Macroeconomics CH. 1.3

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_____ can predict the impact of an economic event on economic choices. a. An economic theory b. An economic variable c. Positive economics d. Normative economics

a. An economic theory

Identify a feature of an economic theory. a. It does not spell out every detail and interrelation. b. It is based on unrealistic assumptions. c. It cannot be corroborated by facts and data. d. It contains every minute detail of the problem under consideration.

a. It does not spell out every detail and interrelation.

A simplification of economic reality that is used to make predictions about the real world is known as a(n)_____. a. economic theory b. hypothesis c. economic variable d. hypothesis testing

a. economic theory

To predict the effect of an economic event on economic choices, economic theories _____. a. concentrate on products market and not services b. focus on the average behavior of people in groups c. analyze the behavior of every member in a group d. ignore marginal analysis of an action

b. focus on the average behavior of people in groups

A(n) _____ is a measure, such as price or quantity, that can take on different values at different times. a. assumption b. variable c. forecast d. hypothesis

b. variable

Which of the following illustrates the application of the scientific method to economics? a. Two economists with different political alignments argue about the best way to solve the unemployment problem on a television talk show. b. A Ph.D. student in economics creates artificial data on the lumber market and then develops a model for his dissertation that seems to be consistent with the data. c. An economist wonders whether unemployment tends to be higher among teenagers than more experienced workers, makes a few necessary assumptions, formulates a hypothesis, and gathers data to test the hypothesis in the model. d. Economists come to believe that some economic models are true simply because prominent leading economists say they are true.

c. An economist wonders whether unemployment tends to be higher among teenagers than more experienced workers, makes a few necessary assumptions, formulates a hypothesis, and gathers data to test the hypothesis in the model.

Which of the following is the first step in the scientific method used to study economic problems? a. Formulating a hypothesis. b. Testing the validity of a hypothesis and rejecting it if its predictions are worse than the best alternative theory. c. Identifying relevant questions and defining relevant variables. d. Making required assumptions.

c. Identifying relevant questions and defining relevant variables.

Which of the following illustrates the ceteris paribus assumption? a. If a company reduces its labor costs, negotiates lower material cost from its vendors, and spends on advertising, we know that the reduced labor costs increased profits. b. If the federal government increases government spending, and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending results in a decrease in the unemployment rate. c. If the price of Pepsi decreases and there are no changes in other relevant variables such as consumer income, weather conditions, etc., we know that the decrease in price increased the quantity of Pepsi demanded. d. If the quantity demanded of a good falls when the price of a good increases, consumer income falls, and the price of substitutes increases, we can conclude that the increase in price caused the decline in quantity demanded.

c. If the price of Pepsi decreases and there are no changes in other relevant variables such as consumer income, weather conditions, etc., we know that the decrease in price increased the quantity of Pepsi demanded.

Which of the following is true? a. To identify a question and define the relevant variables is the last step under the scientific method. b. A hypothesis is a measure, such as price or quantity, that can take on different values at different times. c. To test a hypothesis is the last step under the scientific method of studying economic problems. d. Assumption refers to a theory about how key variables relate to one another.

c. To test a hypothesis is the last step under the scientific method of studying economic problems.

Positive economic statements: a. represent opinions that are subjective in nature. b. cannot be proved or disproved by reference to facts. c. can be proved or disproved by reference to facts. d. predict average group behavior and not individual behavior.

c. can be proved or disproved by reference to facts.

Which of the following is a normative economic statement? a. The U.S. unemployment rate is 9.7 percent. b. If the price of Pepsi increases, then the quantity demanded decreases. c. A ceiling on rents reduces the quantity and quality of housing available. d. The distribution of income in the United States should be more equal.

d. The distribution of income in the United States should be more equal.

Identify a positive economic statement. a. The U.S. government should take a stand on the implementation of emission standards in order to reduce global warming. b. The government should provide employment opportunities for all the citizens under the age of 65 years. c. If the price of automobiles increases, then the quantity demanded decreases. d. The government should reduce the excise duty on gasoline.

d. The government should reduce the excise duty on gasoline.

An economic theory is characterized as a good theory if: a. it benefits all members of society simultaneously. b. it is based on mathematical calculations. c. it is supported by renowned economists. d. it helps in sorting and understanding information.

d. it helps in sorting and understanding information.


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