Question 1

Albert Einstein once made the following observation about science:

Accepted Answer

A)   "The whole of science is nothing more than the refinement of everyday thinking."
B)   "The whole of science is nothing more than an interesting intellectual exercise."
C)   "In order to understand science, one must rely solely on abstraction."
D)   "In order to understand science, one must transcend everyday thinking."

Question 2

Just like models constructed in other areas of science, economic models

Accepted Answer

A)   incorporate assumptions that contradict reality.
B)   incorporate all details of the real world.
C)   complicate reality.
D)   avoid the use of diagrams and equations.

Question 3

How did the influential economist John Maynard Keynes explain his remark that though economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

Accepted Answer

A)   Most people who study economics are not very bright.
B)   Good economists must possess a rare combination of gifts.
C)   Economics is quite boring; hence, people tend to lose interest in it before mastering it.
D)   Good thinkers become frustrated with economics because it does not make use of the scientific method.

Question 4

Figure 2-3 
-Refer to Figure 2-3. Which of the following is an activity undertaken by the actors in rectangle 2?

Accepted Answer

A)   produce and sell goods and services
B)   hire and use factors of production
C)   own and sell factors of production
D)   exchange goods and services between firms and households

Question 5

Which of the following is an example of a normative, as opposed to positive, statement?

Accepted Answer

A)   Gasoline prices ought to be lower than they are now.
B)   The federal government should raise taxes on wealthy people.
C)   The social security system is a good system and it deserves to be preserved as it is.
D)   All of the above are normative statements.

Question 6

Which types of models are built with assumptions?

Accepted Answer

A)   economic models, but not models in other disciplines such as physics and biology
B)   economic models as well as models in other disciplines such as physics and biology
C)   models that are built for teaching purposes but not for research purposes
D)   bad models

Question 7

When studying the effects of changes in public policy, economists believe that

Accepted Answer

A)   it is important to distinguish between the short run and the long run.
B)   the assumptions used in studying those effects should be the same for the short run as for the long run.
C)   the short-run effects of those changes are always more beneficial to society than are the long-run effects.
D)   the long-run effects of those changes are always more beneficial to society than are the short-run effects.

Question 8

Which of the following is a correct statement about production possibilities frontiers?

Accepted Answer

A)   An economy can produce only on the production possibilities frontier.
B)   An economy can produce at any point inside or outside a production possibilities frontier.
C)   An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.
D)   An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier.

Question 9

Production is efficient if the economy is producing at a point

Accepted Answer

A)   on the production possibilities frontier.
B)   outside the production possibilities frontier.
C)   on or inside the production possibilities frontier.
D)   inside the production possibilities frontier.

Question 10

A macroeconomist - as opposed to a microeconomist - might study the effect of

Accepted Answer

A)   changes in the money supply on the inflation rate.
B)   an increase in the gas tax on fuel consumption.
C)   a technological advance on the natural gas industry.
D)   a hurricane on prices in the orange industry.

Question 11

Figure 2-5 
-Refer to Figure 2-5. The opportunity cost of obtaining 20 additional dryers by moving from point D to point A is

Accepted Answer

A)   0 washers.
B)   20 washers.
C)   40 washers.
D)   None of the above; the economy cannot move from point D to point A.

Question 12

While the production possibilities frontier is a useful model, it cannot be used to illustrate economic growth.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not correct about most economic models?

Accepted Answer

A)   They are composed of equations and diagrams.
B)   They contribute very little to economists' understanding of the real world.
C)   They omit many features of the real-world economy.
D)   In constructing models, economists make assumptions.

Question 14

In building economic models, economists often omit

Accepted Answer

A)   assumptions.
B)   theories.
C)   details.
D)   equations.

Question 15

In the circular-flow diagram,

Accepted Answer

A)   profit flows from households to firms.
B)   labor flows from households to firms.
C)   services flow from households to firms.
D)   All of the above are correct.

Question 16

Positive statements are

Accepted Answer

A)   prescriptive.
B)   claims about how the world should be.
C)   claims about how the world is.
D)   made by economists speaking as policy advisers.

Question 17

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.

Question 18

When economists are trying to explain the world, they are

Accepted Answer

A)   scientists.
B)   policy advisers.
C)   in the realm of microeconomics rather than macroeconomics.
D)   in the realm of normative economics rather than positive economics.

Question 19

Suppose an economy only produces two goods, robots and ice cream. Last month, the economy produced 10 robots and 200 gallons of ice cream. This month, the same economy produced 15 robots and 240 gallons of ice cream. Which of the following statements could explain this change?

Accepted Answer

A)   This month, the economy reduced the unemployment of its resources.
B)   This month, the economy experienced an improvement in technology.
C)   This month, the economy experienced an increase in resources
D)   All of the above are correct.

Question 20

Economists view normative statements as

Accepted Answer

A)   prescriptive, making a claim about how the world ought to be.
B)   descriptive, making a claim about how the world is.
C)   statements about the normal condition of the world.
D)   pessimistic, putting the worst possible interpretation on things.

Exam 2: Thinking Like an Economist

How did the influential economist John Maynard Keynes explain his remark that though economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

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

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Which of the following is not correct about most economic models?

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Figure 2-5 -Refer to Figure 2-5. The opportunity cost of obtaining 20 additional dryers by moving from point D to point A is

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Just like models constructed in other areas of science, economic models

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A macroeconomist - as opposed to a microeconomist - might study the effect of

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When studying the effects of changes in public policy, economists believe that

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Production is efficient if the economy is producing at a point

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Which of the following is a correct statement about production possibilities frontiers?

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In building economic models, economists often omit

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Albert Einstein once made the following observation about science:

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Which types of models are built with assumptions?

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Positive statements are

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Economists view normative statements as

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While the production possibilities frontier is a useful model, it cannot be used to illustrate economic growth.

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Figure 2-3 -Refer to Figure 2-3. Which of the following is an activity undertaken by the actors in rectangle 2?

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Which of the following is an example of a normative, as opposed to positive, statement?

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When economists are trying to explain the world, they are

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Suppose an economy only produces two goods, robots and ice cream. Last month, the economy produced 10 robots and 200 gallons of ice cream. This month, the same economy produced 15 robots and 240 gallons of ice cream. Which of the following statements could explain this change?

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In the circular-flow diagram,

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