; 45
C) 0.55; 0.50; 0.40; 0.35; 0.25
D) 100%; 91%; 73%; 64% 45%
E) 55; 50; 40; 35; 25

Question 16

What is the best way to display the unemployment rate in each of the world's developed economies in 2009?

A) a scatter diagram with two variables
B) a cross- sectional graph with time- series data
C) a cross- sectional bar chart graph
D) a scatter diagram
E) a time series line graph

Question 17

FIGURE 2- 3
Refer to Figure 2- 3. The slope of curve A is

A) positive and variable.
B) positive from X1 to X2 and negative from X2 to X3.
C) zero.
D) negative from X1 to X2 and positive from X2 to X3.
E) negative and variable.

Question 18

FIGURE 2- 1
Refer to Figure 2- 1. What is the slope of the line in part (ii) of the figure?

A) 12.5
B) 0.08
C) 0.05
D) 1
E) - 12.5

Question 19

FIGURE 2- 3
Refer to Figure 2- 3. At X2 on curve A , the

A) minimum occurs at Y4.
B) slope is increasing.
C) maximum occurs at Y1.
D) slope of the curve is zero.
E) slope is decreasing.

Question 20

An economic theory requires, among other things,

A) a set of value judgments to interpret the empirical evidence.
B) a controlled laboratory setting in which the theory can be tested.
C) that the set of predictions be correct.
D) a set of definitions of the variables to be considered.
E) the use of endogenous variables only.

Question 21

Economists build models that abstract from the complexities of reality because

A) economists do not understand the real world.
B) economists are not interested in reality.
C) it is easier to do so.
D) the complexities of reality are unimportant.
E) they believe they gain a greater understanding of reality.

Question 22

Suppose that a particular theory predicts that on sunny days consumption of ice cream will rise and that on cloudy days consumption of ice cream will fall. If an economist tests this theory and finds that over a six- month period the theory predicts accurately, the economist would likely say

A) the evidence fails to reject the theory.
B) the theory has been proven correct.
C) the theory is always reliable.
D) that the theory is not useful because consumption involves irrational human behaviour.
E) the theory shouldn't be taken seriously.

Question 23

The statement that a two- percent increase in the money supply leads to a two- percent increase in the price level is an example of a(n)

A) variable.
B) prediction.
C) normative statement.
D) model.
E) assumption.

Question 24

Which of the following best describes the relationship between positive and normative statements in economics?

A) Positive and normative statements are alternate ways of describing the desirability of certain economic policies.
B) Normative statements evaluate the desirability of certain economic changes; positive statements do not.
C) Economists generally agree with each other regardless of whether a question is positive or normative.
D) Neither positive nor normative statements are concerned with the desirability of certain economic changes.
E) Normative statements are those with which all economists agree; positive statements may give rise to some disagreement.

Question 25

A theory

A) can only be tested with a controlled experiment.
B) is designed to explain and predict what we observe.
C) is used to impose order on the world.
D) assumes definitions for variables.
E) enables one to make prophesies about the future.

Question 26

When an increase in one variable is associated with a decrease in a second variable, the two variables are

A) positively related.
B) inversely proportionally related.
C) equivalent.
D) proportionally related.
E) negatively related.

Question 27

A positive statement is one that states

A) non- negative numbers.
B) what is desirable.
C) what is, was, or will be.
D) what is and what should be.
E) what should be but is not.

Question 28

If the graph of a function is a horizontal line, the slope of this line is

A) infinity.
B) undefined.
C) - 1.
D) 0.
E) 1.

Question 29

On a coordinate graph, what is the X intercept of the function X = 60 + 3Y?

A) - 60
B) 0
C) 60
D) - 20
E) 20

Question 30

An unweighted index number

A) has different weights for each data series depending on importance.
B) has equal weights attached to different data series.
C) has no weights attached to different data series.
D) is not a real index number.
E) can only be used for price indexes.

Question 31

The statement that a country's rate of GDP growth is influenced by individuals' saving behaviour is an example of a(n)

A) economic law.
B) theory.
C) prediction.
D) variable.
E) normative statement.

Question 32

Which of the following statements is NOT correct?

A) Exposing them to empirical evidence can best test positive statements.
B) Economic statements cannot be tested because human decisions involve free will.
C) Economists test their theories by confronting the predictions of their theories with the evidence drawn from the real world.
D) Economic predictions will be fulfilled when their underlying hypotheses conform to actual human behaviour.
E) Normative statements cannot be tested by the scientific method.

Question 33

Suppose point A represents coordinates (X = 2, Y = 12) and point B represents coordinates (X = 6, Y
= 4). The slope of the straight line joining points A and B is

A) - 2.
B) 5.
C) 2.
D) - 1 .
E) 1 . 2 2

Question 34

FIGURE 2- 4
Refer to Figure 2- 4. This non- linear function shows that over the range shown,

A) as the yield per acre increases, the amount of fertilizer required per acre is diminishing.
B) as the yield per acre increases, the amount of fertilizer required per acre is increasing.
C) as more fertilizer is applied, the marginal response in yield is increasing
D) as more fertilizer is applied, the marginal change in yield is diminishing.
E) as more fertilizer is applied, the total yield per acre is diminishing.

Question 35

Consider the line which is the graph of the function Y = 60 - 4X. The slope of this line is

A) 60.
B) - 2.5.
C) - 40.
D) - 4.0.
E) 4.

Question 36

Suppose economists at the World Bank discover a positive correlation between family income and female education levels in developing countries. We can say that

A) there is a causal relationship between family income and female education.
B) the correlation is inconsistent with a theory that an increase in female education levels causes an increase in family income.
C) an increase in family income causes an increase in female education levels.
D) the observed correlation is consistent with a theory that an increase in female education levels causes an increase in family income.
E) an increase in female education levels causes an increase in family incomes.

Question 37

Suppose an economist tells you that the unemployment rate in Canada last year was 7.8 percent. This is an example of a(n) statement.

A) autonomous
B) positive
C) induced
D) imputed
E) normative

Question 38

As a science, economics is disadvantaged in that

A) it is usually not possible to conduct controlled experiments in economics, in contrast with certain other sciences.
B) some economic variables are determined within the theory.
C) economic hypotheses cannot be accepted with complete certainty, by contrast with the other sciences.
D) it deals with human behaviour and thus is not open to empirical testing.
E) economic variables do not change enough to provide reliable data for testing hypotheses.

Question 39

Suppose that a particular theory predicts that on Monday, Wednesday, and Friday the stock market will rise and that on Tuesday and Thursday the stock market will fall. If an economist tests this theory and finds that over a six- month period the theory predicts accurately, the economist would likely say that the theory

A) has been proven correct.
B) is not rejected by the evidence.
C) is not useful because stock markets involve irrational human behaviour.
D) is reliable.
E) shouldn't be taken seriously.

Question 40

The table below shows hypothetical tuition costs at a Canadian university. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Year } & \text { Tuition } \\\hline 2005 & \$ 5000 \\\hline 2006 & \$ 5050 \\\hline 2007 & \$ 5100 \\\hline 2008 & \$ 5150 \\\hline 2009 & \$ 5200 \\\hline\end{array}\\\text { TABLE 2- } 1\end{array}$$

-Refer to Table 2- 1. The increase in tuition from 2005 to 2009 is:

A) 4 percent.
B) 100/5000.
C) 200.
D) 0.04 percent.
E) 200/5200.

Question 41

When considering how a family's level of consumption changes in response to changes in its income,

A) consumption is the dependent variable and income is the independent variable.
B) both of the variables are independent.
C) income is the dependent variable and family consumption is the independent variable.
D) there is no relationship between the variables.
E) both of the variables are dependent.

Question 42

The scientific approach to economic inquiry involves

A) testing the predictions with empirical data.
B) choosing data that will support the predictions.
C) using only independent variables.
D) testing the reality of the assumptions of the model.
E) using only endogenous variables in economic models.

Question 43

The table below shows hypothetical per- minute cell phone charges for "pay- and- talk" service over several years. $$\begin{array}{l}\begin{array} { | l | l | } \hline 2005 & 0.55 \\\hline 2006 & 0.50 \\\hline 2007 & 0.40 \\\hline 2008 & 0.35 \\\hline 2009 & 0.25 \\\hline\end{array}\\\text { TABLE 2- } 2\end{array}$$

-Refer to Table 2- 2. Assume that 2005 is used as the base year, with the index number = 100. The value of the index number in 2008 is calculated as follows:

A) (0.55/0.35) × 100 = 157.14
B) (0.35/0.55) × 100 = 63.64
C) 0.35/0.55 = 0.64
D) 0.35 × 100 = 35
E) 0.55/0.35 = 1.57

Question 44

Which of the following is a normative statement?

A) Reducing unemployment is more important than reducing inflation.
B) Queen Elizabeth II is the wealthiest woman in the world.
C) The sun rises in the west and sets in the east.
D) A government deficit will reduce unemployment and cause an increase in prices.
E) An increase in the price of lumber is followed by a decrease in the construction of new houses.

Question 45

Data collected repeatedly over successive periods of time are called

A) logarithmic data.
B) time- analysis data.
C) topographic data.
D) cross- sectional data.
E) time- series data.

Question 46

FIGURE 2- 4
Refer to Figure 2- 4. If we want to know the marginal response of "yield per acre" due to a change in "fertilizer applied per acre of wheat" at point B, then we should determine the

A) slope of a straight line tangent to point B.
B) quantity of fertilizer applied at point B.
C) slope of a straight line joining points B and C.
D) yield per acre at 30 units of fertilizer.
E) the slope of a straight line from the origin to point B.

Question 47

The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of a(n)

A) model.
B) normative statement.
C) theory.
D) prediction.
E) assumption.

Question 48

FIGURE 2- 2
Refer to Figure 2- 2. The slope of curve C is

A) negative and constant.
B) negative and changing.
C) impossible to describe.
D) positive and constant.
E) positive and changing.

Question 49

Suppose that two points on a straight line are (X = 4, Y = 5), and (X = 2, Y = 1). The slope of this line is

A) 1 .
B) 4 .
C) - 1 .
D) - 2.
E) 2. 2 5 2

Question 50

Most economists believe that economics be made completely value- free, in part because it is to absolutely refute a theory on the basis of factual evidence.

A) can; possible
B) can; impossible
C) cannot; impossible
D) will; necessary
E) cannot; possible

Question 51

Each of the following is an example of a hypothesis EXCEPT:

A) If the price of a movie ticket increases, then John will attend fewer movies.
B) If the movie is starring Harrison Ford, then Charles and John will both attend.
C) Charles does not enjoy movies.
D) If Charles attends the movie, then John will not attend.
E) If the theatre catches on fire, then people will leave the theatre.

Question 52

A scientific prediction is

A) a conditional statement of the following form: if A occurs, then B will follow.
B) a prophesy of how the future will unfold.
C) a causal statement of the following form: A will occur because B occurred.
D) always based on the law of large numbers.
E) not testable.

Question 53

An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely

A) a normative statement.
B) a hypothesis.
C) a testable proposition.
D) a theory.
E) a positive statement.

Question 54

The use of statistics in economics is

A) to test predictions and to estimate the values of variables in economic theories.
B) to study how the economic system should perform basic economic functions.
C) to model nature.
D) for descriptive purposes only.
E) entirely devoid of ethical judgments.

Question 55

In order to test a theory, one must

A) present a series of normative statements and positive statements.
B) confront the predictions of the theory with evidence.
C) develop normative statements from the law of large numbers.
D) develop a better explanation than the one presented.
E) use assumptions that most closely reflect reality.

Question 56

When comparing the magnitude of changes in variables with different scales it is best to

A) express each variable as an index number.
B) use only time- series data.
C) express each variable as a logarithmic number.
D) compare the absolute data on each variable.
E) compare the relative data on each variable.

Question 57

Data collected of several variables but for the same time period are called

A) time- series data.
B) logarithmic data.
C) topographic data.
D) cross- sectional data.
E) time- analysis data.

Question 58

An economist has data showing household income and energy consumption for 10 000 Canadian households. The best way to illustrate these data is

A) a logarithmic scale diagram.
B) a cross- sectional bar- chart graph.
C) a time- series bar chart diagram.
D) a time- series line graph.
E) a scatter diagram.

Question 59

Which of the following pairs of words have similar meanings?

A) induced and exogenous
B) dependent and exogenous
C) independent and exogenous
D) induced and autonomous
E) endogenous and autonomous

Question 60

Disagreements over positive statements

A) are basically devoid of any emotion.
B) arise from the failure to distinguish between a positive and a normative statement.
C) cannot arise because positive statements are facts.
D) never occur.
E) are best handled by an appeal to the facts.

Question 61

A normative statement

A) is one that involves a value judgment.
B) has no place in the study and practice of economics.
C) concerns what is provable.
D) can be derived logically from facts.
E) is a statement that is empirically testable.

Question 62

The mathematical expression of a relationship between two or more variables is usually known as

A) a theory.
B) a function.
C) a definition.
D) an observation.
E) an assumption.

Question 63

Consider the following equation: Y = 10 + 5X - X2. This equation is an expression of

A) two dependent variables in a functional relation.
B) two independent variables in a functional relation.
C) a functional relation in a verbal format.
D) a functional relation between X and Y.
E) a functional relation in a schedule format.

Question 64

Let 1 stand for "any given period" and 2 stand for "base period". The formula of any index number can be written as:

Question 65

Which of the following is a positive statement?

A) The higher the price for gasoline, the less of it will be consumed.
B) Corporations in Canada should pay more taxes.
C) Canada should reduce its imports of consumer goods.
D) Substitutes for fossil fuels should be developed.
E) There should be one price for gasoline throughout Canada.

Question 66

In a co- ordinate graph, with Y on the vertical axis and X on the horizontal axis, the variable X is positive and the variable Y is negative in the quadrant.

A) bottom, left
B) top, right
C) bottom, right
D) top, left

Question 67

The table below shows hypothetical tuition costs at a Canadian university. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Year } & \text { Tuition } \\\hline 2005 & \$ 5000 \\\hline 2006 & \$ 5050 \\\hline 2007 & \$ 5100 \\\hline 2008 & \$ 5150 \\\hline 2009 & \$ 5200 \\\hline\end{array}\\\text { TABLE 2- } 1\end{array}$$

-Refer to Table 2- 1. Assume that 2005 is used as the base year, with the index number = 100. The value of the index number in 2009 is

A) 96
B) 1.04
C) 0.96
D) 100
E) 104

Question 68

FIGURE 2- 2
Refer to Figure 2- 2. The slope of curve A is

A) negative and constant.
B) positive and constant.
C) undefined.
D) negative and changing.
E) positive and changing.

Question 69

When an increase in one variable is associated with an increase in a second variable, the two variables are

A) inversely proportionally related.
B) equivalent.
C) proportionally related.
D) positively related.
E) negatively related.

Question 70

When it is said that variable A depends on variable B, then A is

A) a function of B.
B) independent of B.
C) proportional to B.
D) a derivative of B.
E) partially exclusive of B.

Question 71

Suppose point A represents coordinates (X = 5, Y = 6) and point B represents coordinates (X = 2, Y
= 3). Then the slope of the straight line joining points A and B is

A) - 1.
B) 2/3.
C) 5/6.
D) 1.
E) 3/2.

Question 72

Suppose we have data for 1000 students for a period of one year. The data show that those students who spend more hours studying have a higher grade point average (GPA). We can say that

A) there is a positive correlation between hours of study time and GPA.
B) more hours spent studying leads to a higher GPA.
C) if hours of study time increase, then GPA will automatically increase.
D) there is a causal relationship between hours of study time and GPA.
E) having a higher GPA leads students to spend more time studying.

Question 73

Suppose point A represents co- ordinates (X=10, Y=12) and point B represents co- ordinates (X=5, Y=7). The slope of the straight line joining points A and B is

A) 2/3.
B) - 1.
C) 3/2.
D) 1.
E) 5/6.

Question 74

The statement "Y is a function of X" means that the

A) values of Y and X are independent.
B) values of Y and X are the same.
C) values of Y and X are related to some third variable.
D) value of Y depends on that of X.
E) value of X depends on that of Y.

Question 75

FIGURE 2- 2
Refer to Figure 2- 2. The slope of curve B is

A) undefined.
B) negative and changing.
C) negative and constant.
D) positive and changing.
E) positive and constant.

Question 76

Economics is scientific because

A) economists can conduct controlled experiments.
B) it tests hypotheses by appealing to evidence.
C) economists use data.
D) individual behaviour is predictable.
E) economists can conduct laboratory experiments.

Question 77

The table below shows hypothetical per- minute cell phone charges for "pay- and- talk" service over several years. $$\begin{array}{l}\begin{array} { | l | l | } \hline 2005 & 0.55 \\\hline 2006 & 0.50 \\\hline 2007 & 0.40 \\\hline 2008 & 0.35 \\\hline 2009 & 0.25 \\\hline\end{array}\\\text { TABLE 2- } 2\end{array}$$

-Refer to Table 2- 2. Assume that 2005 is used as the base year, with the index number = 100. The value of the index number in 2007 is

A) 1.375
B) 137.5
C) 0.72
D) 72.73
E) 100

Question 78

An economist has data showing Canadian GDP for the years 1945- 2009. The best way to illustrate these data is

A) a logarithmic scale diagram.
B) a cross- sectional bar- chart graph.
C) a time- series line graph.
D) a scatter diagram.
E) a time- series pie chart.

Question 79

If a theory's prediction is tested and rejected,

A) it is rejected with certainty, because it is not possible to reject a hypothesis that is actually true.
B) a new hypothesis is usually suggested and tested.
C) the statistical tolerance of risk for accepting a false hypothesis should be increased.
D) inquiry into the matter should cease.
E) the original data and assumptions should be discarded.

Question 80

Negatively related variables change such that as the value of one variable

A) increases, the value of the other decreases.
B) decreases, the value of the other variable decreases.
C) decreases, the value of the other variable remains the same.
D) increases, the value of the other variable remains the same.
E) increases, the value of the other variable increases.