RMI 2302 EXAM 1 QUESTIONS AND ANSWERS
From the excerpt of "The Wealth of Nations" (in Thinking Like an Economist), how is the
invisible hand developed?
A) from government stimulation of markets
b) from producers regard of their own self-interest
c) from activists seeking to benefit society
D) by producers with broad social objectives - Answers - b) from producers regard of
their own self-interest
According to "Thinking Like an Economist", economic risk analysis is on firmer ground
when it comes to answering what type of question and why?
A) Normative questions; economic analysis relies on institutional policy for decision-
making
B) Normative questions; economic analysis focuses on policy when deciding what a
society values
C) Positive questions; economic analysis focuses on institutional injustices and
misrepresentation
D) Positive questions; economic analysis questions what the consequences of specific
policies or institutional arrangements will be - Answers - D) Positive questions;
economic analysis questions what the consequences of specific policies or institutional
arrangements will be
Sharon is given two options. Option 1 allows her to take $5. Option 2 allows her a 1/3
chance of winning $50, but she risks losing $10, 2/3 of the time. Sharon chooses option
1. What best describes Sharon?
A) risk-seeing
B) risk-averse
C) risk-neutral
D) gambling-averse - Answers - B) risk-averse
Utility functions are normally a function of _____________. Choose which of the
following best fits in the blank.
A) ability
B) risk
C) wealth
D) uncertainty - Answers - C) wealth
According to "Thinking Like An Economist", what is the difference between a normative
and a positive question?
, A) Normative questions has a concrete, correct answer. Positive questions do not.
B) Normative questions ask about the consequences of specific policies. Positive
questions ask what policies lead to the best outcomes.
C) Normative questions ask about what policies or institutional arrangements lead to
the best outcomes. Positive questions ask what the consequences of specific policies
are.
D) Both rely on similar assumptions about institutional values, but differ on the aspects
therein. - Answers - C) Normative questions ask about what policies or institutional
arrangements lead to the best outcomes. Positive questions ask what the
consequences of specific policies are.
According to "Thinking Like an Economist", economists increasingly believe that the key
to progress in macroeconomics lies in
A) more careful analysis of the individual markets that make up broader aggregates.
B) a fuller understanding of monetary policy's effect on macroeconomic statistics such
as unemployment rate and inflation.
C) a greater transparency in economic analysis conducted by government and
university researchers.
D) a broadening perspective, taking into account further the global economy as a
source of macroeconomic impact. - Answers - A) more careful analysis of the individual
markets that make up broader aggregates.
According to "Thinking Like an Economist", when does the invisible hand mechanism
break down?
A) When costs of benefits accrue to people other than the decision-maker
B) When costs of benefits accrue to the decision-maker
C) When the costs of benefits are negative
D) When the benefits exceed the costs - Answers - A) When costs of benefits accrue to
people other than the decision-maker
The claim that decisions are made to maximize expected utility rather than expected
monetary value is the major
A) Utility theory
B) Expectation theory
C) Uncertainty theory
D) Maximization theory - Answers - A) Utility theory
A girl is given $15 by her parents. She has two options of how to spend the money. She
can either save the money for future purchases or she can start a lemonade stand on
her driveway. If she spends her $15 on the lemonade stand, there is a 50% probability
she will lose $10 and a 50% probability she will make $12. Assuming the girl has a
square root utility function, what should the girl do with the money?
, A) Start her lemonade stand.
B) Save her money.
C) The outcome is the same for both choices. - Answers - B) Save her money.
The Florida Lottery has done extensive research on the individuals who purchase their
products. They have determined that their customers have a square root utility function
and an initial wealth of $100. It costs $19 to purchase a lottery ticket and each ticket has
a 50/50 chance of being worth $39. True or False, customers will purchase these lottery
tickets.
A) True
B) False - Answers - B) False
According to "The US Economy: Private and Public Sectors", goods provided by
government that fit the definition of a public good, but can be delivered in such a way
that exclusion is possible are called which of the following?
A) Nonexchangeable goods
B) Nonrivalry goods
C) Quasi-public goods
D) None of the above. - Answers - C) Quasi-public goods
According to "The US Economy: Private and Public Sectors", which of the following are
the two reasons describing why people save?
A) Security and speculation
B) Consumption and entertainment
C) Shelter and food
D) Emergencies and leisure - Answers - A) Security and speculation
In 1941 households paid approximately 3% of their income in taxes. In the 2000's, this
percentage has grown to:
A) 50%
B) 35%
C) 25%
D) 12% - Answers - D) 12%
According to the reading "The US Economy:.." which of the following is NOT a role of
the government:
A) providing legal structure
B) minimizing competition
C) promoting stability
D) redistributing income - Answers - B) minimizing competition
From the excerpt of "The Wealth of Nations" (in Thinking Like an Economist), how is the
invisible hand developed?
A) from government stimulation of markets
b) from producers regard of their own self-interest
c) from activists seeking to benefit society
D) by producers with broad social objectives - Answers - b) from producers regard of
their own self-interest
According to "Thinking Like an Economist", economic risk analysis is on firmer ground
when it comes to answering what type of question and why?
A) Normative questions; economic analysis relies on institutional policy for decision-
making
B) Normative questions; economic analysis focuses on policy when deciding what a
society values
C) Positive questions; economic analysis focuses on institutional injustices and
misrepresentation
D) Positive questions; economic analysis questions what the consequences of specific
policies or institutional arrangements will be - Answers - D) Positive questions;
economic analysis questions what the consequences of specific policies or institutional
arrangements will be
Sharon is given two options. Option 1 allows her to take $5. Option 2 allows her a 1/3
chance of winning $50, but she risks losing $10, 2/3 of the time. Sharon chooses option
1. What best describes Sharon?
A) risk-seeing
B) risk-averse
C) risk-neutral
D) gambling-averse - Answers - B) risk-averse
Utility functions are normally a function of _____________. Choose which of the
following best fits in the blank.
A) ability
B) risk
C) wealth
D) uncertainty - Answers - C) wealth
According to "Thinking Like An Economist", what is the difference between a normative
and a positive question?
, A) Normative questions has a concrete, correct answer. Positive questions do not.
B) Normative questions ask about the consequences of specific policies. Positive
questions ask what policies lead to the best outcomes.
C) Normative questions ask about what policies or institutional arrangements lead to
the best outcomes. Positive questions ask what the consequences of specific policies
are.
D) Both rely on similar assumptions about institutional values, but differ on the aspects
therein. - Answers - C) Normative questions ask about what policies or institutional
arrangements lead to the best outcomes. Positive questions ask what the
consequences of specific policies are.
According to "Thinking Like an Economist", economists increasingly believe that the key
to progress in macroeconomics lies in
A) more careful analysis of the individual markets that make up broader aggregates.
B) a fuller understanding of monetary policy's effect on macroeconomic statistics such
as unemployment rate and inflation.
C) a greater transparency in economic analysis conducted by government and
university researchers.
D) a broadening perspective, taking into account further the global economy as a
source of macroeconomic impact. - Answers - A) more careful analysis of the individual
markets that make up broader aggregates.
According to "Thinking Like an Economist", when does the invisible hand mechanism
break down?
A) When costs of benefits accrue to people other than the decision-maker
B) When costs of benefits accrue to the decision-maker
C) When the costs of benefits are negative
D) When the benefits exceed the costs - Answers - A) When costs of benefits accrue to
people other than the decision-maker
The claim that decisions are made to maximize expected utility rather than expected
monetary value is the major
A) Utility theory
B) Expectation theory
C) Uncertainty theory
D) Maximization theory - Answers - A) Utility theory
A girl is given $15 by her parents. She has two options of how to spend the money. She
can either save the money for future purchases or she can start a lemonade stand on
her driveway. If she spends her $15 on the lemonade stand, there is a 50% probability
she will lose $10 and a 50% probability she will make $12. Assuming the girl has a
square root utility function, what should the girl do with the money?
, A) Start her lemonade stand.
B) Save her money.
C) The outcome is the same for both choices. - Answers - B) Save her money.
The Florida Lottery has done extensive research on the individuals who purchase their
products. They have determined that their customers have a square root utility function
and an initial wealth of $100. It costs $19 to purchase a lottery ticket and each ticket has
a 50/50 chance of being worth $39. True or False, customers will purchase these lottery
tickets.
A) True
B) False - Answers - B) False
According to "The US Economy: Private and Public Sectors", goods provided by
government that fit the definition of a public good, but can be delivered in such a way
that exclusion is possible are called which of the following?
A) Nonexchangeable goods
B) Nonrivalry goods
C) Quasi-public goods
D) None of the above. - Answers - C) Quasi-public goods
According to "The US Economy: Private and Public Sectors", which of the following are
the two reasons describing why people save?
A) Security and speculation
B) Consumption and entertainment
C) Shelter and food
D) Emergencies and leisure - Answers - A) Security and speculation
In 1941 households paid approximately 3% of their income in taxes. In the 2000's, this
percentage has grown to:
A) 50%
B) 35%
C) 25%
D) 12% - Answers - D) 12%
According to the reading "The US Economy:.." which of the following is NOT a role of
the government:
A) providing legal structure
B) minimizing competition
C) promoting stability
D) redistributing income - Answers - B) minimizing competition
