Question 1

Which of the expressions below best describes the aim of economic theory?

Accepted Answer

A)  to predict how people think about money
B)  to understand why money motivates some people more than others
C)  to predict the choices people will make
D)  to learn what we can do to prevent people from having unrealistic wantsE) A) and C)
F) A) and D)

Question 2

Microeconomics studies

Accepted Answer

A)  decisions made by individual consumers and firms.
B)  the changes in economic theory brought about by real-world events.
C)  how small changes in the unemployment rate can have far-reaching effects.
D)  how small changes in the money supply can have far-reaching effects.E) None of the above
F) A) and B)

Question 3

Economic models are used to

Accepted Answer

A)  simplify reality to predict outcomes.
B)  exactly replicate reality.
C)  predict all possible outcomes of a study.
D)  determine the thoughts of individuals.E) A) and B)
F) A) and C)

Question 4

Macroeconomics often relies on microeconomic analysis because

Accepted Answer

A)  microeconomics is older than macroeconomics.
B)  microeconomic theory can be tested and macroeconomic theory cannot be tested.
C)  all aggregates are made up of individuals and firms.
D)  the effects of macroeconomic subjects such as inflation and unemployment are independent of individual consumers and firms.E) All of the above
F) A) and D)

Question 5

Underlying economic theory is the idea that

Accepted Answer

A)  people respond only to negative incentives, not to positive ones.
B)  choices are affected by both positive and negative incentives.
C)  value judgments do not play a role in the economic decisions people make.
D)  money is the only incentive that matters.E) None of the above
F) A) and B)

Question 6

Is inflation a macroeconomic or a microeconomic question?
 Why?

Accepted Answer

Inflation is a macroeconomic question be...

Question 7

Explain what economists mean when they apply the rationality assumption.

Accepted Answer

The rationality assumption means that pe...

Question 8

Positive statements can contain

Accepted Answer

A)  opinions and conditions.
B)  facts and predictions.
C)  a mixture of facts and opinions.
D)  logical arguments mixed with statements of opinion.E) B) and C)
F) C) and D)

Question 9

According to economic theory, how do people make decisions?

Accepted Answer

A)  They make decisions in the same manner as their parents did.
B)  They make decisions by looking at what others have done in the same situation and then doing the opposite.
C)  They make decisions by looking at what others have done in the same situation and then doing the same.
D)  They make decisions based on their own self-interest.E) A) and D)
F) C) and D)

Question 10

"The U.S. government should not use my tax dollars to subsidize people on welfare"

Accepted Answer

A)  is a positive economic statement because it simply describes one person's opinion.
B)  is a normative economic statement because it involves a value judgment about an economic policy.
C)  is a positive economic statement because it predicts that my tax dollars will go to welfare.
D)  is a normative economic statement because it is a scientific fact.E) C) and D)
F) B) and C)

Question 11

Mary says she plans to return to college next semester assuming her car keeps running, tuition fees don't go up, and her daycare provider continues to be dependable. An economist would say that Mary plans to return to college next semester

Accepted Answer

A)  caveat emptor.
B)  ceteris paribus.
C)  laissez faire.
D)  ipso facto.E) A) and B)
F) A) and C)

Question 12

By using the ceteris paribus assumption in conjunction with a model, economists can

Accepted Answer

A)  suspend the rationality assumption.
B)  avoid having their model depend on any additional assumptions.
C)  hold certain factors constant.
D)  be sure that the model will predict correctly.E) A) and D)
F) None of the above

Question 13

In constructing models, economists

Accepted Answer

A)  include all independent variables.
B)  include all available information.
C)  attempt to duplicate the real world.
D)  make simplifying assumptions.E) All of the above
F) A) and D)

Question 14

Which of the following is a macroeconomic concern?

Accepted Answer

A)  the unemployment rate in a specific industry
B)  the national output of the United States
C)  wage levels in specific industries
D)  the operation of an individual firmE) B) and D)
F) A) and D)

Question 15

The value of a model is determined by

Accepted Answer

A)  the usefulness of its predictions in the real world.
B)  the extent of the profit earned by applying it.
C)  the realism of its assumptions.
D)  the model's attention to real world details.E) A) and C)
F) A) and D)

Question 16

Which of the following is an aggregate?

Accepted Answer

A)  the number of shoes in one man's closet
B)  the bushels of apples one farmer sells
C)  the price of a particular textbook
D)  the total production of all goods and servicesE) None of the above
F) A) and B)

Question 17

Economists assume people behave rationally, which means that people

Accepted Answer

A)  never make a mistake.
B)  do not intentionally make decisions that make themselves worse off.
C)  have the necessary information to always make correct decisions.
D)  always understand the consequences of their decisions.E) None of the above
F) All of the above

Question 18

Economists develop models to

Accepted Answer

A)  capture every detail of the real world.
B)  make their arguments more realistic.
C)  justify the assumptions they make about people's behavior.
D)  help us understand economic phenomena in the real world.E) A) and D)
F) B) and D)

Question 19

During the Middle Ages, heretics were often burned at the stake. Were the heretics violating the assumption of rational self-interest?
 Explain.

Accepted Answer

For someone today, or even many people l...

Question 20

Which of the following statements about economic models is TRUE?

Accepted Answer

A)  Economic models are not empirically testable.
B)  The predictive power of models is not important.
C)  Economic models are designed so that every detail of the real world can be analyzed.
D)  Every economic model is based on a set of assumptions.E) B) and D)
F) C) and D)

Exam 1: The Nature of Economics

The value of a model is determined by

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Economists develop models to

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Macroeconomics often relies on microeconomic analysis because

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Economic models are used to

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Which of the following statements about economic models is TRUE?

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By using the ceteris paribus assumption in conjunction with a model, economists can

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Underlying economic theory is the idea that

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Which of the expressions below best describes the aim of economic theory?

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In constructing models, economists

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Which of the following is an aggregate?

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According to economic theory, how do people make decisions?

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During the Middle Ages, heretics were often burned at the stake. Were the heretics violating the assumption of rational self-interest? Explain.

Correct AnswerverifiedFor someone today, or even many people l...View AnswerShow Answer

Microeconomics studies

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Explain what economists mean when they apply the rationality assumption.

Correct AnswerverifiedThe rationality assumption means that pe...View AnswerShow Answer

Is inflation a macroeconomic or a microeconomic question? Why?

Correct AnswerverifiedInflation is a macroeconomic question be...View AnswerShow Answer

Which of the following is a macroeconomic concern?

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"The U.S. government should not use my tax dollars to subsidize people on welfare"

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Economists assume people behave rationally, which means that people

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Mary says she plans to return to college next semester assuming her car keeps running, tuition fees don't go up, and her daycare provider continues to be dependable. An economist would say that Mary plans to return to college next semester

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Positive statements can contain

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For someone today, or even many people l...
View Answer

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The rationality assumption means that pe...
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Inflation is a macroeconomic question be...
View Answer

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