Econ 202 - Study Guide Chapter 2

A diagram of the economy that shows the flow of goods and services, factors of prod., and monetary payments between households and firms

Circular-flow diagrams

Simplifications of reality based on assumptions

Economic Models

Getting maximum output from the resources available

Efficiency

Points on the production possibilities frontier are __________.

Efficient

Inputs such as land, labor, and capital

Factors of Prod.

True or False: When people act as scientists, they must try to be objective

True

True or False: Economic models must mirror reality or they are of no value

False

True or False: It is reasonable to assume that the world is composed of only one person when modeling international trade

False

True or False: Macroeconomics is concerned with the study of how households and firms make decisions and how they interact in specific markets

False

True or False: Normative statements can be refuted with evidence

False

True or False: Points outside the production possibilities frontier are attainable but inefficient

False

True or False: The production possibilities frontier is bowed outward because the trade-ff between the production of any two goods is constant

False

True or False: The statement, "An increase in inflation tends to cause unemployment to fall in the short run" is normative

False

The study of economy-wide phenomena

Macroeconomics

The study of how households and firms make decisions and how they interact in markets

Microeconomics

Prescription for how the world ought to be

Normative Statements

The scientific method requires that scientists be _________.

Objective

Whatever is given up to get something else

Opportunity Cost

Economic growth is depicted by a shift in the production possibilities frontier ___________.

Outward

Description of the world as it is

Positive Statements

A rap that shows the combinations of output the economy can possibly produce give the available factors of prod. and the available prod. technology

Prod. Possibilities Frontier

Objective development and testing of theories

Scientific Method

True or False: An advance in technology would cause the production possibilities curve to shift outward

True

True or False: Assumptions make the world easier to understand because they simplify reality and focus our attention

True

True or False: If an economy is operating on its production possibilities frontier, it must be using its resources efficiently

True

True or False: If an economy is operating on its production possibilities frontier, it must produce less of one good if it produces more of another

True

True or False: If an economy were experiencing substantial unemployment the economy is producing inside the production possibilities frontier

True

True or False: Most economists believe that tariffs and import quotas usually reduces general economic welfare

True

True or False: When economists make positive statements, they are more likely to be acting as scientists

True

In making which of the following statements is an economist acting more like a scientist? a. A reduction in unemployment benefits will reduce the unemployment rate. b. The unemployment rate should be reduced because unemployment robs individuals of their dignity. c. The rate of inflation should be reduced because it robs the elderly of their savings. d. The state should increase subsidies to universities because the future of our country depends on education.

a. A reduction in unemployment benefits will reduce the unemployment rate.

Which of the following statements regarding the circular-flow diagram is true? a. The factors of production are owned by households b. The factors of production are owned by firms

a. The factors of production are owned by households

Which of the following statements about microeconomics and macroeconomics is not true? a. The study of very large industries is a topic within macroeconomics. b. Macroeconomics is concerned with economy-wide phenomena. c. Microeconomics is a building block for macroeconomics. d. Microeconomics and macroeconomics cannot be entirely separated.

a. The study of very large industries is a topic within macroeconomics.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars."The other economist responds, "Hogwash. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!"These economists : a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

a. disagree because they have different scientific judgments.

Economic models are: a. created to duplicate reality. b. built with assumptions. c. usually made of wood and plastic. d. useless if they are simple.

b. built with assumptions.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "Hogwash. Inflation is the greatest social evil."These economists: a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

b. disagree because they have different values.

Which of the following is most likely to produce scientific evidence about a theory? a. economist employed by the AFL/CIO doing research on the impact of trade restrictions on worker's wages b. a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending

b.) a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending

Which of the following statements is normative? a. Printing too much money causes inflation. b. People work harder if the wage is higher. c. The unemployment rate should be lower. d. Large government deficits cause an economy to grow more slowly.

c. The unemployment rate should be lower.

Which of the following will not shift a country's production possibilities frontier outward? a. an increase in the capital stock b. an advance in technology c. a reduction in unemployment d. an increase in the labor force

c. a reduction in unemployment

In which of the following cases is the assumption most reasonable? a. To estimate the speed at which a beach ball falls, a physicist assumes that it falls in a vacuum. b. To address the impact of money growth on inflation, an economist assumes that money is strictly coins. c. To address the impact of taxes on income distribution, an economist assumes that everyone earns the same income. d. To address the benefits of trade, an economist assumes that there are two people and two goods.

d. To address the benefits of trade, an economist assumes that there are two people and two goods.

Which of the following is not a factor of production? a. land b. labor c. capital d. money e. All of the above are factors of production.

d. money

Positive statements are : a. microeconomic. b. macroeconomic. c. statements of prescription that involve value judgments. d. statements of description that can be tested.

d. statements of description that can be tested.

Which of the following issues is related to microeconomics? a. the impact of money on inflation b. the impact of technology on economic growth c. the impact of the deficit on saving d. the impact of oil prices on auto production

d. the impact of oil prices on auto production