1.  Economists use some familiar terms in specialized ways

a. to make the subject sound more complex than it is.

b. because every respectable field of study has its own language.

c. to provide a new and useful way of thinking about the world.

d. because it was too difficult to come up with new terms.

1.  The language of economics is

a. needlessly arcane.

b. valuable because it provides a new and useful way of learning about the world.

c. easy to learn within a day.

d. unnecessary to learn for a thorough understanding of economics.

1.  Economists, like mathematicians, physicists, and biologists,

a. make use of the scientific method.

b. try to address their subject with a scientist’s objectivity.

c. devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories.

d. All of the above are correct.

1.  The essence of science is

a. the laboratory experiment.

b. the scientific method.

c. the study of nature, but not the study of society.

d. All of the above are correct.

1.  The scientific method is

a. the use of modern technology to understand the way the world works.

b. the use of controlled laboratory experiments to understand the way the world works.

c. the dispassionate development and testing of theories about how the world works.

d. the search for evidence to support preconceived theories about how the world works.

1.  The scientific method is applicable to studying

a. natural sciences, but not social sciences.

b. social sciences, but not natural sciences.

c. both natural sciences and social sciences.

d. None of the above is correct.

1.  Who said, "The whole of science is nothing more than the refinement of everyday thinking"?

a. Isaac Newton

b. Albert Einstein

c. Adam Smith

d. Benjamin Franklin

1.  Albert Einstein once made the following observation about science:

a. "The whole of science is nothing more than the refinement of everyday thinking."

b. "The whole of science is nothing more than an interesting intellectual exercise."

c. "In order to understand science, one must rely solely on abstraction."

d. "In order to understand science, one must transcend everyday thinking."

1.  Which of the following steps does an economist take when studying the economy?

a. devise theories

b. collect data

c. analyze data

d. All of the above are correct.

1.  Which of the following is an example of using the scientific method with a natural experiment?

a. measuring how long it takes a marble to fall from a ten story building

b. comparing plant growth with and without a soil additive

c. tracking the price of oil when a war in the Middle East interrupts the flow of crude oil

d. observing the reaction when two chemicals are mixed together

1.    Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist’s next step?

a. Collect and analyze data.

b. Go to a laboratory and generate data to test the theory.

c. Publish the theory without testing it.

d. Consult with other economists to see they agree with the theory.

1.    Which of the following statements applies to economics, as well as to other sciences such as physics?

a. Experiments are considered valid only when they are conducted in a laboratory.

b. Good theories do not need to be tested.

c. Real-world observations often lead to theories.

d. Economics, as well as other sciences, is concerned primarily with abstract concepts.

1.    Economists face an obstacle that many other scientists do not face. What is that obstacle?

a. It is often difficult to formulate theories in economics.

b. It is often impractical to perform experiments in economics.

c. Economics cannot be addressed objectively; it must be addressed subjectively.

d. The scientific method cannot be applied to the study of economics.

1.    The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

a. performing an experiment in an economic system.

b. applying mathematical methods to economic analysis.

c. analyzing available data.

d. formulating theories about economic events.

1.    Which of the following statements is (are) correct?

a. Relative to some other scientists, economists find it more difficult to conduct experiments.

b. Theory and observation are important in economics as well as in other sciences.

c. To obtain data, economists often rely upon the natural experiments offered by history.

d. All of the above are correct.

1.    Which of the following statements is correct?

a. Economists almost always find it easy to conduct experiments in order to test their theories.

b. Economics is not a true science because economists are not usually allowed to conduct experiments to test their theories.

c. Economics is a social science rather than a true science because it cannot employ the scientific method.

d. Economists are usually not able to conduct experiments, so they must rely on natural experiments offered by history.

1.    The most common data for testing economic theories come from

a. carefully controlled and conducted laboratory experiments.

b. computer models of economies.

c. historical episodes of economic change.

d. centrally planned economies.

1.    In conducting their research, economists often substitute historical events and historical episodes for

a. theories and observations.

b. laboratory experiments.

c. models.

d. assumptions.

1.     Economists regard events from the past as

a. irrelevant, since history is unlikely to repeat itself.

b. of limited interest, since those events seldom provide any useful economic data.

c. interesting but not particularly valuable, since those events cannot be used to evaluate present-day economic theories.

d. interesting and valuable, since those events are capable of helping us to understand the past, the present, and the future.

1.    Historical episodes are

a. valuable to economists because they allow economists to see how the science of economics has evolved.

b. valuable to economists because they allow economists to evaluate economic theories.

c. not of concern to economists because economics is about predicting the future, not dwelling on the past.

d. not of concern to economists because the exact circumstances of historical episodes are unlikely to be observed again.

1.    Which of the following is not an example of a natural experiment an economist might use to evaluate a theory?

a. Transit ridership increased in Atlanta following an increase in gas prices.

b. Federal tax revenue increased following a decrease in the tax rate.

c. Students in a principles of microeconomics course are asked to play a game with classmates to determine what decisions they make under certain circumstances.

d. Following the imposition of austerity measures, the growth rate of the economy in Greece slowed.

1.    For an economist, the idea of making assumptions is regarded generally as a

a. bad idea, since doing so leads to the omission of important ideas and variables from economic models.

b. bad idea, since doing so invariably leads to data-collection problems.

c. good idea, since doing so helps to simplify the complex world and make it easier to understand.

d. good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand.

1.    A circular-flow model and production possibilities frontier are similar in that

a. neither allows economic analysis to occur.

b. neither can be represented visually on a graph.

c. both make use of assumptions.

d. both make use of complex equations to arrive at solutions.

1.    The art in scientific thinking -- whether in chemistry, economics, or biology -- is

a. the design and implementation of laboratory experiments.

b. knowing when to stop collecting data and when to start analyzing the data.

c. deciding which assumptions to make.

d. being able to mathematically model natural phenomena.

1.    The art in scientific thinking is

a. finding the right problem to study.

b. deciding which assumptions to make.

c. the ability to make an abstract subject easy to understand.

d. not something in which economists have to be skilled.

1.    An example of a price that changes only infrequently is the price of

a. stocks on the New York Stock Exchange.

b. crude oil.

c. residential real estate.

d. magazines sold at newsstands.

1.    Economic models

a. are not useful because they omit many real-world details.

b. are usually composed of diagrams and equations.

c. are useful because they do not omit any real-world details.

d. are usually plastic representations of the economy.

1.    Which types of models are built with assumptions?

a. economic models, but not models in other disciplines such as physics and biology

b. economic models as well as models in other disciplines such as physics and biology

c. models that are built for teaching purposes but not for research purposes

d. bad models

1.    Which of these statements about economic models is correct?

a. For economists, economic models provide insights about the world.

b. Economic models are built with assumptions.

c. Economic models are often composed of equations and diagrams.

d. All of the above are correct.

1.    Which two groups of decision makers are included in the simple circular-flow diagram?

a. markets and government

b. households and government

c. firms and government

d. households and firms

1.    Factors of production are

a. the mathematical calculations firms make in determining their optimal production levels.

b. social and political conditions that affect production.

c. the physical relationships between economic inputs and outputs.

d. inputs into the production process.

1.    Which of these terms are used interchangeably?

a. "goods and services" and "inputs"

b. "goods and services" and "factors of production"

c. "inputs" and "factors of production"

d. "land, labor, and capital" and "goods and services"

1.    In economics, capital refers to

a. the finances necessary for firms to produce their products.

b. buildings and machines used in the production process.

c. the money households use to purchase firms' output.

d. stocks and bonds.

1.    Which of the following is an example of a capital input?

a. a computer

b. a share of stock

c. an hour of a worker’s time

d. $50,000

1.    In the simple circular-flow diagram,

a. households own the factors of production.

b. households buy all the goods and services that firms produce.

c. land, labor, and capital flow from households to firms.

d. All of the above are correct.

1.    In the circular-flow diagram, another name for goods and services produced by firms is

a. factors of production.

b. output.

c. inputs.

resources

1.    In the circular-flow diagram, in the markets for

a. goods and services, households and firms are both sellers.

b. goods and services, households are buyers and firms are sellers.

c. the factors of production, households are buyers and firms are sellers.

d. the factors of production, households and firms are both buyers.

1.    In the circular-flow diagram, in the markets for

a. goods and services, households and firms are both sellers.

b. goods and services, households are sellers and firms are buyers.

c. the factors of production, households are sellers and firms are buyers.

d. the factors of production, households and firms are both buyers.

1.    Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram?

a. Dylan receives a salary for his work as a financial analyst for an investment firm.

b. Kristin buys two business suits to wear to her job as a Chief Information Officer.

c. Jim receives clean water in his home in exchange for paying his water bill.

d. Caroline owns a nail salon and receives payments from her clients for her services.

1.    The inner loop of the circular-flow diagram represents the flows of inputs and outputs. Which of the following does not appear on the inner loop?

a. wages

b. land

c. capital

d. goods and services sold

1.    In the circular-flow diagram, which of the following items does not flow from households to firms?

a. revenue

b. land, labor, and capital

c. factors of production

d. profit

1.       According to the circular flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates

a. in the markets for factors of production exchanging labor for income.

b. in the markets for factors of production exchanging flowers for revenue.

c. in the markets for goods and services exchanging flowers for wages, rent, and profit.

d. in the markets for goods and services exchanging labor for income.

1.       The production possibilities frontier is a graph that shows the various combinations of output that an economy

a. should produce.

b. wants to produce.

c. can produce.

d. demands.

1.       Any point on a country's production possibilities frontier represents a combination of two goods that an economy

a. will never be able to produce.

b. can produce using all available resources and technology.

c. can produce using some portion, but not all, of its resources and technology.

d. may be able to produce in the future with more resources and/or superior technology.

1.       An economic outcome is said to be efficient if the economy is

a. using all of the scarce resources it has available.

b. conserving on resources, rather than using all available resources.

c. getting all it can get from the scarce resources it has available.

d. able to produce more than what is currently being produced without additional resources.

1.       If an economy is producing efficiently, then

a. there is no way to produce more of one good without producing less of another good.

b. it is possible to produce more of both goods without increasing the quantities of inputs that are being used.

c. it is possible to produce more of one good without producing less of another good.

d. it is not possible to produce more of any good at any cost.

1.       It is possible for an economy to increase its production of both goods if the economy

a. moves downward and to the right along its production possibilities frontier and the frontier is bowed outward.

b. moves upward and to the left along its production possibilities frontier and the frontier is bowed outward.

c. moves in either direction along its production possibilities frontier and the frontier is a straight line.

d. moves from a situation of inefficient production to a situation of efficient production.

1.       The production possibilities frontier provides an illustration of the principle that

a. trade can make everyone better off.

b. governments can sometimes improve market outcomes.

c. people face trade-offs.

d. people respond to incentives.

1.       Which of the following concepts cannot be illustrated by the production possibilities frontier?

a. efficiency

b. opportunity cost

c. equality

d. trade-offs

1.       On a bowed production possibilities frontier, as you move down along the curve

a. more of one good must be given up to receive one unit of the other good.

b. the available production technology does not change.

c. the opportunity cost increases.

d. All of the above are correct.

1.       Production possibilities frontiers are usually bowed outward. This is because

a. the more resources a society uses to produce one good, the fewer resources it has available to produce another good.

b. the opportunity cost of producing a good decreases as more and more of that good is produced.

c. of the effects of technological change.

d. resources are specialized; that is, some are better at producing particular goods rather than other goods.

1.       Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1000 units of food and 47 machines. This year, it is producing 1050 units of food and 52 machines. Which of the following events could not explain the increase in output?

a. a reduction in unemployment

b. an increase in available labor

c. an improvement in technology

d. Any of these events could explain the increase in output.

1.       The production possibilities frontier is used to illustrate some basic economic ideas, including

a. scarcity.

b. opportunity cost.

c. economic growth.

d. All of the above are correct.

1.  The field of economics is traditionally divided into two broad subfields,

a.  national economics and international economics.

b. consumer economics and producer economics.

c.  private sector economics and public sector economics.

d. microeconomics and macroeconomics.

1.  Macroeconomics is the study of

a.  individual decision makers.

b. international trade.

c.  economy-wide phenomena.

d. markets for large products.

1.  Which of the following areas of study typifies microeconomics as opposed to macroeconomics?

a.  the impact of minimum-wage laws on employment in the fast food industry

b. the effect of changes in household saving rates on the growth rate of national income

c.  the impact of faster money growth on the rate of inflation

d. a comparison of alternative tax policies and their respective impacts on the rate of the nation’s economic growth

1.  Microeconomics is the study of

a.  how money affects the economy.

b. how individual households and firms make decisions.

c.  how government affects the economy.

d. how the economy as a whole works.

1.  A macroeconomist - as opposed to a microeconomist - would study

a.  the effects of rent control on housing in New York City.

b. the effects of foreign competition on the US auto industry.

c.  the effects of borrowing by the federal government.

d. the effects of raising the gasoline tax on transit ridership.

1.    Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

a.  the effect of an increase in the alcohol tax on the market for beer

b. the effect of foreign competition on the domestic auto industry

c.  the effect of a price war in the airline industry

d. the effect of an increase in the minimum wage on an economy’s overall rate of unemployment

1.   When economists are trying to explain the world, they are

a.  scientists.

b.  policy advisers.

c.  in the realm of microeconomics rather than macroeconomics.

d.  in the realm of normative economics rather than positive economics.

1.  When economists are trying to help improve the world, they are

a.  in the realm of positive economics rather than normative economics.

b. in the realm of macroeconomics rather than microeconomics.

c.  scientists.

d. policy advisers.

1.  When an economist is asked a question like “why is unemployment higher for teenagers than for older workers?” the economist

a.  is asked to explain the cause of an economic event.

b. is asked to recommend a policy to improve economic outcomes.

c.  is asked as a policy adviser.

d. does not have enough information to respond.

1.  Normative statements are

a.  prescriptive, whereas positive statements are descriptive.

b. descriptive, whereas positive statements are prescriptive.

c.  backward-looking, whereas positive statements are forward-looking.

d. forward-looking, whereas positive statements are backward-looking.

1.  Positive statements are

a.  prescriptive.

b. claims about how the world should be.

c.  claims about how the world is.

d. made by economists speaking as policy advisers.

1.    A statement describing how the world is

a.  is a normative statement.

b. is a positive statement.

c.  would only be made by an economist speaking as a policy adviser.

d. would only be made by an economist employed by the government.

1.    A statement describing how the world should be

a.  is a normative statement.

b. is a positive statement.

c.  would only be made by an economist speaking as a scientist.

d. would only be made by an economist employed by the government.

1.    Economists view normative statements as

a.  prescriptive, making a claim about how the world ought to be.

b. descriptive, making a claim about how the world is.

c.  statements about the normal condition of the world.

d. pessimistic, putting the worst possible interpretation on things.

1.    When economists make positive statements, they are

a.  speaking as scientists.

b. speaking as policy advisers.

c.  making claims about how the world should be.

d. revealing that they are very conservative in their views of how the world works.

1.    When economists make

a.  positive statements, they are speaking not as policy advisers but as scientists.

b. positive statements, they are speaking not as scientists but as forecasters.

c.  normative statements, they are speaking not as policy advisers but as scientists.

d. normative statements, they are speaking not as policy advisers but as model-builders.

1.    You know an economist has crossed the line from scientist to policy adviser when he or she

a.  claims that the problem at hand is widely misunderstood by non-economists.

b. talks about the evidence.

c.  makes normative statements.

d. makes a claim about how the world is.

1.    In principle, we can

a.  ignore positive statements when choosing among various public policy alternatives.

b. ignore normative statements when choosing among various public policy alternatives.

c.  confirm or refute positive statements by examining evidence.

d. confirm or refute normative statements by examining evidence.

1.    Which of the following is an example of a positive, as opposed to normative, statement?

a.  Inflation is more harmful to the economy than unemployment is.

b. If welfare payments increase, the world will be a better place.

c.  Prices rise when the government prints too much money.

d. When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency.

1.    Which of the following is a positive, as opposed to a normative, statement?

a. The US Department of Justice should allow a merger between AT&T and T-Mobile because it would have little effect on consumers.

b. Antitrust laws should be used to prevent further concentration in the wireless telephone service market.

c.  The US Department of Justice sued AT&T to block its merger with T-Mobile.

d. The wireless telephone service market is too highly concentrated.

1.    “Prices rise when the quantity of money rises rapidly” is an example of a

a.  negative economic statement.

b. positive economic statement.

c.  normative economic statement.

d. statement that contradicts one of the basic principles of economics.

1.    Which of the following is an example of a normative, as opposed to positive, statement?

a.  Universal health care would be good for U.S. citizens.

b. An increase in the cigarette tax would cause a decrease in the number of smokers.

c.  A decrease in the minimum wage would decrease unemployment.

d. A law requiring the federal government to balance its budget would increase economic growth.

1.    Which of the following is an example of a normative, as opposed to positive, statement?

a.  Following the most recent recession, the economy is recovering at a slower than usual pace.

b. To stimulate the economy during the most recent recession, the federal government increased spending.

c.  In response to the most recent recession, the federal government extended the duration of unemployment benefits.

d. The federal government’s responses to the most recent recession were insufficient.

1.    Which of the following is an example of a normative - as opposed to a positive - statement?

a.  The discount rate is the interest rate the Federal Reserve charges banks to borrow funds.

b. The US income tax rate increases with the amount of income earned.

c.  The government should increase the tax on gasoline.

d. The US unemployment rate increased to 10 percent in 2009.

1.    Duties of the Council of Economic Advisers include

a.  advising the president and writing the annual Economic Report of the President.

b. implementing the president’s tax policies.

c.  tracking the behavior of the nation’s money supply.

d. All of the above are correct.

1.    Economists at the Department of the Treasury

a.  design U.S. currency and coins.

b. provide Congress with the annual budget.

c.  enforce the U.S. antitrust laws.

d. provide advice on tax policy to the President.

1.    Economists who are primarily responsible for advising Congress on economic matters work in which agency?

a.  the Federal Reserve

b. the Congressional Budget Office

c.  the Department of the Treasury

d. the Department of Commerce

1.  “If all economists were laid end to end, they would not reach a conclusion.” Who made this whimsical observation?

a.  Harry Truman

b. George Bernard Shaw

c.  John Maynard Keynes

d. Ronald Reagan

1.  President Ronald Reagan once joked that a Trivial Pursuit game designed for economists would

a.  have no questions but hundreds of answers.

b. have 100 questions and 3,000 answers.

c.  have 1,000 questions but no answers.

d. never produce a winner.

1.  The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in

a.  opinions and education.

b. opinions and values.

c.  scientific judgments and education.

d. scientific judgments and values.

1.  Differences in scientific judgement between economists are similar to all of the following except

a.  astronomers debating whether the sun or earth was at the center of the solar system.

b. meteorologists debating the existence of global warming.

c.  two politicians arguing about the fairness of the tax code.

d. explorers debating whether or not the earth was flat before the time of Christopher Columbus.

1.  Joe and Fred are economists. Joe thinks that the wealthiest 10% of the US population should be taxed a rate higher than the rest of society because they can better afford it. Fred thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Joe and Fred

a.  disagree about the validity of a positive theory.

b. have different normative views about tax policy.

c.  must both be incorrect because tax policy is never that simple.

d. None of the above is correct.

1.    Yi and Avik are both economists. Yi thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Avik does not think that household saving would respond much to a change in the tax laws. In this example, Yi and Avik

a.  hold different normative views about the tax system.

b. disagree about the validity of a positive theory.

c.  have a fundamental misunderstanding of the tax system.

d. More than one of the above is correct.

1.    A survey which sought the opinion of professional economists on fourteen propositions about economic policy found that

a.  the respondents were almost equally divided on the propositions.

b. the respondents favored the propositions by a slight margin.

c.  the respondents disagreed with the propositions by a slight margin.

d. there was overwhelming endorsement of the propositions among the respondents.

1.    Almost all economists agree that tariffs and import quotas

a.  reduces general economic welfare.

b. increases general economic welfare.

c.  have no effect on general economic welfare.

d. stimulate a less than fully employed economy.

1.  John Maynard Keynes referred to economics as an easy subject,

a. at which very few excel.

b. but not as easy as philosophy or the pure sciences.

c. which very few can enjoy.

d. which deals primarily with common sense.

1.  According to economist John Maynard Keynes, a great economist must also be a(n)

a. mathematician.

b. historian.

c. philosopher.

d. All of the above are correct.

1.  John Maynard Keynes described economics as an easy subject at which very few excel. Which of the following is not one of the reasons Keynes gave for why so few people excel at the study of economics?

a.  An economist must also be a mathematician, historian, statesman, and philosopher in some degree.

b. An economist must understand symbols and speak in words.

c. An economist must be purposeful and disinterested in a simultaneous mood.

d. An economist must understand environmental science, regulation, and political science.

1.  Which of the following is not an example of a graph of a single variable?

a.  a pie chart

b. a bar graph

c.  a time-series graph

d. a scatterplot

1.  The use of the coordinate system allows

a.  for the display of the flows of dollars, goods and services, and factors of production in an economic system.

b. for the display of how labor and other resources are organized in the production process.

c.  for the display of two variables on a single graph.

d. for the creation of pie charts and bar graphs.

1.    The x-coordinate of an ordered pair specifies the

a.  diagonal location of the point.

b. vertical location of the point.

c.  horizontal location of the point.

d. quadrant location in which the point is located.

1.    The y-coordinate is the

a.  first number of an ordered pair and represents the point's horizontal location.

b. second number of an ordered pair and represents the point's horizontal location.

c.  first number of an ordered pair and represents the point's vertical location.

d. second number of an ordered pair and represents the point's vertical location.

1.  It is difficult for economists to make observations and develop theories, but it is easy for economists to run experiments to generate data to test their theories.

a. True

b. False

1.  For economists, conducting experiments is often difficult and sometimes impossible.

a. True

b. False

1.  The scientific method can be applied to the study of economics.

a. True

b. False

1.  Economists try to address their subject with a scientist’s objectivity.

a. True

b. False

1.  Since economists cannot use natural experiments offered by history, they must use carefully constructed laboratory experiments instead.

a. True

b. False

1.    Assumptions can simplify the complex world and make it easier to understand.

a. True

b. False

1.    Economic models omit many details to allow us to see what is truly important.

a. True

b. False

1.    All scientific models, including economic models, simplify reality in order to improve our understanding of it.

a. True

b. False

1.    The circular flow model is not used anymore because it fails to perfectly replicate real world situations.

a. True

b. False

1.    In the circular-flow diagram, factors of production are the goods and services produced by firms.

a. True

b. False

1.    In the circular-flow diagram, firms consume all the goods and services that they produce.

a. True

b. False

1.    In the markets for the factors of production in the circular-flow diagram, households are buyers and firms are sellers.

a. True

b. False