Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The basic economic problem is a situation of
1)
A)
limited incomes and unlimited choices.
B)
limited resources and unlimited wants.
C)
unlimited incomes and limited choices.
D)
both limited resources and limited wants.
2)
Which of the following statements is true regarding the textbook used in this course?
2)
A)
The selection of topics included in the book involves value judgments as well as economic
theory.
B)
The microeconomic section of the book includes only positive analysis while the
macroeconomic section includes normative analysis.
C)
The textbook presents only economic theory, so no value judgments are involved in the text.
D)
The textbook does not include normative statements.
3)
A good economic model
3)
A)
generates statements that are incapable of refutation.
B)
utilizes only the two most important factors to analyze the problem under consideration.
C)
represents every detail of the real world.
D)
yields usable predictions and implications for the real world.
4)
Which of the following is an example of a positive economic statement?
4)
A)
In order to increase employment, the minimum wage should be decreased.
B)
In order to reduce the budget deficit, tax rates should be increased.
C)
If payroll taxes are raised, then the Social Security crisis will be resolved.
D)
If gas prices fall, consumers should purchase more gas.
5)
Economic models are
5)
A)
a simplified representations of the real world.
B)
always based on laboratory methods similar to natural sciences.
C)
used only in microeconomic analysis by households.
D)
used only in macroeconomic analysis by business firms.
6)
Economics is concerned with choices
6)
A)
that involve making money.
B)
that involve the wants of individuals.
C)
that involve the political goals of professional associations.
D)
made by individuals only when they are consuming goods or services.
7)
Individual decision making by consumers and producers is the focus of
7)
A)
microeconomics.
B)
aggregate measures.
C)
any economic model.
D)
macroeconomics.
8)
Which of the expressions below best describes the aim of economic theory?
8)
A)
to learn what we can do to prevent people from having unrealistic wants
B)
to predict how people think about money
C)
to predict the choices people will make
D)
to understand why money motivates some people more than others
9)
Economists assume people behave rationally, which means that people
9)
A)
do not intentionally make decisions that make themselves worse off.
B)
always understand the consequences of their decisions.
C)
never make a mistake.
D)
have the necessary information to always make correct decisions.
10)
Which of the following is a normative economic statement?
10)
A)
Auto mechanics typically earned more than waitresses in the United States in 2004.
B)
Few auto mechanics are women.
C)
Men and women should earn the same salary if they perform the same job.
D)
Most wait staff are women.
11)
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
11)
A)
irrationality hypothesis.
B)
ceteris paribus hypothesis.
C)
bounded rationality hypothesis.
D)
individual aggregation hypothesis.
12)
Macroeconomics is concerned primarily with
12)
A)
production and prices in particular markets.
B)
normative issues.
C)
aggregate economic variables.
D)
positive economics.
13)
The slope of a nonlinear curve is ________ when the curve is rising, and ________ when the curve is
falling.
13)
A)
negative, negative
B)
positive, positive
C)
negative, positive
D)
positive, negative
14)
Underlying economic theory is the idea that
14)
A)
choices are affected by both positive and negative incentives.
B)
people respond only to negative incentives, not to positive ones.
C)
money is the only incentive that matters.
D)
value judgments do not play a role in the economic decisions people make.
15)
Self–interest
15)
A)
relates strictly to material well–being, such as a person’s stock of wealth at a point in time.
B)
can involve any action that makes a person feel better off, such as charitable contributions.
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.
16)
The potential rewards that are available to an individual if a particular activity is undertaken are
known as
16)
A)
premiums.
B)
incentives.
C)
intrinsic values.
D)
gifts.
17)
Which of the following would likely be studied in a macroeconomics course?
17)
A)
the inflation rate
B)
the unemployment rate
C)
total output for an economy
D)
all of the above
18)
An inverse relationship will be graphed as
18)
A)
a line that is upward sloping.
B)
a U–shaped curve.
C)
a line that is downward sloping.
D)
a loop.
19)
Which of the following statements is a normative as opposed to a positive economic statement?
19)
A)
Government intervention in markets is common in many countries.
B)
Labor unions should be allowed to organize in every industry.
C)
If the price of gasoline goes up, people buy less.
D)
Consumer spending generates more jobs.
20)
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, ________.
20)
A)
laissez faire
B)
ipso facto
C)
caveat emptor
D)
ceteris paribus
21)
The headline in the local paper today is “College tuition next fall will be raised by 3 percent.” This
statement is an example of
21)
A)
a normative statement.
B)
a macroeconomic statement.
C)
a positive statement.
D)
ceteris paribus.
22)
Economic models are NOT used to
22)
A)
predict economic phenomena.
B)
describe all economic phenomena in minute detail.
C)
explain economic phenomena.
D)
understand economic phenomena.
23)
Positive analysis can be described as
23)
A)
a value–free approach to inquiry.
B)
a study that is not tested empirically.
C)
the study of whether people respond to negative incentives.
D)
the study of whether people respond to positive incentives.
24)
Which of the following statements is FALSE?
24)
A)
Economists empirically test their models.
B)
An economic model should capture only the essential relationships that are sufficient to
analyze the particular problem being studied.
C)
Economic models relate to behavior rather than to individual thought processes.
D)
Economic models are not used to forecast.
25)
Rational self–interest means
25)
A)
pursuing what makes you better off.
B)
always pursuing activities that are consistent with your faith.
C)
pursuing activities that maximize income.
D)
always increasing your wealth.
26)
The “paired observation” of (–14, –6) means
26)
A)
x = – 14, y = – 6
B)
the origin is at –14 and –6.
C)
that the distance between the two points will be 8.
D)
x = – 6, y = – 14
27)
Economics is a part of the
27)
A)
organizational sciences.
B)
natural sciences.
C)
biological sciences.
D)
social sciences.
28)
The study of the aggregate economic variables is
28)
A)
normative economics.
B)
macroeconomics.
C)
positive economics.
D)
microeconomics.
B
29)
Microeconomics is concerned with the study of
29)
A)
aggregates.
B)
the effects on individual producers of higher wages paid to workers.
C)
the effects of government spending.
D)
the effects of inflation.
B
30)
“The U.S. government should not use my tax dollars to subsidize people on welfare”
30)
A)
is a positive economic statement because it predicts that my tax dollars will go to welfare.
B)
is a normative economic statement because it is a scientific fact.
C)
is a positive economic statement because it simply describes one person‘s opinion.
D)
is a normative economic statement because it involves a value judgment about an economic
policy.
D
31)
If psychological limitations and other complications cause people to be unable to examine and
think through every possible choice available to them and rely instead on rules of thumb, then
these individuals exhibit
31)
A)
bounded rationality.
B)
normative thinking.
C)
positive thinking.
D)
unbounded rationality.
A
D
32)
Analysis that involves value judgments about economic policies is
32)
A)
normative economics.
B)
microeconomics.
C)
positive economics.
D)
macroeconomics.
33)
In constructing models, economists
33)
A)
make simplifying assumptions.
B)
include all independent variables.
C)
attempt to duplicate the real world.
D)
include all available information.
A
34)
In order to study how changing price affects consumer decisions, we must assume all other factors,
such as income and the prices of other goods are constant. This assumption is best know as
34)
A)
ceteris paribus.
B)
normative economics.
C)
behavioral economics.
D)
rationality.
A
35)
Economics
35)
A)
is concerned with unlimited wants.
B)
is a social science.
C)
is concerned with limited resources.
D)
All of the above are correct.
D
36)
A simplified representation of the real world that is used to explain economic phenomena is a(n)
36)
A)
implication.
B)
assumption.
C)
map.
D)
model.
D
A
37)
Microeconomics focuses on
37)
A)
individual decision makers within the economy.
B)
changes in national income.
C)
satisfying the needs of the economy.
D)
the large parts of the economy.
38)
A mixed economic system is best described an economy with a mix of
38)
A)
free markets and government control.
B)
for–profit organizations and not–for–profit organizations.
C)
state and federal governments.
D)
domestic and foreign buyers.
A
39)
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
39)
A)
1.
B)
5.
C)
25.
D)
1/5.
D
40)
Self–interest relates to
40)
A)
normative economic analysis and not positive economic analysis.
B)
the ceteris paribus assumption.
C)
both monetary and nonmonetary objectives.
D)
only monetary objectives.
C
A
41)
Economics is called an empirical science because
41)
A)
economic models have no predictive power.
B)
economists use assumptions in their models.
C)
economic analysis is only useful in a capitalistic society.
D)
economists study real–world evidence to test their models.
42)
Ceteris paribus means
42)
A)
for certain parameters.
B)
making all the necessary changes.
C)
other things constant.
D)
let the buyer beware.
43)
Economists assume people behave
43)
A)
irrationally.
B)
instinctively.
C)
rationally.
D)
greedily.
44)
People behave rationally when they
44)
A)
follow the advice of government leaders.
B)
never have regrets about their decisions.
C)
make decisions solely based on financial outcomes.
D)
make decisions they think will make themselves better off.
45)
What type of economics would most typically deal with aggregates?
45)
A)
microeconomics
B)
macroeconomics
C)
labor economics
D)
environmental economics
46)
The difference between positive statements and normative statements is that
46)
A)
a positive statement is a statement of fact and a normative statement involves value
judgments.
B)
normative statements are provable while positive statements are not.
C)
a positive statement involves a value judgment and a normative statement is a statement of
fact.
D)
value judgments are made in normative statements but assumed in positive statements.
47)
Economics deals with
47)
A)
how individuals allocate scarce resources to satisfy unlimited human wants.
B)
how to profit from the stock market.
C)
how society allocates unlimited resources.
D)
how to satisfy limited human wants.
48)
Economics may be referred to as a(n) ________ science, meaning that data is looked at to see
whether assertions are correct.
48)
A)
assumptive
B)
exact
C)
soft
D)
empirical
49)
Normative economics
49)
A)
is never studied at the undergraduate level.
B)
cannot be applied to all economic problems.
C)
is always objective.
D)
involves value judgments.
50)
Economists develop models to
50)
A)
justify the assumptions they make about people’s behavior.
B)
help us understand economic phenomena in the real world.
C)
capture every detail of the real world.
D)
make their arguments more realistic.
51)
Microeconomics is defined as that part of economic analysis that
51)
A)
studies individual decision making by households and firms.
B)
includes the problems of inflation and unemployment.
C)
studies the behavior of the economy as a whole.
D)
concerns aggregate production and consumption.
52)
If the government offers to reduce your property taxes by 10 percent if you install solar heating for
your home, this would be an example of
52)
A)
ceteris paribus.
B)
incentives.
C)
disincentives.
D)
police power.
53)
It has been noted that when the price of a good increases, people purchase less of the good. This is
an example of
53)
A)
positive economic analysis.
B)
irrational behavior.
C)
macroeconomic analysis.
D)
normative economic analysis.
54)
When constructing economic models, economists are more concerned with
54)
A)
what people say than what they do or think.
B)
what people say than what they do.
C)
what people think than what they say.
D)
what people do than what they say.
55)
The term ceteris paribus means
55)
A)
the study of scarcity and choice.
B)
all other things remaining constant or equal.
C)
value–free and testable.
D)
the greatest good for all.
56)
The slope of a straight line
56)
A)
changes from one point to the next on that line.
B)
is the same at all points along that line.
C)
cannot be defined.
D)
is always equal to zero.
B
57)
Given a linear curve, the value on the y–axis changes from 100 to 120 when the value on the x–axis
changes from 20 to 10, then the slope of that curve is
57)
A)
+20.
B)
+2.
C)
–20.
D)
–2.
D
58)
Which of the following is NOT studied in microeconomics?
58)
A)
the impact of higher fuel prices on the cost of airline tickets
B)
the impact of firms’ collective hiring choices on the aggregate unemployment rate
C)
the impact of an increase in the unemployment rate on economic production
D)
the effect of an increase in gasoline taxes on the purchase of gasoline
C
B
59)
An appropriate test of the effectiveness of an economic model is
59)
A)
the number of economists who have worked on the model.
B)
the number of assumptions which the economist has made.
C)
the number of variables contained within the model.
D)
the model’s ability to predict future economic activity.
60)
The assumption that nothing changes except the factor being studied is
60)
A)
the rationality assumption.
B)
positive economic analysis.
C)
normative economic analysis.
D)
the ceteris paribus assumption.
61)
Macroeconomics is concerned with
61)
A)
a nation’s entire economy.
B)
specific industries.
C)
individual consumers.
D)
individual business firms.
62)
The impact of higher taxes would be examined by
62)
A)
a macroeconomist.
B)
a microeconomist.
C)
both a macroeconomist and a microeconomist.
D)
neither a macroeconomist nor a microeconomist.
63)
Which of the following is an example of an application of the ceteris paribus assumption?
63)
A)
An analysis of how people purchase more goods when prices decline and income increases
B)
After reading an article on the dangers of high–fat diets, an individual buys less red meat
when prices increase
C)
An analysis of how worker productivity increases when a firm invests in new machines and
training programs
D)
An analysis of how price changes affect how much of a good people will purchase when all
other factors are held constant
64)
The primary objective of economics is
64)
A)
to learn how to create more resources.
B)
to study how people make choices with limited resources.
C)
to study why some people are never happy with the resources they have.
D)
to learn how to make the most profits with a given amount of resources.
65)
Another term for “economic models” is
65)
A)
economic designs.
B)
economic science.
C)
economic theories.
D)
economic maps.
66)
Economics is the study of how
66)
A)
psychology influences preferences..
B)
preferences are determined.
C)
people make money.
D)
people make choices.