Econ Ch 2
Terms in this set (31)
Economic models must mirror reality or they are of no value.
Assumptions make the world easier to understand because they simplify reality and focus our attention.
It is reasonable to assume that the world is composed of only one person when modeling international trade
When people act as scientists, they must try to be objective.
If an economy is operating on its production possibilities frontier, it must be using its resources efficiently.
If an economy is operating on its production possibilities frontier, it must produce less of one good if it produces more of another.
Points outside the production possibilities frontier are attainable but inefficient.
If an economy were experiencing substantial unemployment, the economy is producing inside the production possibilities frontier.
The production possibilities frontier is bowed outward because the trade-off between the production of any two goods is constant.
An advance in production technology would cause the production possibilities curve to shift outward.
Macroeconomics is concerned with the study of how households and firms make decisions and how they interact in specific markets.
The statement, "An increase in inflation tends to cause unemployment to fall in the short run" is normative.
When economists make positive statements, they are more likely to be acting as scientists.
Normative statements can be refuted with evidence.
Most economists believe that tariffs and import quotas usually reduce general economic welfare.
The scientific method requires that...
scientists be objective.
Which of the following is most likely to produce scientific evidence about a theory?
a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending.
Which of the following statements regarding the circular-flow diagram is true?
The factors of production are owned by households.
In which of the following cases is the assumption most reasonable?
To address the benefits of trade, an economist assumes that there are two people and two goods.
Economic models are
Built with assumptions.
Which of the following is not a factor of production?
Points on the production possibilities frontier are
Which of the following will not shift a country's production possibilities frontier outward?
A reduction in unemployment.
Economic growth is depicted by
a shift in the production possibilities frontier outward.
Which of the following issues is related to microeconomics?
the impact of oil prices on auto production.
Which of the following statements about microeconomics and macroeconomics is not true?
The study of very large industries is a topic within macroeconomics.
Which of the following statements is normative?
The unemployment rate should be lower.
In making which of the following statements is an economist acting more like a scientist?
A reduction in unemployment benefits will reduce the unemployment rate.
Positive statements are
statements of description that can be tested.
Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "Hogwash. Inflation is the greatest social evil." These economists
disagree because they have different values.
Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "Hogwash. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economists
disagree because they have different scientific judgments.
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