Macroeconomics ch. 1- The Art and Science of Economic Analysis

An economic model will produce poor predictions if it included unrealistic assumptions. (T/F)

False

An economist would classify 100 shares of Apple Computer stock as capital. (T/F)

False

It is always rational to acquire more information before decision making. (T/F)

False

Profit is the payment made for land resources (T/F)

False

Profit is the payment received by resource owners for the use of their capital. (T/F)

False

The association-causation fallacy is the error of assuming that what is true for one member of a group must be true for the group (T/F)

False

The fallacy of composition is the error of believing a cause-effect relationship exists between two events that are associated in time. (T/F)

False

An increase in the price of gasoline will cause a reduction in the amount purchased is an example of a) a normative statement b) an unprovable statement c) a theoretical statement d) a positive statement e) an assumption

d) a positive statement

Which of the following is not an example of the fallacy of composition? a) If I can get to work fastest by taking the interstate, so can everyone else. b) if you can only get away from it all by going to Fairbanks, everyone who needs to get away should go to Fairbanks. c) if the quickest way to get off a sinking ship is to run to the nearest lifeboat, all the passengers should do this d) If the best TV reception can be gotten with a Couch Potato antenna, then everyone should have a Couch Potato antenna. e) If I can get a better view by standing up at the baseball game, everyone gets a better view by standing up.

d) if the best TV reception can be gotten with a Couch Potato antenna, then everyone should have a Couch Potato antenna

Scarcity is best defined as a) unlimited resources b) a shortage -- when buyers cannot obtain the goods they want c) a surplus -- when sellers cannot sell the goods they produce d) insufficient resources to satisfy unlimited wants e) the private ownership of society's resources

d) insufficient resources to satisfy unlimited wants

The difference between a good and a service is that a) a good helps satisfy unlimited wants; a service does not b) a service helps satisfy unlimited wants; a good does not c) a services is available in unlimited quantities; a good is not d) a good is available in unlimited quantities; a service is not e) a good is tangible; a service is not

e) a good is tangible; a service is not

A market... a) is often a physical space b) facilitates exchanges between buyers and sellers c) typically involves monetary transactions d) might not have well-defines geographical limits e) all of the above

e) all of the above

Which of the following is true about entrepreneurs? a) they have the talent required to dream up a new product or find a better way to introduce an existing one. b) they are rewarded by profits c) they sometimes suffer losses d) they benefit from what's left over after paying other resource suppliers e) all of the answers are correct

e) all of the answers are correct

In economics, "capital" refers to

machines, buildings, tools, and knowledge

The assumption of rational self-interest means that economic decision makers...

make reasonable decisions based on their expectations of results.

Goods and services are exchanged in...

product markets

The respective payments for the resources of natural resources, labor, capital, and entrepreneurial ability are

rent, wages, interest, profit

What is Economics?

The study of how people use their scarce resources to satisfy their unlimited wants.

An example of a positive economic statement is, "An increase in the price of a produce causes consumers to purchase more of that product." (T/F)

True

Economists often focus on average behavior because it is easier to predict. (T/F)

True

Economists classify all of the following as capital, except one. Which one is not capital? a) a $20 bill in a firm's petty cash drawer b) the building where our economics class meets c) a plumber's wrench d) a railroad car e) a factory

a) a $20 bill in a firm's petty cash drawer

In economics, the term "marginal" usually refers to a) a small change in an economic variable b) a low-quality product or resource c) an unimportant and irrelevant economic variable d) an all-or-nothing economic decision e) a footnote or minor point

a) a small change in an economic variable

Someone who committed the association-is-causation fallacy might conclude that .. a) event B which follows event A, was caused by the event A b) event B, which follows event A, was not necessarily caused by event A c) the simplest model is the best predictor d) what is true for the individual is also true for the group e) what is true for the individual is not necessarily true for the group

a) event B, which follows event A, which was caused by event A

The economic behavior of individual decision makers and the determination of price and output in specific markets are both studied in .. a) microeconomics b) macroeconomics c) positive economics d) normative economics e) disequilibrium economics

a) microeconomics

Choices made by decision makers.. a) are government decisions only b) are the primary focus of economics c) are not important in economic analysis d) occur infrequently e) do not involve ordinary citizens

b) are the primary focus of economics

Because peoples' wants are unlimited but resources are scarce, a) only the rich get everything they want b) choices must be made c) there will be more services produced than goods d) people search for spiritual fulfillment rather than material fulfillment e) poor people never get anything they want

b) choices must be made

Your friend notices that U.S. auto production and U.S. population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You gently point out to him that he a) is correct only when the economy is in a recession b) has mistakenly inferred causation from observed correlation c) has ignored secondary effects d) has committed the fallacy of composition e) is correct only when the United States enjoys economic growth

b) had mistakenly inferred causation from observed correlation

You tell your friend that the stock market does well when we have Republican presidents so you are going to vote republican in the next presidential election. Because she is such a good friend she gently points out to you that you a) are correct only when the economy is in a recession b) have mistakenly inferred causation from observed correlation c) have ignored secondary effects d) have committed the fallacy of composition e) are correct only when the United States enjoys economic growth

b) have mistakenly inferred causation from observed correlation

microeconomics is the study of ... a) marginal or inferior products b) the economic behavior of individual decision makers c) the behavior of the economy as a whole d) how to use the fewest natural resources to produce goods and services e) government's role as a producer in the economy

b) the economic behavior of individual decision makers

One might commit the fallacy of composition by concluding that... a) statements that are true during prosperity are necessarily true during depression b) what is good for the individual is necessarily good for the group c) an event that precedes another is necessarily the cause of the latter d) intentions need not coincide with actions e) the composition of a complex product is not revealed by its exterior appearance

b) what is good for the individual is necessarily good for the group

Which of the following is a positive statement? a) An unemployment rate of 7 percent or higher is a national disgrace. b) Unemployment is a less important problem than inflation. c) When the national unemployment rate is 7 percent, the unemployment rate for inner-city youth is often close to 40 percent. d) Unemployment and inflation are equally important problems. e) An inflation rate of 7 percent is too high.

c) When the national unemployment rate is 7 percent, the unemployment rate for inner-city youth is often close to 40 percent.

Which of the following is the best definition of economics? a) an investigation of the quantities and prices of the various goods produced by the nations of the world. b) a study of why inflation and unemployment periodically plague the U. S. economy c) An analysis of how individuals and societies deal with the problem of scarcity d) an examination of the role that money plays in the economy e) a study of how goods and services are distributed through the world.

c) an analysis of how individuals and societies deal with the problem of scarcity

An entrepreneur a) always makes a profit b) generally avoids risky situations c) claims the residual (i.e., whatever is left over) after other resource suppliers are compensated d) is a parasite that benefits by not paying other resources for their services e) is the manager who runs an enterprise and keeps the customers happy

c) claims the residual (i.e., whatever is left over) after other resource suppliers are compensated

The problem of scarce resources.. a) means that in some cities there are not enough jobs b) could be solved if the unemployment rate fell c) is that there are not enough resources to satisfy people's unlimited wants d) is that resources are used inefficiently e) can be solved by lowering taxes

c) is that there are not enough resources to satisfy people's unlimited wants

macroeconomics is the study of.. a) the behavior of large firms in the marketplace b) the economic behavior of individual decision makers c) the behavior of the economy as a whole d) how to use the fewest natural resources to produce goods and services e) government's role as a stabilizing influence on the economy

c) the behavior of the economy as a whole

Which of the following is the fundamental resource that is the basis of labor? a) capital b) natural resources c) time d) money e) entrepreneurial ability

c) time

Economists believe that.. a) people who choose to promote the interest of others cannot be acting rationally in their own self-interest b) people show concern only for those whom they know personally c) charitable donations would appear if tax deductions for charitable giving were eliminated d) the notion of self-interest rules out concern for others e) concern for the welfare of others is consistent with the concept of self-interest.

e) concern for the welfare of others is consistent with the concept of self-interest

Economists believe that individuals respond in a predictable way to changes in costs and benefits. The term that best describes this belief is... a) opportunity cost b) demand c) supply d) scarcity e) rational behavior

e) rational behavior

A product that is physical and tangible is referred to as a(n)

good

In economics, marginal means

incremental or decremental

In macroeconomics, we analyze...

the overall economy as a whole