ECN 102- Macro Exam 1 With Correct A
a) Ten Major Principles
1. Incentives: why is it essential for economists and policymakers to account for incentives when the
policies - CORRECT ANS✔✔Incentives. It is essential to account for incentives in order that any pr
outcome. It is necessary to avoid the law of unintended consequence. For example, linking teacher
test scores seems a good idea on paper but it creates an incentive for teachers to boost their stude
2. Productivity:
there are 2 basic ways of improving the economic well-being of the poor. One way is through direct
the minimum wage) and the other is through increased productivity. Outline the relative importance
ANS✔✔Productivity. both direct government policy and increases in worker productivity play an imp
being over time. Improvement in living standards is a direct consequence of the increase in product
baking a bigger cake vs dividing a given size cake among a group.
3. Externality:
what is externality? give an example. Why do externalities often call for direct government intervent
ANS✔✔Externality is a situation in when an agent's actions have a direct effect on the well-being o
decision to smoke in a restaurant may reduce the welfare of other diners.
Externalities often arise because of poorly allocated property rights. The government can play a crit
example, one solution is simply for the government to ban smoking in restaurants.
4. Macro
What factor is the primary cause of an increase in overall level of prices in an economy? - CORREC
that an increase in prices results from an increase in the money supply. As the government prints a
system, the resulting increase in demand for goods and services raises average prices, leading to i
B) Economics as a science
1. Models
What is an economic model? - CORRECT ANS✔✔an economic model is a collection of assumption
derived from them through logical methods. One reason is that it is necessary to make simplifying a
complex world. Another reason is that models often lead to testable predictions.
2. Positive and normative:
what is the difference between a positive statement and a normative statement? give an ex of each
statement is a declarative proposition that answers a question of the sort, what, when, why. It either
a) Ten Major Principles
1. Incentives: why is it essential for economists and policymakers to account for incentives when the
policies - CORRECT ANS✔✔Incentives. It is essential to account for incentives in order that any pr
outcome. It is necessary to avoid the law of unintended consequence. For example, linking teacher
test scores seems a good idea on paper but it creates an incentive for teachers to boost their stude
2. Productivity:
there are 2 basic ways of improving the economic well-being of the poor. One way is through direct
the minimum wage) and the other is through increased productivity. Outline the relative importance
ANS✔✔Productivity. both direct government policy and increases in worker productivity play an imp
being over time. Improvement in living standards is a direct consequence of the increase in product
baking a bigger cake vs dividing a given size cake among a group.
3. Externality:
what is externality? give an example. Why do externalities often call for direct government intervent
ANS✔✔Externality is a situation in when an agent's actions have a direct effect on the well-being o
decision to smoke in a restaurant may reduce the welfare of other diners.
Externalities often arise because of poorly allocated property rights. The government can play a crit
example, one solution is simply for the government to ban smoking in restaurants.
4. Macro
What factor is the primary cause of an increase in overall level of prices in an economy? - CORREC
that an increase in prices results from an increase in the money supply. As the government prints a
system, the resulting increase in demand for goods and services raises average prices, leading to i
B) Economics as a science
1. Models
What is an economic model? - CORRECT ANS✔✔an economic model is a collection of assumption
derived from them through logical methods. One reason is that it is necessary to make simplifying a
complex world. Another reason is that models often lead to testable predictions.
2. Positive and normative:
what is the difference between a positive statement and a normative statement? give an ex of each
statement is a declarative proposition that answers a question of the sort, what, when, why. It either
