Exam 2: Thinking Like an Economist

Using the outline below, draw a circular-flow diagram representing the interactions between households and firms in a simple economy. Explain briefly the various parts of the diagram.

All scientific models, including economic models, simplify reality in order to improve our understanding of it.

In the circular flow diagram, when Brian provides labor through the markets for factors of production to ABC Company, the flow of money he receives in exchange is called

Figure 2-15 -Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces only sofas and cars. When society moves from point A to point B,

Economists acting as scientists make positive statements, while economists acting as policy advisers make normative statements.

Figure 2-19 In the following graph the x-axis shows the number of times a commuter rail train stops at a station per hour and the y-axis shows the number of commuter rail passengers per hour. Commuter Rail Passengers by Frequency of Service -Refer to Figure 2-19. A policymaker observes this graph and concludes that increasing the frequency of commuter rail service is a certain way to get more commuters to choose the commuter rail instead of driving their own cars. You warn the policymaker about making a reverse causality mistake with which of the following statements?

Figure 2-8 -Refer to Figure 2-8. Point K represents an outcome in which

Sir Isaac Newton's development of the theory of gravity after observing an apple fall from a tree is an example of

Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement?

Figure 2-15 -Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces only sofas and cars. As the economy moves from point A to point D, is the opportunity cost of cars increasing, constant, or decreasing?

The Congressional Budget Office, which is staffed by economists, provides Congress with independent evaluations of policy proposals.

The slope of a horizontal line is infinite, and the slope of a vertical line is zero.

Figure 2-5 -Refer to Figure 2-5. The opportunity cost of obtaining 20 additional dryers by moving from point D to point A is

Figure 2-14 Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. -Refer to Figure 2-14. The bowed outward shape of the production possibilities curve indicates that opportunity cost of apples in terms of sweaters is

Evaluating normative statements involves values as well as facts.

Which of the following statements about models is correct?

Positive statements are descriptive, while normative statements are prescriptive.

In a certain economy, jam and bread are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more jam and more bread, relative to the quantities of those goods that are being produced now?

Figure 2-3 -Refer to Figure 2-3. What are two elements not included in this figure that could be included in a more complex model?

Figure 2-2 -Refer to Figure 2-2. If the outer loop of this circular-flow diagram represents flows of dollars, then the inner loop includes