Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
An economic system is
1)
A)
a mechanism to allocate scarce resources.
B)
an organization that generates profits.
C)
the universe of all resources.
D)
a way to create new resources.
2)
The President’s statement that “to encourage economic growth, taxes should be cut”
2)
A)
would be a statement of mercantilist economic philosophy.
B)
would be an example of a normative statement.
C)
would be an example of a microeconomic statement.
D)
would be an example of a positive statement.
3)
According to economic theory, how do people make decisions?
3)
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 same.
C)
They make decisions by looking at what others have done in the same situation and then
doing the opposite.
D)
They make decisions based on their own self–interest.
4)
Modern economists are increasingly using microeconomic analysis in macroeconomics because
4)
A)
macroeconomics is older and more outdated.
B)
microeconomic theory is more scientific.
C)
macroeconomic subjects such as inflation affect all individuals.
D)
aggregate outcomes stem from decisions made by individuals, business firms and
government.
5)
The author of the book An Inquiry into the Nature and Causes of the Wealth of Nations is
5)
A)
Alan Greenspan.
B)
Milton Friedman.
C)
Thorstein Veblen.
D)
Adam Smith.
6)
Macroeconomics deals with ________ while microeconomics deals with ________.
6)
A)
choices important to people; choices not important to people
B)
choices of rich people; choices of poor people
C)
economywide choices; choices of individuals
D)
choices that involve money; choices that does not involve money
7)
Which of the following is a TRUE statement about the economic assumption of rationality?
7)
A)
Individual behavior may be irrational but group behavior is always rational.
B)
Individuals generally act as though they are rational.
C)
Individuals who are rational necessarily ignore the interests of others.
D)
People make decisions as if they are omniscient.
8)
Economists assume that people are motivated by
8)
A)
altruism.
B)
rational self–interest.
C)
greed.
D)
benevolence.
9)
Which of the following is a statement with positive economic analysis?
9)
A)
Slower money growth reduces inflation.
B)
Lower wages increase employment and reduce the unemployment rate.
C)
A reduction in the size of the budget deficit will reduce interest rates.
D)
all of the above
10)
Aggregate measures are
10)
A)
anything to do with economics.
B)
determined by the Bureau of Labor Statistics.
C)
a total measure of a variable across the economy.
D)
used only in microeconomics.
11)
“Ceteris paribus” means
11)
A)
“individual.”
B)
“making all the necessary changes.”
C)
“invisible hand.”
D)
“other things constant.”
12)
If a teacher tells a student that those who attend the study session typically score higher on the final
exam,
12)
A)
the student has no greater incentive to attend because there is no guarantee she will get a
higher grade on the exam.
B)
a “C” student will be making an irrational decision if she decides to skip the study session
since she has plenty of time to go.
C)
the student has a negative incentive to attend the study session because she will be punished
if she does not go.
D)
the student has a positive incentive to attend the study session because she may get a higher
grade.
13)
Macroeconomics is concerned primarily with
13)
A)
production and prices in particular markets.
B)
normative issues.
C)
aggregate economic variables.
D)
positive economics.
14)
Behavioral economics deals with
14)
A)
unbounded willpower.
B)
only theories without justification from empirical evidence.
C)
bounded rationality.
D)
the assumption that people are always selfish.
15)
Analysis that is limited to making either purely descriptive statements or scientific predictions is
15)
A)
normative economics.
B)
positive economics.
C)
microeconomics.
D)
macroeconomics.
16)
If a straight line crosses the Y–axis at 5 and crosses the X–axis at 10, we can conclude that the slope
of the line is
16)
A)
zero.
B)
infinity.
C)
positive.
D)
negative.
17)
When two variables have a direct relationship, the slope is
17)
A)
infinity.
B)
zero.
C)
negative.
D)
positive.
18)
Self–interest
18)
A)
implies that people will not give away wealth.
B)
implies that a person must try to increase wealth at all times.
C)
is consistent with many goals that people pursue, including betterment of others.
D)
applies only to people in market settings.
19)
Macroeconomics is concerned with
19)
A)
specific industries.
B)
individual business firms.
C)
individual consumers.
D)
a nation’s entire economy.
20)
Economics is the study of
20)
A)
the determinants of preferences.
B)
nonhuman phenomena.
C)
scarce resources and unlimited wants.
D)
the physical sciences.
21)
Which expression below matches most closely the way economists go about testing their models?
21)
A)
“In the long run we are all dead.”
B)
“Consistency is the hobgoblin of small minds.”
C)
“Seeing the results is the only way to know if you are right.”
D)
“A bird in the hand is worth two in the bush.”
22)
Which of the following is a behavioral implication of bounded rationality?
22)
A)
a rule of thumb
B)
a rational mistake
C)
a nervous breakdown
D)
unbounded selfishness
23)
In building a model the assumption that allows economists to study only the factors being analyzed
is the
23)
A)
the scarcity assumption.
B)
rationality assumption.
C)
the self–interest assumption.
D)
ceteris paribus assumption.
Explanation:
24)
Ceteris paribus means
24)
A)
other things constant.
B)
let the buyer beware.
C)
making all the necessary changes.
D)
for certain parameters.
25)
Macroeconomics is the study of
25)
A)
aggregate economic variables.
B)
output in particular industries.
C)
prices in particular industries.
D)
all of the above.
26)
Economics is a
26)
A)
natural science.
B)
hard science.
C)
physical science.
D)
social science.
27)
Microeconomics focuses on
27)
A)
individual decision makers.
B)
consumer decisions on small expenses.
C)
satisfying the needs of the economy.
D)
changes in national income.
28)
In an inverse relationship
28)
A)
both variables rise together.
B)
the two variables have nothing to do with each other.
C)
both variables fall together.
D)
one variable rises while the other falls.
29)
A possible rational reason why older people, on average, show less interest in learning how to use
new technologies is because
29)
A)
they are acting irrationally.
B)
the financial cost for older people is greater than the cost to younger people.
C)
older people are not as smart as (today’s) young people.
D)
they have fewer years to gain a return from learning how to use new technologies.
30)
Do economists analyze people’s thought processes or do they look at what people actually do?
30)
A)
Economists focus on what people do, not their thought processes.
B)
Economists focus only on people’s thought processes.
C)
Macroeconomists focus on thought processes while microeconomists focus on actions.
D)
An economist’s focus is about half–and–half between actions and thought processes.
31)
What is the type of economic system that relies on one central authority to make economic
decisions?
31)
A)
free market
B)
mixed economic system
C)
command and control
D)
price system
32)
Rational behavior for an economist means that individuals
32)
A)
are motivated by self–interest.
B)
always make positive choices.
C)
are self–sacrificing.
D)
never change their minds.
33)
Resources are
33)
A)
what people would buy if their income was unlimited.
B)
unlimited.
C)
used to produce goods and services to satisfy people’s wants.
D)
able to be replicated in large quantities.
34)
Macroeconomics is concerned with
34)
A)
individual consumers.
B)
the effects on a corporation of a strike by the United Auto Workers.
C)
government decision making concerning farm price supports.
D)
aggregates.
D
35)
The hypothesis that people are nearly, but not fully rational, cannot possibly fully examine every
available choice, and utilize simple rules of thumb in making decisions is known as the
35)
A)
bounded rationality hypothesis.
B)
individual aggregation hypothesis.
C)
ceteris paribus hypothesis.
D)
irrationality hypothesis.
A
36)
According to economists, when two people make exactly the opposite decision
36)
A)
one of them is acting out of spite.
B)
one of them should compromise.
C)
one of them is acting irrationally.
D)
each person evaluates the situation according to his/her individual self–interest.
D
37)
In a market system, the what, how and for whom questions in economics are determined by
37)
A)
those who are not in the market.
B)
the central authority.
C)
buyers and sellers together.
D)
no one.
C
C
38)
Whenever statements embodying values are made, we enter the realm of
38)
A)
normative economics.
B)
macroeconomics.
C)
positive economics.
D)
microeconomics.
39)
Economists assume people are motivated by
39)
A)
self–interest.
B)
social justice.
C)
pride.
D)
unlimited resources.
40)
Economics is the study of
40)
A)
how to get rich.
B)
how people spend their income.
C)
why people want certain goods and services rather than other goods and services.
D)
how people allocate their limited resources to satisfy their unlimited wants.
41)
Which of the following is NOT one of the basic questions that an economic system attempts to
answer?
41)
A)
What to produce?
B)
For whom will goods and services be produced?
C)
How will goods and services be produced?
D)
How to eliminate choices?
42)
A negative slope
42)
A)
represents an inverse relationship, such as beers consumed and test score.
B)
means that the line crosses below the x–axis.
C)
indicates that there is no relationship between two variables, such as women’s wages and
likelihood of sunshine.
D)
represents a direct relationship, such as snow fall and car accidents.
43)
Based on your understanding of your roommate’s preferences, you predict that he will select the
spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this
event in terms of economic theory?
43)
A)
You constructed a model that made a prediction, and the prediction was refuted.
B)
Your roommate does not know what is in his own best interests.
C)
You roommate does not know his own preferences as well as you do.
D)
Your roommate is irrational.
44)
Microeconomics is the study of
44)
A)
the effect that money has in the economic system.
B)
the behavior of the economy as a whole.
C)
how individuals and firms make decisions.
D)
how rising prices affect the level of employment in the economy.
45)
An example of a microeconomic decision is a situation in which
45)
A)
the U.S. Treasury contemplates buying foreign currencies in an effort to influence exchange
rates with an aim to boosting demand for U.S. goods and services.
B)
a firm evaluates how much to reduce the price of its product in an effort to influence sales and
boost its profits.
C)
Congress and the president seek to reach a compromise on how much to increase government
spending in an effort to influence national expenditures.
D)
the Federal Reserve considers how much to increase the money supply during the coming
month in an effort to constrain the rate of inflation.
46)
Economic models
46)
A)
must employ the use of laboratory methods.
B)
should be designed so as to capture every detail or interrelationship that exists.
C)
are simplified representations of the real world.
D)
All of the above are correct.
47)
“No individual should have less than $20,000 income in the United States in 2010” is an example of
47)
A)
an illogical and refutable statement.
B)
a positive statement.
C)
a truism.
D)
a normative statement.
48)
A relationship between two variables in which one variable increases at the same time that the
other increases is called
48)
A)
constant.
B)
inverse.
C)
nonlinear.
D)
direct.
49)
Macroeconomics often relies on microeconomic analysis because
49)
A)
the effects of macroeconomic subjects such as inflation and unemployment are independent
of individual consumers and firms.
B)
microeconomics is older than macroeconomics.
C)
all aggregates are made up of individuals and firms.
D)
microeconomic theory can be tested and macroeconomic theory cannot be tested.
50)
Which of the following would NOT provide an incentive to reduce the amount of beef consumed?
50)
A)
a subsidy to buyers of beef
B)
a decrease in the price of chicken
C)
a ban on beef sales by the Food and Drug Administration
D)
an increase in the price of beef
51)
Jose is rational if he
51)
A)
only responds to rewards that involve money.
B)
always uses a model or mathematical formula to help him make a decision.
C)
does not intentionally make decisions that would leave him worse off.
D)
never makes a mistake in his life.
52)
The relationship between the number of hours a student studies for an exam and the exam grade is
most likely graphed as
52)
A)
a line sloping up from lower right to upper left.
B)
a line sloping up from lower left to upper right.
C)
a line sloping down from upper right to lower left.
D)
a line sloping down from upper left to lower right.
53)
A theory or a model
53)
A)
is a simplified, abstract view of reality.
B)
is a detailed analysis of what ought to be.
C)
captures all aspects of the real world.
D)
is based on each economist’s value judgments.
54)
Central planning is a key characteristic of which economic system?
54)
A)
command and control
B)
mixed economic system
C)
free market
D)
price system
55)
Jane is currently developing a model to explain the national unemployment rate. This is an
example of
55)
A)
how people act in an irrational manner.
B)
normative analysis.
C)
a microeconomic topic.
D)
positive analysis.
56)
Which of the following is a normative statement?
56)
A)
Monetary policy is determined by the Federal Reserve System.
B)
Tax cuts ought to be enacted for the good of the economy.
C)
Fiscal policy is determined by the Congress and the president.
D)
The Gross Domestic Product is the dollar value of all goods and services produced in a
country in a year.
B
57)
The combination of psychology and economics to determine individual decision making is known
as
57)
A)
the rule of thumb.
B)
psychonomics.
C)
positive analysis.
D)
behavioral economics.
D
58)
Economics is an empirical science, which means that economists
58)
A)
do only laboratory experiments.
B)
look at evidence to see whether or not the model is applicable.
C)
test their models by utilizing unknown variables.
D)
refuse to test their models since the usefulness of a model is determined by whether it is
logical or not.
B
D
59)
To test their theories, economists usually have to
59)
A)
use only models that have a proven record of success.
B)
set up careful laboratory experiments with all variables controlled.
C)
first examine theory and what has happened in the past in the real world.
D)
anticipate every factor with 100 percent accuracy.
60)
Normative economic analysis involves
60)
A)
positive analysis.
B)
value judgments.
C)
objective descriptions of the way things are.
D)
if–then statements.
61)
Economics is called an empirical science because
61)
A)
economists use assumptions in their models.
B)
economists study real–world evidence to test their models.
C)
economic models have no predictive power.
D)
economic analysis is only useful in a capitalistic society.
62)
Both the social sciences and the natural sciences employ ________ to help them understand the
world around them.
62)
A)
designs
B)
implications
C)
models
D)
traditional thinking
63)
Self–interest
63)
A)
can involve any action that makes a person feel better off, such as charitable contributions.
B)
relates strictly to material well–being, such as a person’s stock of wealth at a point in time.
C)
is inconsistent with economic analysis, which suggests that self–interest is irrational.
D)
is measured entirely based on an individual’s income, whether earned from labor or
inherited.
64)
Some pet owners are using an “invisible fence” to keep their animals from straying. Every time the
animal steps over the edge of the property, it gets a mild shock. A social scientist would call the
shock
64)
A)
a disincentive.
B)
a reward.
C)
a normative incentive.
D)
a bribe.
65)
Which of the following best describes how economists test the empirical predictions of economic
models?
65)
A)
Economists survey individuals to learn about how people think through decisions about how
much to purchase or to produce.
B)
Recognizing that people always do what they say they will do, economists rely exclusively on
information gleaned from polls and surveys conducted by poll takers and market researchers.
C)
Based on theories about thought processes, economists seek to determine which thought
processes predominate in determining how a person decides what actions to take.
D)
Economists collect and analyze real–world observations of people’s actions to discern if those
actions accord with theories’ predictions.
66)
Which of these social sciences deals most with models of behavior rather than with thought
processes?
66)
A)
psychiatry
B)
economics
C)
psychology
D)
sociology
67)
An appropriate test of the effectiveness of an economic model is
67)
A)
the number of economists who have worked on the model.
B)
the model’s ability to predict future economic activity.
C)
the number of variables contained within the model.
D)
the number of assumptions which the economist has made.
68)
In an economic model, assumptions
68)
A)
define the set of circumstances in which the model is most likely to be applicable in the real
world.
B)
must be eliminated before being used to make sure the model is realistic.
C)
are not important in determining the usefulness of the model.
D)
must be applicable to all real–world situations.
69)
Which of the following statements is TRUE regarding the textbook used in this course?
69)
A)
The selection of topics included in the book involves value judgments as well as economic
theory.
B)
The textbook does not include normative statements.
C)
The textbook presents only economic theory, so no value judgments are involved in the text.
D)
The microeconomic section of the book includes only positive analysis while the
macroeconomic section includes normative analysis.
70)
Assumptions in models tend to make
70)
A)
the model always predict the future accurately.
B)
the model predict what the scientist wants the results to be.
C)
the model more realistic.
D)
the model more applicable to specific circumstances.
71)
High gasoline prices give people all of the following incentives EXCEPT
71)
A)
to car pool.
B)
to buy a hybrid car.
C)
to take vacations that require driving more miles.
D)
to drive less.
72)
Which of the following statements is a positive economic statement?
72)
A)
The President’s budget included an increase in unemployment insurance payments.
B)
The Congress should pass the president’s tax package.
C)
Tax rebates always give too much favor to rich people.
D)
none of the above
73)
Suppose that on average there are five more car accidents for every extra inch of snowfall in a
certain region. If snowfall is graphed on the y axis and car accidents on the x axis, then if we graph
this relationship, the slope of the line will be
73)
A)
1.
B)
5.
C)
25.
D)
1/5.
74)
Which of the following is a normative statement?
74)
A)
An economy with high unemployment can be worse off than an economy with high inflation.
B)
An increase in the income tax will cause a greater reduction in savings than an increase in the
sales tax.
C)
A decrease in the rate of unemployment will lead to upward pressure on consumer prices.
D)
An increase in consumer income will lead to increased sales of beef.
75)
The study of how a particular firm might choose to maximize its profits would fall into what type
of analysis?
75)
A)
labor economics
B)
aggregate economics
C)
macroeconomics
D)
microeconomics
76)
Which of the following statements concerning economic models is FALSE?
76)
A)
Economic models are based on pure fact and no assumptions.
B)
Economic models are tested empirically.
C)
Economic models relate to how people behave.
D)
Economic models must provide usable predictions.
A
77)
In economic analysis, people’s resources are
77)
A)
unlimited and their wants are limited.
B)
unlimited and their wants are also unlimited.
C)
limited and their wants are also limited.
D)
limited and their wants are unlimited.
D
78)
Consider the case of a teacher who tells students that those who miss more than three classes for
any reason will automatically receive a lower grade.
78)
A)
The teacher is assuming that students are irrational, and she must force them to attend class.
B)
This is an example of a negative incentive for students to attend class.
C)
Students who miss more than three classes are irrational.
D)
This is an example of a positive incentive for students to attend class.
B
D
79)
Economics deals with choices
79)
A)
that involve what people only need to survive.
B)
that people make without self–motivated interest.
C)
that people normally do not make.
D)
that involve the wants of individuals.
80)
Macroeconomics is best defined by which of the following statements?
80)
A)
Macroeconomics is the study of how firms attempt to maximize profits.
B)
Macroeconomics is the study of the behavior of the economy as a whole.
C)
Macroeconomics is the study of how the prices of individual goods are determined.
D)
Macroeconomics is the study of individual households.
81)
In constructing models, economists
81)
A)
include all independent variables.
B)
attempt to duplicate the real world.
C)
include all available information.
D)
make simplifying assumptions.
82)
Which of the expressions below best describes the aim of economic theory?
82)
A)
to predict the choices people will make
B)
to understand why money motivates some people more than others
C)
to predict how people think about money
D)
to learn what we can do to prevent people from having unrealistic wants
83)
It is assumed in economics that people make decisions based upon
83)
A)
governmental persuasion.
B)
altruism.
C)
tradition.
D)
rational self–interest.
84)
A direct relationship occurs when
84)
A)
the two variables being compared change in opposite directions, or when one goes up the
other goes down.
B)
a change in one of the variables causes a change in the other variable in any direction.
C)
the two variables have no identifiable relationship with each other.
D)
the two variables being compared change in the same direction, or when one goes up the
other also goes up.
85)
People behave rationally when they
85)
A)
make decisions solely based on financial outcomes.
B)
make decisions they think will make themselves better off.
C)
never have regrets about their decisions.
D)
follow the advice of government leaders.
B
86)
The ceteris paribus assumption means
86)
A)
from many, one.
B)
favors are returned in kind.
C)
this is the proof of the matter.
D)
other things are equal.
D
87)
Which of the following is NOT normative economic statement?
87)
A)
The minimum wage should be eliminated so unemployment can be reduced.
B)
Increases in the minimum wage cause increases in unemployment.
C)
Taxes on cigarettes should be increased to reduce smoking.
D)
The inflation rate should fall to increase individuals’ well being.
B
D