Deck 3: Thinking Like an Economist

Question 1

Economics is a social science rather than a natural science because

A) one of its subjects is social security.
B) its subject is people and how they behave.
C) its subject is social gatherings.
D) debates within economics last longer and are much less likely to end in a clear consensus.

Answer 1

its subject is people and how they behave.

Question 2

Each of the following are consequences of the fact that economics deals with human behavior except

A) debates within economics last a lot longer and are much less likely to end in a clear consensus.
B) economists cannot ethically undertake large-scale experiments.
C) causality is impossible to determine.
D) the subjects economists study have minds of their own.

Answer 2

causality is impossible to determine.

Question 3

Expectations contributed to the Great Depression because

A) people were optimistic about the future.
B) they caused the stock market to crash.
C) people expected the economic future to be worse and cut back on spending, particularly on big-ticket consumer durables.
D) people were worried about high interest rates.

Answer 3

people expected the economic future to be worse and cut back on spending, particularly on big-ticket consumer durables.

Question 4

Economists call the process of reducing the complexity and variation of the real-world economy into a handful of equations

A) "building a model."
B) "building a house."
C) "building a representative structure."
D) "crafting a puzzle."

Question 5

The fact that economics developed as an abstract science rather than as a descriptive science like sociology or political science means that it doesn't concentrate on

A) building analytical models.
B) using algebra and graphs.
C) finding general principles applicable to a variety of situations.
D) economic institutions and practices and the institutional structure of the economy as a whole.

Question 6

The Phillips Curve

A) describes the short-run relationship between unemployment and inflation.
B) describes the short-run relationship between unemployment and the aggregate price level.
C) describes the short-run relationship between unemployment and the long-run real rate of interest.
D) describes the short-run relationship between inflation and the long-run real rate of interest.

Question 7

According to the Phillips Curve, in the short-run

A) there is a direct relationship between unemployment and inflation.
B) there is a direct relationship between unemployment and the long-run real rate of interest.
C) there is an inverse relationship between unemployment and the long-run real rate of interest.
D) there is an inverse relationship between unemployment and inflation.

Question 8

According to the Phillips Curve, in the short-run

A) if unemployment decreases, real GDP will increase.
B) if unemployment decreases, the long-run real rate of interest will increase.
C) if unemployment decreases, inflation will increase.
D) if unemployment increases, inflation will increase.

Question 9

Each of the following is one of the four dominant concepts of the rhetoric of economics except

A) the image of the circular flow of purchasing power through the economy.
B) the use of the word "market" to describe intricate and decentralized processes of exchange.
C) the idea that economic processes don't tend to move the economy into some sort of balance, and to keep . the economy at this point of balance.
D) the use of graphs and diagrams as an alternative to equations and arithmetic in expressing economic relationships.

Question 10

Each of the following is one of the four dominant concepts of the rhetoric of economics except

A) the image of the circular flow of purchasing power through the economy.
B) the use of the word "market" to describe intricate and decentralized processes of exchange.
C) the idea of "equilibrium": that economic processes tend to move the economy into some sort of balance, and to keep the economy at this point of balance.
D) the use of pictures as an alternative to equations and arithmetic in expressing economic relationships.

Question 11

Each of the following is one of the four dominant concepts of the rhetoric of economics except

A) the use of the stock of purchasing power through the economy.
B) the use of the word "market" to describe intricate and decentralized processes of exchange.
C) the idea of "equilibrium": that economic processes tend to move the economy into some sort of balance, . and to keep the economy at this point of balance.
D) the use of graphs and diagrams as an alternative to equations and arithmetic in expressing economic relationships.

Question 12

Each of the following is one of the four dominant concepts of the rhetoric of economics except

A) the image of the circular flow of purchasing power through the economy.
B) the use of the word "market" to describe a physical place where exchange occurs.
C) the idea of "equilibrium": that economic processes tend to move the economy into some sort of balance, . and to keep the economy at this point of balance.
D) the use of graphs and diagrams as an alternative to equations and arithmetic in expressing economic relationships.

Question 13

The simplified version of the circular flow of economic activity

A) includes households and the foreign sector and omits businesses and government.
B) includes households and businesses and omits the foreign sector and government.
C) includes businesses and government and omits households and the foreign sector.
D) includes businesses and the foreign sector and omits households and government.

Question 14

The simplified circular flow diagram links

A) households and businesses via incomes and spending.
B) households and businesses via taxes and spending.
C) businesses and government via taxes and spending.
D) businesses and government via income and spending.

Question 15

Which of the following represents the components of household income?

A) consumption spending, savings, and taxes.
B) rent, wages, salaries, benefits, consumption spending, interest, profits.
C) rent, wages, salaries, benefits, interest, and profits.
D) rent, wages, benefits, savings, taxes, profits.

Question 16

Which of the following represents the uses of household income?

A) rent, wages, salaries, benefits, interest, and profits.
B) consumption spending, savings, and taxes.
C) rent, wages, benefits, savings, taxes, profits.
D) rent, wages, salaries, benefits, consumption spending, interest, profits.

Question 17

Which of the following is included in the more complicated circular flow diagram?

A) Households
B) Businesses
C) Government
D) All of the above

Question 18

Which of the following is included in the more complicated circular flow diagram?

A) Households
B) Government
C) Financial Markets
D) All of the above

Question 19

Which of the following is included in the more complicated circular flow diagram?

A) The rest of the world
B) Businesses
C) Government
D) All of the above

Question 20

If the flow of net taxes to government is less than the flow of government purchases, the government budget is said to be in _______ and the government must _________in the financial markets.

A) surplus; buy back its bonds
B) surplus; sell bonds
C) deficit; sell bonds
D) deficit; buy back its bonds

Question 21

If the flow of net taxes to government is greater than the flow of government purchases, the government budget is said to be in _______ and the government must _________in the financial markets.

A) surplus; buy back its bonds
B) surplus; sell bonds
C) deficit; sell bonds
D) deficit; buy back its bonds

Question 22

The components of aggregate demand are

A) rent, wages, salaries, benefits, interest, and profits.
B) consumption spending, savings, and taxes.
C) consumption spending, savings, government spending, and net exports.
D) consumption spending, investment spending, government spending, and net exports.

Question 23

If the level of imports increases,

A) the level of aggregate demand increases.
B) the level of aggregate demand decreases.
C) the level of savings increases.
D) the level of taxes deceases.

Question 24

If the level of consumption spending increases,

A) the level of aggregate demand increases.
B) the level of aggregate demand decreases.
C) the level of savings increases.
D) the level of taxes deceases.

Question 25

If the level of net exports increases,

A) the level of taxes deceases.
B) the level of aggregate demand decreases.
C) the level of savings increases.
D) the level of aggregate demand increases.

Question 26

If the level of consumption spending increases and the level of investment spending decreases,

A) the level of aggregate demand increases.
B) the level of aggregate demand decreases.
C) the level of aggregate demand could increase or decrease, depending on the relative magnitude of the changes.
D) the level of taxes deceases.

Question 27

If the level of investment spending decreases,

A) the level of aggregate demand increases.
B) the level of aggregate demand decreases.
C) the level of aggregate demand could increase or decrease, depending on the relative magnitude of the changes.
D) the level of taxes deceases.

Question 28

If the level of consumption spending decreases and the level of net exports decreases,

A) the level of aggregate demand increases.
B) the level of aggregate demand decreases.
C) the level of aggregate demand could increase or decrease, depending on the relative magnitude of the changes.
D) the level of taxes deceases.

Question 29

If the level of consumption spending increases and the level of net exports decreases,

A) the level of aggregate demand increases.
B) the level of aggregate demand decreases.
C) the level of aggregate demand could increase or decrease, depending on the relative magnitude of the changes.
D) the level of taxes deceases.

Question 30

___________ is at the core of economists' model building.

A) Obfuscation
B) An equation
C) Simplification
D) None of the above

Question 31

Each of the following is a fundamental step that almost every successful construction of a macroeconomic model follows except

A) the use of representative agents.
B) a focus on the opportunity costs in undertaking agents' decisions.
C) the use of paid agents.
D) careful attention to the effect of people's expectations on events.

Question 32

Each of the following is a fundamental step that almost every successful construction of a macroeconomic model follows except

A) the use of representative agents.
B) a focus on the nominal costs involved in undertaking agents' decisions.
C) careful attention to the effect of people's expectations on events.
D) a focus on the opportunity costs in undertaking agents' decisions.

Question 33

Each of the following is a fundamental step that almost every successful construction of a macroeconomic model follows except

A) the use of representative agents.
B) a focus on the opportunity costs in undertaking agents' decisions.
C) careful attention to the effect of people's expectations on events.
D) careful attention to making the model as complicated as possible.

Question 34

Economists use the term opportunity cost to refer to

A) the value of the best alternative that you forego in making any particular choice.
B) the value of lost opportunity.
C) the cost of purchasing (or leasing) an opportunity.
D) none of the above.

Question 35

Each of the following is a type of expectations considered by economists except

A) static expectations.
B) adaptive expectations.
C) dynamic expectations.
D) rational expectations.

Question 36

If decision makers spend as much time as they can thinking about the future, and know as much (or more) about the structure and behavior of the economy as the model builder does, economists say they would have

A) static expectations.
B) rational expectations.
C) dynamic expectations.
D) adaptive expectations.

Question 37

If decision makers assume that the future is going to be like the recent past, economists say they would have

A) static expectations.
B) rational expectations.
C) dynamic expectations.
D) adaptive expectations.

Question 38

If decision makers don't think about the future, economists say they would have

A) static expectations.
B) rational expectations.
C) dynamic expectations.
D) adaptive expectations.

Question 39

When economists are trying to analyze the implications of how people act, they will almost always write an equation that represents a

A) conducive relationship.
B) behavioral relationship.
C) consenting relationship.
D) cognitive relationship.

Question 40

Each of the following is part of the equilibrium condition for balanced growth except

A) the share of total income in the economy saved and invested.
B) the proportional rate of growth of the labor force.
C) the proportional rate of growth of the efficiency of the labor force.
D) the appreciation rate: the rate at which capital appreciates.

Question 41

Each of the following is part of the equilibrium condition for balanced growth except

A) the share of total income in the economy saved and invested.
B) the proportional rate of growth of the labor force.
C) the proportional rate of growth of the efficiency of capital.
D) the depreciation rate: the rate at which capital depreciates.

Question 42

Each of the following is part of the equilibrium condition for balanced growth except

A) the share of total income in the economy saved and invested.
B) the proportional rate of growth of employment.
C) the proportional rate of growth of the efficiency of the labor force.
D) the depreciation rate: the rate at which capital depreciates.

Question 43

Whenever the Cobb-Douglas production function is used, the parameters that are the exponents will be

A) between zero and one.
B) greater than one.
C) less than zero.
D) none of the above.

Question 44

Use the Cobb-Douglas production function to answer this question. Suppose that the capital-labor ratio is raised to the power 1/2. If nothing else changes and if the capital-labor ratio grows at 3% per year, then output per worker

A) will grow at 6% per year.
B) will grow at 1.5% per year.
C) will remain unchanged.
D) will grow at 2.5% per year.

Question 45

Use the Cobb-Douglas production function to answer this question. Suppose that the efficiency of the labor force is raised to the power 1/2. If nothing else changes and if the efficiency of the labor force grows at 4% per year, then output per worker

A) will grow at 8% per year.
B) will grow at 2% per year.
C) will remain unchanged.
D) will grow at 3.5% per year.

Question 46

Use the Cobb-Douglas production function to answer this question. Suppose that the capital-labor ratio and the efficiency of the labor force are each raised to the power 1/2. If capital-labor ratio grows at 4% per year and if the efficiency of the labor force grows at 2% per year, then output per worker

A) will grow at 6% per year.
B) will grow at 2% per year.
C) will grow at 3% per year.
D) will grow at 5% per year.

Question 47

Each of the following is part of an economy's production function except

A) the economy's capital-labor ratio.
B) the level of technology or efficiency of the labor force.
C) the level of real GDP per worker.
D) the efficiency of capital.

Question 48

Each of the following is part of an economy's production function except

A) the economy's capital-labor ratio.
B) the level of technology or efficiency of the population.
C) the level of real GDP per worker.
D) the level of technology or efficiency of the labor force.

Question 49

Each of the following is part of an economy's production function except

A) the economy's investment-labor ratio.
B) the level of technology or efficiency of the labor force.
C) the level of real GDP per worker.
D) the economy's capital-labor ratio.

Question 50

Y/L is

A) the capital per unit of output ratio.
B) the capital per unit of labor ratio.
C) the output per unit of labor ratio.
D) the efficiency of output ratio.

Question 51

K/L is

A) the capital per unit of output ratio.
B) the capital per unit of labor ratio.
C) the output per unit of labor ratio.
D) the efficiency of output ratio.

Question 52

In the production function, the variable E represents

A) the education level of labor.
B) the efficiency of capital.
C) the efficiency of labor.
D) the level of expectations.

Question 53

In the balanced growth equation, s represents

A) the share of total income in the economy saved and invested.
B) the level of savings and investment in the economy.
C) the proportional rate of growth of the labor force.
D) the level of consumption expenditures in the economy.

Question 54

In the balanced growth equation, n represents

A) the share of total income in the economy saved and invested.
B) the level of savings and investment in the economy.
C) the proportional rate of growth of the labor force.
D) the level of consumption expenditures in the economy.

Question 55

In the balanced growth equation, g represents

A) the share of total income in the economy saved and invested.
B) the proportional rate of growth of the efficiency of the labor force.
C) the proportional rate of growth of the labor force.
D) the depreciation rate - the rate at which capital wears out.

Question 56

In the balanced growth equation, represents

A) the share of total income in the economy saved and invested.
B) the proportional rate of growth of the efficiency of the labor force.
C) the proportional rate of growth of the labor force.
D) the depreciation rate - the rate at which capital wears out.

Question 57

Growth will be balanced if and only if

A) the ratio of the economy's stock of capital K to its amount of labor L is constant.
B) the ratio of the rate of growth of the efficiency of the labor force to the depreciation rate of capital is constant.
C) the ratio of the economy's stock of capital K to its level of output Y is constant.
D) the ratio of the savings rate to the investment rate is constant.

Question 58

The ratio of the economy's stock of capital to its level of output Y will be constant

A) when the ratio of the savings rate to the investment rate is constant.
B) when the ratio of the savings rate to the sum of the proportional rate of growth of the labor force, the proportional rate of growth of the efficiency of the labor force, and the depreciation rate of capital is constant.
C) when the ratio of the savings rate to the sum of the proportional rate of growth of the capital stock, the proportional rate of growth of the efficiency of the labor force, and the depreciation rate of capital is constant.
D) when the ratio of the savings rate to the sum of the proportional rate of growth of the labor force, the proportional rate of growth of the efficiency of the capital stock, and the depreciation rate of capital is constant.

Question 59

Which of the following is one of the two requirements that must be satisfied for an equation to be considered an equilibrium condition?

A) If the economy satisfies the equilibrium condition, it will move toward the condition.
B) If the economy does not satisfy the equilibrium condition, it will remain in the same place.
C) If the economy does not satisfy the equilibrium condition, it will move away from the condition.
D) If the economy does not satisfy the equilibrium condition, it will move toward the condition.

Question 60

Which of the following is one of the two requirements that must be satisfied for an equation to be considered an equilibrium condition?

A) If the economy satisfies the equilibrium condition, it will move toward the condition.
B) If the economy satisfies the equilibrium condition, it will remain in the same place.
C) If the economy does not satisfy the equilibrium condition, it will move away from the condition.
D) If the economy does not satisfy the equilibrium condition, it will remain in the same place.

Question 61

Output per unit of labor (Y/L) will _______ if ______________.

A) increase; the capital-labor ratio (K/L) decreases
B) increase; the capital-labor ratio (K/L) increases
C) increase; the efficiency of labor (E) decreases
D) increase; the capital-labor ratio (K/L) decreases and the efficiency of labor (E) increases

Question 62

Output per unit of labor (Y/L) will _______ if ______________.

A) decrease; the capital-labor ratio (K/L) decreases
B) decrease; the efficiency of labor (E) increases
C) decrease; the capital-labor ratio (K/L) increases
D) stay the same; the efficiency of labor (E) decreases

Question 63

Output per unit of labor (Y/L) will _______ if ______________.

A) increase; the capital-labor ratio (K/L) decreases
B) increase; the capital-labor ratio (K/L) increases and the efficiency of labor (E) decreases
C) increase; the efficiency of labor (E) decreases
D) increase; the efficiency of labor (E) increases

Question 64

Output per unit of labor (Y/L) will _______ if ______________.

A) decrease; the capital-labor ratio (K/L) increases
B) decrease; the efficiency of labor (E) increases
C) decrease; the efficiency of labor (E) decreases
D) increase; the capital-labor ratio (K/L) decreases and the efficiency of labor (E) increases