ECN 212 Exam 1 Questions with 100% Correct
Answers
The advice of economists is the only thing a policymaker has to consider when
implementing a proposed policy.
True
False
False:
Feedback: Economists are one of several different groups that advise political leaders when
making important decisions. For example, communications advisers help politicians explain
their proposed policy to the public, while press advisers help politicians to understand how
the news media will report on the proposal. In contrast, political advisers will help politicians
identify which groups will support, or oppose, the proposal. In short, it is common for
politicians to take the advice of other types of advisers, rather than taking the advice of
economic advisers, even in the event that the economists have suggested the best policy.
Which of the following steps does an economist not take when studying the economy?
a. Collect data
b. Analyze data
c. Devise theories
d. Create data in a laboratory
d. Create data in a laboratory
Feedback: When studying the economy, an economist begins by devising a theory, then
collecting relevant data, and finally analyzing that data. Unfortunately, economists often
,cannot rely on experiments to create data and instead they are forced to work with pre-
existing data sets about the world around them.
Which of the following is an example of a normative, as opposed to positive, statement?
a. Gasoline prices ought to be lower than they are now.
b. An increase in the cigarette tax would cause a decrease in the number of smokers.
c. The discount rate is the interest rate the Federal Reserve charges banks to borrow
funds.
d. As the price of cars rises, more people choose to take the bus.
a. Gasoline prices ought to be lower than they are now.
Feedback: Positive statements are descriptive because they make a claim about how the
world actually is. On the other hand, normative statements are prescriptive because they
make a claim about how the world should be. Therefore, the statement "Gasoline prices ought
to be lower than they are now," is an example of a normative statement.
Which of the following statements about the Council of Economic Advisers is not true?
a. It writes the annual Economic Report of the President.
b. It implements the president's tax policies.
c. It advises the president of the United States on economic policy matters.
d. It was created in 1946.
b. It implements the president's tax policies.
Feedback: The Council of Economic Advisers was created in 1946 and consists of three
members and a staff of several dozen economists. Duties of this council include advising the
president and writing the annual Economic Report of the President.
, Almost all economists agree that a large federal budget deficit _______.
a. is highly desirable to keep an economy healthy
b. implies we should restructure the welfare system
c. has an adverse effect on the economy
d. signals that we should increase subsidies to farmers
c. has an adverse effect on the economy
Feedback: In surveys of professional economists, many propositions were endorsed by an
overwhelming majority of respondents. Included in that list was "A large federal budget
deficit has an adverse effect on the economy."
In order to understand how the real world works, economists try to capture every
aspect of the real world in their models that they construct.
True
False
False
Feedback: Economists make assumptions when constructing economic models in order to
simplify the world and make it easier to understand. Depending on the question they want to
answer, economists might change their assumptions to fit the goal of the model.
Economists from which administrative department help the president formulate
spending plans and regulatory policies?
a. Department of the Treasury
b. Department of Labor
Answers
The advice of economists is the only thing a policymaker has to consider when
implementing a proposed policy.
True
False
False:
Feedback: Economists are one of several different groups that advise political leaders when
making important decisions. For example, communications advisers help politicians explain
their proposed policy to the public, while press advisers help politicians to understand how
the news media will report on the proposal. In contrast, political advisers will help politicians
identify which groups will support, or oppose, the proposal. In short, it is common for
politicians to take the advice of other types of advisers, rather than taking the advice of
economic advisers, even in the event that the economists have suggested the best policy.
Which of the following steps does an economist not take when studying the economy?
a. Collect data
b. Analyze data
c. Devise theories
d. Create data in a laboratory
d. Create data in a laboratory
Feedback: When studying the economy, an economist begins by devising a theory, then
collecting relevant data, and finally analyzing that data. Unfortunately, economists often
,cannot rely on experiments to create data and instead they are forced to work with pre-
existing data sets about the world around them.
Which of the following is an example of a normative, as opposed to positive, statement?
a. Gasoline prices ought to be lower than they are now.
b. An increase in the cigarette tax would cause a decrease in the number of smokers.
c. The discount rate is the interest rate the Federal Reserve charges banks to borrow
funds.
d. As the price of cars rises, more people choose to take the bus.
a. Gasoline prices ought to be lower than they are now.
Feedback: Positive statements are descriptive because they make a claim about how the
world actually is. On the other hand, normative statements are prescriptive because they
make a claim about how the world should be. Therefore, the statement "Gasoline prices ought
to be lower than they are now," is an example of a normative statement.
Which of the following statements about the Council of Economic Advisers is not true?
a. It writes the annual Economic Report of the President.
b. It implements the president's tax policies.
c. It advises the president of the United States on economic policy matters.
d. It was created in 1946.
b. It implements the president's tax policies.
Feedback: The Council of Economic Advisers was created in 1946 and consists of three
members and a staff of several dozen economists. Duties of this council include advising the
president and writing the annual Economic Report of the President.
, Almost all economists agree that a large federal budget deficit _______.
a. is highly desirable to keep an economy healthy
b. implies we should restructure the welfare system
c. has an adverse effect on the economy
d. signals that we should increase subsidies to farmers
c. has an adverse effect on the economy
Feedback: In surveys of professional economists, many propositions were endorsed by an
overwhelming majority of respondents. Included in that list was "A large federal budget
deficit has an adverse effect on the economy."
In order to understand how the real world works, economists try to capture every
aspect of the real world in their models that they construct.
True
False
False
Feedback: Economists make assumptions when constructing economic models in order to
simplify the world and make it easier to understand. Depending on the question they want to
answer, economists might change their assumptions to fit the goal of the model.
Economists from which administrative department help the president formulate
spending plans and regulatory policies?
a. Department of the Treasury
b. Department of Labor
