Chapter 2: Thinking Like An Economists Test Questions – Flashcards
Unlock all answers in this set
Unlock answersquestion
An economic model is
answer
A. a mechanical machine that replicates the functioning of the economy. B. a fully detailed, realistic description of the economy. C. a simplified representation of some aspect of the economy. D. a computer program that predicts the future of the economy. Answer: C
question
The circular-flow diagram illustrates that, in markets for the factors of production,
answer
A. households are seller, and firms are buyers. B. households are buyers, and firms are sellers. C. households and firms are both buyers. D. households and firms are both sellers. Answers: A
question
A point inside the production possibilities frontier is
answer
A. efficient, but not feasible. B. feasible, but not efficient. C. both efficient and feasible. D. neither efficient nor feasible.. Answer: B
question
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would
answer
A. expand the production possibilities frontier. B. contract the production possibilities frontier. C. move the economy along the production possibilities frontier. D. move the economy inside the production possibilities frontier. Answer: C
question
All of the following topics fall within the study of microeconomics EXCEPT
answer
A. the impact of cigarette taxes on the smoking behavior of teenagers. B. the role of Microsoft's market power in the pricing of software. C. the effectiveness of antipoverty programs in reducing homelessness. D. the influence of the government budget deficit on economic growth. Answer: D
question
Which of the following is positive, rather than a normative, statement?
answer
A. Law X will reduce national income. B. Law X is a good piece of legislation. C. Congress ought to pass the law X. D. The President should veto law X. Answer: A
question
Classify the following topics as relating to microeconomics or macroeconomics. 1. A family's decision about how much income to save. 2. The effect of government regulations on auto emissions. 3. The impact of higher national saving on economic growth. 4. A firm's decision about how many workers to hire. 5. The relationship between the inflation rate and changes in the quantity of money.
answer
1. Microeconomics 2. Microeconomics 3. Macroeconomics 4. Microeconomics 5. Macroeconomics
question
Classify each of the following statements as positive or normative. 1. Society faces a short-run tradeoff between inflation and unemployment. 2. A reduction in the rate of money growth will reduce the rate of inflation. 3. The Federal Reserve should reduce the rate of money growth. 4. Society ought to require welfare recipients to look for jobs. 5. Lower tax rates encourage more work and more saving.
answer
1. Positive 2. Positive 3. Normative 4. Normative 5. Positive
question
Role of Assumption
answer
1. Makes it easier to understand 2. The art in scientific thinking: deciding which assumptions to make
question
Economic Models
answer
- Built with assumption - diagrams & equation - omit many detail - allows to see what's really important -simplify reality to improve our understanding of it
question
Circular-flow Diagram
answer
- Visual model of the economy - Shows how dollars flow through markets among household and firms - Markets for goods and services: Firms = seller ; Household = buyers - Markets for factors of production: Firms = buyers ; Household = sellers
question
Production Possibilities Frontier
answer
- a graph - combo of output that the economy can possibly produce - given the factors of production and production technology - points outside the frontier are not feasible given the economy's resources. - the economy can produce any combo on or inside the frontier - if the point is out, the point is infeasible - if the point is inside the shade or below the line, it is inefficient - if the point is on the line, it is efficient
question
Microeconomics
answer
the study of how households and firms make decisions and how they interact in markets
question
Macroeconomics
answer
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
question
Positive Statements
answer
- attempt to describe the world as it is - descriptive - confirm or refute by examining evidence
question
Normative Statements
answer
- attempt to prescribe how the world should be - prescriptive
