Question 1

The television network newscaster reports that the national inflation rate the past year equaled 4 percent. This report would be of particular interest to a ____.
A) microeconomist.
B) normative economist.
C) macroeconomist.
D) Ceteris paribus .
E) social science economist.

Accepted Answer

Macroeconomists study the performance of national economies, including factors such as inflation rates.

Question 2

An economic model is:
A) a plastic scaled version of the economy.
B) a complete depiction of reality.
C) an abstraction from reality.
D) applicable to consumer behavior but not to producer behavior.
E) not an accepted tool of the economics profession.

Accepted Answer

An economic model is a simplified representation of reality that aims to capture the essence of a particular phenomenon or situation. It is not a complete depiction of reality but rather an abstraction from it, allowing economists to analyze and make predictions about economic behavior using simplified assumptions and variables.

Question 3

Complete the following analogy: A criminal is to a police artist's sketch as the economy is to:
A) money.
B) an economic model.
C) a resource.
D) Ceteris paribus.
E) scarcity.

Accepted Answer

Just as a police artist's sketch is a visual representation of a criminal, an economic model is a visual representation of the economy. It helps us to understand how different factors interact and affect the overall health of the economy.

Question 4

A model is defined as a:
A) description of all variables affecting a situation.
B) positive analysis of all variables affecting an event.
C) simplified description of reality to understand and predict an economic event.
D) prediction based on historical evidence.

Accepted Answer

A model is a simplified representation of reality that helps us understand and predict economic events. It is not a comprehensive description of all variables affecting a situation, nor is it solely based on historical evidence. A model can involve positive analysis, but this is not the only purpose of a model.

Question 5

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps?
A) Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion.
B) Gather data on crude oil prices and seemingly unrelated variables in order to look for associations, then formulate a hypothesis based on those unexpected associations.
C) Ask people in Alaska why they are not purchasing oil.
D) None of the above. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.

Accepted Answer

The economist should follow the steps of identifying the problem, developing a model based on simplifying assumptions, and testing the model to formulate a conclusion. This approach is in line with standard economic analysis and will help the economist to provide a reasoned explanation for the recent fall in prices. Option B is not the most appropriate because looking for unexpected associations is unlikely to provide a robust model, while option C is too simplistic and may not uncover the underlying economic factors driving the fall in prices. Option D is incorrect as there is no evidence to suggest that the oil industry is completely controlled by a cartel, and economic theories can still be used to explain price changes.

Question 6

An economic model is defined as:
A) a value judgment.
B) a presentation of all possible relevant real-world variables.
C) a simplified representation of the way in which facts are related.
D) data adjusted for irrational actions.

Accepted Answer

An economic model is a simplified representation of the way in which facts are related. It does not present every possible relevant variable, nor does it adjust for irrational actions. It is also not a value judgment.

Question 7

The definition of a model is a:
A) description of all variables affecting a situation.
B) positive analysis of all variables affecting an event.
C) simplified description of reality to understand and predict an economic event.
D) data adjusted for rational action.

Accepted Answer

A model is a simplified version of reality that helps us understand and predict economic events. It does not need to include all variables affecting the situation, nor does it require positive analysis or data adjusted for rational action.

Question 8

Macroeconomics deals with the analysis of all of the following questions except:
A) why do national economies grow.
B) what determines a nation's savings and investments.
C) how does a central bank influence inflation.
D) why does a country experience recessions.
E) how does Microsoft price its software packages.

Accepted Answer

Macroeconomics deals with analyzing the economy as a whole, including issues such as economic growth, inflation, and recession. How Microsoft prices its software packages is a microeconomic issue, as it pertains to a single firm rather than the entire economy.

Question 9

A model (or theory):
A) is a general statement about the causal relationship between variables based on facts.
B) helps explain and predict the relationship between variables.
C) when expressed as a downward (negatively) sloping graph implies an inverse relationship between the variables.
D) all of the above.

Accepted Answer

A model or theory is a general statement about the causal relationship between variables based on facts. It helps explain and predict the relationship between variables, and when expressed as a downward (negatively) sloping graph implies an inverse relationship between the variables. Therefore, all of the above statements are correct.

Question 10

The branch of economics that focuses on economywide variables like inflation and unemployment is called:
A) macroeconomics.
B) microeconomics.
C) free-market economics.
D) aggregate economics.

Accepted Answer

Macroeconomics is the branch of economics that studies the behavior and performance of the economy as a whole. It deals with economy-wide phenomena and aggregates such as inflation, economic growth, and unemployment.

Question 11

Which of the following markets is closely related to macroeconomics?
A) Cattle futures market.
B) Fulton's fish market.
C) Skilled labor market.
D) Nation's unemployment rate.

Accepted Answer

Macroeconomics is the study of the overall performance and behavior of the entire economy, including factors such as inflation, economic growth, and employment. The nation's unemployment rate is a key macroeconomic indicator as it reflects the overall health and performance of the labor market, which is an important component of the economy as a whole. Cattle futures market and Fulton's fish market are related to microeconomics, while the skilled labor market is a component of the overall labor market, making it more microeconomic in nature.

Question 12

A sub-discipline of economics that looks at the economy as a whole is:
A) macroeconomics.
B) microeconomics.
C) positive economics.
D) normative economics.
E) impossible to model.

Accepted Answer

Macroeconomics is a sub-discipline of economics that analyzes the overall performance and behavior of the economy, including topics such as inflation, economic growth, and unemployment. It is distinct from microeconomics, which looks at individual economic agents such as consumers and firms.

Question 13

Which of the following questions would not be studied by a microeconomist but would be studied by a macroeconomist?
A) Why do national economies grow?
B) What percentage of consumer income is spent on entertainment?
C) Why do workers prefer the 4-day workweek?
D) How is the electric industry harmed by the passage of new clean air legislation?

Accepted Answer

A macroeconomist would study factors affecting the growth of national economies, while a microeconomist would focus on individual consumer behavior and market interactions. B, C, and D could all be studied by a microeconomist, as they relate to specific consumer choices and market impacts.

Question 14

A theory is:
A) based only on critical factors or variables.
B) a simplified abstraction of the real world.
C) a detailed description of reality.
D) a and b.

Accepted Answer

A theory is based on critical factors or variables, but it is also a simplified abstraction of the real world. It is not a detailed description of reality, as it is a simplified representation. Therefore, both choices A and B are correct.

Question 15

Which of the following is a macroeconomic subject?
A) Shipping rates.
B) Price of corporate stock.
C) Market price of Japanese cars.
D) Unemployment rate in the nation.

Accepted Answer

The unemployment rate in the nation is a macroeconomic subject as it focuses on the overall state of employment in the economy as a whole, rather than the performance of individual firms or industries. Shipping rates, the price of corporate stock, and market prices of Japanese cars are all microeconomic subjects as they primarily deal with the performance and behavior of specific companies or markets.

Question 16

Economists use models to:
A) abstract from the complexities of the world.
B) understand economic behavior.
C) explain and help predict human behavior.
D) do all of the above.

Accepted Answer

Economists use models to simplify real-world complexities, better understand economic behavior, and explain and predict human behavior. Therefore, all of the options provided are correct.

Question 17

An economic model is useful only if it:
A) contains no positive statements.
B) captures all the complexities of reality.
C) yields accurate predictions.
D) has both macro- and microeconomic applications.

Accepted Answer

The usefulness of an economic model lies in its ability to accurately predict real-world outcomes. While capturing complexities and having both macro- and microeconomic applications may be desirable qualities, they are not essential for a model to be considered useful. The absence of positive statements is not a relevant criterion for evaluating a model's usefulness.

Question 18

An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus . The phrase " Ceteris paribus " means that:
A) other relevant factors like consumer incomes must be held constant.
B) the gasoline prices must first be adjusted for inflation.
C) the theory is widely accepted but cannot be accurately tested.
D) consumers' need for gasoline remains the same regardless of the price.

Accepted Answer

Ceteris paribus means that all other relevant factors must be held constant so that the effect of the rise in gasoline prices on gasoline purchases can be isolated and accurately measured. Therefore, any changes in consumer incomes or other relevant factors are assumed to be constant in this scenario.

Question 19

The basic purpose of economic models is to:
A) construct simplifying assumptions about the real world.
B) explain reality in all its complexity.
C) construct situations where controlled experiments can be carried out.
D) provide explanations for, and predictions of the relationship between variables.

Accepted Answer

Economic models are constructed to provide simplified and structured frameworks that explain and predict the relationship between different economic variables. They do not aim to replicate the complexity of the real world, but rather provide a useful tool for analyzing and understanding economic phenomena. Economic models are not generally used for controlled experiments due to the ethical and practical limitations of conducting experiments in the real world.

Question 20

When building a model, an economist must:
A) adjust for exceptional situations.
B) provide a complete description of reality.
C) make simplifying assumptions.
D) develop a set of behavioral equations.

Accepted Answer

When building a model, an economist must make simplifying assumptions as it is impossible to replicate real-life situations entirely in a model. The model can only provide a simplified representation of reality, and therefore, assumptions need to be made to reduce complexity while retaining relevance. Adjusting for exceptional situations and developing a set of behavioral equations are steps that come after making simplifying assumptions. Providing a complete description of reality is not possible, given the complexity of economic systems.

Quiz 1: Introducing the Economic Way of Thinking

The television network newscaster reports that the national inflation rate the past year equaled 4 percent. This report would be of particular interest to a ____.

An economic model is:

Complete the following analogy: A criminal is to a police artist's sketch as the economy is to:

A model is defined as a:

An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps?

An economic model is defined as:

The definition of a model is a:

Macroeconomics deals with the analysis of all of the following questions except:

A model (or theory) :

The branch of economics that focuses on economywide variables like inflation and unemployment is called:

Which of the following markets is closely related to macroeconomics?

A sub-discipline of economics that looks at the economy as a whole is:

Which of the following questions would not be studied by a microeconomist but would be studied by a macroeconomist?

A theory is:

Which of the following is a macroeconomic subject?

Economists use models to:

An economic model is useful only if it:

An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus . The phrase " Ceteris paribus " means that:

The basic purpose of economic models is to:

When building a model, an economist must: