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# Macroeconomics Study Set 43

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## Quiz 1 : A: - Limits, Alternatives, and Choices

"Economic models are somewhat like different types of maps".Evaluate.
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Economic models are necessarily a simplification of the real world.The validity of a particular economic model should be based upon a comparison of the model's predictions to observable fact.A world atlas is not the best map to use to find out how to get to Vancouver from Charlottetown, but it will tell you where South Africa is in relation to Luxembourg.If you wanted to get to Vancouver from Charlottetown, you'd need a road map of Canada.But a road map would not sufficiently describe the elevations if you were riding your bike and would not likely tell you how to find Main Street in Golden, B.C.The map you use should be judged based not on its complete accuracy and detail, but on its ability to get you where you are going.

Use marginal analysis to explain why it is possible to "have too much of a good thing".Use education as an example.
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This explanation is based on an evaluation of the marginal costs and marginal benefit of providing a good or service.We may want more education for our society, but at some point the marginal cost of providing additional education is greater than the marginal benefit of the additional education.We would have to give up too many other things to obtain the additional education.For example, would it make sense to provide additional education resources for everyone so that they can earn a Ph.D.degree? The answer is no.In this case, the marginal cost of these additional educational resources (for example, lost labour time or inefficient use of people's abilities) would not be worth the marginal benefit to society of having everyone earn a Ph.D.degree.

The distinguished economist Kenneth Boulding stated: "Theories without facts may be barren, but facts without theories are meaningless".Explain what he meant.
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Economic theories are generalizations about the economic behaviour of individuals and institutions.As generalizations or principles, they are abstractions and may not offer specific information about a particular issue that can be obtained from facts.Economic theories are barren in the sense that they offer a framework for thinking about the economic issue without a lot of the details about it.Having a lot of facts about an economic issue, however, is not very meaningful.Facts need to be arranged and organized if they are to have meaning and give insight into the issue.Economic theory offers that framework for organizing the factual information.

Explain the importance of the ceteris paribus or "other-things-equal" assumption.
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What are the three interrelated features of the economic perspective?
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What is utility and what is its relevance to rational behaviour?
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"Bad theories are abstract and therefore unrealistic; good theories are fully realistic and fit all the facts".Evaluate.
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What are the key economic concepts that pertain to the individual?
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Why have the last few years been an exciting time to study macroeconomics?
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What do economists mean when they say that "there is no free lunch"? Give another example to which this statement applies.
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Below are six statements.Indicate whether each one pertains to microeconomics (MIC) or macroeconomics (MAC).(a) "The inflation rate in Canada hit its lowest level in the last twenty years".(b) "The profits of BCE rose 20 percent during the past quarter".(c) "A drought has occurred in the Prairies.The prices for barley are expected to rise sharply".(d) "The nation's economy grew at an annual rate of 3.7 percent in the final quarter of the year".(e) "The trade surplus in Canada was $4 billion last month".(f) "General Motors plans to spend$800 million on a new automobile plant".
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What are the key economic concepts that pertain to interactions among individuals?
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What does it mean to say that theories, principles, and models are "purposeful simplifications"?
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Give one example of a positive economic statement and one example of a normative economic statement.
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What are the key economic concepts that pertain to the economy as a whole?
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Distinguish between microeconomics and macroeconomics.
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