Question 1

Economists frequently use economic models. These models:
A) are tools used in the analysis of economic relationships.
B) may be graphs expressing the relationship between two economic variables.
C) may be equations expressing a relationship between two or more variables.
D) all of the above.

Accepted Answer

Economic models are versatile tools that can take various forms, including analytical relationships, graphical representations, and equations, to explore and explain economic phenomena.

Question 2

The primary reason why economists use models in their analysis is because a model:
A) permits economic relationships to be quickly and easily specified.
B) makes it possible to predict exact economic relationships.
C) helps organize and clarify the thinking process about an issue.
D) incorporates all the inner workings of real-world economy.

Accepted Answer

Models help economists organize their thoughts, clarify relationships between variables, and simplify complex real-world economic phenomena into more manageable forms for analysis. They do not capture every detail of the real-world economy or predict exact relationships but provide a framework for understanding economic principles and making predictions.

Question 3

Which one of the following statements does not characterize an economic model?
A) Models are controlled experiments with the economy.
B) Models should contain a set of stated assumptions.
C) Models may very well omit some important economic relationships.
D) Models may be an imprecise representation of the real world.

Accepted Answer

Economic models are theoretical constructs and not controlled experiments with the economy. Controlled experiments are more common in the natural sciences, whereas economic models are simplifications of economic processes to understand complex real-world phenomena.

Question 4

When specifying economic models, economists often make assumptions about the real world. The purpose of assumptions in economics is to:
A) make the model more realistic.
B) simplify the model and provide a primary focus for the theory.
C) ensure that the model only covers specific conditions.
D) guarantee the accuracy of the theory.

Accepted Answer

Assumptions in economics are used to simplify complex real-world phenomena, making models more manageable and focusing on key variables and relationships. This helps in understanding, explaining, and predicting economic outcomes without getting bogged down by every possible variable.

Question 5

Economic models and data allow us to study:
A) assumptions.
B) the future.
C) economic relationships.
D) people in laboratories.

Accepted Answer

Economic models and data are tools used to understand and analyze economic relationships, such as how different factors influence market behavior, consumer choices, and the impact of government policies on the economy. They do not directly study assumptions, predict the future with certainty, or involve studying people in laboratories.

Question 6

Which of the following statements is false?
A) An economic theory is validated on the basis of observation.
B) An economic theory is a mathematically deduced equation and it is unrelated to observations in the real world.
C) An economic theory is rejected if it does not pass the test of empirical scrutiny.
D) An economic theory can be validated with data.

Accepted Answer

Economic theories are not solely mathematically deduced equations unrelated to real-world observations. They often stem from observations and are tested against empirical data to ensure their validity and applicability to real-world scenarios.

Question 7

Pieces of evidence about economic behaviour are:
A) data.
B) assumptions.
C) theories.
D) models.

Accepted Answer

Data are pieces of evidence about economic behaviour, as they provide factual information and statistics that can be analyzed to understand economic patterns, trends, and relationships. Assumptions, theories, and models, on the other hand, are tools or frameworks used to interpret, explain, or predict economic behavior based on underlying principles or observed data, but they are not evidence themselves.

Question 8

A sensible theoretical relationship not rejected by evidence over a long period is a(n):
A) tautology.
B) axiom.
C) assumption.
D) behavioural model.

Accepted Answer

A behavioural model is a theoretical framework that explains how individuals or groups behave, and if it is not rejected by evidence over time, it is considered a valid model.

Question 9

Time series data:
A) are used very infrequently in economic analysis.
B) measure different variables for different economic units at a point in time.
C) measure a given variable for different economic units at a point in time.
D) measure a variable or variables at different points in time.

Accepted Answer

Time series data measure a variable or variables at different points in time, allowing for the analysis of trends, cycles, and other dynamic patterns over periods.

Question 10

Which one of the following statements is false?
A) If the economist wants to examine the distribution of income in 1987, time-series data should be used.
B) If the economist wants to examine the relationship between advertising expenditures and sales during 1987, cross-section data is used.
C) If the economist wants to examine the effect of intellectual ability upon earnings, cross-section data could be used.
D) If the economist wants to forecast gross national product based upon observations from previous years, time-series data should be used.

Accepted Answer

The answer of Which one of the following statements is...

Question 11

Data that follow the same individuals over time are called:
A) time-series data.
B) cross-section data.
C) longitudinal data.
D) survey data.

Accepted Answer

Longitudinal data are data that track the same sample, such as a group of individuals, over a period of time, allowing researchers to observe changes and developments.

Question 12

A basket of goods in 1987 cost $783, while the value of the same basket in 1997 was $1133. The value of this price index in 1997, based on 1987 = 100, was:
A) 144.7.
B) 242.
C) 69.1.
D) 117.4.

Accepted Answer

The price index is calculated by taking the cost of the basket in the current year (1997), dividing it by the cost of the basket in the base year (1987), and then multiplying by 100. So, (1133 / 783) * 100 = 144.7.

Question 13

The weights used in the consumer price index:
A) show the relative importance of the prices of the different components in the household's expenditures.
B) do not affect changes in the household's cost of living.
C) sum to 100.
D) are determined by the cost of producing each good in the index.

Accepted Answer

The weights used in the consumer price index show the relative importance of the prices of the different components in the household's expenditures.

Question 14

A table titled "Commodity Price Index, 1950-1998 (1970 = 100)" has a base year of:
A) 1950.
B) 1998.
C) 1970.
D) none of the above.

Accepted Answer

The base year is the year against which all other years are compared in terms of price changes, and it is explicitly stated in the title as 1970.

Question 15

The most frequently recognized and widely used price index is the:
A) wholesale price index.
B) producers price index.
C) consumer price index.
D) index of leading economic indicators.

Accepted Answer

The Consumer Price Index (CPI) is the most frequently recognized and widely used price index. It measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Question 16

The CPI measures:
A) the number of housing starts during a month.
B) the prices of goods that households consume.
C) changes in the level of unemployment during a given year.
D) hourly wage rates of manufacturing workers.

Accepted Answer

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, reflecting the prices of goods that households consume.

Question 17

If the CPI for 2005 was 284.1, and economists predicted an inflation rate of 3.5 per cent for 2006, the predicted CPI at the end of 2006 was:
A) 287.1.
B) 290.1.
C) 297.5.
D) 294.1.

Accepted Answer

The predicted CPI for 2006 can be calculated by increasing the 2005 CPI by 3.5%. This is done by multiplying the 2005 CPI (284.1) by 1.035 (100% + 3.5% = 103.5% = 1.035). So, 284.1 * 1.035 = 294.14435, which rounds to 294.1.

Question 18

Adjusting for changes in prices allows us to:
A) create cross-section data.
B) derive a real value from a nominal value.
C) create time-series data.
D) create a paradigm.

Accepted Answer

Adjusting for changes in prices allows us to derive a real value from a nominal value. This process removes the effects of inflation or deflation, providing a clearer picture of an economic variable's true value over time.

Question 19

When economists compute the real value of an economic variable denominated in dollars, they do so by:
A) dividing the nominal value by 100.
B) multiplying the nominal value by the price level.
C) dividing the nominal value by the price index.
D) subtracting the price level from the nominal value and multiplying by 100.

Accepted Answer

To compute the real value of an economic variable, economists adjust the nominal value by dividing it by a price index (like the Consumer Price Index) to account for inflation. This process removes the effects of price changes over time, allowing for a comparison of economic quantities in terms of purchasing power.

Question 20

The nominal value of an economic variable is:
A) a measure of the goods it will buy.
B) expressed in current dollar terms.
C) adjusted for changes in the overall price level in the economy.
D) affected by the prices of all other goods in the economy.

Accepted Answer

The nominal value of an economic variable is expressed in current dollar terms, meaning it is not adjusted for inflation or changes in the price level.

Quiz 2: Theories, Models and Data

Economists frequently use economic models. These models:

The primary reason why economists use models in their analysis is because a model:

Which one of the following statements does not characterize an economic model?

When specifying economic models, economists often make assumptions about the real world. The purpose of assumptions in economics is to:

Economic models and data allow us to study:

Which of the following statements is false?

Pieces of evidence about economic behaviour are:

A sensible theoretical relationship not rejected by evidence over a long period is a(n) :

Time series data:

Which one of the following statements is false?

Data that follow the same individuals over time are called:

A basket of goods in 1987 cost $783, while the value of the same basket in 1997 was $1133. The value of this price index in 1997, based on 1987 = 100, was:

The weights used in the consumer price index:

A table titled "Commodity Price Index, 1950-1998 (1970 = 100) " has a base year of:

The most frequently recognized and widely used price index is the:

The CPI measures:

If the CPI for 2005 was 284.1, and economists predicted an inflation rate of 3.5 per cent for 2006, the predicted CPI at the end of 2006 was:

Adjusting for changes in prices allows us to:

When economists compute the real value of an economic variable denominated in dollars, they do so by:

The nominal value of an economic variable is: