5. David Ricardo believed the central question of the study of economics was how to achieve the

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TRUE/FALSE

• Economists are engaged in both quantitative and policy research.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Economists are not interested in being engaged in policy discussions.

ANS: F PTS: 1 DIF: Easy TOP: The Range of Economics

• Economists only work for the government.

ANS: F PTS: 1 DIF: Easy TOP: The Range of Economics

• Adam Smith believed that the focus of “political economy” was “the causes of the wealth of nations.”

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• David Ricardo believed the central question of the study of economics was how to achieve the

distribution of the world’s output.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Karl Marx believed that economics involved the “laws of motion of capitalism.”

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Economics is the study of markets, and not individual choice.

ANS: F PTS: 1 DIF: Easy TOP: The Range of Economics

• Economics is the study of individual and social behaviour as it pertains to market behaviour.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• The scarcity principle refers to the trade-offs individuals and societies must make because their needs

and wants exceed their ability to produce.

ANS: T PTS: 1 DIF: Difficult TOP: The Range of Economics

• Scarcity only affects people who are poor.

ANS: F PTS: 1 DIF: Difficult TOP: The Range of Economics

• Microeconomics is the study of individual markets.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Microeconomics is the study of the economy as a whole.

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(MacroEconomics, Principles & Policy, 1e William Baumol, Alan Blinder, Marc Lavoie, Mario Seccareccia) (Test Bank, For Complete File, Download link at the end of this File) 1 / 4

Copyright ® 2010 Nelson Education Limited 1-2 ANS: F PTS: 1 DIF: Easy TOP: The Range of Economics

• The high price of a scarce resource encourages users of that resource to look for alternative resources.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• The price of scarce resources increases because users of that resource find alternative resources.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• In economics the true cost of making a choice is the value of what must be given up.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Opportunity cost is the value of the next best alternative to a given choice.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Opportunity cost is the highest possible price you can receive when you sell an object.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• In her calculation of the cost of going to college, an economist would include the amount of forgone

earnings over the years spent at college.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• “What should be produced?” is a question considered by microeconomists.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• “Who should get resources or final products” falls within the scope of microeconomics.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• A binding cap on team salaries forces NHL executives to maximize profits or team achievement, but

not both.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• Only NHL teams that are not well-financed face trade-offs when picking team members.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• Constrained optimization means finding an optimal solution reluctantly.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• In microeconomics, the search for efficient solutions involves constrained optimization.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• “Why are some countries wealthy and other not?” is a question of concern to macroeconomists.
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Copyright ® 2010 Nelson Education Limited 1-3 ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Macroeconomics includes the study of how the standard of living of an entire population can increase.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Microeconomics looks at individual markets and consumers, while macroeconomics looks at the

economy as a whole.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• Macroeconomics looks at individual markets and consumers while microeconomics looks at the

economy as a whole.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• Macroeconomics is concerned with variables like the rate of inflation, interest rates, exchange rates

and the rate of unemployment.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• The study of macroeconomics focuses on issues of government policy.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Monetary policy uses the supply of money in the economy to affect interest rates and exchange rates.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Fiscal policy takes the form of government expenditure and taxation.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Monetary policy uses government spending to change the supply of money in the economy.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• Fiscal policy tries to change the exchange rate through the imposition of taxes on imports.

ANS: F PTS: 1 DIF: Moderate TOP: The Range of Economics

• A paradox is a contradiction between two principles.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• The fallacy of composition is the error of believing that what is true of the parts of a system is also true

of the whole system.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• The fallacy of composition is the error of believing that what is true of the parts of a system can never

be true of the whole system.

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• The paradox of thrift suggests that while it is good for individuals to save, it is bad for an economy if

all individuals save.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• The paradox of thrift suggests that if all individuals are thrifty, the economy may suffer from low

levels of consumption and high levels of unemployment.

ANS: T PTS: 1 DIF: Moderate TOP: The Range of Economics

• Lower inflation rates are usually correlated with lower unemployment rates.

ANS: F PTS: 1 DIF: Easy TOP: The Range of Economics

• Attempts by the government to reduce the rate of inflation often result in higher unemployment in the

short run.

ANS: T PTS: 1 DIF: Easy TOP: The Range of Economics

• Economic analysis requires both mathematical reasoning and historical study.

ANS: T PTS: 1 DIF: Easy

TOP: Inside the Economist's Tool Kit

• Abstraction ignores many details in order to focus on the most important elements of a problem.

ANS: T PTS: 1 DIF: Moderate

TOP: Inside the Economist's Tool Kit

• Abstraction can lead to gross distortions of pertinent facts.

ANS: T PTS: 1 DIF: Easy

TOP: Inside the Economist's Tool Kit

• Economists are often required to make unrealistic assumptions concerning the problems they are

investigating.

ANS: T PTS: 1 DIF: Easy

TOP: Inside the Economist's Tool Kit

• In economics, abstraction from reality is necessary because of the complexity of the real world.

ANS: T PTS: 1 DIF: Easy

TOP: Inside the Economist's Tool Kit

• Eliminating important details in economic analysis is necessary to understand the complexity of the

economy.

ANS: F PTS: 1 DIF: Moderate

TOP: Inside the Economist's Tool Kit

• The optimal degree of abstraction depends on the objective of the analysis.
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