Test Item File to Accompany
Principles of
Macroeconomics - Test
Item File 1
Ninth Edition
by
Case / Fair / Oster
Prentice Hall
c.2009
10/29/08
Contents
Chapter1 TheScopeandMethodofEconomics 1
Chapter2 TheEconomicProblem:ScarcityandChoice 28
Chapter3 Demand,Supply,andMarketEquilibrium 55
Chapter4 DemandandSupplyApplications 95
Chapter5 IntroductiontoMacroeconomics 116
Chapter6 MeasuringNationalOutputandNationalIncome 139
Chapter7 Unemployment,Inflation,andLong‐RunGrowth 169
Chapter
8 AggregateExpenditureandEquilibriumOutput 199
Chapter9 TheGovernmentandFiscalPolicy 239
Chapter10 TheMoneySupplyandtheFederalReserveSystem 278
Chapter11 MoneyDemandandtheEquilibriumInterestRate 307
Chapter12 AggregateDemandintheGoodsandMoneyMarkets 340
Chapter13 AggregateSupplyandtheEquilibriumPrice
Level 383
Chapter14 TheLaborMarketintheMacroeconomy 419
Chapter15 PolicyTiming,DeficitTargeting,andStockMarketEffects 455
Chapter16 HouseholdandFirmBehaviorintheMacroeconomy:AFurtherLook 493
Chapter17 Long‐RunGrowth 535
Chapter18 DebatesinMacroeconomics:Monetarism,NewClassicalTheory,
andSupply‐SideEconomics 566
Chapter19 InternationalTrade,ComparativeAdvantage,andProtectionism 598
Chapter20 Open‐EconomyMacroeconomics:TheBalanceofPayments
andExchangeRates 635
Chapter21 EconomicGrowthinDevelopingandTransitionalEconomies 667
Chapter1 TheScopeandMethodofEconomics
1.1 WhyStudyEconomics?
1 MultipleChoice
1) WhichofthefollowingisNOTlistedinthebookasareasontostudyeconomics?
A) tolearnawayofthinking B) tounderstandsocietyandglobalaffairs
C) tobeaninformedvoter D) tolearnhowtomakelotsofmoney
Answer: D
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
2) Amongthefundamentalconceptsineconomicsare
A) opportunitycost. B) marginalism.
C) efficientmarkets. D) alloftheabove
Answer: D
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
3) Whichofthefollowingisthebestdefinitionofeconomics?
A) thestudyofhowindividualsandsocietieschoosetousethescarceresourcesthatnature
andpreviousgenerationshaveprovided
B) thestudyofhowconsumersspendtheirincome
C) thestudyofhowbusinessfirmsdecidewhatinputstohireandwhatoutputsto
produce
D) thestudyofhowthefederalgovernmentallocatestaxdollars
Answer: A
Diff:2
Topic: WhyStudyEconomics?
Skill: Definition
4) TheriseofthemodernfactorysysteminEnglandduringthelateeighteenthandearly
nineteenthcenturiesisknownasthe
A) GreatMigration. B) IndustrialRevolution.
C) WealthofNations. D) DarkAges.
Answer: B
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
1
5) WhichofthefollowingstatementsisNOTcorrect?
A) Economicsisabehavioralscience.
B) Inlargemeasure,economicsisthestudyofhowpeoplemakechoices.
C) Ifpovertywaseliminatedtherewouldbenoreasontostudyeconomics.
D) Economicanalysiscanbeusedtoexplainhowbothindividualsandsocietiesmake
decisions.
Answer: C
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
6) Thestudyofeconomics
A) isaverynarrowendeavor.
B) isawayofanalyzingdecision
-
makingprocessescausedbyscarcity.
C) isconcernedwithprovingthatcapitalismisbetterthansocialism.
D) focusesonhowabusinessshouldfunction.
Answer: B
Diff:2
Topic: WhyStudyEconomics?
Skill: Definition
7) Sunkcostsare
A) coststhatcannotbeavoided,becausetheyhavealreadybeenincurred.
B) thecostsofwhatwegiveupwhenwemakeachoiceoradecision.
C) theadditionalcostsofproducinganadditionalunitofaproduct.
D) theadditionalcostsofconsuminganadditionalunitofaproduct.
Answer: A
Diff:2
Topic: WhyStudyEconomics?
Skill: Definition
8) Supposethatyoupurchasedatickettoajazzfestivalfor$100amonthago.Lastweek
someoneinvitedyoutoahockeygameonthesamenightasthejazzfestival.Youwouldmuch
rathergotothehockeygamethanthejazzfestival.Youhavetriedunsuccessfullytosellthe
jazzfestivalticket.Whichofthefollowingstatementsregardingthissituationiscorrect?
A) The$100youpaidforthejazzfestivalticketisrelevanttothedecision,asthisrepresents
theopportunitycostofattendingthehockeygame.
B) Youshouldbaseyourdecisiononwhetherornotthehockeygamewillprovide
youwith
morethan$100insatisfaction.
C) The$100youpaidforthejazzfestivalticketshouldbeirrelevantinyourdecision
making,becauseitisasunkcost.
D) The$100jazzfestivalticketshouldbeirrelevantinyourdecisionmaking,becauseit
representsthemarginalcostofattendingthehockeygame.
Answer: C
Diff:2
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
2
9) YouhavedecidedthatyouwanttoattendacostumepartyasIronman.Youestimatethatit
willcost$40toassembleyourcostume.Afterspending$40onthecostume,yourealizethat
theadditionalpiecesyouneedwillcostyou$25more.Themarginalcostofcompletingthe
costumeis
A) $15. B) $25. C) $40. D) $65.
Answer: B
Diff:2
Topic: WhyStudyEconomics?
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
10) Theconceptofopportunitycost
A) isrelevantonlytoeconomics.
B) canbeappliedtotheanalysisofanydecision
-
makingprocess.
C) appliestoconsumersbutnottofirms.
D) refersonlytoactualpaymentsandincomes.
Answer: B
Diff:2
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
11) Opportunitycostis
A) thatwhichweforgo,orgiveup,whenwemakeachoiceoradecision.
B) acostthatcannotbeavoided,regardlessofwhatisdoneinthefuture.
C) theadditionalcostofproducinganadditionalunitofoutput.
D) theadditionalcostofbuyinganadditionalunitofaproduct.
Answer: A
Diff:2
Topic: WhyStudyEconomics?
Skill: Definition
12) Thereasonthatopportunitycostsariseisthat
A) aneconomyreliesonmoneytofacilitateexchangeofgoodsandservices.
B) resourcesarescarce.
C) therearenoalternativedecisionsthatcouldbemade.
D) peoplehavelimitedwants.
Answer: B
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
13) WhichofthefollowingisNOTanopportunitycostofattendingcollege?
A) thetuitionyoupay
B) theincomeyoucouldhaveearnedifyoudidnʹtattendcollege
C) thealternativeusesofthetimeyouspendstudying
D) thecostofthefoodthatyouconsumewhileyouareattendingcollege
Answer: D
Diff:3
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
3
14) Ifyourtuitionis$5,000thissemester,yourbookscost$600,youcanonlywork20ratherthan
40hoursperweekduringthe15weeksyouaretakingclassesandyoumake$15perhour,and
yourroomandboardis$3000thissemester,thenyouropportunitycostofattendingcollege
thissemesteris
A) $5,600. B) $5,900. C) $10,100. D) $11,600.
Answer: C
Diff:3
Topic: WhyStudyEconomics?
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
15) Ifyourtuitionis$25,000thissemester,yourbookscost$1,500,youcanonlywork20rather
than40hoursperweekduringthe15weeksyouaretakingclassesandyoumake$15per
hour,andyourroomandboardis$7,500thissemester,thenyouropportunitycostof
attendingcollege
thissemesteris
A) $26,500. B) $26,800. C) $31,000. D) $38,500.
Answer: C
Diff:3
Topic: WhyStudyEconomics?
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
16) Ifyouownabuildingandyoudecidetousethatbuildingtoopenabookstore,
A) thereisnoopportunitycostofusingthisbuildingforabookstorebecauseyouownit.
B) thereisanopportunitycostofusingthisbuildingforabookstorebecauseitcouldhave
beenusedinotherways.
C) therearenosunkcostsinvolvedinthisdecision.
D) theonlycostrelevanttothisdecisionisthepriceyoupaidforthebuilding.
Answer: B
Diff:2
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
17) YouowntheStarWarssixDVDset.TheopportunitycostofwatchingtheseDVDsforthe
secondtime
A) iszero.
B) isone
-
halfthecostoftheDVDs,asthisisthesecondtimeyouhavewatchedit.
C) isthevalueofthealternativeuseofthetimeyouspendwatchingthe
DVDs.
D) cannotbecalculated.
Answer: C
Diff:2
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
4
18) Thatwhichweforgo,orgiveup,whenwemakeachoiceordecisioniscalled
A) sunkcost. B) marginalcost.
C) realcost. D) opportunitycost.
Answer: D
Diff:1
Topic: WhyStudyEconomics?
Skill: Definition
19) Coststhatcannotbeavoided,regardlessofwhatisdoneinthefuture,becausetheyhave
alreadybeenincurredare
A) totalcosts. B) sunkcosts.
C) marginalcosts. D) allocativecosts.
Answer: B
Diff:1
Topic: WhyStudyEconomics?
Skill: Definition
20) Ifyoucanbuy9DVDsfor$126oryoucouldbuy10DVDsfor$130,thenthemarginalcostof
thetenthDVDis:
A) $4. B) $13. C) $14. D) $130.
Answer: A
Diff:2
Topic: WhyStudyEconomics?
Skill:
A
nalytic
21) Ifyoueatatasushirestaurantthatcharges$20foritsallyoucaneatsushispecial,thenthe
marginalcostofyour10thpieceofsushiis
A) zero. B) $2. C) $200. D) $2,000.
Answer: A
Diff:2
Topic: WhyStudyEconomics?
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
22) Amarketinwhichprofitopportunitiesareeliminatedalmostinstantaneouslyis
A) alaissez
-
fairemarket. B) acapitalistmarket.
C) asocialistmarket. D) anefficientmarket.
Answer: D
Diff:2
Topic: WhyStudyEconomics?
Skill: Definition
23) Ifinformationislesscostlyandmoreeasilyavailable,thenusuallythis
A) makesmarketsmoreefficient.
B) makesmarketslessefficient.
C) increasesprofitopportunities.
D) increasestheopportunitycostofacquiringmoreinformation.
Answer: A
Diff:3
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
5
24) Anefficientmarketisamarket
A) inwhicheveryonealwaysgetswhattheywant.
B) inwhichprofitopportunitiesareeliminatedalmostinstantaneously.
C) inwhichprofitsarealwaysveryhighandpersistent.
D) inwhichopportunitycostsarezero.
Answer: B
Diff:2
Topic: WhyStudyEconomics?
Skill: Definition
25) RelatedtotheEconomicsinPractice onp.6:Whichoneofthefollowingbestsupportsthe
argumentthatmostofthevalueofAppleʹsiPodisinitsconceptionanddesign?
A) AppleʹshistoryofinnovativeproductdesignincludestheearliestuseofaGraphicUser
Interface(GUI)inthehome
computermarket.
B) TheiPodwouldnothavebeenassuccessfulwithoutthedevelopmentofWebsitesthat
allowuserstopurchaseanddownloadmusic.
C) CompaniesthatassembletheiPodandthosethatmanufactureiPodcomponents
togethercaptureonlyasmallfractionoftheiPodʹsretailvalue.
D) Increasesinthecostsofcomponents
willreducetheprofitabilityoftheiPod,although
priceincreasescanbepassedontoconsumers.
Answer: C
Diff:3
Topic: WhyStudyEconomics?:EconomicsinPractice
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
26) RelatedtotheEconomicsinPractice onp.6:Whichoneofthefollowingbestexplainswhy
AppleʹsiPodisneitherapureimportnorapureexport?
A) TheiPodhasearnedalargeshareofthemarketforportablemusicplayersinboththe
UnitedStatesandotherindustrializednations.
B) Intellectual
propertylawsprotecttheiPodinbothdomesticandinternationalmarkets,
althoughenforcementofthoselawsvarieswidelybetweencountries.
C) Applestockispubliclytraded,andsocitizensofanycountrycanownApplestock.
D) TheiPodwasdesignedandissoldbyaU.S.company,butitisassembledinChina
from
partsmadeintheUnitedStatesandothercountries.
Answer: D
Diff:3
Topic: WhyStudyEconomics?:EconomicsinPractice
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
2 True/False
1) Resourcesareunlimitedinawealthysociety.
Answer: FALSE
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
6
2) Thevalueofthebestalternativeforegoneistheopportunitycostofmakingadecision.
Answer: TRUE
Diff:1
Topic: WhyStudyEconomics?
Skill: Definition
3) Opportunitycostsariseduetoscarceresources.
Answer: TRUE
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
4) Sunkcostsdonotaffectmarginaldecisionmaking.
Answer: TRUE
Diff:2
Topic: WhyStudyEconomics?
Skill: Conceptual
A
ACSB: ReflectiveThinking
5) Marginalcostsarethosethatcannotberecaptured.
Answer: FALSE
Diff:1
Topic: WhyStudyEconomics?
Skill: Fact
1.2 TheScopeofEconomics
1 MultipleChoice
1) Thebranchofeconomicsthatexaminesthefunctioningofindividualindustriesandthe
behaviorofindividualdecision
-
makingunitsis
A) positiveeconomics. B) normativeeconomics.
C) macroeconomics. D) microeconomics.
Answer: D
Diff:2
Topic: TheScopeofEconomics
Skill: Definition
2) StudyinghowthemanagementofHewlettPackarddecideshowmanycomputerstoproduce
andthepricetochargeforitscomputerswouldbeconsidered
A) descriptiveeconomics. B) empiricaleconomics.
C) microeconomics. D) macroeconomics.
Answer: C
Diff:2
Topic: TheScopeofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
7
3) StudyinghowJoshuaallocateshistimebetweenschoolandvideogamesisanexampleof
A) macroeconomics. B) microeconomics.
C) industrialorganization. D) descriptiveeconomics.
Answer: B
Diff:1
Topic: TheScopeofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
4) Thestudyofhowbenefitsaredeterminedforcityemployeeswouldbeconsidered
A) microeconomics. B) macroeconomics.
C) descriptiveeconomics. D) institutionaleconomics.
Answer: A
Diff:1
Topic: TheScopeofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
5) Inflationandunemployment
A) arethefocusofnormativeeconomics. B) areafocusofmicroeconomics.
C) areafocusofpositiveeconomics. D) areafocusofmacroeconomics.
Answer: D
Diff:1
Topic: TheScopeofEconomics
Skill: Fact
2 True/False
1) Therateofeconomicgrowthisatopicofmicroeconomics.
Answer: FALSE
Diff:1
Topic: TheScopeofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
2) Theaggregatepricelevelisatopicofmacroeconomics.
Answer: TRUE
Diff:2
Topic: TheScopeofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
8
1.3 TheMethodofEconomics
1 MultipleChoice
1) Betterinsurancebenefitsincreasetheincentiveofsomeindividualstowork.Thisstatementis
bestdescribedasa
A) positivestatement. B) Marxistideology.
C) normativestatement. D) descriptiveeconomicsstatement.
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
2) TheBureauofLaborStatisticsannouncedthattheunemploymentratefellbyonepercentage
point.Thisisbestdescribedas
A) aneconomicmodel. B) Marxistideology.
C) anormativestatement. D) descriptiveeconomics.
Answer: D
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
3) Theamountofeducationthatonehasisanimportantfactorinthedeterminationofhisorher
wagerate.Thisisbestdescribedas
A) apositivestatement. B) Marxistideology.
C) anormativestatement. D) descriptiveeconomics.
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
4) Thecostinvolvedwhenchoosingbetweenalternativesisknownasthe
A) marginalcost. B) sunkcost.
C) opportunitycost. D) normativecost.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
9
5) Positiveeconomicsisanapproachtoeconomicsthat
A) seekstounderstandbehaviorandtheoperationofsystemswhilemakingjudgments
abouttheirusefulnesstosociety.
B) analyzesoutcomesofeconomicbehavior,evaluatesthemasgoodorbad,andmay
prescribepreferredcoursesofaction.
C) appliesstatisticaltechniquesanddatatoeconomicproblems.
D) examinestherole
ofgovernmentintheeconomy.
Answer: C
Diff:1
Topic: TheMethodofEconomics
Skill: Fact
6) Normativeeconomicsisanapproachtoeconomicsthat
A) seekstounderstandbehaviorandtheoperationofsystemswithoutmakingjudgments.
B) analyzesoutcomesofeconomicbehavior,evaluatesthemasgoodorbad,andmay
prescribepreferredcoursesofaction.
C) appliesstatisticaltechniquesanddatatoeconomicproblems.
D) examinestheroleofgovernmentinthe
economy.
Answer: B
Diff:1
Topic: TheMethodofEconomics
Skill: Fact
7) Whichofthefollowingisanormativequestion?
A) WhydogasolinepricesincreasebetweenMemorialDayandLaborDay?
B) Whatwillhappentogasolineconsumptionifthefederaltaxongasolineiseliminated?
C) Toreducetheregressivenatureofthegasolineexcisetax,shouldtheportionofthe
gasolineexcisetaxpaidby
high
-
incomeindividualsbeincreased?
D) Howwilloilexplorationbeaffectedifthegovernmentsubsidizesoilproducers?
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
8) Whichofthefollowingisapositivequestion?
A) Willthelevelofteenageunemploymentincreaseiftheminimumwageisincreased?
B) Shouldtheminimumwagebesetatone
-
halftheaveragemanufacturingwageto
guaranteeindividualsadecentstandardofliving?
C) Wouldnʹtitbemoreequitableiftheminimumwageincreased
automaticallywiththe
costofliving?
D) Wouldnʹtitbebettertotrytoincreasepeopleʹswagesthroughjob
-
trainingprograms
ratherthanbyrequiringemployerstopayminimumwages?
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
10
9) HealthinsuranceshouldbeprovidedtoeverycitizeninawealthynationsuchastheUnited
States.Thisstatementisbestdescribedas
A) apositivestatement. B) anormativestatement.
C) adescriptiveeconomicsstatement. D) animplicationofanefficientmarket.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
10) ThereisgreatconcernoverthefactthatmillionsofAmericansdonothavehealthinsurance.A
studyofthecostsandbenefitsofimplementinganationalhealth
-
insuranceprogramisan
exampleof
A) laissez
-
faireeconomics. B) positiveeconomics.
C) laboreconomics. D) normativeeconomics.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
11) Descriptiveeconomics
A) identifiesactionsandreactions.
B) requiresmodelbuilding.
C) looksattheoutcomesofeconomicbehaviorandasksiftheyaregoodorbad.
D) mainlyinvolvesthecompilationofdatathatdescribephenomenaandfacts.
Answer: D
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
12) Anexampleofdescriptiveeconomicsiswhenaneconomist
A) collectsdataonthewageratesandemploymentlevelsinthefarmingindustry.
B) triestodevelopamodeltoexplainthechangesinemploymentandwagesinthefarming
industry.
C) triestounderstandtherelationshipbetweenthepriceofimportedagriculturalproducts
andthe
levelofemploymentintheU.S.farmingindustry.
D) triestodetermineifthereareanyregularpatternsintheemploymentlevelsinthe
farmingindustryandthenmakesgeneralizationsfromthesepatterns.
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
11
RefertoScenario1.1belowtoanswerthequestionsthatfollow.
SCENARIO1.1:Aneconomistwantstounderstandtherelationshipbetweenminimumwagesandthelevel
ofteenageunemployment.Theeconomistcollectsdataonthevaluesoftheminimumwageandthelevels
ofteenageunemploymentovertime.Theeconomistconcludesthat
a1%increaseinminimumwagecauses
a0.2%increaseinteenageunemployment.Fromthisinformationheconcludesthattheminimumwageis
harmfultoteenagersandshouldbereducedoreliminatedtoincreaseemploymentamongteenagers.
13) RefertoScenario1.1.Thestatementthata1%increaseintheminimumwagecauses
a0.2%
increaseinteenageunemploymentisanexampleof
A) descriptiveeconomics. B) normativeeconomics.
C) positiveeconomics. D) Marxisteconomics.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
14) RefertoScenario1.1.Thestatement,ʺtheminimumwageisharmfultoteenagersandshould
bereducedoreliminatedtoincreaseemploymentamongteenagers,ʺisanexampleof
A) descriptiveeconomics. B) normativeeconomics.
C) positiveeconomics. D) Marxisteconomics.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
15) RefertoScenario1.1.Theprocessofcollectingdataonminimumwageandteenage
unemploymentlevelsisanexampleof
A) lawandeconomics. B) economichistory.
C) econometrics. D) descriptiveeconomics.
Answer: D
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
16) RefertoScenario1.1.Thestatementthatanincreaseintheminimumwagecausesanincrease
inteenageunemploymentisanexampleof
A) descriptivereasoning. B) aneconomictheory.
C) normativeeconomics. D) deductivereasoning.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
12
17) RefertoScenario1.1.Agraphofthevalueoftheminimumwageononeaxisandthelevelof
teenageunemploymentontheotheraxisisanexampleof
A) aneconomictheory. B) aneconomicmodel.
C) inductivereasoning. D) avariabletheory.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
18) Toisolatetheimpactofonesinglefactor,economistsinvoketheassumptionof
A) inductivereasoning. B) Ockhamʹsrazor.
C) ceterisparibus. D) posthoc,ergoprompterhoc.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
19) Theprinciplethatirrelevantdetailshouldnotbeincludedinamodelisknownas
A) SayʹsIdentity. B) ceterisparibus.
C) Ockhamʹsrazor. D) Hobsonʹschoice.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
20) Economistsusethephraseʺceterisparibusʺtoexpresstheassumption
A) ʺallelseequal.ʺ B) ʺeverythingaffectseverythingelse.ʺ
C) ʺscarcityisafactoflife.ʺ D) ʺthereisnosuchthingasafreelunch.ʺ
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
21) TheLatinphraseeconomistsusethatmeansallelseequalis:
A) ʺceterisparibus.ʺ B) ʺcogitoergosum.ʺ
C) ʺcarpediem.ʺ D) ʺcaveatemptor.ʺ
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
13
22) StanleyJevons,aneconomistinthenineteenthcentury,notedahighcorrelationbetween
economicprosperityandsunspots.Basedonthisobservationhedevelopedaʺsunspottheoryʺ
ofhowtheeconomyoperated.WenowknowthatJevons
A) committedthefallacyofcomposition.
B) committedtheceterisparibuserror.
C) wastooquicktoconcludethatcorrelation
impliescausation.
D) showedgoodreasoningforthenineteenthbutnotthetwentiethcentury.
Answer: C
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
23) WhenevertheDemocratsgaincontroloftheCongress,spendingonsocialprogramsincreases;
wheneverRepublicansgaincontroloftheCongress,spendingondefenseincreases.Hence,we
knowwhatthenextpartyincontrolwilldo.Thisstatementisanexampleof
A) fallacyofinductivereasoning. B) posthoc,ergoprompterhocfallacy.
C) fallacyofcomposition. D) ceteris
paribusfallacy.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
24) IhavelivedinahouseontheMississippiRiverformanyyearsandhaveneverseenaflood.
Therefore,thereisnoreasonforanyonetobuyfloodinsurance.Thisstatementisanexample
of
A) fallacyofcomposition. B) posthoc,ergoprompterhocfallacy.
C) fallacyofinductivereasoning. D) ceterisparibusfallacy.
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
25) TheeconomywasexpandingduringalloftheyearsthatIwasastudent,butassoonasI
graduated,theeconomycontracted.Therefore,thelabormarketwaswaitinguntilIstarted
lookingforajobtocontract.Thisstatementisanexampleof
A) ceterisparibusfallacy. B) posthoc,ergoprompterhocfallacy.
C) fallacy
ofcomposition. D) fallacyofinductivereasoning.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
14
26) Experimentalresearchinsmallcitiessuggeststhatmandatingworkforwelfarerecipients
increasestheirincome.Therefore,weshouldmandateworkrequirementsforallwelfare
recipients.Thisstatementisanexampleof
A) fallacyofinductivereasoning. B) ceterisparibusfallacy.
C) fallacyofcomposition. D) posthoc,ergoprompterhocfallacy.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
27) Rentcontrollawsareimposedwhencityofficialsbelievelandlordshavebeenexploiting
tenants.Whichofthefollowingcriteriaaretheyusingtoguidetheiractions?
A) efficiency B) equity C) growth D) stability
Answer: B
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
28) Agovernmentpolicythattriestominimizeinflationandunemploymentcanbestbedescribed
astryingtoachieveeconomic
A) efficiency. B) equity. C) profitability. D) stability.
Answer: D
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
29) Redistributionofincomefromtherichtothepoorisachievedfromataxsystemthatrequires
taxestorisewithincome.Whichofthefollowingcriteriabestexplainsthegoalofthistax
system?
A) efficiency B) equity C) growth D) stability
Answer: B
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
30) Youknowthatthecomputerlabatschoolgetsverycrowdedatabout3:00p.m.Toavoidthe
crowds,youstartgoingtothecomputerlabonehourearliereveryday.Howevermany
studentsmakethesamedecision,andnowthecomputerlabbecomesverycrowdedat2:00
p.m.Thisisan
exampleofthe
A) posthoc,ergoprompterhocfallacy. B) ceterisparibusfallacy.
C) fallacyofdivision. D) fallacyofcomposition.
Answer: D
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
15
31) Italwaysrainsaboutanhourafteryoufinishwashingyourcar.Concludingthatwashing
yourcarcausedittorainisanexampleofthe
A) fallacyofcomposition. B) posthoc,ergoprompterhocfallacy.
C) fallacyofinductivereasoning. D) ceterisparibusconditions.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
32) Atapoliticalrally,youstanduptoseebetter.Everyoneelsestandsup,aswell.Thisisan
exampleof
A) ceterisparibus.
B) theposthoc,ergoprompterhocfallacy.
C) thefallacyofcomposition.
D) Ockhamʹsrazor.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
33) Youhaveobservedthateverytimeyoudo30minutesofcardioexercisebeforetakinganexam
yougetanA.YouthereforeconcludethattogetanAonanexam,allyouhavetodois30
minutesofcardioexercisebeforeyoutakeanexam.Youhavecommittedthe
A) fallacyofcomposition. B) fallacyofinductivereasoning.
C) posthoc,ergoprompterhocfallacy. D) fallacyofdivision.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
34) IfyouobservethatEventAhappensbeforeEventBhappens,andyouconcludethatEventA
causedEventB,youwouldbeguiltyofanerrorcalledthe
A) fallacyofcomposition. B) fallacyofinductivereasoning.
C) fallacyofceterisparibus. D) posthoc,ergoprompterhocfallacy.
Answer: D
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
35) Twovariablesaresaidtobe________ifonevariablechangeswhentheothervariablechanges.
A) causallyrelated B) correlated
C) statisticallyrelated D) dependent
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
16
36) Thefallacyofcompositionis
A) thebeliefthatifEventAhappensbeforeEventBhappens,thenEventAcausesEventB
tooccur.
B) thebeliefthatwhatistrueforthewholeisnecessarilytrueoftheparts.
C) thebeliefthatwhatistrueforapartisnecessarilytrueforthe
whole.
D) thebeliefthatitisimpossibletodrawgeneralizationsaboutcauseandeffect.
Answer: C
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
37) Thecollectionanduseofdatatotesteconomictheoriesis
A) empiricaleconomics. B) descriptiveeconomics.
C) normativeeconomics. D) positiveeconomics.
Answer: A
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
38) Achangeineconomicoutputispotentiallyefficient
A) ifthevalueoftheresultinggainsexceedsthevalueoftheresultinglosses.
B) ifthevalueoftheresultinggainsexactlyequalsthevalueoftheresultinglosses.
C) onlyifnooneismadeworseoff.
D) ifthevalueoftheresultinggainsis
lessthanthevalueoftheresultinglosses.
Answer: A
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
39) Anefficienteconomyisaneconomy
A) inwhichoutputissteadyorgrowingandthereislowinflation.
B) thatproduceswhatconsumersdemandanddoessoattheleastpossiblecost.
C) thatdistributesoutputequallyamongallconsumers.
D) inwhichthereisafairdistributionofwealth.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
40) Anefficientmarketischaracterizedbythefactthat
A) outputissteadyorgrowingandthereislowinflation.
B) profitopportunitiesareeliminatedalmostinstantaneously.
C) therearenoopportunitycosts.
D) wealthisdistributedfairly.
Answer: B
Diff:1
Topic: TheMethodofEconomics
Skill: Fact
17
41) Thefourcriteriathatarefrequentlyusedinjudgingtheoutcomeofeconomicpolicyare
A) efficiency,equity,stability,andeconomicgrowth.
B) efficiency,equality,stability,andeconomicgrowth.
C) efficiency,equality,profitability,andstability.
D) efficiency,equity,profitability,andstability.
Answer: A
Diff:1
Topic: TheMethodofEconomics
Skill: Fact
42) Youhavenoticedthatthereisanincreaseinthenumberofhomelesspeopleinyourcity.At
thesametimeyouobservethattherearealsoanumberofvacantapartments.Youbelievethat
thegovernmentcouldreducethenumberofhomelesspeopleiflandlordswererequiredto
renttheirapartments
forlessthantheyarecurrentlycharging.Thispolicyrecommendation
wouldbemotivatedbyconcernsover
A) efficiency. B) equity.
C) economicgrowth. D) stability.
Answer: B
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
43) Thereisapossibilitythatanationalsalestaxwillbeimplemented.Manyeconomistsargue
thatitemssuchasfoodandclothingshouldbeexemptfromsuchataxbecauselow
-
income
peoplespendagreaterpercentageoftheirincomeonthesegoodsthandohigh
-
income
individuals.Thisargumentismotivated
byconcernsover
A) economicgrowth. B) economicstability.
C) efficiency. D) equity.
Answer: D
Diff:3
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
44) Whichofthefollowingisanexampleofanormativestatement?
A) Theunemploymentrateissixpercent.
B) Thereshouldbenounemploymentinanadvancedindustrialsociety.
C) Higherpricescauseconsumerstobuyless.
D) Equilibriumpriceimpliesthatquantitydemandedequalsquantitysupplied.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
18
45) Whichofthefollowingisanexampleofapositivestatement?
A) Thereshouldbenounemploymentinanadvancedindustrialsociety.
B) Higherpricescauseconsumerstopurchaseless.
C) Consumptionshouldbedistributedfairlyinsociety.
D) Peopleshouldpolluteaslittleaspossible.
Answer: B
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
2 True/False
1) Normativeeconomicslooksatoutcomesofeconomicbehaviorandevaluatesthemasgoodor
bad.
Answer: TRUE
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
2) Positiveeconomicslooksatoutcomesofeconomicbehaviorandevaluatesthemasgoodor
bad.
Answer: FALSE
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
3) Anefficienteconomyisonethatproduceswhatconsumersdemandanddoessoattheleast
possiblecost.
Answer: TRUE
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
4) ʺCeterisparibusʺliterallytranslatedmeans,ʺbuyerbeware.ʺ
Answer: FALSE
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
5) Positiveeconomicsseekstounderstandbehavior,butnotmakejudgments.
Answer: TRUE
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
19
6) Stabilityimpliesasteadyrateofeconomicgrowthandlowinflation.
Answer: TRUE
Diff:2
Topic: TheMethodofEconomics
Skill: Conceptual
A
ACSB: ReflectiveThinking
7) Thecompilationofdatatodescribephenomenaandfactsisknownasdescriptiveeconomics.
Answer: TRUE
Diff:2
Topic: TheMethodofEconomics
Skill: Definition
1.4 Appendix:HowtoReadandUnderstandGraphs
1 MultipleChoice
RefertotheinformationprovidedinFigure1.1belowtoanswerthequestionsthatfollow.
Figure1.1
1) RefertoFigure1.1.Thereis________relationshipbetweenthedailytemperatureandthe
numberofgallonsoficecreampurchased.
A) anegative B) apositive
C) eitheranegativeorapositive D) aninverse
Answer: B
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
20
RefertotheinformationprovidedinFigure1.2belowtoanswerthequestionsthatfollow.
Figure1.2
2) RefertoFigure1.2.TheslopeofthelinebetweenPoints
A
andB is
A) 0.4. B) 1.2.
C) 2.5. D) indeterminatefromthisinformation.
Answer: A
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
3) Iftheslopeofastraightlineis
-
3.andif
Y
(thevariableontheverticalaxis)decreasesby6,
thenX(thevariableonthehorizontalaxis)will
A) increaseby2. B) decreaseby2.
C) increaseby18. D) decreaseby18.
Answer: A
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
21
RefertotheinformationprovidedinFigure1.3belowtoanswerthequestionsthatfollow.
Figure1.3
4) RefertoFigure1.3.Theslopeofthelineis
A) positive. B) negative.
C) increasingatanincreasingrate. D) decreasingatanincreasingrate.
Answer: A
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
5) RefertoFigure1.3.TheslopeofthelinebetweenPointsB andD is
A)
-
0.33. B)
-
3. C) 0.33. D) 3.
Answer: D
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
6) RefertoFigure1.3.TheslopeofthelinebetweenPointsDandC is
A)
-
0.33. B)
-
3. C) 0.33. D) 3.
Answer: D
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
7) RefertoFigure1.3.Ifa45degreelinewerealsographed,theexistinglineshownonthegraph
would________it.
A) lieabove B) liebelow
C) cross D) indeterminantfromthisinformation
Answer: A
Diff:3
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
22
8) RefertoFigure1.3.AtPoint
A
,
whatisthevalueof
Y
?
A) 10. B) 12.
C) 15. D) indeterminatefromthisinformation
Answer: B
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
9) RefertoFigure1.3.AtPoint
A
theslopeofthelineis3,soatPointD theslopewouldbe
A) greaterthan3. B) lessthan3.
C) equalto3. D) indeterminatefromthisinformation.
Answer: C
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
RefertotheinformationprovidedinFigure1.4belowtoanswerthequestionsthatfollow.
Figure1.4
10) RefertoFigure1.4.Whichofthecurvesorlineshasaslopethatisfirstpositiveandthen
negative?
A)
A
B) B C) C D) D
Answer: B
Diff:2
Topic:
A
ppendix:HowtoReadandUnderstandGraphs
Skill:
A
nalytic
A
ACSB:
A
nalyticSkills
23