Question 1

Historical episodes allow economists to illustrate and evaluate current economic theories.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would likely be studied by a microeconomist rather than a macroeconomist?

Accepted Answer

A)  the effect of foreign direct investment on economic growth 
B)  the effect of a sales tax on the cigarette industry 
C)  the effect of an investment tax credit on the economy's capital stock 
D)  the effect of a war on government spending 
A)  the effect of foreign direct investment on economic growth 
B)  the effect of a sales tax on the cigarette industry 
C)  the effect of an investment tax credit on the economy's capital stock 
D)  the effect of a war on government spending

Question 3

Figure 2-20
Relationship Between Years of Education and Annual Income  
-Refer to Figure 2-20. Senator Smith observes the graph and concludes that people who earn higher incomes attend school for more years. Senator Jones observes the graph and concludes that people who attend school for more years earn higher incomes. Who is correct?

Accepted Answer

A)  Senator Smith is correct. 
B)  Senator Jones is correct. 
C)  It is difficult to say which senator might be correct due to the reverse causality problem. 
D)  It is difficult to say which senator might be correct due to omitted variable bias. 
A)  Senator Smith is correct. 
B)  Senator Jones is correct. 
C)  It is difficult to say which senator might be correct due to the reverse causality problem. 
D)  It is difficult to say which senator might be correct due to omitted variable bias.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

In the simple circular-flow diagram,

Accepted Answer

A)  households own the factors of production. 
B)  households buy all the goods and services that firms produce. 
C)  land, labor, and capital flow from households to firms. 
D)  All of the above are correct. 
A)  households own the factors of production. 
B)  households buy all the goods and services that firms produce. 
C)  land, labor, and capital flow from households to firms. 
D)  All of the above are correct.

Question 6

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

Accepted Answer

A)  The economy experiences economic growth. 
B)  There is a technological advance in the toy industry, but the greeting card industry experiences no such advance. 
C)  There is a technological advance in the greeting card industry, but the toy industry experiences no such advance. 
D)  All of the above are correct. 
A)  The economy experiences economic growth. 
B)  There is a technological advance in the toy industry, but the greeting card industry experiences no such advance. 
C)  There is a technological advance in the greeting card industry, but the toy industry experiences no such advance. 
D)  All of the above are correct.

Question 7

An example of a price that changes only infrequently is the price of

Accepted Answer

A)  stocks on the New York Stock Exchange. 
B)  crude oil. 
C)  residential real estate. 
D)  magazines sold at newsstands. 
A)  stocks on the New York Stock Exchange. 
B)  crude oil. 
C)  residential real estate. 
D)  magazines sold at newsstands.

Question 8

Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram?

Accepted Answer

A)  Dylan receives a salary for his work as a financial analyst for an investment firm. 
B)  Kristin buys two business suits to wear to her job as a Chief Information Officer. 
C)  Jim receives clean water in his home in exchange for paying his water bill. 
D)  Caroline owns a nail salon and receives payments from her clients for her services. 
A)  Dylan receives a salary for his work as a financial analyst for an investment firm. 
B)  Kristin buys two business suits to wear to her job as a Chief Information Officer. 
C)  Jim receives clean water in his home in exchange for paying his water bill. 
D)  Caroline owns a nail salon and receives payments from her clients for her services.

Question 9

Figure 2-2  
-Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent

Accepted Answer

A)  households and government. 
B)  firms and government. 
C)  the markets for goods and services and the markets for financial assets. 
D)  the markets for goods and services and the markets for factors of production. 
A)  households and government. 
B)  firms and government. 
C)  the markets for goods and services and the markets for financial assets. 
D)  the markets for goods and services and the markets for factors of production.

Question 10

In the simple circular-flow diagram, who buys the factors of production?

Accepted Answer

A)  households only 
B)  firms only 
C)  both households and firms 
D)  neither households nor firms 
A)  households only 
B)  firms only 
C)  both households and firms 
D)  neither households nor firms

Question 11

Figure 2-2  
-Refer to Figure 2-2. Carla regularly buys fruits and vegetables at a grocery store. Roberto regularly pays a lawn- care company to mow his lawn. If the flow of fruits and vegetables from the grocery store to Carla is represented by an arrow from Box C to Box B of this circular-flow diagram, then the money paid by Roberto to the lawn-care company is represented by an arrow

Accepted Answer

A)  from Box A to Box D. 
B)  from Box B to Box C. 
C)  from Box C to Box B. 
D)  from Box D to Box A. 
A)  from Box A to Box D. 
B)  from Box B to Box C. 
C)  from Box C to Box B. 
D)  from Box D to Box A.

Question 12

According to the circular flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates

Accepted Answer

A)  in the markets for factors of production exchanging labor for income. 
B)  in the markets for factors of production exchanging flowers for revenue. 
C)  in the markets for goods and services exchanging flowers for wages, rent, and profit. 
D)  in the markets for goods and services exchanging labor for income. 
A)  in the markets for factors of production exchanging labor for income. 
B)  in the markets for factors of production exchanging flowers for revenue. 
C)  in the markets for goods and services exchanging flowers for wages, rent, and profit. 
D)  in the markets for goods and services exchanging labor for income.

Question 13

Which of the following is an example of using the scientific method with a natural experiment?

Accepted Answer

A)  measuring how long it takes a marble to fall from a ten story building 
B)  comparing plant growth with and without a soil additive 
C)  tracking the price of oil when a war in the Middle East interrupts the flow of crude oil 
D)  observing the reaction when two chemicals are mixed together 
A)  measuring how long it takes a marble to fall from a ten story building 
B)  comparing plant growth with and without a soil additive 
C)  tracking the price of oil when a war in the Middle East interrupts the flow of crude oil 
D)  observing the reaction when two chemicals are mixed together

Question 14

Figure 2-9
Panel a) Panel b)
    
-Refer to Figure 2-9, Panel a). The opportunity cost of moving from point J to point L is

Accepted Answer

A)  2 donuts. 
B)  2 donuts and 2 cups of coffee. 
C)  2 cups of coffee. 
D)  6 cups of coffee. 
A)  2 donuts. 
B)  2 donuts and 2 cups of coffee. 
C)  2 cups of coffee. 
D)  6 cups of coffee.

Question 15

The slope of a line is equal to

Accepted Answer

A)  the change in the value of x divided by the change in the value of y. 
B)  the change in the value of y divided by the change in the value of x. 
C)  the horizontal distance divided by the vertical distance. 
D)  the value of y divided by the value of x. 
A)  the change in the value of x divided by the change in the value of y. 
B)  the change in the value of y divided by the change in the value of x. 
C)  the horizontal distance divided by the vertical distance. 
D)  the value of y divided by the value of x.

Question 16

In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are sellers.

Accepted Answer

A) True 
 B)False

Question 17

Table 2-5
  
-Refer to Table 2-5. Table 2-5 shows one set of production possibilities. Which of the following statements is correct?

Accepted Answer

A)  The opportunity cost of a bushel of corn does not depend on how many bushels of wheat are being produced. 
B)  The opportunity cost of a bushel of corn increases as more corn is produced. 
C)  The opportunity cost of a bushel of corn decreases as more corn is produced. 
D)  The opportunity cost of a bushel of wheat decreases as more wheat is produced. 
A)  The opportunity cost of a bushel of corn does not depend on how many bushels of wheat are being produced. 
B)  The opportunity cost of a bushel of corn increases as more corn is produced. 
C)  The opportunity cost of a bushel of corn decreases as more corn is produced. 
D)  The opportunity cost of a bushel of wheat decreases as more wheat is produced.

Question 18

Figure 2-5  
-Refer to Figure 2-5. This economy cannot currently produce 70 washers and 70 dryers because

Accepted Answer

A)  it is not using all of its resources. 
B)  it is not using the most efficient production process. 
C)  it does not have the resources and technology to produce that level of output. 
D)  All of the above are correct. 
A)  it is not using all of its resources. 
B)  it is not using the most efficient production process. 
C)  it does not have the resources and technology to produce that level of output. 
D)  All of the above are correct.

Question 19

Figure 2-9
Panel a) Panel b)
    
-Refer to Figure 2-9, Panel a). Production at point K is

Accepted Answer

A)  possible and efficient. 
B)  possible but inefficient. 
C)  impossible but efficient. 
D)  impossible and inefficient. 
A)  possible and efficient. 
B)  possible but inefficient. 
C)  impossible but efficient. 
D)  impossible and inefficient.

Question 20

In the circular-flow diagram, payments for labor, land, and capital flow from firms to households through the markets for the factors of production.

Accepted Answer

A) True 
 B)False

Exam 2: Thinking Like an Economist

Historical episodes allow economists to illustrate and evaluate current economic theories.

Which of the following would likely be studied by a microeconomist rather than a macroeconomist?

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

In the simple circular-flow diagram,

An example of a price that changes only infrequently is the price of

Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram?

Figure 2-2 -Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent

In the simple circular-flow diagram, who buys the factors of production?

According to the circular flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates

Which of the following is an example of using the scientific method with a natural experiment?

Figure 2-9 Panel a) Panel b) -Refer to Figure 2-9, Panel a). The opportunity cost of moving from point J to point L is

The slope of a line is equal to

In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are sellers.

Table 2-5 -Refer to Table 2-5. Table 2-5 shows one set of production possibilities. Which of the following statements is correct?

Figure 2-5 -Refer to Figure 2-5. This economy cannot currently produce 70 washers and 70 dryers because

Figure 2-9 Panel a) Panel b) -Refer to Figure 2-9, Panel a). Production at point K is

In the circular-flow diagram, payments for labor, land, and capital flow from firms to households through the markets for the factors of production.

Ten Principles of Economics

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters