Question 1

This exercise will show you how different theories (models) can lead to very different courses of action. Suppose we ask the following question: Does income inequality promote economic growth and society's overall prosperity? Suppose two economists come up with the following theories (models):
Economist A believes that wealth accumulation in just a few hands increases savings because consumption is necessarily limited. Higher savings, in turn, allow investing in new production facilities that increase the country's overall income and everybody is better off. So, Economist A advocates a non-equalitarian society.
Economist B thinks that a very unequal distribution of wealth will increase capacities of production beyond the purchasing power of an essentially poor mass of consumers. For a while, consumers will increase their consumption, and prosperity, by borrowing from the rich, but eventually they will not be able to repay their debts and the economy will collapse for lack of demand. At that point, investing in new production facilities becomes unnecessary. In conclusion, Economist B thinks that extreme income inequality is counterproductive.
a. What are the policy implications of the two theories? (In other words, does it matter which theory is correct?)
b. How would a scientist determine which theory is correct?
c. Under what conditions would each of the two models be correct? Could one use both models under different circumstances?

Accepted Answer

a. The two theories have very different ...

Question 2

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

Accepted Answer

A)   Most people who study economics are not very bright.
B)   Good economists must possess a rare combination of gifts.
C)   Economics is actually quite boring; hence, people tend to lose interest in it.
D)   Good thinkers become frustrated with economics because it is not logical or relevant.E) A) and B)
F) All of the above

Question 3

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.

Accepted Answer

A) True 
 B)False

Question 4

What is the y-coordinate?

Accepted Answer

A)   the first number of an ordered pair, which represents the point's horizontal location
B)   the second number of an ordered pair, which represents the point's horizontal location
C)   the first number of an ordered pair, which represents the point's vertical location
D)   the second number of an ordered pair, which represents the point's vertical locationE) B) and C)
F) All of the above

Question 5

When is the production possibilities frontier bowed outward?

Accepted Answer

A)   if resources are not perfectly adaptable
B)   if the amount of resources increases
C)   if the level of technology increases
D)   if opportunity costs are constantE) A) and D)
F) B) and C)

Question 6

What do the two loops in the circular-flow diagram represent?

Accepted Answer

A)   the flow of goods and the flow of services
B)   the flow of money and the flow of bonds
C)   the flow of inputs and outputs and the flow of dollars
D)   the flow of capital goods and the flow of consumer goodsE) C) and D)
F) B) and C)

Question 7

What does a circular-flow diagram do?

Accepted Answer

A)   It illustrates cost-benefit analysis.
B)   It explains how the economy is organized.
C)   It shows the flow of trade in the world.
D)   It explains how banks circulate money in the economy.E) A) and B)
F) None of the above

Question 8

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Accepted Answer

A) True 
 B)False

Question 9

What are the roles of economists when trying to explain or to improve the world?

Accepted Answer

A)   In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists.
B)   In trying to explain the world, economists are mathematicians; in trying to improve the world, they are policymakers.
C)   In trying to explain the world, economists are mathematicians; in trying to improve the world, they are scientists.
D)   In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.E) B) and C)
F) A) and B)

Question 10

When do you know an economist has crossed the line from scientist to policy adviser?

Accepted Answer

A)   when he explains just the facts
B)   when he makes positive statements
C)   when he makes normative statements
D)   when he cannot reach a conclusionE) C) and D)
F) All of the above

Question 11

How can the production possibilities frontiers shift outward?

Accepted Answer

A)   if government increases the amount of money in the economy
B)   if there is an increase in technology
C)   if resources can be moved from the production of one good to another
D)   if opportunity costs are reducedE) All of the above
F) A) and D)

Question 12

What are the foundation stones from which economic models are built?

Accepted Answer

A)   economic policies
B)   legal systems
C)   assumptions
D)   statistical forecastsE) A) and D)
F) A) and C)

Question 13

Why are graphs such as bar graphs limited?

Accepted Answer

A)   They can only show variables that are positively related.
B)   They are extremely difficult to understand.
C)   They cannot show relationships between variables.
D)   They provide information on no more than two variables.E) A) and B)
F) A) and D)

Question 14

What can good assumptions do?

Accepted Answer

A)   cause economists to leave out important variables that make their theories worthless
B)   simplify the complex world and make it easier to understand
C)   eliminate invalid causations
D)   allow economists to see the "big picture" instead of only small segmentsE) A) and C)
F) None of the above

Question 15

What markets are depicted in the simple circular-flow diagram?

Accepted Answer

A)   the market for goods and services, the financial market, and the market for the factors of production
B)   the market for the factors of production and the financial market
C)   the market for goods and services and the financial market
D)   the market for goods and services and the market for factors of productionE) None of the above
F) A) and D)

Question 16

What is NOT a common characteristic of economic models?

Accepted Answer

A)   They are often built using the tools of mathematics.
B)   They are useful to economists, but not to policymakers.
C)   They include only the important features of an economy.
D)   They are built using assumptions.E) A) and B)
F) A) and C)

Question 17

Figure 2-3 
-Refer to Figure 2-3. Which point or points are efficient?

Accepted Answer

A)   points B and E
B)   points A, B, and E
C)   point C
D)   point DE) A) and D)
F) None of the above

Question 18

What would NOT be considered a factor of production?

Accepted Answer

A)   labour
B)   land
C)   capital
D)   stocksE) B) and D)
F) B) and C)

Question 19

When an economy is operating inside its production possibilities frontier, what do we know?

Accepted Answer

A)   There are unused resources or inefficiencies in the economy.
B)   The economy is operating with efficiency.
C)   Moving to a point on its production possibilities frontier would illustrate economic growth.
D)   To produce more of one good, the economy would have to give up some of the other good.E) B) and C)
F) A) and D)

Question 20

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

Accepted Answer

A)   San Pedro experienced a reduction in unemployment.
B)   San Pedro experienced an improvement in widget-making technology.
C)   San Pedro acquired more resources.
D)   San Pedro experienced a high level of emigration out of the country.E) C) and D)
F) A) and B)

Exam 2: Thinking Like an Economist

What is NOT a common characteristic of economic models?

Correct Answer
verified

When is the production possibilities frontier bowed outward?

Correct Answer
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A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.

Correct Answer
verified

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

Correct Answer
verified

When an economy is operating inside its production possibilities frontier, what do we know?

Correct Answer
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What is the y-coordinate?

Correct Answer
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What markets are depicted in the simple circular-flow diagram?

Correct Answer
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What are the foundation stones from which economic models are built?

Correct Answer
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What do the two loops in the circular-flow diagram represent?

Correct Answer
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When do you know an economist has crossed the line from scientist to policy adviser?

Correct Answer
verified

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

Correct Answer
verified

Why are graphs such as bar graphs limited?

Correct Answer
verified

What does a circular-flow diagram do?

Correct Answer
verified

How can the production possibilities frontiers shift outward?

Correct Answer
verified

What are the roles of economists when trying to explain or to improve the world?

Correct Answer
verified

Correct Answer
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a. The two theories have very different ...
View Answer

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Correct Answer
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Figure 2-3 -Refer to Figure 2-3. Which point or points are efficient?

Correct Answer
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What can good assumptions do?

Correct Answer
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What would NOT be considered a factor of production?

Correct Answer
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Exam 2: Thinking Like an Economist

What is NOT a common characteristic of economic models?

Correct AnswerverifiedShow Answer

When is the production possibilities frontier bowed outward?

Correct AnswerverifiedShow Answer

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can possibly produce given its factors of production and technology.

Correct AnswerverifiedShow Answer

The country of San Pedro produces two goods: beach towels and soccer balls. Last year, it produced 100 beach towels and 250 soccer balls. This year, it produced 125 beach towels and 300 soccer balls. Given no other information, which of the following could NOT explain the change?

Correct AnswerverifiedShow Answer

When an economy is operating inside its production possibilities frontier, what do we know?

Correct AnswerverifiedShow Answer

What is the y-coordinate?

Correct AnswerverifiedShow Answer

What markets are depicted in the simple circular-flow diagram?

Correct AnswerverifiedShow Answer

What are the foundation stones from which economic models are built?

Correct AnswerverifiedShow Answer

What do the two loops in the circular-flow diagram represent?

Correct AnswerverifiedShow Answer

When do you know an economist has crossed the line from scientist to policy adviser?

Correct AnswerverifiedShow Answer

How did the great economist John Maynard Keynes explain his comment that although economics is an easy subject compared with the higher branches of philosophy or pure science, it is a subject at which few excel?

Correct AnswerverifiedShow Answer

Why are graphs such as bar graphs limited?

Correct AnswerverifiedShow Answer

What does a circular-flow diagram do?

Correct AnswerverifiedShow Answer

How can the production possibilities frontiers shift outward?

Correct AnswerverifiedShow Answer

What are the roles of economists when trying to explain or to improve the world?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The two theories have very different ...View AnswerShow Answer

Normative statements describe how the world is, while positive statements prescribe how the world should be.

Correct AnswerverifiedShow Answer

Figure 2-3 -Refer to Figure 2-3. Which point or points are efficient?

Correct AnswerverifiedShow Answer

What can good assumptions do?

Correct AnswerverifiedShow Answer

What would NOT be considered a factor of production?

Correct AnswerverifiedShow Answer

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a. The two theories have very different ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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