Chapter 1 The Nature of Economics 61
85) The combination of psychology and economics to determine individual decision making is
known as
A)
b
ehavioral economics. B) pyschomics.
C) the rule of thumb. D) positive analysis.
86) The idea of bounded rationality is used to address all of the following characteristics EXCEPT
A) unbounded selfishness. B) unbounded knowledge.
C) unbounded willpower. D) unbounded rationality.
87) What does it mean to say economics is an empirical science, and how is this related to the
question of deciding on the usefulness of a model?
88) To be useful, a model must be completely realistic. Evaluate.
89) Suppose a survey is taken concerning car safety. According to the survey, people strongly desire
safer cars and indicate they are willing to pay substantially more for safer cars. Using this
information, one auto firm adds numerous safety features to its car, raising the price by several
thousand dollars. Sales drop sharply, and the firm loses profits. What went wrong?
1.6 Positive versus Normative Economics
1) Normative economic statements
A) violate the law of ceteris paribus. B) contain value judgments.
C) are usually irrational. D) are easily testable.
2) Normative economics involves
A) a statement of fact. B) a statement of what should be.
C) a statement of what is. D) a statement that is purely descriptive.
3) If A occurs then B will follow is a
A) positive statement. B) normative statement.
C) non testable statement. D) statement lacking in logic.
4) If the United States enters a war in the Middle East, the economy will go into a recession is an
example of
A) a positive statement. B) an easy to prove statement.
C) a normative statement. D) a factual statement.
5) Which of the following is an example of a positive economic statement?
A) In order to reduce the budget deficit, tax rates should be increased.
B) In order to increase employment, the minimum wage should be decreased.
C) If payroll taxes are raised, then the Social Security crisis will be resolved.
D) If gas prices fall, consumers should purchase more gas.
6) No individual should have less than $20,000 income in the United States in 2010 is an example
of
A) a normative statement. B) a positive statement.
C) an illogical and refutable statement. D) a truism.
7) Which of the following is a normative statement?
A) An increase in consumer income will lead to increased sales of beef.
B) A decrease in the rate of unemployment will lead to upward pressure on consumer prices.
C) An increase in the income tax will cause a greater reduction in savings than an increase in
the sales tax.
D) An economy with high unemployment can be worse off than an economy with high
inflation.
8) Which of the following is a positive economic statement?
A) No individual should live in poverty.
B) The rate of unemployment of young African Americans exceeds that of white Americans.
C) Unemployment is a more serious problem than inflation.
D) Economic considerations are less relevant than ethical issues in deciding national policy.
9) All Americans should have access to health care is an example of
A) a positive statement. B) a microeconomic argument.
C) a factual statement. D) a normative statement.
10) When a U.S. Senator tells a campaign crowd that High inflation rates are a much more serious
economic problem than high unemployment rates, it is an example of
A) a normative statement. B) an empirically proven fact.
C) a positive statement. D) a microeconomic argument.
11) Which of the following statements is a positive economic statement?
A) The number of families living in poverty in the United States is too high.
B) One in every five children in the United States is living in poverty.
C) Government programs to help the poor are just making problems worse.
D) Increases in poverty rates signify a deterioration of the U.S. economy.
12) Which of the following statements is a positive economic statement?
A) The Congress should pass the president s tax package.
B) Tax rebates always give too much favor to rich people.
C) The President s budget included an increase in unemployment insurance payments.
D) none of the above
13) Which of the following statements is a normative as opposed to a positive economic statement?
A) Consumer spending generates more jobs.
B) If the price of gasoline goes up, people buy less.
C) Labor unions should be allowed to organize in every industry.
D) Government intervention in markets is common in many countries.
14) Whenever statements embodying values are made, we enter the realm of
A) positive economics. B) normative economics.
C) microeconomics. D) macroeconomics.
15) Positive economic analysis is said to be
A) true. B) right. C) value laden. D) objective.
16) Positive statements can contain
A) opinions and conditions.
B) facts and predictions.
C) a mixture of facts and opinions.
D) logical arguments mixed with statements of opinion.
17) Normative economic analysis involves
A) positive analysis.
B) value judgments.
C) i
f
then statements.
D) objective descriptions of the way things are.
18) Which of the following statements is an example of positive economic analysis?
A) The inflation rate is too high.
B) The government should worry less about inflation and more about unemployment.
C) If the government increases the rate of growth of the money supply, the inflation rate will
increase, ceteris paribus.
D) The elderly live on a fixed income, so the government has an obligation to keep inflation
rates low.
19) Which of the following is a normative economic statement?
A) An increase in corporate income taxes will cause the unemployment rate to increase.
B) The costs of medical care are increasing faster than the incomes of U.S. citizens.
C) Teenage unemployment is over ten percent.
D) Teenage unemployment is too high.
20) Which of the following is an example of a normative economic statement?
A) Lower income tax rates will generate greater income tax revenue to the government.
B) Income tax rates should be lower because that will increase government revenue.
C) Lower income tax rates yield a larger federal government deficit.
D) The federal budget deficit has increased every year for the last twenty years.
21) Which of the following statements concerning the distinction between positive and normative
economics is true?
A) Positive statements are concerned with what is, while normative statements are concerned
with what someone thinks should be.
B) Positive statements are concerned with what people think, while normative statements are
concerned with what people do.
C) Positive statements are true while normative statements are false.
D) Positive statements are concerned with what is while normative statements are concerned
with what will be.
22) Positive economic analysis is supposed to be
A) true. B) free of value judgments.
C)
j
ust and fair. D) moral and honest.
23) It has been noted that when the price of a good increases, people purchase less of the good. This
is an example of
A) macroeconomic analysis. B) irrational behavior.
C) normative economic analysis. D) positive economic analysis.
24) Normative economics is
A) analysis involving value judgments about economic policies; or a statement of what ought
to be.
B) analysis that is strictly limited to making either purely descriptive statements or scientific
predictions.
C) analysis of the behavior of the economy as a whole.
D) decision making undertaken by households and business firms.
25) Normative economic analysis involves
A) true statements of facts only. B) testable hypotheses by scientists.
C) value judgments and opinions. D) purely descriptive statements.
26) Which of the following is an example of a positive statement?
A) It is too hot to go jogging.
B) Ceteris paribus, a teacher should award a higher grade if you study more hours for an
economics test.
C) When the price of an item increases, people respond by reducing their consumption of the
item.
D) The government should balance the budget.
27) Which of the following is a statement with positive economic analysis?
A) Lower wages increase employment and reduce the unemployment rate.
B) Slower money growth reduces inflation.
C) A reduction in the size of the budget deficit will reduce interest rates.
D) all of the above
28) Which of the following is NOT normative economic statement?
A) The minimum wage should be eliminated so unemployment can be reduced.
B) Increases in the minimum wage cause increases in unemployment.
C) The inflation rate should fall to increase individuals well being.
D) Taxes on cigarettes should be increased to reduce smoking.
29) Which of the following is an example of a positive economic statement?
A) The unemployment rate last month was 5.4 percent.
B) The unemployment rate last month was too high.
C) Because of the high unemployment rate last month the government should increase
government spending.
D) The unemployment rate should be measured differently because it doesn t include
students who can t find jobs.
30) Normative economic analysis tends to
A) generate testable hypotheses.
B) include the way someone thinks things should be or ought to be.
C) involve descriptive statements.
D) lead to empirical testing of data.
31) Which of the following statements is true regarding the textbook used in this course?
A) The textbook presents only economic theory, so no value judgments are involved in the
text.
B) The textbook does not include normative statements.
C) The microeconomic section of the book includes only positive analysis while the
macroeconomic section includes normative analysis.
D) The selection of topics included in the book involves value judgments as well as economic
theory.
32) Analysis that involves value judgments about economic policies is
A) positive economics. B) normative economics.
C) microeconomics. D) macroeconomics.
33) Analysis that is limited to making either purely descriptive statements or scientific predictions is
A) positive economics. B) normative economics.
C) microeconomics. D) macroeconomics.
34) The term or phrase most likely to indicate a normative statement is
A) ceteris paribus. B) factual. or what is statement.
C) holding other things constant. D) should or ought to.
35)
J
ane is currently developing a model to explain the national unemployment rate. This is an
example of
A) a microeconomic topic. B) normative analysis.
C) positive analysis. D) how people act in an irrational manner.
36) How does the science of economics deal with the fact that we all have different values?
A)
b
y assuming that values don t play a role in economic behavior
B)
b
y seeking to discover the sources of different value systems
C)
b
y using positive analysis
D)
b
y surveying the public to see what the most common values are, and then incorporating
those as assumptions into their models
37) Which of the following is a positive statement?
A) An unemployment rate of 5.8 percent is too high.
B) The unemployment rate is 5.8 percent.
C) The unemployment rate should be below 5.8 percent.
D) The unemployment rate should never be above 5.8 percent.
38) Which of the following is NOT a positive statement?
A) The unemployment rate is 5.8 percent.
B) The inflation rate for 2002 was 2.3 percent.
C) The national debt is too high.
D) The federal government budget for 2004 is $2.2 trillion.
39) The difference between positive statements and normative statements is that
A) a positive statement involves a value judgment and a normative statement is a statement
of fact.
B) a positive statement is a statement of fact and a normative statement involves value
judgments.
C) value judgments are made in normative statements but assumed in positive statements.
D) normative statements are provable while positive statements are not.
40) Which one of the following is an example of a normative statement?
A) A digital camera costs more than a disposable camera.
B) Most digital cameras sold in the United States are imported from other countries.
C) A camera makes a good wedding gift.
D) More people will buy digital cameras as their prices decline.
41) Which one of the following is an example of a normative statement?
A) A vacation in Colorado is better than a vacation in Hawaii.
B) Hotels in Colorado are more expensive than are hotels in Hawaii.
C) The hotel vacancy rate in Hawaii will increase as airfares to Hawaii increase.
D) The busiest tourist month in Colorado is July.
42) Which one of the following is an example of a positive statement?
A) Farmers need some type of government aid.
B) State governments should provide economic assistance to farmers.
C) The federal government should provide economic assistance to farmers.
D) The amount of financial assistance given to farmers is higher this year than it was 10 years
ago.