MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Disagreements over positive statements 1) _______ A) cannot arise because positive statements are facts. B) are best handled by an appeal to the facts. C) arise from the failure to distinguish between a positive and a normative statement. D) never occur. E) are basically devoid of any emotion. 2) A positive statement is one that states A) what is desirable. B) what is, was, or will be. C) what is and what should be. D) what should be but is not. E) non-negative numbers. 2) _______ 3) Positive statements A) are seldom employed in social sciences like economics. B) form the basis of all normative arguments. C) have been verified by appeal to factual evidence. D) are falsifiable in principle by appeal to factual evidence. E) have no place in economics because economics deals only with value judgments. 3) _______ 4) Which of the following is a positive statement? A) Corporations in the United States should pay more taxes. B) There should be one price for gasoline throughout the United States. C) The United States should reduce its imports of consumer goods. D) The higher the price for gasoline, the less of it will be consumed. E) Substitutes for fossil fuels should be developed. 4) _______ 5) A normative statement A) has no place in the study and practice of economics. B) can be derived logically from facts. C) is a statement that is empirically testable. D) concerns what is provable. E) is one that involves a value judgment. 5) _______ 6) Which of the following is a normative statement? A) Reducing unemployment is more important than reducing inflation. B) The sun rises in the west and sets in the east. C) Bill Gates is the wealthiest person in the world. D) An increase in the price of lumber is followed by a decrease in the construction of new houses. E) A government deficit will reduce unemployment and cause an increase in prices. 6) _______ 7) Which of the following is a normative statement? A) A free-trade agreement between two countries will result in an increase in trade. B) Tuition fees should be waived for low-income students. C) The higher is the level of taxes, the higher are wage demands. D) A reduction in export taxes on petroleum would result in higher wages. E) The higher is the level of taxes, the lower is consumption spending. 7) _______ 8) Suppose an economist tells you that the U.S. unemployment rate last year was 4.5 percent. This is an example of a(n) ________ statement. A) induced B) autonomous C) positive D) normative E) imputed 8) _______ 9) Suppose an economist tells you that, on average, people in the United States have too much personal debt. This is an example of a(n) ________ statement. A) induced B) positive C) autonomous D) independent E) normative 9) _______ 10) Which of the following statements belongs more properly in the field of normative economics than positive economics? A) The price of one U.S. dollar is 0.74 euros. B) Technological change has reduced the cost of long-distance phone service. C) When a drought occurs, the price of vegetables tends to rise. D) Farmers should be subsidized by the government. E) An increase in the minimum wage leads to more unemployment. 10) ______ 11) Value judgments A) are subjective opinions that cannot be proven. B) should be the only basis for public policies. C) are the basis for all economic models. D) can be tested and verified. E) are basically the same for all individuals. 11) ______ 12) Which of the following best describes the relationship between positive and normative statements in economics? A) Normative statements evaluate the desirability of certain economic changes; positive statements do not. B) Normative statements are those with which all economists agree; positive statements may give rise to some disagreement. C) Economists generally agree with each other regardless of whether a question is positive or normative. D) Neither positive nor normative statements are concerned with the desirability of certain economic changes. E) Positive and normative statements are alternate ways of describing the desirability of certain economic policies. 12) ______ 13) A theory A) enables one to make prophesies about the future. B) assumes definitions for variables. C) is used to impose order on the world. D) is a scientific idea without useful application. E) is an explanation of how events are linked together. 13) ______ 14) An assertion about the desirability of reducing unemployment by lowering payroll taxes is most like ly 14) ______ A) a theory. B) a positive statement. C) a testable proposition. D) a hypothesis. E) a normative statement. 15) Variables A) are magnitudes that can take on different possible values. B) provide an explanation of the variability of economic data. C) are deduced from the assumptions. D) explain the relationship among hypotheses. E) outline the conditions under which the theory applies. 15) ______ 16) An economic theory requires all of the following EXCEPT: A) a set of value judgments to interpret the empirical evidence. B) a set of assumptions about the conditions under which the theory applies. C) a set of definitions of the variables to be considered. D) assumptions about motives of the people or firms involved. E) a set of hypotheses about the relationships between the variables. 16) ______ 17) Choose the statement that best describes how endogenous variables differ from exogenous variables. A) An endogenous variable is a flow, while an exogenous variable is a stock. B) An exogenous variable is a function of the endogenous variable, and both are flow variables. C) An endogenous variable is explained outside the theory and influences an exogenous variable in a way determined by the theory. D) An endogenous variable is explained within the theory, while an exogenous variable influences the endogenous variables but is determined outside the theory. E) An endogenous variable is a function of the exogenous variable, and both are stock variables. 17) ______ 18) Suppose there is a theory that several things influence the price of fish in Boston, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is A) a stock, as it influences the quantity of fish caught. B) an act of God and, therefore, has no legitimate connection with the theory. C) an exogenous variable, as it is determined outside the theory. D) an endogenous variable, as it is determined within the theory. E) an endogenous variable, as it influences the price of fish. 18) ______ 19) The statement that a country's rate of economic growth is influenced by its firms' investment behavior is an example of a(n) A) theory. B) variable. C) normative statement. D) economic law. E) prediction. 19) ______ 20) The statement that a two-percent increase in the money supply leads to a two-percent increase in the price level is an example of a(n) 20) ______ A) B) C) D) E) variable. normative statement. assumption. hypothesis. model. 21) Which of the following statements is FALSE? A) A variable can take on different values. B) Confronting its predictions with evidence tests a theory. C) If predictions are logically deduced from assumptions, the predictions are necessarily true. D) A theory consists of definitions, variables, assumptions, hypotheses, and predictions. E) A hypothesis is a conditional statement. 21) ______ 22) The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of a(n) A) model. B) assumption. C) prediction. D) normative statement. E) theory. 22) ______ 23) A valid theory A) extrapolates from the past behavior of a variable to predict its future course. B) appeals to the law of large numbers. C) allows one to prove irrefutably one's hypothesis. D) allows one to deduce a normative statement. E) generates a hypothesis that can predict future events. 23) ______ 24) A theory A) will be useful as long as it is logically consistent. B) will be useful only if all human behavior is rational. C) must be judged on its ability to explain and predict real-world phenomena. D) will predict more accurately if it contains a greater number of mathematical equations. E) is only useful if its underlying assumptions are realistic. 24) ______ 25) Which of the following pairs of words have similar meanings? A) endogenous and autonomous B) independent and exogenous C) induced and autonomous D) induced and exogenous E) dependent and exogenous 25) ______ 26) The statement that a country's rate of GDP growth is influenced by individuals' saving behavior is an example of a(n) A) prediction. B) economic law. C) normative statement. D) variable. E) theory. 26) ______ 27) Economists build models that abstract from the complexities of reality because A) the complexities of reality are unimportant. 27) ______ B) C) D) E) they believe they gain a greater understanding of reality. it is easier to do so. economists do not understand the real world. economists are not interested in reality. 28) Suppose an individual wheat farmer's income is influenced by the region's average daily temperature. When examining the determinants of individual farmer income, the average daily temperature is a(n) ________ variable. A) flow B) dependent C) exogenous D) induced E) endogenous 28) ______ 29) Suppose we have data for 1000 students for a period of one year. The data show that those students who spend more hours studying have a higher grade point average (GPA). We can say that A) if hours of study time increase, then GPA will automatically increase. B) having a higher GPA leads students to spend more time studying. C) there is a positive correlation between hours of study time and GPA. D) there is a causal relationship between hours of study time and GPA. E) more hours spent studying leads to a higher GPA. 29) ______ 30) Suppose economists at the World Bank discover a positive correlation between family income and female education levels in developing countries. We can say that A) an increase in family income causes an increase in female education levels. B) the correlation is inconsistent with a theory that an increase in female education levels causes an increase in family income. C) an increase in female education levels causes an increase in family incomes. D) the observed correlation is consistent with a theory that an increase in female education levels causes an increase in family income. E) there is a causal relationship between family income and female education. 30) ______ 31) When using statistics in economics, the possibility of error A) cannot be controlled. B) cannot be eliminated. C) cannot be evaluated. D) can be eliminated with more sophisticated statistical techniques. E) is not considered to be important. 31) ______ 32) Suppose that a particular theory predicts that on sunny days consumption will rise and that on cloudy days consumption will fall. If an economist tests this theory and finds that over a six-month period the theory predicts accurately, the economist would likely say A) the evidence fails to reject the theory. B) the theory has been proven correct. C) that the theory is not useful because consumption involves irrational human behavior. D) the theory is always reliable. E) the theory shouldn't be taken seriously. 32) ______ 33) A hypothesis (or a prediction) is a statement about A) those things which we believe to be true, but cannot prove. B) what will happen in the future. 33) ______ C) how two or more variables are related to each other. D) how assumptions affect theories. E) the relationship between facts explained by the hypothesis. 34) A scientific prediction is A) a prophesy of how the future will unfold. B) a causal statement of the following form: A will occur because B occurred. C) a conditional statement of the following form: if A occurs, then B will follow. D) not testable. E) always based on the law of large numbers. 34) ______ 35) Each of the following is an example of a hypothesis EXCEPT: A) If the price of a movie ticket increases, then John will attend fewer movies. B) If the movie is starring Harrison Ford, then Charles and John will both attend. C) If the theatre catches on fire, then people will leave the theatre. D) If Charles attends the movie, then John will not attend. E) Charles does not enjoy movies. 35) ______ 36) Of the following, which is the most important characteristic of a successful theory? A) the theory could never be refuted. B) the theory adequately explains all economic behavior. C) the theory allows us to predict behavior reasonably accurately. D) all assumptions on which the theory is based are true. E) the theory provides a basis for facts about economic behavior. 36) ______ 37) When an economist assumes that the owners of firms are motivated only by the desire to maximize profits, the economist most likely believes that A) all people enter business for their own selfish gain. B) it doesn't matter whether or not the assumption is descriptively accurate; what matters is whether a theory built on the assumption predicts well. C) the assumption is inaccurate, since surveys have been taken and the owners of firms have admitted that they care about more than just profits. D) individuals entering business are quite narrow in their personal objectives. E) the assumption is descriptively accurate, since surveys have been taken and the owners of firms have admitted that their only objective is to maximize profits. 37) ______ 38) An economic model that contains a highly realistic set of assumptions is A) not likely to be useful because of its particularized nature and its intractability. B) superior to a model whose assumptions are highly unrealistic. C) more abstract than a model whose assumptions are further removed from reality. D) necessarily better able to predict the future. E) useful because there is then very little difference between "theory" and "reality". 38) ______ 39) The assumptions of a theory A) must be realistic if the theory is to be of any use. B) are to be as unrealistic as possible. C) are not necessary for the scientific approach. D) should never be based in any way on actual human behavior. E) are indirectly refuted if and when the theory itself is rejected by empirical observation. 39) ______ 40) The scientific approach to economic inquiry involves all of the following EXCEPT: A) controlling for the possibility of error. 40) ______ B) C) D) E) observing the real world. formulating a model to generate predictions. testing the predictions with empirical data. testing the reality of the assumptions of the model. 41) Economics is scientific because A) economists use data. B) economists can conduct laboratory experiments. C) individual behavior is predictable. D) it tests hypotheses by appealing to evidence. E) money can be used to measure value. 41) ______ 42) Which of the following statements is NOT correct? A) Normative statements cannot be tested by the scientific method. B) Economic predictions will be fulfilled when their underlying hypotheses conform to actual human behavior. C) Economic statements cannot be tested because human decisions involve free will. D) Exposing them to empirical evidence can best test positive statements. E) Economists test their theories by confronting the predictions of their theories with the evidence drawn from the real world. 42) ______ 43) Economic theories A) cannot help to predict future behavior. B) must apply to all economies to be true. C) are not useful because of the unrealistic assumptions they contain. D) cannot be tested because we cannot do economic "experiments". E) can be used to help explain and predict economic behavior. 43) ______ 44) Using the scientific method to approach an economic issue involves A) finding the correct data to validate the theory. B) seeking agreement from colleagues regarding the correctness of the theory. C) considering stock and flow variables. D) formulating normative statements about it. E) setting up a theory to explain it and then determining if the theory can be refuted by evidence. 44) ______ 45) In order to test a theory, one must A) develop a better explanation than the one presented. B) use assumptions that most closely reflect reality. C) present a series of normative statements and positive statements. D) confront the predictions of the theory with evidence. E) develop normative statements from the law of large numbers. 45) ______ 46) An economic hypothesis will be rejected when A) the possibility of error has been completely eliminated. B) one or more of the assumptions on which it is based fails to conform with reality. C) the probability that it is wrong, based on empirical observation, is judged to be unacceptably high. D) a single empirical observation is encountered in which its predictions fail. E) it is shown to be wrong with certainty by empirical observation. 46) ______ 47) Suppose that a particular theory predicts that on Monday, Wednesday, and Friday the stock mar ket will rise and 47) that on Tuesday and Thursda y the stock market will fall. If an economis t tests this theory and finds that over a six-mont h period the theory predicts accuratel y, the economis t would likely say that the theory A) B) C) D) E) ___ ___ has been proven correct. is reliable. is not rejected by the evidence. is not useful because stock markets involve irrational human behavior. shouldn't be taken seriously. 48) The use of statistics in economics is A) to study how the economic system should perform basic economic functions. B) for descriptive purposes only. C) entirely devoid of ethical judgments. D) to test hypotheses and to estimate the values of variables in economic theories. E) to model nature. 48) ______ 49) If a hypothesis is tested and rejected, A) inquiry into the matter should cease. B) a new hypothesis is usually suggested and tested. C) it is rejected with certainty, because it is not possible to reject a hypothesis that is actually true. D) the statistical tolerance of risk for accepting a false hypothesis should be increased. E) the original data and assumptions should be discarded. 49) ______ 50) As a science, economics is disadvantaged in that A) some economic variables are determined within the theory. 50) ______ B) it is usually not possible to conduct controlled experiments in economics, in contrast with certain other sciences. C) economic variables do not change enough to provide reliable data for testing hypotheses. D) economic hypotheses cannot be accepted with complete certainty, by contrast with the other sciences. E) it deals with human behavior and thus is not open to empirical testing. 51) Most economists believe that economics ________ be made completely value-free, in part because it is ________ to absolutely refute a theory on the basis of factual evidence. A) can; impossible B) will; necessary C) can; possible D) cannot; impossible E) cannot; possible 51) ______ 52) An economist collects data comparing per-capita expenditures on education across states for the year 2008. The best way to illustrate this data is A) a time-series bar chart diagram. B) a time-series line graph. C) a cross-sectional bar-chart graph. D) a scatter diagram. E) a logarithmic scale diagram. 52) ______ 53) An economist has data showing U.S. GDP for the years 1945-2008. The best way to illustrate these date is A) a cross-sectional bar-chart graph. B) a scatter diagram. C) a time-series line graph. D) a time-series bar chart diagram. E) a logarithmic scale diagram. 53) ______ 54) An economist has data showing household income and energy consumption for households. The best way to illustrate these data is A) a logarithmic scale diagram. B) a time-series line graph. C) a time-series bar chart diagram. D) a cross-sectional bar-chart graph. E) a scatter diagram. 54) ______ 55) Data collected repeatedly over successive periods of time are called A) time-analysis data. B) logarithmic data. C) cross-sectional data. D) topographic data. E) time-series data. 55) ______ 56) Data collected of several variables but for the same time period are called A) time-series data. B) time-analysis data. C) cross-sectional data. D) topographic data. E) logarithmic data. 56) ______ 57) A scatter diagram A) shows the dependence of one variable on another. B) relates cross-sectional data only. C) is a graph of a theoretical relationship between two variables. D) relates time series data only. E) plots a series of observations, showing the relationship between two variables. 57) ______ 58) When it is said that variable A depends on variable B, then A is A) a function of B. B) proportional to B. C) a derivative of B. D) partially exclusive of B. E) independent of B. 58) ______ 59) A functional relationship can be expressed in A) a graph. B) a numerical table. C) words. D) a mathematical equation. E) all of the above. 59) ______ 60) When an increase in one variable is associated with a decrease in a second variable, the two variables are A) proportionally related. B) inversely proportionally related. C) equivalent. D) negatively related. E) positively related. 60) ______ 61) When considering how a family's level of consumption changes in response to changes in its income, A) consumption is the dependent variable and income is the independent variable. B) income is the dependent variable and family consumption is the independent variable. C) both of the variables are independent. D) both of the variables are dependent. E) there is no relationship between the variables. 61) ______ 62) The mathematical expression of a relationship between two or more variables is usually known as A) an observation. B) an assumption. C) a theory. D) a definition. E) a function. 62) ______ 63) The statement "Y is a function of X" means that the A) values of Y and X are independent. B) value of Y depends on that of X. C) values of Y and X are the same. D) values of Y and X are related to some third variable. E) value of X depends on that of Y. 63) ______ 64) When an increase in one variable is associated with an increase in a second variable, the two variables are A) proportionally related. B) positively related. C) negatively related. D) equivalent. E) inversely proportionally related. 64) ______ 65) Negatively related variables change such that as the value of one variable A) increases, the value of the other variable remains the same. B) increases, the value of the other decreases. C) decreases, the value of the other variable remains the same. D) increases, the value of the other variable increases. E) decreases, the value of the other variable decreases. 65) ______ 66) Positively related variables change such that as the value of one variable A) decreases, the value of the other variable increases. B) increases, the value of the other variable decreases. C) increases, the value of the other variable remains the same. D) decreases, the value of the other variable decreases. E) decreases, the value of the other variable remains the same. 66) ______ 67) If Y is an increasing function of X, then A) Y increases when X increases. B) Y increases when X decreases. C) X decreases when Y increases. D) X remains constant as Y increases. E) Y decreases when X increases. 67) ______ FIGURE 2-1 68) Refer to Figure 2-1. In this coordinate graph, the variable X is negative and the variable Y is positive in quadrant ________. A) III B) IV C) II D) I 68) ______ 69) The slope of a straight line is necessarily A) constant. B) negative. C) increasing as one moves up the line. D) positive. E) zero. 69) ______ 70) Suppose that two points on a straight line are (X = 4, Y = 5), and (X = 2, Y = 1). The slope of this line is A) -2. B) -1/2. C) 2. D) 1/2. E) 4/5. 70) ______ 71) If the graph of a function is a horizontal line, the slope of this line is A) undefined. B) 1. C) infinity. D) 0. E) -1. 71) ______ 72) On a coordinate graph, what is the Y intercept of the function X = 60 + 3Y? A) -20 B) 20 C) 3.0 D) 0.1 72) ______ E) 60 73) Suppose point A represents coordinates (X = 5, Y = 6) and point B represents coordinates (X = 2, Y = 3). Then the slope of the straight line joining points A and B is A) -1. B) 2/3. C) 5/6. D) 1. E) 3/2. 73) ______ 74) The slope of a curve is A) always positive. B) positive if the curve rises to the right. C) negative if the curve rises to the right. D) always negative. E) always constant. 74) ______ 75) Consider the line which is the graph of the function Y = 60 - 4X. The slope of this line is A) 4. B) -4.0. C) -40. D) 60. E) -2.5. 75) ______ 76) In a co-ordinate graph, with Y on the vertical axis and X on the horizontal axis, the variable X is positive and the variable Y is negative in the ________ quadrant. A) top, right B) bottom, right C) bottom, left D) top, left 76) ______ 77) Suppose point A represents co-ordinates (X=10, Y=12) and point B represents co-ordinates (X=5, Y=7). Then the slope of the straight line joining points A and B is A) 3/2. B) 5/6. C) 1. D) 2/3. E) -1. 77) ______ FIGURE 2-2 78) Refer to Figure 2-2. The slope of curve A is A) positive and changing. B) negative and changing. C) positive and constant. D) negative and constant. E) undefined. 78) ______ 79) Refer to Figure 2-2. The slope of curve B is A) negative and constant. B) negative and changing. C) undefined. D) positive and changing. E) positive and constant. 79) ______ 80) Refer to Figure 2-2. The slope of curve C is A) impossible to describe. B) positive and constant. C) negative and constant. D) negative and changing. E) positive and changing. 80) ______ 81) Refer to Figure 2-2. The slope of curve D is A) negative and constant. B) undefined. C) positive and constant. D) negative and changing. E) positive and changing. 81) ______ FIGURE 2-3 82) Refer to Figure 2-3. The slope of curve A is A) positive and variable. B) zero. C) negative from X1 to X2 and positive from X2 to X3. 82) ______ D) positive from X1 to X2 and negative from X2 to X3. E) negative and variable. 83) Refer to Figure 2-3. The slope of curve B is A) zero at X2. 83) ______ B) always positive but variable. C) undefined at X2. D) always negative but variable. E) negative from Y1 to Y2 and positive between Y2 and Y3. 84) Refer to Figure 2-3. At X2 on curve A , the 84) ______ A) minimum occurs at Y4. B) slope of the curve is zero. C) slope is increasing. D) maximum occurs at Y1. E) slope is decreasing. 85) Refer to Figure 2-3. On curve A, the maximum value of Y occurs at A) values of X greater than X3. 85) ______ B) X2. C) X1. D) X3. E) X = 0. 86) Refer to Figure 2-3. At X2 on curve B , the A) minimum occurs at Y4. B) maximum occurs at Y1. 86) ______ C) slope is decreasing. D) slope of the curve is zero. E) slope is increasing. 87) At the minimum or the maximum of the graph of a nonlinear function (with X on the horizontal axis and Y on the vertical axis) the slope of the curve is A) 0. B) infinite. C) undefined. D) -1. E) 1. 87) ______ 88) At the minimum or the maximum of the graph of a nonlinear function (with X on the horizontal axis and Y on the vertical axis) the marginal response of Y to a small change in X is A) infinite. B) 0. C) undefined. D) -1. E) 1. 88) ______ FIGURE 2-4 89) Refer to Figure 2-4. This nonlinear function shows that over the range shown, A) as the yield per acre increases, the amount of fertilizer required per acre is diminishing. B) as more fertilizer is applied, the total yield per acre is diminishing. C) as more fertilizer is applied, the marginal response in yield is increasing D) as more fertilizer is applied, the marginal change in yield is diminishing. E) as the yield per acre increases, the amount of fertilizer required per acre is increasing. 89) ______ 90) Refer to Figure 2-4. The functional relation shown between fertilizer applied and wheat yield can be described as a A) constant marginal response. B) increasing marginal response. C) diminishing marginal response. 90) ______ D) decreasing total response E) increasing partial response. 91) Refer to Figure 2-4. The slope of the nonlinear function changes as we move along the curve. The slope is A) positive and decreasing, indicating a diminishing marginal response. B) constant at all points, indicating a constant marginal response. C) negative and decreasing, indicating a diminishing marginal response. D) negative and increasing, indicating an increasing marginal response. E) positive and increasing, indicating an increasing marginal response. 91) ______ 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33) 34) 35) 36) 37) 38) 39) 40) 41) 42) 43) 44) 45) 46) 47) 48) 49) 50) 51) B B D D E A B C E D A A E E A A D C A D C C E C B E B C C D B A C C E C B A E E D C E E D C C D B B D 52) 53) 54) 55) 56) 57) 58) 59) 60) 61) 62) 63) 64) 65) 66) 67) 68) 69) 70) 71) 72) 73) 74) 75) 76) 77) 78) 79) 80) 81) 82) 83) 84) 85) 86) 87) 88) 89) 90) 91) C C E E C E A E D A E B B B D A C A C D A D B B B C D E E D D A B B D A B D C A
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