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MULTIPLE CHOICE
1. Which statement best describes the way economists study the economy?
a. Economists study the past, but do not try to predict the future.
b. Economists use a probabilistic approach based on correlations between economic events.
c. Economists devise theories, collect data, and then analyze the data to test the theories.
d. Economists use controlled experiments much the same way a biologist or physicist does.
c. the use of controlled experiments in understanding the way the world works
d. finding evidence to support preconceived theories about how the world works
4. Who said, “The whole of science is nothing more than a refinement of everyday thinking”? a. Isaac
Newton
b. Albert Einstein
c. Sigmund Freud
d. Stephen Hawking
6. Sir Isaac Newton developed the theory of gravity after observing an apple fall from a tree. What is this
an example of?
a. a controlled experiment used to develop scientific theory
b. being in the right place at the right time
c. an idea whose time had come
the interplay between observation and theory in science
D PTS: 1 DIF: Average
7. What is a common thread between economics and other sciences, such as physics?
a. Experiments are most often conducted in a lab.
b. Real-world observations often lead to theories.
d.
8. Why is the use of theory and observation more difficult in economics than in sciences, such as physics?
a. It is difficult to evaluate an economic experiment.
b. It is difficult to devise an economic experiment.
c. It is difficult to actually perform an experiment in an economic system.
d. It is difficult to collect sufficient data.
9. Because it is difficult for economists to use experiments to generate data, what must they generally do?
a. do without data
b. use whatever data the world gives them
c. select a committee of economists to make up data for all economists to use
d. use hypothetical, computer-generated data
11. Which of the following is one difficulty economists face that some other scientists do not?
d.
a. Unlike other sciences, economic studies must include the largest economic player, the
government.
b. Economists unfortunately receive less government funding than other scientists.
c. Corporations are reluctant to disclose necessary information for economic research.
d. Experiments are often difficult to conduct in economics.
12. Where do the most common data for testing economic theories come from?
a. carefully controlled and conducted laboratory experiments
b. traditional economies
c. historical episodes of economic change
centrally planned economies
C PTS: 1 DIF: Average
13. For economists, what are often used as substitutes for laboratory experiments?
a. natural experiments offered by history
b. computer-generated experiments
c. studies conducted by other disciplines, such as sociologists
d. well-constructed simulations
15. Which of the following does the art of scientific thinking include?
d.
16. If an economist develops a theory about international trade based on the assumption that there are only
two countries and two goods, what is most likely?
a. The theory can be useful only in situations involving two countries and two goods.
b. It is a total waste of time, since the actual world has many countries trading many goods.
c. The theory can be useful in helping economists understand the complex world of international
trade involving many countries and many goods.
d. The theory can be useful in the classroom, but has no use in the real world.
20. When economists attempt to simplify the real world and make it easier to understand, what do they do?
a. They make assumptions.
b. They make mistakes in judgment.
c. They make predictions.
d. They make evaluations.
25. Which of the following is an example of a product that experiences infrequent price changes?
a. stocks on the Toronto Stock Exchange
b. gasoline
c. the newsstand price of magazines
d. gold in international markets
26. When studying the effects of public policy changes, what have economists often observed?
a. There is a difference between the long run and the short run.
b. Unemployment and inflation are directly related in the short run.
c. With stock prices, what goes up must come down.
d. If the policy is well designed, it will always be effective.
27. When studying the effects of public policy changes, what do economists do?
a. They often falsify results if the desired effect is not reached.
b. They may make different assumptions for the long run and the short run.
c. They attempt to consider only the direct effects and not the indirect effects.
d. They can immediately change policies if they are ineffective.
36. What are the foundation stones from which economic models are built?
a. economic policies
b. legal systems
c. assumptions
d. statistical forecasts
40. In the simple circular-flow diagram, who are the decision makers?
a. firms and government
b. households and firms
c. households and government
d. households, firms, and government
46. What is another name for goods and services produced by firms?
a. factors of production
b. outputs
c. inputs
d. resources
49. According to a simple circular-flow diagram, how many markets do households and firms interact in? a.
one type of market
b. two types of markets
c. three types of markets
d. four types of markets
51. In the goods and services market, how do households and firms interact?
a. Households and firms are both buyers.
b. Households are sellers and firms are buyers.
c. Households are buyers and firms are sellers.
d. Households and firms are both sellers.
ANS: C PTS: 1 DIF: Average REF: p. 25
BLM: Remember NOT: Macro TB_2-51
52. In the factors of production market, how do households and firms interact?
a. Households are sellers and firms are buyers.
b. Households are buyers and firms are sellers.
c. Households and firms are both buyers.
d. Households and firms are both sellers.
Figure 2-1
53. Refer to Figure 2-1. Which arrow shows the flow of goods and services?
a. arrow A
b. arrow B
c. arrow C
d. arrow D
54. Refer to Figure 2-1. Which arrow shows the flow of spending by households?
a. arrow A
b. arrow B
c. arrow C
d. arrow D
ANS: A PTS: 1 DIF: Average REF: p. 25
BLM: Higher Order NOT: Macro TB_2-54
55. Refer to Figure 2-1. Which arrow shows the flow of the factors of production?
a. arrow A
b. arrow B
c. arrow C
d. arrow D
56. Refer to Figure 2-1. Which arrow shows the flow of income payments?
a. arrow A
b. arrow B
c. arrow C
d. arrow D
Figure 2-2
62. Refer to Figure 2-2. What does the inner loop represent?
a. the flow of inputs to firms and output to households
b. the flow of output to firms and inputs to households
c. the flow of spending to firms and factor payments to households
d. the flow of spending to households and factor payments to firms
ANS: A PTS: 1 DIF: Challenging REF: p. 25
BLM: Remember NOT: Macro TB_2-62
63. Refer to Figure 2-2. What does the outer loop represent?
a. the flow of goods
b. the flow of spending
c. the flow of factors of production
d. the flow of services
64. Refer to Figure 2-2. Which of the following best characterizes the money held by households in the
circular-flow diagram?
a. It is earned from the sale of factors of production.
b. It becomes profit to firms.
c. It cannot be tracked in the circular-flow diagram.
d. It is used to purchase factors of production.
69. What revenue is received by firms from sales that is NOT used to pay for factors of production? a. rent
b. wages
c. profit
d. interest
73. Suppose an economy produces two goods: food and machines. This economy always operates on its
production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year, it is
producing 55 units of food and 33 machines. Which of the following would NOT explain the increase in
output?
a. a reduction in unemployment
b. an increase in the labour force
c. an improvement in technology
d. an increase in worker productivity
74. Suppose an economy produces two goods: food and machines. This economy always operates on its
production possibilities frontier. Last year, it produced 72 units of food and 28 machines. This year, it is
producing 75 units of food and 30 machines. Which of the following would NOT explain the increase in
output?
a. a reduction in unemployment
b. an increase in the labour force
c. an improvement in technology
d. an increase in worker productivity
76. The country of Econoland produces two goods: textbooks and widgets. Last year, it produced 200
textbooks and 500 widgets. This year, it produced 250 textbooks and 600 widgets. Given no other
information, which of the following could NOT explain the change? a. Econoland experienced a
reduction in unemployment.
b. Econoland experienced an improvement in widget-making technology.
c. Econoland acquired more resources.
d. Econoland experienced a high level of emigration out of the country.
77. The country of Econoland produces two goods: textbooks and widgets. Last year, it produced 300
textbooks and 600 widgets. This year, it produced 350 textbooks and 700 widgets. Given no other
information, which of the following could NOT explain the change? a. Econoland experienced a
reduction in unemployment.
b. Econoland experienced an improvement in widget-making technology.
c. Econoland acquired more resources.
d. Econoland experienced a high level of emigration out of the country.
78. Suppose there are two countries, Freedonia and Sylvania, which have identical amounts of resources,
identical technologies, and identical populations. Both produce two types of goods, consumer goods and
capital goods, and they both always operate on their production possibilities frontiers. The only
difference is that this year Freedonia chooses to produce relatively more consumer goods than Sylvania.
What will happen as a result?
a. Freedonia will have a higher living standard this year but will grow slower than Sylvania.
b. Freedonia will have a higher living standard this year and will grow faster than Sylvania.
c. Sylvania will have a higher living standard this year but will grow slower than Freedonia.
d. Sylvania will have a higher living standard this year and will grow faster than Freedonia.
ANS: A PTS: 1 DIF: Challenging REF: p. 26-28
BLM: Higher Order NOT: Macro TB_2-78
79. Suppose there are two countries, Freedonia and Sylvania, which have identical amounts of resources,
identical technologies, and identical populations. Both produce two types of goods, consumer goods and
capital goods, and they both always operate on their production possibilities frontiers. The only
difference is that this year Sylvania chooses to produce relatively more consumer goods than Freedonia.
What will happen as a result?
a. Freedonia will have a higher living standard this year but will grow slower than Sylvania.
b. Freedonia will have a higher living standard this year and will grow faster than Sylvania.
c. Sylvania will have a higher living standard this year but will grow slower than Freedonia.
d. Sylvania will have a higher living standard this year and will grow faster than Freedonia.
81. In what region of the production possibilities frontier can an economy produce?
a. An economy can produce only on the production possibilities frontier.
b. An economy can produce at any point inside or outside the production possibilities frontier.
c. An economy can produce at any point on or inside the production possibilities frontier, but not
outside the frontier.
d. An economy can produce at any point inside the production possibilities frontier, but not on or
outside the frontier.
83. When constructing a production possibilities frontier, which of the following is NOT an assumption?
a. The economy produces only two goods.
b. All the economy’s factors of production are being used.
c. The economy has a fixed level of technology.
d. The economy may increase its available factors of production.
86. Which of the following concepts is NOT illustrated by the production possibilities frontier? a. efficiency
b. opportunity cost
c. equity
d. tradeoffs
88. Suppose a nation is currently producing at a point inside its production possibilities frontier. What do we
know?
a. The nation is producing beyond its capacity, and inflation will occur.
b. The nation is not using all available resources and is inefficient.
c. The nation is producing an efficient combination of goods.
d. There will be a large opportunity cost if the nation tries to increase production.
Figure 2-3
89. Refer to Figure 2-3. At which point or points can the economy produce?
a. points B, D, and E
b. points A, B, D, and E
c. points D and C
d. point D
90. Refer to Figure 2-3. Which point represents the maximum possible production of tubas? a. point A
b. point B
c. point C
d. point E
91. Refer to Figure 2-3. At which point or points can the economy NOT produce? a. point A
b. point C
c. points A and C
d. points A, C, and D
94. What is the opportunity cost of obtaining more of one good, as shown on the production possibilities
frontier?
a. the amount of the other good that must be given up
b. the market price of the additional amount produced
c. the amount of resources that must be devoted to its production
d. the number of dollars that must be spent to produce it
ANS: A PTS: 1 DIF: Average REF: p. 27
BLM: Higher Order NOT: Macro TB_2-94
Figure 2-4
95. Refer to Figure 2-4. What is the opportunity cost to the economy of getting 30 additional toothbrushes
by moving from point A to point D? a. 10 toasters
b. 15 toasters
c. 20 toasters
d. 25 toasters
96. Refer to Figure 2-4. Suppose the economy is at point A. What is the opportunity cost of increasing the
production of toothbrushes by 20 units? a. 10 toasters
b. 20 toasters
c. 30 toasters
d. 40 toasters
97. Refer to Figure 2-4. What is the opportunity cost in terms of toothbrushes of getting 10 additional
toasters by moving from point B to point A? a. 20 toothbrushes
b. 10 toothbrushes
c. 5 toothbrushes
d. 0 toothbrushes
98. Refer to Figure 2-5. Which of the following most likely caused the shift of the production possibilities
frontier from A to B?
a. technological improvement in the production of batteries
b. more labour available in the economy
c. a general technological breakthrough
d. more capital available in the economy
Figure 2-6
99. Refer to Figure 2-6. What is the opportunity cost to society of the movement from point A to point
C? a. 50 baseballs
b. 100 baseballs
c. 100 bananas
d. 300 bananas
ANS: B PTS: 1 DIF: Average REF: p. 27
BLM: Higher Order NOT: Macro TB_2-99
100. Refer to Figure 2-6. What is the opportunity cost to society of moving from point B to point D? a.
100 bananas and 100 baseballs
b. 50 bananas and 50 baseballs
c. 100 bananas and 50 baseballs
d. 50 bananas and 100 baseballs
101. Refer to Figure 2-6. What was the most likely cause of the movement from point C to point D? a.
unemployment
b. a decrease in society’s preference for bananas
c. a decrease in society’s preference for playing baseball
d. a shift to a longer working day
102. Refer to Figure 2-6. If this economy put all available resources into the production of bananas, how
many could it produce? a. 200
b. 300
c. 400
d. 600
105. When a production possibilities frontier shifts outward, what concept is being demonstrated? a.
tradeoffs
b. efficiency
c. economic growth
d. opportunity cost
106. When an economy is operating inside its production possibilities frontier, what do we know?
a. There are unused resources or inefficiencies in the economy.
b. The economy is operating with efficiency.
c. Moving to a point on its production possibilities frontier would be economic growth.
d. To produce more of one good, the economy would have to give up some of the other good.
Figure 2-7
107. Refer to Figure 2-7. Which of the following would most likely have caused the production possibilities
frontier to shift outward from A to B?
a. an increase in resources necessary to produce capital goods
b. an improvement in the technology of producing consumer goods
c. an increase in the overall level of technology in the economy
d. an increase in unemployment
ANS: C PTS: 1 DIF: Average REF: p. 28-29
BLM: Higher Order NOT: Macro TB_2-107
108. Refer to Figure 2-7. What would best describe the movement from frontier A to B?
a. a downturn in the economy
b. economic growth
c. a more equitable distribution of income
d. an improvement in the allocation of resources
Table 2-1
110. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from
200 to 300?
a. 200 fire trucks
b. 150 fire trucks
c. 100 fire trucks
d. 50 fire trucks
112. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from
100 to 200?
a. 200 fire trucks
b. 150 fire trucks
c. 100 fire trucks
d. 50 fire trucks
113. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from 0
to 100?
a. 200 fire trucks
b. 150 fire trucks
c. 100 fire trucks
d. 50 fire trucks
114. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of fire trucks
from 0 to 200? a. 200 dolls
b. 150 dolls
c. 100 dolls
d. 50 dolls
115. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of fire trucks
from 450 to 500? a. 200 dolls
b. 150 dolls
c. 100 dolls
d. 50 dolls
116. Refer to Table 2-1. How does the opportunity cost of producing an additional 100 dolls change as more
dolls are produced?
a. It is constant and equal to 50 fire trucks.
b. It is constant and equal to 100 fire trucks.
c. It decreases as more dolls are produced.
d. It increases as more dolls are produced.
Figure 2-8
117. Refer to Figure 2-8. What would be an efficient combination of bathtubs and barrels? a. 30 barrels and
6 bathtubs
b. 20 barrels and 8 bathtubs
c. 25 barrels and 10 bathtubs
d. 15 barrels and 12 bathtubs
118. Refer to Figure 2-8. What is the opportunity cost of moving from point A to point B? a. 8 bathtubs
b. 20 barrels
c. the difference between the 8 bathtubs you get and the 20 barrels you give up
d. the difference between the 20 barrels you get and the 8 bathtubs you give up
119. Refer to Figure 2-8. If this economy puts all of its resources into the production of bathtubs, how many
could it produce?
a. 35 barrels and 0 bathtubs
b. 20 barrels and 12 bathtubs
c. 12 barrels and 35 bathtubs
d. 0 barrels and 16 bathtubs
120. Refer to Figure 2-8. Which of the following combinations is impossible for this economy to produce?
a. 30 barrels and 6 bathtubs
b. 25 barrels and 10 bathtubs
c. 20 barrels and 8 bathtubs
d. 10 barrels and 14 bathtubs
121. Refer to Figure 2-8. What would happen if this economy moved from point C to point E?
a. It still would not be producing efficiently.
b. There would be no gain in either bathtubs or barrels.
c. It would be producing more barrels and more bathtubs than at point C.
d. It is not possible for this economy to move from point C to point E without additional resources.
122. What two broad subfields is the field of economics traditionally divided into?
a. national economics and international economics
b. consumer economics and producer economics
c. private sector economics and public sector economics
d. microeconomics and macroeconomics
ANS: D PTS: 1 DIF: Easy REF: p. 29
BLM: Remember NOT: Macro TB_2-122
128. What are economists who try to explain economic phenomena considered? a. scientists
b. policy advisors
c. mathematicians
d. teachers
129. What are economists who try to improve the world considered?
a. mathematicians
b. policy advisors
c. scientists
d. politicians
130. What are the roles of economists when trying to explain or to improve the world?
a. In trying to explain the world, economists are policy advisers; in trying to improve the world, they
are scientists.
b. In trying to explain the world, economists are mathematicians; in trying to improve the world, they
are policymakers.
c. In trying to explain the world, economists are mathematicians; in trying to improve the world, they
are scientists.
d. In trying to explain the world, economists are scientists; in trying to improve the world, they are
policy advisers.
131. For economists, what are the two types of statements about the world?
a. assumptions and theories
b. true statements and false statements
c. specific statements and general statements
d. positive statements and normative statements
ANS: D PTS: 1 DIF: Easy REF: p. 30
BLM: Remember NOT: Macro TB_2-131
137. What type of statement is “Prices rise when the government prints too much money”?
a. a positive economic statement
b. a statement made by the Harper administration
c. a normative economic statement
d. a welfare statement
139. When economists are speaking as policy advisors, which statements are they more likely to use? a.
normative statements
b. positive statements
c. objective statements
d. descriptive statements
142. Two economists, Adam and Joan, are discussing the possibility of substantially reforming the current
federal tax system. Adam thinks the current system is fine, but Joan is in favour of reform. Which of
the following is the LEAST likely explanation for the disagreement?
a. Adam is a positive economist, and Joan is a normative economist.
b. Adam and Joan have different positive views about the effect of changing the tax system.
c. Adam and Joan have different values, and so they have different normative views about policy.
d. Adam is better off under the current system, and Joan would be better off if the reforms were
implemented.
143. When do you know an economist has crossed the line from scientist to policy adviser?
a. when he explains just the facts
b. when he makes positive statements
c. when he makes normative statements
d. when he cannot reach a conclusion
148. Economists outside the government also offer policy advice. Which of the following institutions does
NOT publish reports by economists? a. C.D. Howe Institute
b. Fraser Institute
c. Institute for Research on Public Policy
d. H.M. Holmes Institute
149. What do economists at Foreign Affairs Canada and International Trade Canada do?
a. help negotiate trade agreements with other countries
b. offer advice on overseas economic development projects
c. publish economic research
d. compile databases on the economy
150. What do the duties of the economists employed by Human Resources and Skill Development Canada
include?
a. advising Parliament
b. designing tax policy
c. writing the annual Economic Report
d. studying the relationship between average wages and gender
155. What famous economist said, “The ideas of economists and political philosophers … are more
powerful than is commonly understood”? a. Gregory Mankiw
b. John Maynard Keynes
c. Paul Krugman
d. David Ricardo
156. What are the two basic reasons why economists often appear to give conflicting advice to
policymakers?
a. differences in opinions and education
b. differences in scientific judgments and values
c. differences in scientific judgments and education
d. differences in opinions and values
157. Why did George Bernard Shaw, among others, criticize economists?
a. because they have too much influence over government decisions
b. because many ideas are too theoretical and therefore do not work in “real life”
c. because they tend to speak a different language, causing most people to not understand them
d. because they seem to give conflicting advice to policymakers
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