Macro Chapter 2

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client has requested that your consulting team expatiate on the factors that impact gasoline prices. One of the members of your​ team, Debbie, states that she has noticed that gasoline prices seem to rise in years when a National League baseball team wins the World Series. You ___________ include this observation in your report because it is ________________________________ In this​ case, correlation does not equal causation most likely due to ________________________________.

should not; correlation, not causation omitted variables

In general people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable​ skills, and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is​ diligent, intelligent, and persevering. The ________________________ implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates. The ________________________ implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.

signaling argument human capital argument

How would you represent the following​ graphically? Income inequality in the United States has increased over the past 10 years. This could best be represented with a ____________________. All the workers in the manufacturing sector in a particular country fit into one​ (and only​ one) of the following three​ categories: 31.5 percent are high school​ dropouts, 63.5 percent have a regular high school​ diploma, and the rest have a vocational training certificate. This could best be represented with a ___________________. The median income of a household in Alabama was​ $43,464 in 2012 and the median income of a household in Connecticut was​ $64,247 in 2012. This could best be represented with a___________________.

time series graph pie chart bar graph

Suppose that you are on a date with an economics​ major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. You say that positive questions ask ___________ and normative questions ask ___________. Which of the following examples do you provide as a normative​ question? A. How much does welfare drive up the​ deficit? B. How many people are on food​ stamps? C. Should welfare be​ repealed? D.What is the rate of change of disability​ enrollment? Which of the following do you provide as a positive​ question? A. Is passing on a high national debt to our children an immoral​ act? B. Will our high national debt lead to a breakdown of family​ values? C. Who is the most to blame for the national​ debt? D. How much is the national​ debt?

what is or what will be; what ought to be C. Should welfare be​ repealed? D. How much is the national​ debt?

Suppose you are on a date with an economics​ major, and you want to impress them by asking good economic questions. Two characteristics of a good economic question​ are: 1. ________________________________________. 2. ________________________________________.

1. It is important to individuals or society. 2. It can be answered.

An economist makes an assumption that each additional year of education causes future wages to rise by 11 percent. In this​ model, if a person with 12 years of education makes ​$23,500 per​ year, then a person with 4​-year college degree would earn ​$______________ per year.​ (Round your intermediate calculations to two decimal​ places.)

$35,674.65

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on​ customers' gasoline purchasing habits when they notice an increase in the price of gas. You have access to the following groups of​ people: Group Description # in Group People who have not noticed a​ gas-price increase 50 People who drive electric cars 35 People who have recently noticed a​ gas-price increase 70 People who ride their bikes to work 20 People who ride the bus 100 To set up your experiment on how​ price-increase awareness impacts customer​ behavior, you would have ____ people in your treatment group and ___ people in your control group.

70 people; 50 people

As the text​ explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is​ ____________. A. a logical​ cause-and-effect relationship. B. an ancedotal​ cause-and-effect relationship. C. a​ historical-known relationship. D. a​ mythical-known relationship. Demonstrate causation or correlation with the following​ examples: More _____________ and _______ crime rates is likely to be ______________. More _____________ and _______ employment levels is likely to be ____________. The length of​ women's skirts and stock market performance is likely to be _______________.

A. a logical​ cause-and-effect relationship. police officers; lower; causation economic growth; higher; causation correlation

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your​ client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his​ question? A. ​No, the model is a simplified representation of reality. B. ​Yes, the model includes all factors. C. ​Yes, the model includes every result from related academic papers and all industry expertise. D. ​No, since the economic convention is to limit inclusion to the top three variables. Your client becomes critical of your​ "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this​ criticism? A. Economic models are meant to exactly predict each and every outcome by using all variables. B. Even a simplified economic model can provide two standard deviations accuracy. C. Economic models are meant to be approximations that predict what happens in most circumstances. D. Even a simplified economic model can provide 99 percent accuracy. He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ____________________________ with _________________________.

A. ​No, the model is a simplified representation of reality. C. Economic models are meant to be approximations that predict what happens in most circumstances. testing its predictions; empirical data

How is the mean calculated from a series of​ observations? A. The mean is the median value of a set of observations. B. The mean is the sum values of the observations divided by the number of observations. C. It is calculated as the product of all the different items divided by the number of items. D. It is calculated as the difference of all the different items divided by the number of items. Suppose 2,016 people bought popsicles on a hot summer day. If the average number of popsicles that each person bought is 2​, the number of popsicles sold that day is ________.

B. The mean is the sum values of the observations divided by the number of observations. 4,032

A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus.​ However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model​ incorrect? A. ​No, because it is based on an incorrect assumption. B. ​No, because it predicts the outcome of increased bus ridership on average. C. ​Yes, it's possible that certain​ factors, such as the price of​ gas, were not included in the model. D. ​Yes, because it does not predict the outcome with 100 percent accuracy. How would you test this​ model? A. You should run a natural experiment by analyzing bus ridership and price changes. B. You should randomly question people to see if they prefer taking the bus to other forms of transportation. C. You should determine whether increased bus ridership implies causation or correlation. D. All of the above are appropriate ways to test your model.

B. ​No, because it predicts the outcome of increased bus ridership on average. A. You should run a natural experiment by analyzing bus ridership and price changes.

How does the sample size affect the validity of an empirical​ argument? A. The smaller the sample size the better. B. The sample size is not relevant if it is greater than 50. C. The larger the sample size the better. D. The sample size is not relevant if it is greater than 30.

C. The larger the sample size the better.

To say that economists use the scientific method means that they are using​ ___________. A. a process to develop models that are intended to exactly represent all the details of a system. B. a method to determine the best course of action for fiscal and monetary policy. C. an ongoing process to develop models of the world and then test and evaluate those models. D. a method to develop recommendations for policy makers to run economies. How do economists distinguish between models that work and those that​ don't? A. They have their models reviewed by other economists. B. They program their models into computers to test via simulation. C. They publish their model results in academic journals. D. They test their models against​ real-world data.

C. an ongoing process to develop models of the world and then test and evaluate those models. D. They test their models against​ real-world data.

Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on​ customers' gasoline purchasing habits when they notice price increases. You suggest that the team​ _____________. A. utilize artificial intelligence to model human behavior. B. develop a model that allows for scenario analysis. C. design and execute an experiment. D. collect competitor data. ​Debbie, a member of your​ team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey.​ Troy, another member of your​ team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. ​ Debbie's method is a __________ and​ Troy's method is a ___________. Group A is the __________ and Group B is the ___________.

C. design and execute an experiment. controlled experiment; natural experiment treatment group; control group

Which of the following is the best example of causation​ (versus correlation)? A. ​Women's skirts get shorter and the stock market goes up. B. The groundhog sees its shadow and winter lasts longer. C. Ice cream sales and the number of drownings. D. Oil prices go up and gasoline prices go up.

D. Oil prices go up and gasoline prices go up.

What is meant by randomization in the context of an economic​ experiment? A. Group numbers are arranged in a non-sequential order. B. Subjects are assigned to control and test groups by non-economic factors such as race. C. Economic experiments are not arranged in a logical sequence. D. Subjects are assigned by​ chance, rather than by​ choice, to a group.

D. Subjects are assigned by​ chance, rather than by​ choice, to a group.

Which of the following questions is not an example of an issue a researcher could study to contribute to the welfare of​ society? A. What will be the turnout of the next Woody Allen film in​ theaters? B. What is the average unemployment age group in a​ country? C. What will be the side effects of watching television on a​ child? D. What combination of colors can one use to paint his bedroom​ wall? Which of the following statements regarding economic questions is not​ correct? A. The questions should contribute to the welfare of society. B. The questions should be such that they can be answered with past data. C. The questions must have implication on​ individuals' choices and their budget. D. The questions should be associated with some economic research.

D. What combination of colors can one use to paint his bedroom​ wall? C. The questions must have implication on​ individuals' choices and their budget.

Which of the following is least likely to be a question or study of economic​ concern? A. What are the benefits to Tampa Bay of hosting the Super​ Bowl? B. Is anything really​ free? C. How connected is productivity and​ wage? D. What is the motivation of the Red​ Cross?

D. What is the motivation of the Red​ Cross?

Causation implies​ ____________. A. a and b are independent events. B. there is always correlation between two variables. C. if a and b occurred at the same​ time, then a was the cause of b. D. a causes b ​if, because of a​, b has occurred. An example of causation is​ ____________. A. when an NFL team wins the Super​ Bowl, stock markets close higher the following year. B. if you work fewer​ hours, you will earn less money. C. eating more ice cream cones increases the number of drownings. D. when families eat dinner​ together, it decreases the risk of drug addiction for teens.

D. a causes b ​if, because of a​, b has occurred. B. if you work fewer​ hours, you will earn less money.

Empiricism is a principle in economics that​ _________. A. gathers data using surveys. B. collects data using the scientific method. C. aggregates data to create graphs. D. uses data to test economic models.

D. uses data to test economic models.

____ ​, since this is an ________________​, which can lead to _____________________. Instead of relying on​ Debbie's college story to make a​ conclusion, you decide it is smarter to collect and analyze​ __________. A. a survey of other team​ members' anecdotes. B. a large amount of empirical data. C. a survey of anecdotes collected on the Internet. D. a small sample of empirical data.

No; argument by anecdote; wrong conclusions B. a large amount of empirical data.

The mean and the median are closely related concepts. The median is the numerical value separating the higher half of your data from the lower half. You can find the median by arranging all of the observations from lowest value to highest value and picking the middle value​ (assuming you have an odd number of​ observations). Although the mean and median are closely​ related, the difference between the mean and the median is sometimes of interest. Suppose country A has five families. Their incomes are ​$9,000​, ​$21,000​, ​$29,000​, ​$39,000​, and ​$49,000. Country​ A's median income is ​$__________​, and its mean income is ​$__________. ​(Round your responses to the nearest dollar.​) Suppose country B also has five families. Their incomes are ​$9,000​, ​$21,000​, ​$29,000​, ​$39,000​, and ​150,000. Country​ B's median income is ​$__________​, and its mean income is ​$__________. ​(Round your responses to the nearest dollar.​) Country ______has greater income inequality. Suppose you thought income inequality in the United States had increased over time. Based on your answers to this​ question, would you expect the ratio of the mean income in the United States to the median income has risen or​ fallen? Explain. A. ​Risen, because means increase but medians decrease with income. B. ​Risen, because medians increase with variance but means do not. C. ​Risen, because means change more with extreme values. D. ​Fallen, because means change less with standard deviation.

​$29000; $29400 $29000; $49600 B C. ​Risen, because means change more with extreme values.