Question 1

What does a circular-flow diagram do?

Accepted Answer

A)  It illustrates cost-benefit analysis. 
B)  It explains how the economy is organized. 
C)  It shows the flow of trade in the world. 
D)  It explains how banks circulate money in the economy. 
A)  It illustrates cost-benefit analysis. 
B)  It explains how the economy is organized. 
C)  It shows the flow of trade in the world. 
D)  It explains how banks circulate money in the economy.

Question 2

This exercise will show you how different theories (models) can lead to very different courses of action. Suppose we ask the following question: Does income inequality promote economic growth and society's overall prosperity? Suppose two economists come up with the following theories (models):
Economist A believes that wealth accumulation in just a few hands increases savings because consumption is necessarily limited. Higher savings, in turn, allow investing in new production facilities that increase the country's overall income and everybody is better off. So, Economist A advocates a non-equalitarian society.
Economist B thinks that a very unequal distribution of wealth will increase capacities of production beyond the purchasing power of an essentially poor mass of consumers. For a while, consumers will increase their consumption, and prosperity, by borrowing from the rich, but eventually they will not be able to repay their debts and the economy will collapse for lack of demand. At that point, investing in new production facilities becomes unnecessary. In conclusion, Economist B thinks that extreme income inequality is counterproductive.
a. What are the policy implications of the two theories? (In other words, does it matter which theory is correct?)
b. How would a scientist determine which theory is correct?
c. Under what conditions would each of the two models be correct? Could one use both models under different circumstances?

Accepted Answer

a. The two theories have very different

Question 3

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Accepted Answer

A) True 
 B)False

Question 4

What markets are depicted in the simple circular-flow diagram?

Accepted Answer

A)  the market for goods and services, the financial market, and the market for the factors of production 
B)  the market for the factors of production and the financial market 
C)  the market for goods and services and the financial market 
D)  the market for goods and services and the market for factors of production 
A)  the market for goods and services, the financial market, and the market for the factors of production 
B)  the market for the factors of production and the financial market 
C)  the market for goods and services and the financial market 
D)  the market for goods and services and the market for factors of production

Question 5

When do you know an economist has crossed the line from scientist to policy adviser?

Accepted Answer

A)  when he explains just the facts 
B)  when he makes positive statements 
C)  when he makes normative statements 
D)  when he cannot reach a conclusion 
A)  when he explains just the facts 
B)  when he makes positive statements 
C)  when he makes normative statements 
D)  when he cannot reach a conclusion

Question 6

What are the foundation stones from which economic models are built?

Accepted Answer

A)  economic policies 
B)  legal systems 
C)  assumptions 
D)  statistical forecasts 
A)  economic policies 
B)  legal systems 
C)  assumptions 
D)  statistical forecasts

Question 7

How can the production possibilities frontiers shift outward?

Accepted Answer

A)  if government increases the amount of money in the economy 
B)  if there is an increase in technology 
C)  if resources can be moved from the production of one good to another 
D)  if opportunity costs are reduced 
A)  if government increases the amount of money in the economy 
B)  if there is an increase in technology 
C)  if resources can be moved from the production of one good to another 
D)  if opportunity costs are reduced

Question 8

Why are graphs such as bar graphs limited?

Accepted Answer

A)  They can only show variables that are positively related. 
B)  They are extremely difficult to understand. 
C)  They cannot show relationships between variables. 
D)  They provide information on no more than two variables. 
A)  They can only show variables that are positively related. 
B)  They are extremely difficult to understand. 
C)  They cannot show relationships between variables. 
D)  They provide information on no more than two variables.

Question 9

What is NOT a common characteristic of economic models?

Accepted Answer

A)  They are often built using the tools of mathematics. 
B)  They are useful to economists, but not to policymakers. 
C)  They include only the important features of an economy. 
D)  They are built using assumptions. 
A)  They are often built using the tools of mathematics. 
B)  They are useful to economists, but not to policymakers. 
C)  They include only the important features of an economy. 
D)  They are built using assumptions.

Question 10

What can good assumptions do?

Accepted Answer

A)  cause economists to leave out important variables that make their theories worthless 
B)  simplify the complex world and make it easier to understand 
C)  eliminate invalid causations 
D)  allow economists to see the "big picture" instead of only small segments 
A)  cause economists to leave out important variables that make their theories worthless 
B)  simplify the complex world and make it easier to understand 
C)  eliminate invalid causations 
D)  allow economists to see the "big picture" instead of only small segments

Question 11

What would NOT be considered a factor of production?

Accepted Answer

A)  labour 
B)  land 
C)  capital 
D)  stocks 
A)  labour 
B)  land 
C)  capital 
D)  stocks

Question 12

When is the production possibilities frontier bowed outward?

Accepted Answer

A)  if resources are not perfectly adaptable 
B)  if the amount of resources increases 
C)  if the level of technology increases 
D)  if opportunity costs are constant 
A)  if resources are not perfectly adaptable 
B)  if the amount of resources increases 
C)  if the level of technology increases 
D)  if opportunity costs are constant

Question 13

When an economy is operating inside its production possibilities frontier, what do we know?

Accepted Answer

A)  There are unused resources or inefficiencies in the economy. 
B)  The economy is operating with efficiency. 
C)  Moving to a point on its production possibilities frontier would illustrate economic growth. 
D)  To produce more of one good, the economy would have to give up some of the other good. 
A)  There are unused resources or inefficiencies in the economy. 
B)  The economy is operating with efficiency. 
C)  Moving to a point on its production possibilities frontier would illustrate economic growth. 
D)  To produce more of one good, the economy would have to give up some of the other good.

Question 14

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.

Accepted Answer

A) True 
 B)False

Question 15

What do the two loops in the circular-flow diagram represent?

Accepted Answer

A)  the flow of goods and the flow of services 
B)  the flow of money and the flow of bonds 
C)  the flow of inputs and outputs and the flow of dollars 
D)  the flow of capital goods and the flow of consumer goods 
A)  the flow of goods and the flow of services 
B)  the flow of money and the flow of bonds 
C)  the flow of inputs and outputs and the flow of dollars 
D)  the flow of capital goods and the flow of consumer goods

Question 16

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

Accepted Answer

A)  San Pedro experienced a reduction in unemployment. 
B)  San Pedro experienced an improvement in widget-making technology. 
C)  San Pedro acquired more resources. 
D)  San Pedro experienced a high level of emigration out of the country. 
A)  San Pedro experienced a reduction in unemployment. 
B)  San Pedro experienced an improvement in widget-making technology. 
C)  San Pedro acquired more resources. 
D)  San Pedro experienced a high level of emigration out of the country.

Question 17

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

Accepted Answer

A)  Most people who study economics are not very bright. 
B)  Good economists must possess a rare combination of gifts. 
C)  Economics is actually quite boring; hence, people tend to lose interest in it. 
D)  Good thinkers become frustrated with economics because it is not logical or relevant. 
A)  Most people who study economics are not very bright. 
B)  Good economists must possess a rare combination of gifts. 
C)  Economics is actually quite boring; hence, people tend to lose interest in it. 
D)  Good thinkers become frustrated with economics because it is not logical or relevant.

Question 18

What are the roles of economists when trying to explain or to improve the world?

Accepted Answer

A)  In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists. 
B)  In trying to explain the world, economists are mathematicians; in trying to improve the world, they are policymakers. 
C)  In trying to explain the world, economists are mathematicians; in trying to improve the world, they are scientists. 
D)  In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers. 
A)  In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists. 
B)  In trying to explain the world, economists are mathematicians; in trying to improve the world, they are policymakers. 
C)  In trying to explain the world, economists are mathematicians; in trying to improve the world, they are scientists. 
D)  In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

Question 19

Figure 2-3  
-Refer to Figure 2-3. Which point or points are efficient?

Accepted Answer

A)  points B and E 
B)  points A, B, and E 
C)  point C 
D)  point D 
A)  points B and E 
B)  points A, B, and E 
C)  point C 
D)  point D

Question 20

What is the y-coordinate?

Accepted Answer

A)  the first number of an ordered pair, which represents the point's horizontal location 
B)  the second number of an ordered pair, which represents the point's horizontal location 
C)  the first number of an ordered pair, which represents the point's vertical location 
D)  the second number of an ordered pair, which represents the point's vertical location 
A)  the first number of an ordered pair, which represents the point's horizontal location 
B)  the second number of an ordered pair, which represents the point's horizontal location 
C)  the first number of an ordered pair, which represents the point's vertical location 
D)  the second number of an ordered pair, which represents the point's vertical location

What does a circular-flow diagram do?

Normative statements describe how the world is, while positive statements prescribe how the world should be.

What markets are depicted in the simple circular-flow diagram?

When do you know an economist has crossed the line from scientist to policy adviser?

What are the foundation stones from which economic models are built?

How can the production possibilities frontiers shift outward?

Why are graphs such as bar graphs limited?

What is NOT a common characteristic of economic models?

What can good assumptions do?

What would NOT be considered a factor of production?

When is the production possibilities frontier bowed outward?

When an economy is operating inside its production possibilities frontier, what do we know?

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.

What do the two loops in the circular-flow diagram represent?

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

What are the roles of economists when trying to explain or to improve the world?

Figure 2-3 -Refer to Figure 2-3. Which point or points are efficient?

What is the y-coordinate?

Ten Principles of Economics

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 2: Thinking Like an Economist

What does a circular-flow diagram do?

Normative statements describe how the world is, while positive statements prescribe how the world should be.

What markets are depicted in the simple circular-flow diagram?

When do you know an economist has crossed the line from scientist to policy adviser?

What are the foundation stones from which economic models are built?

How can the production possibilities frontiers shift outward?

Why are graphs such as bar graphs limited?

What is NOT a common characteristic of economic models?

What can good assumptions do?

What would NOT be considered a factor of production?

When is the production possibilities frontier bowed outward?

When an economy is operating inside its production possibilities frontier, what do we know?

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.

What do the two loops in the circular-flow diagram represent?

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

What are the roles of economists when trying to explain or to improve the world?

Figure 2-3 -Refer to Figure 2-3. Which point or points are efficient?

What is the y-coordinate?

Ten Principles of Economics

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters