Chapter 1 Homework

By how much did national output fall during the Great Depression? 1) 30% 2) 60% 3) 20% 4) 40%

1) 30%

Let's connect Big Ideas Six and Nine: Do you think that people in poor countries are poor because they don[t have enough money? In other words, could a country get richer by printing more pieces of paper called "money" and handing those out to its citizens? 1) No, both because printing lots of paper money will simply cause inflation, and because wealth does not originate in the supply of paper money. 2) No, because wealth does not originate in the supply of paper money. 3) No, because printing lots of paper money will simply cause inflation 4) Yes, because printing paper money will create new wealth in the country

1) No, both because printing lots of paper money will simply cause inflation, and because wealth does not originate in the supply of paper money.

Assess the validity of the following statement in terms of incentives: A scientist who earns a percentage of the profits from any new medicine he or she may invent is likely to work longer hours in a laboratory researching new cures for diseases than a scientist who will get a handshake and a thank you note from the boss if he or she invents a new medicine. 1) True. The potential for monetary reward provides an incentive to work harder. 2) False. The opportunity cost of the time is the same, whether the reward is money or a handshake for inventing a new medicine. 3) False. The opportunity cost of the time is larger if the reward is recognition from the boss. 4) False. The chance to gain recognition from the boss would outweigh any potential monetary reward.

1) True. The potential for monetary reqard provides an incentive to work harder. -the chance of earning a great deal of money would push the scientist to work harder at finding new medicines.

Some people worry that machines will take jobs away from people, making people permanently unemployed. In the United States, only 150 years ago most people were farmers. Now, machines do almost all of the farm work and fewer than 2% of Americans are farmers, yet that 2% produce enough food to feed the entire country while still exporting food overseas. What happened to all of those people who used to work on farms? 1) Most working Americans are earning a living by fixing farm equipment. So it's okay for machines to take jobs, since we'll get jobs fixing machines. 2) Now that our food can be produced by such a small group of workers, most Americans have moved on to work in other sectors of the economy. 3) Most adult males in the United States are unemployed now that the farm work is gone. 4) Both, most adult males in the United States are unemployed now that the farm wok is gone and most working Americans are earning a living by fixing farm equiptment. So it's okay for machines to take jobs, since we'll get jobs fixing the machines.

2) Now that our food can be produced by such a small group of workers, most Americans have moved on to work in other sectors of the economy.

A headline in the "New York Times" read: "Study Finds Enrollment Is Up at Colleges Despite Recession." Given what you now understand about opportunity cost, the headline should probably read: "Study Finds Enrollment Is Up at Colleges ___________ Recession." 1) due to 2) either due to or because of 3) in Spite of 4) Because of

2) either due to or because of -the recession has decreased the opportunity cost of college and has caused the increased college enrollment.

According to the United Nations, there were roughly 300 million humans on the planet 1,000 years ago. Essentially all of them were poor by modern standards: They lacked antibiotics, almost all lacked indoor plumbing, and none traveled faster than a horse or a river could carry them. Today, between 1 billion and 3 billion humans (out of about 7 billion total humans) are poor. What happened to the total number of people living in deep poverty? 1) it remained the same 2) it rose 3) it fell 4) the answer is impossible to determine from the given information

2) it rose

In recent years, Zimbabwe has had hyperinflation, with prices tripling (or more!) every month. According to what you learned in this chapter, what do you think the government can do to end this hyperinflation? 1) Set a minimum legal price for goods 2) Print less money 3) Set a maximum legal price for goods 4) Print more money

2) print less money

Part of the reason the Great Depression was so destructive was that economists didn't understand how to use government policy very well in the 1930s. Does this mean that we should lost confidence about the know-how of economists? 1) No. Economists have mathematical models that will perfectly predict booms and busts in the economy. They were able to predict the Great Depression and its outcome on the economic variables. 2) No. Economics is a perfect science. The Great Depression was so destructive because the government at that time ignored the advice of economists. 3) No. Economics is not a perfect science, since there are so many variables. Furthermore, economic conditions are continuously changing. Today, the tools of monetary and fiscal policies are better understood to reduce swings in unemployment and GDP. 4) Looking back, the Great Depression was not that bad. Economists were correct all along.

3) No. Economicss is not a perfect science, since there are so many variables. Futhermore, econmic conditions are continuously changing. Today, the tools of monetary and fiscal policies are better understood to reduce swings in unemployment and GDP.

Economics is sometimes called "the dismal science." Of the following big ideas in Chapter 1, which one sounds dismal- like bad news? 1) the importance of wealth and economic growth 2) institutions matter 3) economic booms and busts cannot be avoided but can be moderated 4) incentives matter

3) economic booms and busts cannot be avoided by can be moderated

According to the United Nations, there were roughly 300 million humans on the planet 1,000 years ago. Essentially all of them were poor by modern standards: They lacked antibiotics, almost all lacked indoor plumbing, and non traveled faster than a horse or a river could carry them. Today, between 1 billion and 3 billion humans (out of about 7 billion total humans) are poor. So, over the last 1,000 years, what has happened to the fraction of humans who are poor? 1) it rose 2) the answer is impossible to determine from the given information 3) it fell 4) it stayed about the same

3) it fell

Ending hyperinflation in an economy is like an obese person trying to lose 100 pounds. Why? 1) ending hyperinflation in an economy, just like an obese person trying to lose 100 pounds, is an art 2) they will both always come back to where they were. That is, an economy cannot permanently get rid of hyperinflation and an obese person who has lost 100 pounds will sooner or later gain back the pounds lost 3) they are both difficult to do and will require lots of sacrifice 4) they both necessitate a lot of luck

3) they are both difficult to do and will require lots of sacrifice

Nobel Prize-winner Milton Friedman said that a bad central banker is like a "fool in the shower." In a shower, of course, when you turn the faucet to change the temperature of the water, there won't be an actual change in the temperature for a few seconds. So if a "fool in the shower" is always making big changes in the temperature based on how the water feels right now, the water is likely to swing back and forth between too hot and too cold. How does this apply to central banking? 1) the central bank is a ridiculous institution that does more harm than good in the economy. 2) Both, it takes a fairly long time for the central bank decisions to trickle through the economy, and the central bank is a ridiculous institution that does more harm than good in the economy. 3) It doesn't. Friedman didn't know anything about central banking 4) It takes a fairly long time for central bank decisions to trickle through the economy.

4) It takes a fairly long time for central bank decisions to trickle through the economy

How do specialization and trade help you to avoid boredom and ignorance 1) Trade causes us to consume less, so we have to find other things to keep our attention. 2) Specialization allows people to learn a lot about everything so they are not bored. 3) Trade allows us to meet new people, so we aren't bored. 4) Specialization allows people to focus on one thing, thus learning more about it, than if they had to learn a little about eerything, alleviating ignorance; trade introduces us to new items to prevent boredom

4) Specializtion allows people to focus on one thing, thus learning more about it, than if they had to learn a little about everything, alleviating ignorance; trade introduces us to new items to prevent boredom. -the division of knowledge allows for total knowledge to increase an new items prevent boredom.

When bad weather in India destroys the crop harvest, does this sound like a fall in the total "supply" of crops or a fall in people's "demand" for crops? 1) fall in demand 2) fall in both supply and demand 3) fall in either supply or demand 4) fall in supply

4) fall in supply -the loss of crops decreases the quantity of crops avaialble in the marketplace.

Which government agency might have helped to avoid much of the Great Depression had it acted more quickly and appropriately? 1) Congress 2) the office of the President 3) the Federal Trade Commission 4) the U.S. Federal Reserve

4) the U.S. Federal Reserve

Nobel Prize- winner and "New York Times" columnist Paul Krugman has noted that economics is a lot like medicine: Knowledge is limited and many cures are quite painful. What are come other ways that economics and medicine are alike? 1) they are both perfect sciences. That is, there is always a perfect remedy to cure every problem 2) they are similar because lags do not exist when a cure is applied in either field 3) neither field has changed a lot since its inception 4) they are not perfect sciences. You are never 100% sure of the consequences and outcome of a remedy. Medicine is a practice and economics is also a practice.

4) they are not perfect sciences. You are never 100% sure of the consequences and outcome of a remedy. Medicine is a practice and economics is also a practice