Chapter 1—The Role and Method of Economics TRUE/FALSE 1. Since resources are abundant, we do not have to make choices about their use. ANS: F PTS: 1 2. It is possible to completely eliminate scarcity. ANS: F PTS: 1 3. Scarcity applies to decision makers in macroeconomics but not in microeconomics. ANS: F PTS: 1 4. One topic that microeconomics explores is how prices are determined in individual markets, while macroeconomics is concerned with issues such as the economy's overall rate of inflation, economic growth and unemployment. ANS: T PTS: 1 5. Microeconomics is the branch of economics in which you study inflation and unemployment in the economy. ANS: F PTS: 1 6. Microeconomics explores the allocation of scarce resources from the perspective of small economic units such as consumers and firms. ANS: T PTS: 1 7. To an economist, individuals are acting "rationally" if they are striving to do their best to achieve their goals. ANS: T PTS: 1 8. Economists presume that when making a decision, individuals consider both the current action and the future consequences of that action. ANS: T PTS: 1 9. Economic models are of limited use since they cannot be tested empirically. ANS: F PTS: 1 10. A hypothesis is a normative statement. ANS: F PTS: 1 11. A testable proposition that predicts how people will react to changed circumstances is called a hypothesis.
ANS: T PTS: 1 12. A good economic theory should capture as many details about real-world behavior as possible. ANS: F PTS: 1 13. The main concern of economics is to study how well the stock markets are performing. ANS: F PTS: 1 14. " Ceteris paribus " is a Latin expression that means "holding everything else constant." ANS: T PTS: 1 15. The fallacy of composition states that even if something is true for an individual, it is not necessarily true for many individuals as a group. ANS: T PTS: 1 16. When two variables repeatedly change at the same time, there must be a causal relationship between them. ANS: F PTS: 1 17. Normative analysis focuses on statements that can be tested against real-world data. ANS: F PTS: 1 18. "A tax cut will lead to higher inflation" is an example of a positive economic statement. ANS: T PTS: 1 19. To be a positive economic statement, an assertion must be factual. ANS: F PTS: 1 20. Most disagreements among economists stem from normative issues. ANS: T PTS: 1 MULTIPLE CHOICE 1. Economics is most importantly concerned with: a. how to profit from trading in the stock market. b. government taxation and spending. c. studying how we allocate scarce resources to satisfy unlimited wants. d. how to reduce inflation. e. how to successfully launch a business. ANS: C PTS: 1 2. The central question in economics is how to:
a. regulate the supply of money. b.
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