Chapter 1 Practice Questions

Variables that a model tries to explain are called:

Endogenous variables

Variables that a model takes as given are called:

Exogenous variables

In an economic model:

Exogenous variables affect endogenous variables - the values of endogenous variables are determined by the equations and values of the exogenous variables.

Macroeconomic models are used to explain how ____________ variables influence ______________ variables.

Exogenous; endogenous

Important characteristics of macroeconomic models include all of the following except:

Functional relationships based on controlled experiments.

The total output of the economy can be measure as:

GDP

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:

In the long run.

Math problem on sheet of paper (17 and 20)

Look on sheet

The study of the economy as a whole is called:

Macroeconomics

Number of endogenous variables equals

Number of equations

All of the following are important macroeconomic variables except:

The marginal rate of substitution. (marginal rate of substitution is a concept in micro) - real GDP (good) - interest rate (good) - inflation rate (good)

All of the following are types of macroeconomic data except:

The price of an IBM computer. (the price of a single good is a variable in micro, macro deals with aggregate/totals) - real GDP (good) - inflation rate (good)

Which of the following statements about economic models is true?

The purpose of economic models is to show how exogenous variables affect endogenous variables.

Exogeneous Variables are:

Variables with values 'given outside' an economic model.

When studying the short-run behavior of the economy, an assumption of _________ is more plausible, and hence, prices are assumed to be __________ in the short run.

sticky/rigid prices; exogenous

An assumption of how __________ is more plausible for studying the short-run behavior of the economy, while an assumption of __________ is more plausible for studying the long run, equilibrium behavior of the economy.

sticky/rigid prices; flexible prices

Macroeconomics is:

Based on microeconomic foundations

Endogenous Variables are:

Determined within the model.