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30) If two competing models are offered to explain a certain economic phenomenon, the better model is the one

1. A) that is the newest since newer models are better than old models.
2. B) with the fewest unrealistic assumptions.
3. C) that more often predicts with most accuracy.
4. D) that is not subject to empirical verification.

31) To be useful, a model must

1. A) predict accurately all of the time.
2. B) predict more accurately than other models that have been developed.
3. C) have assumptions that have been verified by empirical testing.
4. D) explain and predict the behavior of every individual.

32) Economics is called an empirical science because

1. A) economists study real-world evidence to test their models.
2. B) economists use assumptions in their models.
3. C) economic models have no predictive power.
4. D) economic analysis is only useful in a capitalistic society.

33) Which of these social sciences deals most with models of behavior rather than with thought processes?

1. A) Psychology
2. B) Sociology
3. C) Psychiatry
4. D) Economics

34) Which of the following best describes how economists test the empirical predictions of economic models?

1. A) Economists survey individuals to learn about how people think through decisions about how much to purchase or to produce.
2. B) Economists collect and analyze real-world observations of people’s actions to discern if those actions accord with theories’ predictions.
3. C) Based on theories about thought processes, economists seek to determine which thought processes predominate in determining how a person decides what actions to take.
4. D) Recognizing that people always do what they say they will do, economists rely exclusively on information gleaned from polls and surveys conducted by poll takers and market researchers.

35) When constructing economic models, economists are more concerned with

1. A) what people say than what they do.
2. B) what people think than what they say.
3. C) what people do than what they say.
4. D) what people say than what they do or think.

36) Behavioral economics is an approach to the study of consumer behavior

1. A) that emphasizes psychological limitations and complications that potentially interfere with rational decision making.
2. B) that emphasizes the capabilities of individuals to succeed in attaining all their unlimited wants utilizing limited resources.
3. C) that, in contrast to standard approaches in economics, utilizes the ceteris paribus
4. D) that, in contrast to standard approaches in economics, relies on real-world data to evaluate the usefulness of economic models.

37) The hypothesis that people are nearly, but not fully rational, cannot possibly fully examine every available choice, and utilize simple rules of thumb in making decisions is known as the

1. A) irrationality hypothesis.
2. B) ceteris paribus
3. C) individual aggregation hypothesis.
4. D) bounded rationality hypothesis.

38) According to the bounded rationality hypothesis, an individual confronting a large number of complicated choices is most likely to respond by

1. A) using a simple rule of thumb to choose among a subset of easiest-to-evaluate options.
2. B) using the ceteris paribus assumption to assist in simplifying and examining each of the possible options.
3. C) utilizing readily available empirical evidence to assist in evaluating every option.
4. D) assessing every available choice by developing sophisticated theories regarding each option.

39) An economic theory is also known as an economic

1. A) model or principle.
2. B) design.
3. C) miracle.
4. D) assumption.

40) Economic models are

1. A) always based on laboratory methods similar to natural sciences.
2. B) a simplified representations of the real world.
3. C) used only in microeconomic analysis by households.
4. D) used only in macroeconomic analysis by business firms.

41) Economic models are NOT used to

1. A) explain economic phenomena.
2. B) predict economic phenomena.
3. C) understand economic phenomena.
4. D) describe all economic phenomena in minute detail.

42) To test their theories, economists usually have to

1. A) set up careful laboratory experiments with all variables controlled.
2. B) first examine theory and what has happened in the past in the real world.
3. C) use only models that have a proven record of success.
4. D) anticipate every factor with 100 percent accuracy.

43) A difference between biology and economics is that

1. A) economists use models and biologists use theories.
2. B) biologists often use laboratory methods and economists do less often.
3. C) economics explains events while biology predict events.
4. D) biologists use the scientific method while economists do not.

44) Models must

1. A) be able to yield useable predictions.
2. B) be totally realistic in every detail.
3. C) be a complete reproduction of the real world.
4. D) include every relationship that exists.

45) A good economic model

1. A) cannot be refuted.
2. B) describes the real world completely and in detail.
3. C) captures the essential relationships of the problem under consideration.
4. D) captures all relationships about the problem under consideration.

46) Which of the following statements is NOT true?

1. A) Economics is a social science.
2. B) Economics is an empirical science.
3. C) Economics does not use theories.
4. D) Economics is the study of how people allocate their limited resources to satisfy their unlimited wants.

47) A characteristic of a good model is that

1. A) its predictions can be tested using real-world data.
2. B) it is useful for making irrefutable predictions.
3. C) it applies to all situations.
4. D) it predicts perfectly.

48) In an economic model, assumptions

1. A) must be applicable to all real-world situations.
2. B) must be eliminated before being used to make sure the model is realistic.
3. C) are not important in determining the usefulness of the model.
4. D) define the set of circumstances in which the model is most likely to be applicable in the real world.

49) A model is used to explain economic behavior. Therefore,

1. A) the assumptions must be complex while the model itself is simple.
2. B) the model must be complex.
3. C) the model must be simple.
4. D) the model can be either simple or complex so long as it explains economic behavior.

50) “Ceteris paribus” assumption means

1. A) the role of rational self-interest in the economy.
2. B) that nothing else changes except the variables under consideration.
3. C) relying on real-world data in evaluating the usefulness of a model.
4. D) analysis that is strictly limited to making either purely descriptive statements or scientific predictions.

51) If economists are making the assumption that business people try to maximize profits, the best way to determine whether this assumption is useful or not is to

1. A) see whether it generates accurate predictions about the choices of business people.
2. B) ask business people whether it is true or not.
3. C) find out whether S. businesses are more profitable than European businesses.
4. D) take a survey of people and see if they agree with this assumption.

52) The assumption that nothing changes except the factor being studied is

1. A) the ceteris paribus
2. B) the rationality assumption.
3. C) positive economic analysis.
4. D) normative economic analysis.

53) “Ceteris paribus” means

1. A) “invisible hand.”
2. B) “other things constant.”
3. C) “making all the necessary changes.”
4. D) “individual.”

54) A scientist who is studying earthquakes includes the impact of wind when performing some tests of damages to structures. This is an example of

1. A) failing to understand how to do scientific methodology.
2. B) irrational behavior in noneconomic situations.
3. C) accounting for every possible phenomena that may effect the problem under examination.
4. D) failing to hold all other things constant.

55) Economics is an empirical science, which means that economists

1. A) look at evidence to see whether or not the model is applicable.
2. B) test their models by utilizing unknown variables.
3. C) do only laboratory experiments.
4. D) refuse to test their models since the usefulness of a model is determined by whether it is logical or not.

56) Which expression below matches most closely the way economists go about testing their models?

1. A) “Consistency is the hobgoblin of small minds.”
2. B) “Seeing the results is the only way to know if you are right.”
3. C) “A bird in the hand is worth two in the bush.”
4. D) “In the long run we are all dead.”

57) Economic models relate to

1. A) people’s choices.
2. B) how people think about something.
3. C) group opinions.
4. D) the reasons people give for donating to charity.

58) A poll conducted by a national firm finds that most Americans say they care more about safety when buying a car than about fuel efficiency. As a result, a car maker produces a car with many safety features, but it doesn’t sell well. This behavior

1. A) contradicts economic theory because the people didn’t do what they said they would do.
2. B) contradicts economic theory because it is irrational not to purchase safer cars.
3. C) does not contradict economic theory because economists focus on what people do rather than on what they say.
4. D) does not contradict economic theory because economic theory only relates to prices and not to features such as safety.

59) According to proponents of behavioral economics, because every possible choice cannot be considered, an individual will tend to fall back on methods of making decisions that are simpler than trying to sort through every single possibility, known as

1. A) rules of thumb.
2. B) rational options.
3. C) irrational choices.
4. D) normative decisions.

Answer:  A

Diff: 1

Topic:  1.5 Economics as a Science

AACSB:  Analytic skills

Question Status:  Previous Edition

60) Which of the following is NOT an alleged “unrealistic” assumption that proponents of behavioral economics suggest are commonly utilized in traditional economic models based on the rationality assumption?

1. A) unbounded selfishness
2. B) unbounded rationality
3. C) unbounded will power
4. D) unbounded resources

61) If psychological limitations and other complications cause people to be unable to examine and think through every possible choice available to them and rely instead on rules of thumb, then these individuals exhibit

1. A) unbounded rationality.
2. B) normative thinking.
3. C) bounded rationality.
4. D) positive thinking.

62) A theory or a model

1. A) is a simplified, abstract view of reality.
2. B) is based on each economist’s value judgments.
3. C) is a detailed analysis of what ought to be.
4. D) captures all aspects of the real world.

63) Ceteris paribus means

1. A) “all variables are independent.”
2. B) “other things being equal.”
3. C) “some assumptions must be accepted without proof.”
4. D) “some theories are not rational.”

64) The ceteris paribus assumption means

1. A) favors are returned in kind.
2. B) this is the proof of the matter.
3. C) from many, one.
4. D) other things are equal.

65) In building a model the assumption that allows economists to study only the factors being analyzed is the

1. A) rationality assumption.
2. B) ceteris paribus
3. C) the self-interest assumption.
4. D) the scarcity assumption.

66) Ceteris paribus means

1. A) other variables are held constant.
2. B) almost certainly.
3. C) only if everything works just right.
4. D) perhaps.

Topic:  1.5 Economics as a Science

AACSB:  Analytic skills

67) In constructing models, economists

1. A) include all independent variables.
2. B) include all available information.
3. C) attempt to duplicate the real world.
4. D) make simplifying assumptions.

68) In building a model to analyze economic situations, one of the important assumptions is

1. A) ceteris paribus.
2. B) scarcity.
3. C) conversion abstraction.
4. D) cognitive dissonance.

69) Assumptions are necessary to

1. A) make economics a social science.
2. B) define a set of circumstances where a model is most likely to apply.
3. C) define the relationship between wants and resources under all circumstances.
4. D) define the specific cause and effect relationship that is being explained by social sciences.

70) Ceteris paribus means

1. A) all men are created equal.
2. B) wage parity between men and women is a worthy goal.
3. C) there are an infinite number of factors affecting each human decision and they change all the time.
4. D) economists isolate one or two factors that change when analyzing human decisions.

71) Economic models are used to

1. A) simplify reality to predict outcomes.
2. B) exactly replicate reality.
3. C) predict all possible outcomes of a study.
4. D) determine the thoughts of individuals.

Answer:  A

Diff: 2

Topic:  1.5 Economics as a Science

AACSB:  Analytic skills

Question Status:  Previous Edition

72) Economic models

1. A) should be designed so as to capture every detail or interrelationship that exists.
2. B) are simplified representations of the real world.
3. C) must employ the use of laboratory methods.
4. D) All of the above are correct.

73) Economics may be referred to as a(n) ________ science, meaning that data is looked at to see whether assertions are correct.

1. A) empirical
2. B) exact
3. C) assumptive
4. D) soft

74) The term ceteris paribus is an economic assumption that means

1. A) let the buyer beware.
2. B) common sense is reality.
3. C) the detail is in the interrelationship.
4. D) other things being equal.

75) The value of a model is determined by

1. A) the usefulness of its predictions in the real world.
2. B) the extent of the profit earned by applying it.
3. C) the realism of its assumptions.
4. D) the model’s attention to real world details.

Answer:  A

Diff: 2

Topic:  1.5 Economics as a Science

AACSB:  Analytic skills

Question Status:  Previous Edition

76) Assumptions in models tend to make

1. A) the model predict what the scientist wants the results to be.
2. B) the model more complex.
3. C) the model more applicable to specific circumstances.
4. D) the model always predict the future accurately.

77) What would lead an economist to conclude that Theory A is superior to Theory B?

1. A) Theory A predicts real-world events better than does Theory B.
2. B) The assumptions underlying Theory A are more realistic than are the assumptions underlying Theory B.
3. C) Theory A explains how people think, whereas Theory B only explains what they do.
4. D) Theory A is based on the assumption that an individual typically cannot determine what is in his or her own best interest, whereas Theory B assumes that each person knows what is in his or her own best interest and acts accordingly.

78) Why do economists test their hypotheses?

1. A) to see whether people are motivated by self-interest
2. B) to see whether their models predict the choices people will make
3. C) to determine whether government policies have effectively achieved their goals
4. D) to learn what people are thinking when they make the choices they do

79) Which of the expressions below best describes the aim of economic theory?

1. A) to predict how people think about money
2. B) to understand why money motivates some people more than others
3. C) to predict the choices people will make
4. D) to learn what we can do to prevent people from having unrealistic wants

80) Based on your understanding of your roommate’s preferences, you predict that he will select the spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this event in terms of economic theory?

1. A) Your roommate is irrational.
2. B) Your roommate does not know what is in his own best interests.
3. C) You roommate does not know his own preferences as well as you do.
4. D) You constructed a model that made a prediction, and the prediction was refuted.

81) Which of the following statements about economic models is true?

1. A) A good economic model is complex.
2. B) A good model does not rely on any assumptions.
3. C) Every model is based on a set of assumptions.
4. D) Economic models are designed to explain what people need.

82) The way economists understand, explain and predict economic phenomena is to

1. A) form a theory.
2. B) consider real-world data only in rare cases.
3. C) utilize normative economics.
4. D) aggregate data and examine only the big picture.

83) By using the ceteris paribus assumption in conjunction with a model, economists can

1. A) suspend the rationality assumption.
2. B) avoid having their model depend on any additional assumptions.
3. C) hold certain factors constant.
4. D) be sure that the model will predict correctly.

84) What is meant by saying that economics is an empirical science?

1. A) Economic theories do not need to be tested because they are based on true assumptions.
2. B) Economic theories cannot be tested because there is no means of measuring economic variables with adequate precision.
3. C) Economic theories cannot be tested because economic variables change too quickly.
4. D) Economic theories will be tested by seeing how well they correspond to real-world phenomena.

85) The combination of psychology and economics to determine individual decision making is known as

1. A) behavioral economics.
2. B) pyschomics.
3. C) the rule of thumb.
4. D) positive analysis.

86) The idea of bounded rationality is used to address all of the following characteristics EXCEPT

1. A) unbounded selfishness.
2. B) unbounded knowledge.
3. C) unbounded willpower.
4. D) unbounded rationality.

87) What does it mean to say economics is an empirical science, and how is this related to the question of deciding on the usefulness of a model?

Answer:  Economists examine evidence to test whether a model is useful or not. That is, real-world data are studied to see if they conform to the predictions of the model. A model is useful if it generates testable predictions and implications for the real world. A model that predicts better is generally considered a better model.

Question Status:  Previous Edition

88) “To be useful, a model must be completely realistic.” Evaluate.

Answer:  This statement is incorrect. To be useful, a model must capture key real-world elements but cannot account for every detail of the real world. The model should capture the essential relationships that enable us to analyze the problem with which we are concerned. A model is useful so long as it sheds light on the central forces at work.

89) Suppose a survey is taken concerning car safety. According to the survey, people strongly desire safer cars and indicate they are willing to pay substantially more for safer cars. Using this information, one auto firm adds numerous safety features to its car, raising the price by several thousand dollars. Sales drop sharply, and the firm loses profits. What went wrong?

Answer:  The automaker was relying on what people say rather than on what they do. An economic model would have tried to predict whether the expected gains from driving safer cars would have been great enough for consumers to pay the higher price. Economic models are models of behavior and not models about how people think or whether people’s views directly affect their actions. Also, they did not account for other factors

1) Normative economic statements

1. A) violate the law of ceteris paribus.
2. B) contain value judgments.
3. C) are usually irrational.
4. D) are easily testable.

2) Normative economics involves

1. A) a statement of fact.
2. B) a statement of “what should be.”
3. C) a statement of “what is.”
4. D) a statement that is purely descriptive.

3) “If A occurs then B will follow” is a

1. A) positive statement.
2. B) normative statement.
3. C) non-testable statement.
4. D) statement lacking in logic.

4) “If the United States enters a war in the Middle East, the economy will go into a recession” is an example of

1. A) a positive statement.
2. B) an easy to prove statement.
3. C) a normative statement.
4. D) a factual statement.

5) Which of the following is an example of a positive economic statement?

1. A) In order to reduce the budget deficit, tax rates should be increased.
2. B) In order to increase employment, the minimum wage should be decreased.
3. C) If payroll taxes are raised, then the Social Security crisis will be resolved.
4. D) If gas prices fall, consumers should purchase more gas.

6) “No individual should have less than $20,000 income in the United States in 2010” is an example of

1. A) a normative statement.
2. B) a positive statement.
3. C) an illogical and refutable statement.
4. D) a truism.

7) Which of the following is a normative statement?

1. A) An increase in consumer income will lead to increased sales of beef.
2. B) A decrease in the rate of unemployment will lead to upward pressure on consumer prices.
3. C) An increase in the income tax will cause a greater reduction in savings than an increase in the sales tax.
4. D) An economy with high unemployment can be worse off than an economy with high inflation.

8) Which of the following is a positive economic statement?

1. A) No individual should live in poverty.
2. B) The rate of unemployment of young African-Americans exceeds that of white Americans.
3. C) Unemployment is a more serious problem than inflation.
4. D) Economic considerations are less relevant than ethical issues in deciding national policy.

9) “All Americans should have access to health care” is an example of

1. A) a positive statement.
2. B) a microeconomic argument.
3. C) a factual statement.
4. D) a normative statement.

10) When a U.S. Senator tells a campaign crowd that “High inflation rates are a much more serious economic problem than high unemployment rates,” it is an example of

1. A) a normative statement.
2. B) an empirically proven fact.
3. C) a positive statement.
4. D) a microeconomic argument.

11) Which of the following statements is a positive economic statement?

1. A) The number of families living in poverty in the United States is too high.
2. B) One in every five children in the United States is living in poverty.
3. C) Government programs to help the poor are just making problems worse.
4. D) Increases in poverty rates signify a deterioration of the S. economy.

12) Which of the following statements is a positive economic statement?

1. A) The Congress should pass the president’s tax package.
2. B) Tax rebates always give too much favor to rich people.
3. C) The President’s budget included an increase in unemployment insurance payments.
4. D) none of the above

13) Which of the following statements is a normative as opposed to a positive economic statement?

1. A) Consumer spending generates more jobs.
2. B) If the price of gasoline goes up, people buy less.
3. C) Labor unions should be allowed to organize in every industry.
4. D) Government intervention in markets is common in many countries.

14) Whenever statements embodying values are made, we enter the realm of

1. A) positive economics.
2. B) normative economics.
3. C) microeconomics.
4. D) macroeconomics.

15) Positive economic analysis is said to be

1. A) true.
2. B) right.
3. C) value-laden.
4. D) objective.

16) Positive statements can contain

1. A) opinions and conditions.
2. B) facts and predictions.
3. C) a mixture of facts and opinions.
4. D) logical arguments mixed with statements of opinion.

17) Normative economic analysis involves

1. A) positive analysis.
2. B) value judgments.
3. C) if-then statements.
4. D) objective descriptions of the way things are.

18) Which of the following statements is an example of positive economic analysis?

1. A) The inflation rate is too high.
2. B) The government should worry less about inflation and more about unemployment.
3. C) If the government increases the rate of growth of the money supply, the inflation rate will increase, ceteris paribus.
4. D) The elderly live on a fixed income, so the government has an obligation to keep inflation rates low.

19) Which of the following is a normative economic statement?

1. A) An increase in corporate income taxes will cause the unemployment rate to increase.
2. B) The costs of medical care are increasing faster than the incomes of S. citizens.
3. C) Teenage unemployment is over ten percent.
4. D) Teenage unemployment is too high.

20) Which of the following is an example of a normative economic statement?

1. A) Lower income tax rates will generate greater income tax revenue to the government.
2. B) Income tax rates should be lower because that will increase government revenue.
3. C) Lower income tax rates yield a larger federal government deficit.
4. D) The federal budget deficit has increased every year for the last twenty years.

21) Which of the following statements concerning the distinction between positive and normative economics is true?

1. A) Positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be.
2. B) Positive statements are concerned with what people think, while normative statements are concerned with what people do.
3. C) Positive statements are true while normative statements are false.
4. D) Positive statements are concerned with what is while normative statements are concerned with what will be.

22) Positive economic analysis is supposed to be

1. A) true.
2. B) free of value judgments.
3. C) just and fair.
4. D) moral and honest.

23) It has been noted that when the price of a good increases, people purchase less of the good. This is an example of

1. A) macroeconomic analysis.
2. B) irrational behavior.
3. C) normative economic analysis.
4. D) positive economic analysis.

24) Normative economics is

1. A) analysis involving value judgments about economic policies; or a statement of “what ought to be.”
2. B) analysis that is strictly limited to making either purely descriptive statements or scientific predictions.
3. C) analysis of the behavior of the economy as a whole.
4. D) decision making undertaken by households and business firms.

25) Normative economic analysis involves

1. A) true statements of facts only.
2. B) testable hypotheses by scientists.
3. C) value judgments and opinions.
4. D) purely descriptive statements.

26) Which of the following is an example of a positive statement?

1. A) It is too hot to go jogging.
2. B) Ceteris paribus, a teacher should award a higher grade if you study more hours for an economics test.
3. C) When the price of an item increases, people respond by reducing their consumption of the item.
4. D) The government should balance the budget.

27) Which of the following is a statement with positive economic analysis?

1. A) Lower wages increase employment and reduce the unemployment rate.
2. B) Slower money growth reduces inflation.
3. C) A reduction in the size of the budget deficit will reduce interest rates.
4. D) all of the above

28) Which of the following is NOT normative economic statement?

1. A) The minimum wage should be eliminated so unemployment can be reduced.
2. B) Increases in the minimum wage cause increases in unemployment.
3. C) The inflation rate should fall to increase individuals’ well being.
4. D) Taxes on cigarettes should be increased to reduce smoking.

29) Which of the following is an example of a positive economic statement?

5. A) The unemployment rate last month was 5.4 percent.
6. B) The unemployment rate last month was too high.
7. C) Because of the high unemployment rate last month the government should increase government spending.
8. D) The unemployment rate should be measured differently because it doesn’t include students who can’t find jobs.

30) Normative economic analysis tends to

1. A) generate testable hypotheses.
2. B) include the way someone thinks things should be or ought to be.
3. C) involve descriptive statements.
4. D) lead to empirical testing of data.

31) Which of the following statements is true regarding the textbook used in this course?

1. A) The textbook presents only economic theory, so no value judgments are involved in the text.
2. B) The textbook does not include normative statements.
3. C) The microeconomic section of the book includes only positive analysis while the macroeconomic section includes normative analysis.
4. D) The selection of topics included in the book involves value judgments as well as economic theory.

32) Analysis that involves value judgments about economic policies is

1. A) positive economics.
2. B) normative economics.
3. C) microeconomics.
4. D) macroeconomics.

33) Analysis that is limited to making either purely descriptive statements or scientific predictions is

1. A) positive economics.
2. B) normative economics.
3. C) microeconomics.
4. D) macroeconomics.

34) The term or phrase most likely to indicate a normative statement is

1. A) “ceteris paribus.”
2. B) “factual.” or “what is” statement.
3. C) “holding other things constant.”
4. D) “should” or “ought to.”

35) Jane is currently developing a model to explain the national unemployment rate.  This is an example of

1. A) a microeconomic topic.
2. B) normative analysis.
3. C) positive analysis.
4. D) how people act in an irrational manner.

36) How does the science of economics deal with the fact that we all have different values?

1. A) by assuming that values don’t play a role in economic behavior
2. B) by seeking to discover the sources of different value systems
3. C) by using positive analysis
4. D) by surveying the public to see what the most common values are, and then incorporating those as assumptions into their models

37) Which of the following is a positive statement?

5. A) An unemployment rate of 5.8 percent is too high.
6. B) The unemployment rate is 5.8 percent.
7. C) The unemployment rate should be below 5.8 percent.
8. D) The unemployment rate should never be above 5.8 percent.

38) Which of the following is NOT a positive statement?

5. A) The unemployment rate is 5.8 percent.
6. B) The inflation rate for 2002 was 2.3 percent.
7. C) The national debt is too high.
8. D) The federal government budget for 2004 is $2.2 trillion.

39) The difference between positive statements and normative statements is that

1. A) a positive statement involves a value judgment and a normative statement is a statement of fact.
2. B) a positive statement is a statement of fact and a normative statement involves value judgments.
3. C) value judgments are made in normative statements but assumed in positive statements.
4. D) normative statements are provable while positive statements are not.

40) Which one of the following is an example of a normative statement?

1. A) A digital camera costs more than a disposable camera.
2. B) Most digital cameras sold in the United States are imported from other countries.
3. C) A camera makes a good wedding gift.
4. D) More people will buy digital cameras as their prices decline.

41) Which one of the following is an example of a normative statement?

1. A) A vacation in Colorado is better than a vacation in Hawaii.
2. B) Hotels in Colorado are more expensive than are hotels in Hawaii.
3. C) The hotel vacancy rate in Hawaii will increase as airfares to Hawaii
4. D) The busiest tourist month in Colorado is July.

42) Which one of the following is an example of a positive statement?

1. A) Farmers need some type of government aid.
2. B) State governments should provide economic assistance to farmers.
3. C) The federal government should provide economic assistance to farmers.
4. D) The amount of financial assistance given to farmers is higher this year than it was 10 years ago.

43) Which one of the following is an example of a normative statement?

1. A) Public school teachers are not paid enough.
2. B) The average public school teacher earns less than the average truck driver.
3. C) The average public school teacher earns more than the average truck driver.
4. D) Students in smaller classes perform better on standardized tests.

44) Normative economics

1. A) is never studied at the undergraduate level.
2. B) involves value judgments.
3. C) is always objective.
4. D) cannot be applied to all economic problems.

45) The President’s statement that “to encourage economic growth, taxes should be cut,”

1. A) would be an example of a normative statement.
2. B) would be an example of a positive statement.
3. C) would be an example of a microeconomic statement.
4. D) would be a statement of mercantilist economic philosophy.

46) The headline in the local paper today is “College tuition next fall will be raised by 3 percent.” This statement is an example of

1. A) a normative statement.
2. B) a positive statement.
3. C) a macroeconomic statement.
4. D) ceteris paribus.

47) Positive economics

1. A) always gives an optimistic spin to economic news.
2. B) is concerned with the economic policies that should be implemented.
3. C) is objective.
4. D) was not used by nineteenth century economists.

48) Which of the following is a normative economic statement?

1. A) Few auto mechanics are women.
2. B) Men and women should earn the same salary if they perform the same job.
3. C) Auto mechanics typically earned more than waitresses in the United States in 2004.
4. D) Most wait staff are women.

49) Economics seeks to use only positive analysis to

1. A) provide a value-free analysis.
2. B) seek the best answer.
3. C) predict how people should act.
4. D) provide normative values.

50) Which of the following is a positive economic statement?

1. A) We should strive to achieve full employment in the United States.
2. B) The President of the United States should promote stable prices in the United States.
3. C) If the price of eggs increases, the quantity demanded of bacon will fall.
4. D) We should try to eliminate poverty in the United States.

51) Normative economic statements

1. A) are statements of “what ought to be.”
2. B) are statements of “what is.”
3. C) are statements that may be tested by referring to facts and data.
4. D) do not involve value judgments.

52) Which of the following is a normative economic statement?

1. A) If the government increases spending, unemployment will fall.
2. B) The government should increase spending during times of economic recession.
3. C) If banks create more money, unemployment will decrease.
4. D) If the price of gasoline rises, car pooling will increase.

53) “The U.S. government should not use my tax dollars to subsidize people on welfare”

1. A) is a positive economic statement because it simply describes one person’s opinion.
2. B) is a normative economic statement because it involves a value judgment about an economic policy.
3. C) is a positive economic statement because it predicts that my tax dollars will go to welfare.
4. D) is a normative economic statement because it is a scientific fact.

54) All of the following are positive statements EXCEPT

1. A) the President of the United States in 2008 was George W. Bush.
2. B) California is in the United States.
3. C) migratory birds fly south for the winter.
4. D) a dog is man’s best friend.

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55) Positive analysis can be described as

1. A) the study of whether people respond to positive incentives.
2. B) the study of whether people respond to negative incentives.
3. C) a value-free approach to inquiry.
4. D) a study that is not tested empirically.

56) A positive economic statement is one that

1. A) can be refuted.
2. B) is free of the ceteris paribus
3. C) is based on a value judgment.
4. D) asserts something about the role of moral behavior in building a strong economy.

57) Which of the following is a positive statement?

1. A) We need to carefully protect our borders.
2. B) Hyperinflation is the most damaging thing that can occur in an economy.
3. C) When tax revenues are less than government spending there is a budget deficit.
4. D) Foreign aid should be reduced to help our budget deficit.

58) Which of the following is a normative statement?

1. A) The Gross Domestic Product is the dollar value of all goods and services produced in a country in a year.
2. B) Fiscal policy is determined by the Congress and the president.
3. C) Tax cuts ought to be enacted for the good of the economy.
4. D) Monetary policy is determined by the Federal Reserve System.

Answer:  C

Diff: 2

Topic:  1.6 Positive versus Normative Economics

AACSB:  Ethical understanding and reasoning abilities

Question Status:  Previous Edition

59) “A positive economic statement is always true and a normative economic statement is always false.” Do you agree or disagree with this statement? Explain.

Answer:  Disagree. A positive statement is one that is either descriptive or makes a prediction of the type “if A, then B.” A descriptive statement can be false. For example, the statement, “It is raining today,” may be either true or false. A prediction can also be false. A normative statement cannot appeal to evidence. The statement, “It shouldn’t rain today,” cannot be evaluated as either true or false by looking to see if is raining or not.

1) A relationship between two variables in which one variable increases at the same time as the other decreases is called

1. A) nonlinear.
2. B) constant.
3. C) inverse.
4. D) direct.

2) A direct relationship occurs when

1. A) the two variables being compared change in opposite directions, or when one goes up the other goes down.
2. B) a change in one of the variables causes a change in the other variable in any direction.
3. C) the two variables being compared change in the same direction, or when one goes up the other also goes up.
4. D) the two variables have no identifiable relationship with each other.

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