PRINCIPLES OF MACROECONOMICS
(FOR EXAM 1) QUESTIONS & PASSED
CORRECT ANSWERS
Economics - CORRECT ANSWER The study of how individuals and societies choose
to use the scarce resources that nature and previous generation have provided.
Opportunity cost - CORRECT ANSWER cost in terms of foregone alternatives
marginalism - CORRECT ANSWER the process of analyzing the additional or
incremental costs or benefits arising from a choice or decision
Sunk costs - CORRECT ANSWER costs that cannot be avoided, regardless of what is
done in the future, because they have already been incurred
efficient market - CORRECT ANSWER A market in which profit opportunities are
eliminated almost instantaneously.
4 goals of studying economics - CORRECT ANSWER 1. To learn a way of thinking.
2. To understand society.
3. To understand global affairs
4. To be an informed citizen.
Microeconomics - CORRECT ANSWER the branch of economics that studies the
economy of consumers or households or individual firms
Macroeconomics - CORRECT ANSWER the study of the economy as a whole,
including topics such as inflation, unemployment, and economic growth
Positive economics - CORRECT ANSWER An approach to economics that seeks to
understand behavior and the operation of systems without making judgments. It
describes what exists and how it works.
Normative Economics - CORRECT ANSWER Judgments about "what ought to be" in
economic matters.
Descriptive economics - CORRECT ANSWER The compilation of data that describe
phenomena and facts
Economic theory - CORRECT ANSWER A statement or set of related statements
about cause and effect, action and reaction
, Model - CORRECT ANSWER A formal statement of a theory, usually a mathematical
statement with two or more variables.
Ockham's razor - CORRECT ANSWER The principle that irrelevant detail should be cut
away.
(Ceteris Paribus) All else equal - CORRECT ANSWER A device where two variables
are analyzed while all the other variables stay the same.
Post hoc, ergo propter hoc - CORRECT ANSWER "after this (in time), therefor because
of this." the fallacy that states: if event A happens before event B, it is not necessarily
true that A caused B.
fallacy of composition - CORRECT ANSWER The incorrect belief that what is true for
the individual, or part, must necessarily be true for the group, or whole.
Empirical economics - CORRECT ANSWER the collection and use of data to test
economic theories
efficiency - CORRECT ANSWER An efficient economy is one that produces what
people want at the least possible cost.
economic growth - CORRECT ANSWER an increase in the total output of an economy
stability - CORRECT ANSWER a condition in which national output is growing steadily,
with low inflation and full employment of resources
Capital - CORRECT ANSWER Things that are produced and then used to make goods
and services.
production - CORRECT ANSWER transforming resources into goods and services.
Inputs (resources) - CORRECT ANSWER Anything provided by nature that can be
used to make output.
outputs - CORRECT ANSWER goods and services of value to households
the three basic questions - CORRECT ANSWER 1. What gets produced? (resources)
2. How is it produced? (producers)
3. Who gets what is produced? (households)
Theory of comparative advantage - CORRECT ANSWER Ricardo's theory that
specialization and free trade will benefit all trading parties, even those that may be
absolutely more efficient producers.
(FOR EXAM 1) QUESTIONS & PASSED
CORRECT ANSWERS
Economics - CORRECT ANSWER The study of how individuals and societies choose
to use the scarce resources that nature and previous generation have provided.
Opportunity cost - CORRECT ANSWER cost in terms of foregone alternatives
marginalism - CORRECT ANSWER the process of analyzing the additional or
incremental costs or benefits arising from a choice or decision
Sunk costs - CORRECT ANSWER costs that cannot be avoided, regardless of what is
done in the future, because they have already been incurred
efficient market - CORRECT ANSWER A market in which profit opportunities are
eliminated almost instantaneously.
4 goals of studying economics - CORRECT ANSWER 1. To learn a way of thinking.
2. To understand society.
3. To understand global affairs
4. To be an informed citizen.
Microeconomics - CORRECT ANSWER the branch of economics that studies the
economy of consumers or households or individual firms
Macroeconomics - CORRECT ANSWER the study of the economy as a whole,
including topics such as inflation, unemployment, and economic growth
Positive economics - CORRECT ANSWER An approach to economics that seeks to
understand behavior and the operation of systems without making judgments. It
describes what exists and how it works.
Normative Economics - CORRECT ANSWER Judgments about "what ought to be" in
economic matters.
Descriptive economics - CORRECT ANSWER The compilation of data that describe
phenomena and facts
Economic theory - CORRECT ANSWER A statement or set of related statements
about cause and effect, action and reaction
, Model - CORRECT ANSWER A formal statement of a theory, usually a mathematical
statement with two or more variables.
Ockham's razor - CORRECT ANSWER The principle that irrelevant detail should be cut
away.
(Ceteris Paribus) All else equal - CORRECT ANSWER A device where two variables
are analyzed while all the other variables stay the same.
Post hoc, ergo propter hoc - CORRECT ANSWER "after this (in time), therefor because
of this." the fallacy that states: if event A happens before event B, it is not necessarily
true that A caused B.
fallacy of composition - CORRECT ANSWER The incorrect belief that what is true for
the individual, or part, must necessarily be true for the group, or whole.
Empirical economics - CORRECT ANSWER the collection and use of data to test
economic theories
efficiency - CORRECT ANSWER An efficient economy is one that produces what
people want at the least possible cost.
economic growth - CORRECT ANSWER an increase in the total output of an economy
stability - CORRECT ANSWER a condition in which national output is growing steadily,
with low inflation and full employment of resources
Capital - CORRECT ANSWER Things that are produced and then used to make goods
and services.
production - CORRECT ANSWER transforming resources into goods and services.
Inputs (resources) - CORRECT ANSWER Anything provided by nature that can be
used to make output.
outputs - CORRECT ANSWER goods and services of value to households
the three basic questions - CORRECT ANSWER 1. What gets produced? (resources)
2. How is it produced? (producers)
3. Who gets what is produced? (households)
Theory of comparative advantage - CORRECT ANSWER Ricardo's theory that
specialization and free trade will benefit all trading parties, even those that may be
absolutely more efficient producers.
