Micro Practice 2
Which of the following statements about economic models is correct? Models are not helpful in solving public policy debates. It is not appropriate for models to incorporate equations or diagrams. Models assume away irrelevant details, allowing us to see what is truly important. The more details a model includes, the better the model
Models assume away irrelevant details, allowing us to see what is truly important. Economic models omit many details in order to allow economists to see what is truly important. Similar to models in biology and physics, economic models simplify reality, using assumptions, so that we can improve our understanding of it.
It once took 90 percent of our population to grow our food but now it takes around 3 percent of the population. Which of the following statements is true? This is good for our economy because those who would have been farmers years ago can now invent new things and produce other goods. This reduction in the number of farmers has been decreased our productivity and standard of living. The government should provide subsidies to encourage more people to become farmers. This loss of agricultural jobs has caused the unemployment rate to increase by 87 percentage points.
This is good for our economy because those who would have been farmers years ago can now invent new things and produce other goods. Technological advance and increasing productivity mean that we need fewer farmers to produce the same amount of food. Both of these things are good for our overall economy and standard of living.
Economists from which administrative department help the president formulate spending plans and regulatory policies? Department of Justice Department of Labor Department of the Treasury Office of Management and Budget
Department of Labor The president receives input from economists in many administrative departments. Economists at the Office of Management and Budget help formulate spending plans and regulatory policies. Economists at the Department of the Treasury help design tax policy. Economists at the Department of Labor analyze data on workers. Economists at the Department of Justice help enforce the nation's antitrust laws.
Economists from which administrative department help design tax policy? Department of Justice Department of Labor Department of the Treasury Office of Management and Budget
Department of the Treasury The president receives input from economists in many administrative departments. Economists at the Office of Management and Budget help formulate spending plans and regulatory policies. Economists at the Department of the Treasury help design tax policy. Economists at the Department of Labor analyze data on workers. Economists at the Department of Justice help enforce the nation's antitrust laws.
A survey of professional economists revealed that more than three-fourths of them agreed with a number of statements. Which of the following statement is NOT one of those propositions? Fiscal policy has a significant stimulative impact on a less than fully employed economy. Flexible and floating exchange rates are not an effective international monetary arrangement. Tariffs and import quotas usually reduce general economic welfare. A ceiling on rents reduces the quantity and quality of housing available.
Flexible and floating exchange rates are not an effective international monetary arrangement. In surveys of professional economists, many propositions were endorsed by an overwhelming majority of respondents. Included in that list was "Flexible and floating exchange rates are an effective international monetary arrangement."
According to the circular-flow diagram, if Molly is an employee who delivers packages for Deliver Dynomite, she participates in the markets for goods and services exchanging labor for income goods and services exchanging packages for wages, rent, and profit factors of production exchanging packages for revenue factors of production exchanging labor for income
factors of production exchanging labor for income In the markets for the factors of production, households provide the inputs that firms use, such as labor, land, and capital, to produce goods and services. Therefore, Molly is participating in the factors of production by providing labor services in exchange for income.
Economists make assumptions to better match the complexity of the real world. represent their political bias. make models easier for students to understand. focus their thinking.
focus their thinking.
In the circular-flow diagram, which of the following items does NOT flow from households to firms? goods and services revenue factors of production Labor
goods and services In the market for factors of production, households sell the use of factors of production, such as labor, land, and capital, to firms. The households then use the income generated from doing this to purchase output from firms in the markets for goods and services, generating a flow of revenue from households to firms. Additional Resources
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good _________ as more of the good is produced. remains constant cannot be determined decreases increases
increases The slope of the production possibilities frontier measures the opportunity cost of one good in terms of the other. When a production possibilities frontier is bowed outward, this means that the opportunity cost of producing an additional unit of a good increases as more of the good is produced. This is because resources become less suited to producing the good you want to increase production of, so you must give up more of the other good in order to alter production of the first good.
When a government program is justified based only on the number of jobs it will create, it is known as the "broken window fallacy." it is justifiable to raise taxes to fund the program. it will be automatically approved if the unemployment rate is low. the program is most certainly an efficient use of taxpayer dollars.
it is known as the "broken window fallacy." The broken window fallacy states that when a window breaks and someone spends money to repair it, he or she has created new economic activity that would not have otherwise taken place. It is applied when a government program is justified based only on the number of jobs it will create.
In the circular-flow diagram, which of the following items does NOT flow from firms to households? goods wages output labor
labor In the markets for goods and services, firms sell output to households. The firms then use this flow of dollars to purchase factors of production from households. Therefore, wages, rent and profit also flow from firms to households in the form of income.
Positive statements are NOT made by economists speaking as scientists. claims about how the world is. descriptive. prescriptive.
prescriptive. Positive statements are descriptive because they make a claim about how the world is. When an economist uses positive statements, he is speaking as a scientist. However, when an economist uses normative statements, he is speaking as a policy adviser.
Some, but not all, government economists are employed within the administrative branch of government. Which of the following government agencies employs economists outside of the administrative branch? the Council of Economic Advisers the Federal Reserve the Department of the Treasury the Department of Justice
the Federal Reserve Economists are found both inside and outside the administrative branch of government. Outside of the administrative branch, the Federal Reserve employs hundreds of economists to analyze economic developments in the United States
Differences in scientific judgment between economists are similar to all of the following except meteorologists debating how much snow fall we will get in the upcoming blizzard doctors debating which antibiotic is appropriate for a particular infection two biologists arguing about the fairness of health insurance premiums physicists debating how much friction is caused by salt on the roads
two biologists arguing about the fairness of health insurance premiums
Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement? One economist believes that the labor market is strengthening because the unemployment rate is declining; another argues that the unemployment rate is not a good measure of the labor market's health. One economist believes that American jobs are being lost to over-seas manufacturers; another economist disputes this claim. One economist believes that when the tax on gasoline rises, people will reduce their consumption of gasoline; another economist argues that the demand for gasoline is inelastic and thus unresponsive to changes in the gas tax. One economist advises against a consumption tax because she thinks it's unfair for low-income people; another economist argues that what's fair isn't relevant.
One economist advises against a consumption tax because she thinks it's unfair for low-income people; another economist argues that what's fair isn't relevant. Economics often appear to give conflicting advice to policymakers. The two basic reasons for this are differences in scientific judgments and differences in values. Differences in scientific judgment come about when different positive views about an outcome cause economists to form different normative viewpoints. However, differences in values also play a role in explaining why different public policies are encouraged. In this case, two economists arguing about the importance of "fairness" in an economy's tax regime is an example of differences in values rather than in scientific judgment.
Some economists disagree because their scientific judgment differs. Which of the following instances best reflects this source of disagreement? One economist believes in taxing cigarette manufacturers in order to try to decrease second-hand smoke; another economist believes the government should not intervene in free markets. One economist believes that everyone should be given free health care; another economist believes that free markets should determine the distribution of health care benefits in a society. One economist believes that we should have a proportional rather than a progressive tax system; another economist believes that those in the top 5% of income earners should pay a higher percentage of their income in taxes. One economist believes that the level of household saving would not be affected by a change in the tax laws; another economist believes that taxing a household's consumption would change a household's saving behavior.
One economist believes that the level of household saving would not be affected by a change in the tax laws; another economist believes that taxing a household's consumption would change a household's saving behavior. Economists often appear to give conflicting advice to policymakers, sometimes because of differences in scientific judgments. Because economics is a young science, economists sometimes disagree about the validity of alternative theories, assumptions used in models, or the size of model parameters. These differences in scientific judgment cause economists to hold different normative views about something such as the tax system because they have different positive views about saving's responsiveness to tax incentives.
In the circular-flow diagram, which of the following do households NOT do? Produce goods and services. Sell their labor to firms. Buy goods and services that firms produce. Own the factors of production.
Produce goods and services. In the circular-flow diagram, households sell the use of their labor, land, and capital to firms in the markets for the factors of production. The flow of money they receive from doing so is used in the markets for goods and services to purchase the output those firms produce
Economists who are primarily responsible for advising Congress on economic matters work in which agency? the Department of Labor The Congressional Budget Office the Federal Reserve the Department of Justice
The Congressional Budget Office Economists are found both inside and outside the administrative branch of government. Outside of the administrative branch, Congress relies on the advice of the Congressional Budget Office to obtain independent evaluations of policy proposals.
Suppose an economy produces two goods, food and clothing. This economy always operates on its production possibilities frontier. Last year, it produced 2000 units of food and 500 articles of clothing. This year it experienced a technological advance in its clothing-making industry. As a result, this year the society wants to produce 2200 units of food and 500 articles of clothing. Which of the following statements is correct? The technological advance reduced the amount of resources needed to produce 500 articles of clothing, so these resources could be used to produce more food. In order to increase food production in these circumstances without reducing machine production, the economy must experience unemployment. Because the technological advance occurred in the clothing-making industry, increases in output can only occur in the food industry. Because the technological advance occurred in the clothing-making industry, it is not possible to increase food production without reducing clothing production below 500.
The technological advance reduced the amount of resources needed to produce 500 articles of clothing, so these resources could be used to produce more food. The production possibilities frontier shows the combinations of output that the economy can produce. A technological improvement in the production process for one of these goods would cause a production possibilities frontier to shift outward. This means that the amount of resources needed to produce 500 articles of clothing is reduced, allowing those resources to be used to produce more food.
