Question 1

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)
A)variable.
B)prediction.
C)normative statement.
D)model.
E)assumption.

Accepted Answer

The statement is a prediction because it is a hypothesis about the relationship between the money supply and price level. It is not an assumption because it is possible to test and verify the relationship, and it is not a normative statement because it is not based on opinion or value judgment. While it does involve variables and a model, those terms do not capture the specific nature of the statement.

Question 2

What is the best way to display the unemployment rate in each of the world's developed economies in 2009?
A)a scatter diagram with two variables
B)a cross- sectional graph with time- series data
C)a cross- sectional bar chart graph
D)a scatter diagram
E)a time series line graph

Accepted Answer

A cross-sectional bar chart graph is ideal for comparing the unemployment rates across different developed economies at a specific point in time, such as the year 2009.

Question 3

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)induced
C)dependent
D)endogenous
E)exogenous

Accepted Answer

The average daily temperature is an external factor that affects the individual wheat farmer's income and is not influenced by the actions or decisions of the farmer. Therefore, it is an exogenous variable.

Question 4

Economic theories
A)can be used to help explain and predict economic behaviour.
B)cannot be tested because we cannot do economic "experiments".
C)must apply to all economies to be true.
D)are not useful because of the unrealistic assumptions they contain.
E)cannot help to predict future behaviour.

Accepted Answer

Economic theories are developed to help explain and predict economic behavior. They are based on assumptions that are tested against real-world data and observations, and they can be used to form predictions about what might happen in the future. While it is true that economic experiments are not always possible, theories can still be tested against past events and data to see how accurate they are. Also, while theories may not apply to all economies, they can still be useful for understanding specific economies or markets. Finally, while some assumptions in economic theories may be unrealistic, this does not necessarily make them useless; rather, it just means that the assumptions need to be taken into account when using the theory to make predictions or analyze economic behavior.

Question 5

Economists build models that abstract from the complexities of reality because
A)economists do not understand the real world.
B)economists are not interested in reality.
C)it is easier to do so.
D)the complexities of reality are unimportant.
E)they believe they gain a greater understanding of reality.

Accepted Answer

Economists believe that by creating simplified models, they can better understand the fundamental relationships and interactions in the real world. By abstracting from the complexities of reality, they can isolate and analyze specific economic phenomena and draw insights that might not be apparent if trying to study the full complexity of reality.

Question 6

An index number is used to
A)compare the same variable in two different situations.
B)compare two different variables in two different situations.
C)designate a specific value for further reference.
D)compare two different variables in the same situation.
E)measure the absolute value of a variable.

Accepted Answer

Index numbers are used to compare the same variable in two different situations. This allows for analysis of changes over time or differences between groups.

Question 7

Suppose there is a theory that several things influence the price of fish in Halifax, 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 endogenous variable, as it influences the price of fish.
C)an endogenous variable, as it is determined within the theory.
D)an exogenous variable, as it is determined outside the theory.
E)an act of God and, therefore, has no legitimate connection with the theory.

Accepted Answer

Weather is considered an exogenous variable because it is determined outside the economic model or theory and influences the price of fish without being influenced by the model itself.

Question 8

A hypothesis (or a prediction)is a statement about
A)how assumptions affect theories.
B)what will happen in the future.
C)those things which we believe to be true, but cannot prove.
D)the relationship between facts explained by the hypothesis.
E)how two or more variables are related to each other.

Accepted Answer

A hypothesis is a statement that proposes a relationship between two or more variables. It predicts how changes in one variable will affect another. Therefore, the best choice is E, as it accurately describes the purpose of a hypothesis.

Question 9

A positive statement is one that states
A)non- negative numbers.
B)what is desirable.
C)what is, was, or will be.
D)what is and what should be.
E)what should be but is not.

Accepted Answer

A positive statement is a statement that describes what is, was, or will be, without making any value judgments or expressing any opinions about what should be or what is desirable. Option A only refers to numbers, option B expresses desire, option D includes what should be, and option E contradicts the definition of positive statement.

Question 10

An economic theory requires, among other things,
A)a set of value judgments to interpret the empirical evidence.
B)a controlled laboratory setting in which the theory can be tested.
C)that the set of predictions be correct.
D)a set of definitions of the variables to be considered.
E)the use of endogenous variables only.

Accepted Answer

An economic theory requires a set of definitions of the variables to be considered. Choice A is incorrect because economic theory should be value-free, meaning it should not contain any value judgments. Choice B is incorrect because economic theory generally cannot be tested in controlled laboratory settings. Choice C is incorrect because while accurate predictions are desirable, they are not always possible. Choice E is also incorrect because the use of exogenous variables is often necessary in economic theory.

Question 11

The statement that a country's rate of GDP growth is influenced by individuals' saving behaviour is an example of a(n)
A)economic law.
B)theory.
C)prediction.
D)variable.
E)normative statement.

Accepted Answer

This statement is an example of a theory, which is a well-substantiated explanation of some aspect of the natural world or society that is based on empirical evidence and has been validated through repeated experiments and observations. It is not an economic law, prediction, variable, or normative statement.

Question 12

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)there is a causal relationship between family income and female education.
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 family income causes an increase in female education levels.
D)the observed correlation is consistent with a theory that an increase in female education levels causes an increase in family income.
E)an increase in female education levels causes an increase in family incomes.

Accepted Answer

The observed positive correlation between family income and female education levels in developing countries is consistent with a theory that an increase in female education levels causes an increase in family income. This suggests that investing in female education can be an effective strategy for promoting economic development and reducing poverty in developing countries. It is important to note, however, that correlation does not necessarily imply causation, and further research is needed to establish a causal relationship between family income and female education levels.

Question 13

The slope of a straight line is necessarily
A)negative.
B)zero.
C)positive.
D)constant.
E)increasing as one moves up the line.

Accepted Answer

The slope of a straight line is constant, meaning it remains the same regardless of where on the line one looks. A negative or positive slope would imply the line is decreasing or increasing, respectively. A slope of zero would be a horizontal line. The slope does not necessarily increase as one moves up the line, and this answer is incorrect.

Question 14

A theory
A)can only be tested with a controlled experiment.
B)is designed to explain and predict what we observe.
C)is used to impose order on the world.
D)assumes definitions for variables.
E)enables one to make prophesies about the future.

Accepted Answer

A theory is designed to explain and predict what we observe. It is not necessarily limited to being tested with a controlled experiment, used to impose order on the world, assuming definitions for variables, or enabling one to make prophecies about the future.

Question 15

Choose the answer that best explains why economists build models that abstract from the complexities of reality.
A)Because the complexities of reality are unimportant.
B)Because economists are not interested in reality.
C)Because this allows economists to conduct controlled experiments to test their theories.
D)Because they believe they gain a greater understanding of reality.
E)Because economics deals only in the abstract.

Accepted Answer

Economists build models that abstract from the complexities of reality because they believe they gain a greater understanding of reality. By simplifying and focusing on certain aspects of the world, economists are able to isolate the factors that are most relevant to explaining the phenomena they are studying. This allows them to create models that can provide valuable insights and predictions about real-world situations, even if they don't capture every detail of the complex reality.

Question 16

An economic theory
A)will be useful only if all human behaviour is rational.
B)will be useful as long as it is logically consistent.
C)is only useful if its underlying assumptions are realistic.
D)will predict more accurately if it contains a greater number of mathematical equations.
E)must be judged on its ability to explain and predict real- world phenomena.

Accepted Answer

An economic theory is judged on its ability to explain and predict real-world phenomena, regardless of the realism of its assumptions or the number of equations it contains.

Question 17

Which of the following is a normative statement?
A)Tuition fees should be waived for low- income students.
B)A free- trade agreement between two countries will result in an increase in trade.
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.

Accepted Answer

A normative statement is a statement that expresses a value judgment about whether a situation is desirable or undesirable. Option A expresses a value judgment on what should be done for low-income students, making it a normative statement. The other options are positive statements that describe what will happen if certain conditions are met.

Question 18

On a coordinate graph, what is the X intercept of the function X = 60 + 3Y?
A)- 60
B)0
C)60
D)- 20
E)20

Accepted Answer

The X-intercept occurs where Y = 0. Substituting Y = 0 into the equation X = 60 + 3Y gives X = 60.

Question 19

Of the following, which is the most important characteristic of a successful theory?
A)the theory could never be refuted.
B)the theory allows us to predict behaviour reasonably accurately.
C)all assumptions on which the theory is based are true.
D)the theory adequately explains all economic behaviour.
E)the theory provides a basis for facts about economic behaviour.

Accepted Answer

While all of the characteristics listed are desirable in a successful theory, the most important one is the ability to make reasonably accurate predictions about behavior. This allows the theory to be tested and applied in real-world situations, making it more useful and valuable. A theory that can never be refuted may be unfalsifiable and therefore unscientific, and it is impossible for all assumptions to be true or for a theory to explain all economic behavior. Providing a basis for facts is important, but it is not the most critical aspect of a successful theory.

Question 20

Which of the following statements is NOT correct?
A)Exposing them to empirical evidence can best test positive statements.
B)Economic statements cannot be tested because human decisions involve free will.
C)Economists test their theories by confronting the predictions of their theories with the evidence drawn from the real world.
D)Economic predictions will be fulfilled when their underlying hypotheses conform to actual human behaviour.
E)Normative statements cannot be tested by the scientific method.

Accepted Answer

This statement is not correct because economic statements can be tested using empirical evidence, even though human decisions involve free will. While human decisions may be unpredictable, economists can analyze patterns in behavior and use empirical evidence to test their theories.

Quiz 2: Economic Theories, Data, and Graphs

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)

What is the best way to display the unemployment rate in each of the world's developed economies in 2009?

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.

Economic theories

Economists build models that abstract from the complexities of reality because

An index number is used to

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is

A hypothesis (or a prediction) is a statement about

A positive statement is one that states

An economic theory requires, among other things,

The statement that a country's rate of GDP growth is influenced by individuals' saving behaviour is an example of a(n)

Suppose economists at the World Bank discover a positive correlation between family income and female education levels in developing countries. We can say that

The slope of a straight line is necessarily

A theory

Choose the answer that best explains why economists build models that abstract from the complexities of reality.

An economic theory

Which of the following is a normative statement?

On a coordinate graph, what is the X intercept of the function X = 60 + 3Y?

Of the following, which is the most important characteristic of a successful theory?

Which of the following statements is NOT correct?