A theory or a model
A) is a simplified, abstract view of reality.
B) is based on each economist's value judgments.
C) is a detailed analysis of what ought to be.
D) captures all aspects of the real world.
Ques. 2A change in any of the ceteris paribus conditions for demand leads to a
A) a good going from an inferior good to a normal good.
B) movement along the demand curve.
C) shift of the demand curve.
D) change in supply.
Ques. 3Explain why an external cost leads to an over-allocation of resources to the production of a good.
What will be an ideal response?
Ques. 4Why is wage and price flexibility an important assumption of the classical model?
A) Flexible wages and prices guarantee that there will be no scarcity.
B) Flexible wages and prices allow business firms to fool their workers through the money illusion.
C) Flexible wages and prices allow business firms to fool their customers through the money illusion.
D) Flexible wages and prices allow markets to reach equilibrium.
Ques. 5Some economists believe that deficit spending can impose a burden on future generations. Which of the following does NOT explain the burden?
A) Investment will be crowded out by an increase in current consumption.
B) Deficit spending that is allocated to purchases leads to long-term increases in real GDP.
C) Future generations will have a smaller capital stock that will reduce their wealth.
D) Future generations will have to be taxed at a higher rate.
Ques. 6When a person holds money, they give up
A) the pleasure associated with spending money.
B) the pleasure associated with saving money.
C) the interest that could have been earned if the money had been changed into an interest-bearing asset.
D) nothing, since the person can always use the money to buy goods or services or interest-bearing assets.
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