Economics by David Begg, Gianluigi Vernasca, Stanley Fischer and Rudiger Dornbusch- 11e, test bank 0077154517

Begg and vernasca - economics - 11e, test bank 0077154517

Economics by David Begg, Gianluigi Vernasca, Stanley Fischer and Rudiger Dornbusch- 11e, test bank 0077154517

ch2 Key

1.	A model:   A. is a deliberate simplification of reality. B. makes assumptions. C. is a framework to organize how we think about a problem. D. All the above. Models simplify by omitting some details of the real world to concentrate on the essentials.

Begg - Chapter 02 #1 Begg: Chapter 02 Difficulty: Medium Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.5 Economic models Type: Conceptual Understanding

2.	A behavioural law:   A. is always based on panel data. B. ignores the logical relationships. C. is a sensible theoretical relationship not rejected by evidence over a long period. D. All the above. The law of diminishing returns is an example of a behavioural law.

Begg - Chapter 02 #2 Begg: Chapter 02 Difficulty: Medium Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.6 Models and data Type: Conceptual Understanding

3.	Given the equation Q = 16 - 1.5P, when P has a value of 4, Q has a value of:   A. 16. B. 22. C. 6. D. 10. Simple demand function calculation.

Begg - Chapter 02 #3 Begg: Chapter 02 Difficulty: Easy Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.5 Economic models Type: Calculation

4.	If you have the equation Q = 20 - 3P, then:   A. a plot of the equation will result in a graph with a negative slope. B. a negative relationship exists between P and Q. C. every time P increases by 1 unit, Q falls by 3 units. D. All of the above. Properties of a typical linear demand function.

Begg - Chapter 02 #4 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.5 Economic models Type: Calculation

5.	When we assume that other things are equal apart from the variables of interest, we invoke the:   A. ceteris paribus assumption. B. homogeneity assumption. C. adaptive assumption. D. rational assumption. Other variables are ‘frozen' in order to look at the relationship under investigation.

Begg - Chapter 02 #5 Begg: Chapter 02 Difficulty: Medium Learning Objective: Use other things equal to ignore, but not forget, important influences Style: Multiple Choice Topic: 2.8 Another look at other things equal Type: Application

6.

A basket of goods during a particular time period in 1987 cost £783, while the value of the same basket in 1997 was £1 133. The value of this price index based on 1987 = 100 was:   A. 144.7 B. 242 C. 69.1 D. 117.4 E. Cannot be determined. The value of an inflation index increases if inflation occurs.

Begg - Chapter 02 #6 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Calculation

7.

The weights used in the consumer price index:   A. show the relative importance of the prices of the different components to the household's cost of living. B. do not affect changes in the household's cost of living. C. sum to 300. D. are applied to only the largest components in the index. Weights will change over time to reflect changes in household behaviour.

Begg - Chapter 02 #7 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Conceptual Understanding

8.	Suppose that an individual has earned £400 per week since 1967 and the CPI is 340 (1967 = 100). The purchasing power of this individual's income is:   A. 361.4 B. 117.6 C. 400 D. 185.9 Purchasing power of fixed income decreases when inflation occurs.

Begg - Chapter 02 #8 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Calculation

9.

Product prices, consumer income, and the level of employment within an economic system:   A. are types of economic variables. B. affect the "what", "how", and for "whom" decisions made in an economic system. C. are measured by economic data. D. All the above are correct. Data can be used for several purposes.

Begg - Chapter 02 #9 Begg: Chapter 02 Difficulty: Medium Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.6 Models and data Type: Application

10.

Other things equal, suppose that the general level of prices decreases. You would be correct if you concluded that the real value of income:   A. decreases. B. remains constant. C. increases. D. may either increase or decrease, depending on the percentage fall in prices. The real value of incomes goes up if prices fall.

Begg - Chapter 02 #10 Begg: Chapter 02 Difficulty: Medium Learning Objective: Use other things equal to ignore, but not forget, important influences Style: Multiple Choice Topic: 2.8 Another look at other things equal Type: Application

11.

Economists often use ratios and percentage changes when analysing economic variables. When a percentage change is calculated:   A. the result is a unit-free statistic. B. the answer is never as informative as the absolute change in the variables. C. it is difficult to make comparisons with changes in other data series. D. it reflects cross section data, but it cannot be applied to time series. This allows comparisons with changes in other data series.

Begg - Chapter 02 #11 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.4 Measuring changes in economic variables Type: Application

12.

When specifying economic models, economists often make assumptions about the real world. The purpose of assumptions in economics is to:   A. make the model more realistic. B. simplify the model and provide a primary focus for the theory. C. insure that the model only covers specific conditions. D. guarantee the accuracy of the theory. Simplification allows concentration on key variables.

Begg - Chapter 02 #12 Begg: Chapter 02 Difficulty: Hard Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.5 Economic models Type: Application

13.

When households decide to decrease the portion of their income that is spent, then in the simple circular flow model:   A. the overall level of economic activity in the system will not be affected. B. the firms' decision to produce will not be affected. C. firms will increase their employment of the factors of production in an attempt to stimulate household spending. D. firms will decrease their demand for the factors of production. Less household spending means less revenue for firms.

Begg - Chapter 02 #13 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.5 Economic models Type: Application

14.

Which one of the following statements is false?   A. If the economist wants to examine the distribution of income in 1987, time-series data should be used. B. If the economist wants to examine the relationship between advertising expenditures and sales during 1987, cross-section data is used. C. If the economist wants to examine the effect of intellectual ability upon earnings, cross-section data should be used. D. If the economist wants to forecast gross national product based upon observations from previous years, time-series data should be used. Time-series data needs more than one year.

Begg - Chapter 02 #14 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand time-series, cross-section and panel data Style: Multiple Choice Topic: 2.1 Economic data Type: Application

15.

Suppose that there is a simple economy with no foreign trade, no government intervention into the activities of the system, and all income is spent. The simple circular flow model shows that:   A. firms supply the factors of production to households. B. households supply goods and services to the economy. C. firms supply output to households and households supply inputs to firms. D. households supply both outputs and inputs. This simple model only has two economic agents.

Begg - Chapter 02 #15 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.5 Economic models Type: Application

16.

An economic system's factors of production consist of:   A. its stock of financial wealth. B. all the goods produced for household consumption during a given time period. C. goods and services used in the production of output. D. its stock of financial capital used to invest in plant and equipment. Simple definition of factors of production.

Begg - Chapter 02 #16 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.5 Economic models Type: Application

17.	Figure 2.5 shows:   A. a positive relationship. B. a negative relationship. C. no relationship. D. a scatter diagram. As price increases quantity demanded falls.

Begg - Chapter 02 #17 Begg: Chapter 02 Difficulty: Easy Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

18.	Figure 2.6 shows a:   A. linear relationship. B. scatter diagram. C. nonlinear relationship. D. negative relationship. Beginning from zero, rises in initially raise Q, but beyond some rate, further rises in X then reduce Q.

Begg - Chapter 02 #18 Begg: Chapter 02 Difficulty: Easy Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

19.	Point B in Figure 2.6 is on a section of the curve which has:   A. a positive slope. B. zero slope. C. a negative slope. D. no slope. Further rises in X reduce Q, hence there is a negative relationship at this point.

Begg - Chapter 02 #19 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

20.	In the first quarter of 2010 the price ($/tonne) of copper was on average:   A. 6696. B. 7231. C. 7462. D. 7744. It can be seen as one-third of the sum of the monthly numbers for January, February and March.

Begg - Chapter 02 #20 Begg: Chapter 02 Difficulty: Hard Learning Objective: Understand time-series, cross-section and panel data Style: Multiple Choice Topic: 2.1 Economic data Type: Conceptual Understanding

21.	In 2001 average copper prices were 1660. What was the value of copper price index in 2001?   A. 242 B. 167 C. 84 D. 60 Index calculation provides the answer 60.

Begg - Chapter 02 #21 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Calculation

22.	Figure 2.3 shows:   A. a histogram. B. an anagram. C. a negative relationship. D. a scatter diagram. A scatter diagram allows a first interpretation of the data.

Begg - Chapter 02 #22 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

23.	If you drew a best fitting straight line through the data points of Figure 2.3, this would indicate:   A. a negative relationship. B. no relationship. C. an intermittent relationship. D. a linear relationship. A straight line reflects a linear relationship.

Begg - Chapter 02 #23 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

24.	Figure 2.4 shows:   A. a negative linear relationship. B. a positive linear relationship. C. no relationship. D. a scatter diagram. Since higher P values are associated with higher Q values, the line slopes up as we increase P and move to the right.

Begg - Chapter 02 #24 Begg: Chapter 02 Difficulty: Easy Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

25.	Table 2.2 is an example of cross-section data.  TRUE Cross-section data compares one variable across different agents.

Begg - Chapter 02 #25 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand time-series, cross-section and panel data Style: True/False Topic: 2.1 Economic data Type: Conceptual Understanding

26.	Economic theories, like physics or chemistry, can be tested in a laboratory environment.  FALSE Many economic theories are difficult to test as it is difficult to actually ‘freeze' all other variables.

Begg - Chapter 02 #26 Begg: Chapter 02 Difficulty: Easy Learning Objective: Recognize why theories simplify reality Style: True/False Topic: 2.9 Theories and evidence Type: Conceptual Understanding

27.	Assumptions are used in economic theories in order to simplify the theory.  TRUE This allows a focus on the key relationship under investigation.

Begg - Chapter 02 #27 Begg: Chapter 02 Difficulty: Medium Learning Objective: Recognize why theories simplify reality Style: True/False Topic: 2.9 Theories and evidence Type: Application

28.	When economists use cross section data, they collect and analyse information about the same economic variable at different points in time.  FALSE This refers to time-series analysis.

Begg - Chapter 02 #28 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand time-series, cross-section and panel data Style: True/False Topic: 2.1 Economic data Type: Application

29.	It is better to have your income increase in real terms than in nominal terms.  TRUE It is real income that counts.

Begg - Chapter 02 #29 Begg: Chapter 02 Difficulty: Medium Learning Objective: Differentiate between nominal and real variables Style: True/False Topic: 2.3 Nominal and real values Type: Application

30.

The table below shows consumer spending by households and income of households, both in £billion at 1995 prices. The data shows a close relationship between household income and consumer spending. Would you expect other influences, say interest rates, house prices, unemployment to greatly affect household decisions about how much of their income to spend? UK     1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Income     495 505 525 539 550 567 584 593 604 616 630 Consumption     454 471 489 509 530 548 564 575 587 601 607 Some of these factors largely cancel each other out, higher interest rates for example make borrowers worse but lenders better off. Falling house prices and rising unemployment would be expected to affect consumption. Automatic stabilizers also come in which cushion the effect of income fluctuations. The key insight is that consumer spending is equivalent to around 70 per cent of national output and income, and any induced change in consumer spending from these, and other factors, also tends to change household income within a short time. This leaves the relationship between income and consumption fairly stable. · Factor cancelling out · Consumption/income relationship

Begg - Chapter 02 #30 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand time-series, cross-section and panel data Style: Essay Topic: 2.1 Economic data Type: Application

31.

Why are models used in economics?   A model is a theoretical construct used by economists to show major relationships between the variables under observation. As a rule, this strips out many factors which may also have an affect, but a relatively minor one, on the relationship that is being investigated. A key assumption is to leave all other things equal. Hence, a model is a simplified representation of reality to allow insights into complex processes. The use of isolated and simplified relationships also allows predictions to be made. · Models as simplifications · Focus on main relationships · Stripping out noise · Predictive powers of models

Begg - Chapter 02 #31 Begg: Chapter 02 Difficulty: Hard Learning Objective: Recognize why theories simplify reality Style: Essay Topic: 2.5 Economic models Type: Application

32.

Do assumptions in models need to be realistic?   This is still the subject of serious discussion in economics. Some economists insist that assumptions do not need to be realistic. Nobel Prize laureate Milton Friedman proposed that it is the predictive powers of a model that matters rather than the realism of its associated assumptions. Implied in the discussion is the ability to distinguish between realistic and unrealistic assumptions. There may also be a trade-off between realism and robustness, hence realism in-sample may introduce instability out-of-sample. · Realism vs predictive powers · Realism vs robustness · What determines realism

Begg - Chapter 02 #32 Begg: Chapter 02 Difficulty: Hard Learning Objective: Recognize why theories simplify reality Style: Essay Topic: 2.5 Economic models Type: Application

33.

Looking at Table 2.2, which of the following statements is correct?   A. The number of unemployed people in France is double than the number of unemployed in Japan. B. France has more unemployed people than the United States. C. Out of 100 working-age people in March 2010, 8 were not working in the UK. D. All the above. The table reports rates, and not absolute numbers. We cannot draw A and B from the fact that unemployment rate is higher in France than in Japan and in the US. We would need also data on working-age population to make that conclusion.

Begg - Chapter 02 #33 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand time-series, cross-section and panel data Style: Multiple Choice Topic: 2.1 Economic data Type: Conceptual Understanding

34.

Suppose the price of copper in 2003 was 1 781.2 US$/tonne, equal to 122 as index number. If the index number in 2000 was equal to 100, what was the price of copper in that year?   A. 2003 B. 1460 C. 1220 D. 100 The price of copper in 2000 is equal to the price of copper in 2003 multiplies by 100, divided by the value of the index number in 2003: 1781.2×100/122=1460

Begg - Chapter 02 #34 Begg: Chapter 02 Difficulty: Medium Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Calculation

35.

Which of the following statements is correct?   A. The Consumer Price Index includes the price of all goods that are sold in the UK. B. All goods included in the Consumer Price Index are given the same weight. C. The annual change of the Consumer Price Index is defined as the rate of inflation. D. The Consumer Price Index and the Retail Price Index differ because they refer to different countries. The rate of inflation is measured in the UK as the rate of change in the CPI.

Begg - Chapter 02 #35 Begg: Chapter 02 Difficulty: Easy Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Conceptual Understanding

36.

Based on Table 2.5, which of the following conclusions is correct?   A. An increase in mortgage interest payments will increase the rate of inflation. B. A 10% increase in transport fares will generate a 10% increase in the rate of inflation. C. A 10% increase in the price of cinema tickets will generate a larger increase in inflation than a 10% increase in the price of beer. D. None of the above. The weight given to Recreation and Culture (0.145) in the construction of the CPI is larger than the weight given to alcoholic beverages (0.044).

Begg - Chapter 02 #36 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Calculation

37.	Hyperinflation means that:   A. prices increase every year. B. prices of different goods increase at a different rate. C. prices change very often. D. price increases are beyond control. Hyperinflation means that the rate of change of prices is very large, e.g. 100% a month.

Begg - Chapter 02 #37 Begg: Chapter 02 Difficulty: Easy Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Conceptual Understanding

38.

If last year income rose by 10% and the CPI rose by 20%:   A. we are 10% richer than before. B. we are not able to buy the same amount of goods as before. C. real income has increased. D. there is hyperinflation. Income in real terms has declined. In order to buy the same amount of goods as last year we would have needed an increase of income equal to 20%.

Begg - Chapter 02 #38 Begg: Chapter 02 Difficulty: Easy Learning Objective: Differentiate between nominal and real variables Style: Multiple Choice Topic: 2.3 Nominal and real values Type: Application

39.

Monetary illusion means that:   A. if your income increases by 10% and the prices of every good you buy increase by 10% you do not change your consumption choices. B. if your income increases by 10% and all prices remain constant you do not feel richer than before. C. if your income increases by 10% and all prices increase by 10% you feel richer than before. D. if your income increases by 10% and all prices increase by more than 10% you don't feel poorer. Monetary illusion implies that one is unable to distinguish between real and nominal increases of her income.

Begg - Chapter 02 #39 Begg: Chapter 02 Difficulty: Medium Learning Objective: Differentiate between nominal and real variables Style: Multiple Choice Topic: 2.3 Nominal and real values Type: Application

40.

Which of the following statements is correct?   A. An annual rate of change of 12% is equivalent to a monthly rate of change of 1%. B. If the price index in January 2009 was equal to 100 and in January 2010 was equal to 112, then in 2009 there has been a monthly rate of inflation equal to 1%. C. If the price index in January 2009 was equal to 100 and in January 2010 was equal to 112, then in 2009 there has been an annual rate of inflation equal to 12%. D. All the above. The first and second options are not correct because the annual rate of inflation is not equal to the sum of 12 monthly inflation rates.

Begg - Chapter 02 #40 Begg: Chapter 02 Difficulty: Medium Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Application

41.

Looking at Figure 2.3, you can conclude that:   A. an increase in real fares implies that more tickets will be sold. B. low real fares imply high revenues. C. real revenues depend on several variables. D. ceteris paribus, higher fares are associated with higher revenues. The graph shows that there is a positive correlation between real fares and real revenues: other things being equal, higher fares are associated with higher revenues.

Begg - Chapter 02 #41 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Graphing

42.

Consider the equation Q=20P. You can conclude that:   A. this is the equation of a line that passes through the origin. B. the slope of the line is negative. C. if P increases by 10% Q increases by less than 10%. D. P and Q are not correlated. Q=20P is the equation of a line that passes through the origin of the axes and with a slope of 20. A k% increase in P implies a k% increase in Q.

Begg - Chapter 02 #42 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Calculation

43.

Consider the following equation: Q=P-2P2. Which of the following statements is correct?   A. When P increases, Q increases. B. This is the equation of a straight line. C. P and Q are not correlated. D. P and Q are non-linearly correlated. Q=P-2P2 is an equation which shows that Q and P are nonlinearly related to each other.

Begg - Chapter 02 #43 Begg: Chapter 02 Difficulty: Medium Learning Objective: Understand how to plot data and interpret scatter diagrams Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Calculation

44.

Which of the following statements is true?   A. "Concert tickets sold by the rock band Muse for each concert of the 2010 tour" is an example of panel data. B. "GDP for European countries in 2005" is an example of time series data. C. "Goals scored by England in each World Cup" is an example of cross section data. D. "Inflation rate in European countries from 1999 to 2009" is an example of panel data. Panel data record observations over multiple time periods for the same individuals or groups of individuals. Options 1, 2 and 3 are all examples of time series data.

Begg - Chapter 02 #44 Begg: Chapter 02 Difficulty: Easy Learning Objective: Understand time-series, cross-section and panel data Style: Multiple Choice Topic: 2.1 Economic data Type: Application

45.

The CPI is better described as:   A. a weighted average of sectorial prices. B. the sum of prices of individual goods. C. the price of one good. D. an index of food prices. The CPI (consumer price index) is a price index constructed by taking a weighted average of the different commodity groupings, hence of sectorial prices.

Begg - Chapter 02 #45 Begg: Chapter 02 Difficulty: Easy Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.2 Index numbers Type: Conceptual Understanding

46.	Suppose in 2009, the monthly rate of inflation has been equal to 2%. The annual rate of inflation has been:   A. 24%. B. 2%. C. 7.9%. D. There are not enough information to give an answer. The annual rate of inflation is equal to (1+0.2^12)-1

Begg - Chapter 02 #46 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.4 Measuring changes in economic variables Type: Calculation

47.	Suppose in May 2009 the CPI was equal to 120. If the annual inflation rate has been equal to 5%, what would have been the CPI in May 2010?   A. 126 B. 125 C. 180 D. 115 CPI(May 2010)=CPI(May 2009)*(1+0.05)

Begg - Chapter 02 #47 Begg: Chapter 02 Difficulty: Hard Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.4 Measuring changes in economic variables Type: Calculation

48.	Which of the following is an example of real variable?   A. The annual rate of CPI inflation in 2009 B. The retail price index in 2009 C. The house price in 2009 divided by CPI D. All the above. Real values adjust nominal values for changes in the price level.

Begg - Chapter 02 #48 Begg: Chapter 02 Difficulty: Easy Learning Objective: Differentiate between nominal and real variables Style: Multiple Choice Topic: 2.3 Nominal and real values Type: Application

49.

Suppose nominal income has increased by 20% in 2010 and the CPI has increased by 2% a month. The purchasing power of money in 2010:   A. declined. B. remained unchanged. C. increased. D. There is not enough information to answer. The annual rate of inflation has been higher than the increase in nominal income.

Begg - Chapter 02 #49 Begg: Chapter 02 Difficulty: Hard Learning Objective: Differentiate between nominal and real variables Style: Multiple Choice Topic: 2.3 Nominal and real values Type: Application

50.

Econometrics is best described as:   A. the branch of economics which studies index numbers. B. the branch of economics which uses statistics to measure relationships in economic data. C. the branch of economics which uses diagrams to explain economic relationships. D. the branch of economics which develops theoretical models to explain economic relationships. Econometrics uses mathematical statistics to measure relationships in economic data.

Begg - Chapter 02 #50 Begg: Chapter 02 Difficulty: Easy Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.9 Theories and evidence Type: Conceptual Understanding

51.	If P and X are linked by a linear relationship then:   A. a 10% increase in X implies a 10% increase in P. B. if X increases, P increases. C. if X increases by 10 units, P increases by 10 units. D. None of the above. If for example P=10+10X, options 1, 2 and 3 do not hold.

Begg - Chapter 02 #51 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Application

52.

Let P=10+X2. This is an example of:   A. positive relationship between P and X, for X>0. B. non-linear relationship between P and X. C. correlation between P and X. D. All the above. Option 1 is valid because when X increases P increases. Option 2 holds because when X increases P increases more than proportionally. Option 3 holds because P changes when X changes.

Begg - Chapter 02 #52 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Calculation

53.	Consider P=X2. Then:   A. P and X are not correlated. B. P and X2 are non linearly related. C. P and X2 are linearly related. D. P and X2 are negatively related. The relationship between P and X is nonlinear, whereas that between P and X2 is linear.

Begg - Chapter 02 #53 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Application

54.	One more year spent in education will increase future income. If y is income and x is years in education, which of the following equations is correct?   A. y=10-x B. y=20 C. y=x-x2 D. y=10+2x Only in option 4, income and education are positively related.

Begg - Chapter 02 #54 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Multiple Choice Topic: 2.7 Diagrams, lines and equations Type: Application

55.	Which of the following cannot be considered an experimental science?   A. Economics B. Physics C. Chemistry D. Biology In Economics, the validity of a theory cannot be tested in a laboratory.

Begg - Chapter 02 #55 Begg: Chapter 02 Difficulty: Easy Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.9 Theories and evidence Type: Conceptual Understanding

56.

What is meant by "the economic growth in 2010 was 2%"?   A. The CPI increased from 100 to 102. B. National income increased from 1000 to 1020. C. CPI and national income changed by the same amount. D. None of the above. Economists usually take economic growth to mean the percentage annual change in the national income.

Begg - Chapter 02 #56 Begg: Chapter 02 Difficulty: Medium Learning Objective: Construct index numbers Style: Multiple Choice Topic: 2.4 Measuring changes in economic variables Type: Application

57.

Crucially for household incomes, wage growth has been well below the rate of inflation for the past four years. This means that:   A. families' nominal income has decreased. B. families' real income has increased. C. families have not been able to buy as much with the money that comes in. D. None of the above. The purchasing power of the families has decreased in this case.

Begg - Chapter 02 #57 Begg: Chapter 02 Difficulty: Hard Learning Objective: Differentiate between nominal and real variables Style: Multiple Choice Topic: 2.3 Nominal and real values Type: Application

58.

"The annual inflation rate as measured by the consumer price index fell from 2.8 per cent in July to 2.7 per cent in August 2013."  This means:    A. a basket of goods and services that cost £100 in August 2012 would have cost £102.70 in August 2013. B. a basket of goods and services cost less in August 2013 than in July 2013. C. CPI is not the same as inflation rate. D. None of the above. While CPI is positive the prices go up.

Begg - Chapter 02 #58 Begg: Chapter 02 Difficulty: Hard Learning Objective: Differentiate between nominal and real variables Style: Multiple Choice Topic: 2.4 Measuring changes in economic variables Type: Application

59.	The price of oil in August 2009 was $70 per barrel. In August 2010 it was $85. The rate of change of oil was therefore 15%.  FALSE The rate of change is equal to (85-70)/70=21.4%

Begg - Chapter 02 #59 Begg: Chapter 02 Difficulty: Medium Learning Objective: Construct index numbers Style: True/False Topic: 2.4 Measuring changes in economic variables Type: Application

60.	The price of British goods sold in the USA does not affect UK CPI.  TRUE CPI is a weighted average of prices of goods sold in the UK.

Begg - Chapter 02 #60 Begg: Chapter 02 Difficulty: Medium Learning Objective: Construct index numbers Style: True/False Topic: 2.2 Index numbers Type: Application

61.	The price of gold is an example of real variable.  FALSE Real values adjust nominal values for changes in the price level.

Begg - Chapter 02 #61 Begg: Chapter 02 Difficulty: Easy Learning Objective: Differentiate between nominal and real variables Style: True/False Topic: 2.3 Nominal and real values Type: Conceptual Understanding

62.	The rate of UK inflation observed each year between 1990 and 2010 is an example of time series data.  TRUE A time series is a sequence of measurements of the same variable at different points in time.

Begg - Chapter 02 #62 Begg: Chapter 02 Difficulty: Easy Learning Objective: Understand time-series, cross-section and panel data Style: True/False Topic: 2.1 Economic data Type: Conceptual Understanding

63.	A scatter diagram is the plot of one variable over time.  FALSE A scatter diagram plots pairs of values simultaneously observed for two different variables.

Begg - Chapter 02 #63 Begg: Chapter 02 Difficulty: Easy Learning Objective: Understand how to plot data and interpret scatter diagrams Style: True/False Topic: 2.7 Diagrams, lines and equations Type: Conceptual Understanding

64.	Passing from 6 to 7 years of education increases income by 10%. Passing from 12 to 13 years of education increases income by 20%. This is example of linear relationship between education and income.  FALSE The relationship between income and education cannot be expressed as a straight line.

Begg - Chapter 02 #64 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: True/False Topic: 2.5 Economic models Type: Application

65.	Ceteris paribus is another way of saying other things being equal.  TRUE They are two equivalent expressions for looking at the relationship between two variables, but remembering other variables also matter.

Begg - Chapter 02 #65 Begg: Chapter 02 Difficulty: Easy Learning Objective: Use other things equal to ignore, but not forget, important influences Style: True/False Topic: 2.8 Another look at other things equal Type: Conceptual Understanding

66.	Facts without theory are useless, but theory without facts is unsupported assertion.  TRUE To understand how economy works we need both theory and facts.

Begg - Chapter 02 #66 Begg: Chapter 02 Difficulty: Medium Learning Objective: Recognize why theories simplify reality Style: True/False Topic: 2.9 Theories and evidence Type: Application

67.

Explain what you mean by money illusion.   Money illusion happens when people do not distinguish between changes in real and changes in nominal variables. For example, people may not consider equivalent the following two situations, because of money illusion: i) income is equal to 100 and the price index is equal to 2; ii) income is equal to 200 and the price index is equal to 4.

Begg - Chapter 02 #67 Begg: Chapter 02 Difficulty: Medium Learning Objective: Differentiate between nominal and real variables Style: Short Answer Topic: 2.3 Nominal and real values Type: Conceptual Understanding

68.

Make an example of an economic model to explain the price of oil, highlighting the role played by the ceteris paribus assumption.   You should make explicit which are the variables that affect the price of oil, for example industrial production, world GDP, the price of alternative energy sources. To explain the ceteris paribus assumption, you can say that, given the price of alternative energy sources, an increase in industrial production will increase the price of oil.

Begg - Chapter 02 #68 Begg: Chapter 02 Difficulty: Medium Learning Objective: Build a simple theoretical model Style: Essay Topic: 2.5 Economic models Type: Application

69.

Which of the following statements is true?   A. Economists believe that most of the phenomena they study are mainly determined by economic incentives only. B. A car tax based on CO2 emissions is an example of an economic incentive. C. When constructing and testing theories random differences in behaviour tend to cancel out, on average. D. All the above. A and C are statements from the critical discussion about economics and economists.

Begg - Chapter 02 #69 Begg: Chapter 02 Difficulty: Hard Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.10 Some popular criticisms of economics and economists Type: Application

70.

Good economic models:   A. act as a framework for empirical quantification. B. illustrate how the economy has on average behaved in the past. C. simplify and clarify economic problems by focusing on the factors judged most essential to their understanding. D. All the above. All the statements describe the main purpose of economic models.

Begg - Chapter 02 #70 Begg: Chapter 02 Difficulty: Hard Learning Objective: Recognize why theories simplify reality Style: Multiple Choice Topic: 2.5 Economic models Type: Application

ch2 Summary

Category	# of Questions
Begg - Chapter 02	140
Begg: Chapter 02	70
Difficulty: Easy	17
Difficulty: Hard	17
Difficulty: Medium	36
Learning Objective: Build a simple theoretical model	12
Learning Objective: Construct index numbers	16
Learning Objective: Differentiate between nominal and real variables	9
Learning Objective: Recognize why theories simplify reality	12
Learning Objective: Understand how to plot data and interpret scatter diagrams	10
Learning Objective: Understand time-series, cross-section and panel data	8
Learning Objective: Use other things equal to ignore, but not forget, important influences	3
Style: Essay	4
Style: Multiple Choice	52
Style: Short Answer	1
Style: True/False	13
Topic: 2.1 Economic data	8
Topic: 2.10 Some popular criticisms of economics and economists	1
Topic: 2.2 Index numbers	11
Topic: 2.3 Nominal and real values	8
Topic: 2.4 Measuring changes in economic variables	6
Topic: 2.5 Economic models	12
Topic: 2.6 Models and data	2
Topic: 2.7 Diagrams, lines and equations	14
Topic: 2.8 Another look at other things equal	3
Topic: 2.9 Theories and evidence	5
Type: Application	34
Type: Calculation	12
Type: Conceptual Understanding	17
Type: Graphing	7