The government should levy higher taxes on the rich and use the additional revenues to provide better housing for the poor. This statement illustrates:
a. the fallacy of composition.
b. the basic principle of economics.
c. a normative economic statement.
d. a positive economic statement.
Question 2Other things equal, an increase in aggregate supply will cause:
a. a decrease in equilibrium real GDP and a decrease in the equilibrium price level.
b. an economic contraction.
c. an increase in equilibrium real GDP and an increase in the equilibrium price level.
d. cost-push inflation.
e. a reduction in unemployment and a decline in inflation.
Question 3Which of the following is a statement of positive economics?
a. New tax laws are needed to help the poor.
b. Teenage unemployment should be reduced.
c. We should increase Social Security payments to the elderly.
d. An increase in tax rates will reduce unemployment.
Question 4Other things equal, an increase in aggregate spending tends to be associated with:
a. cost-push inflation.
b. an economic depression.
c. a lower level of equilibrium real GDP.
d. demand-pull inflation.
e. an increase in the quality of goods and services produced.
Question 5Which of the following represents a normative statement?
a. A decrease in price leads to an increase in quantity demanded.
b. The study of economics is more important than the study of history.
c. People will buy less butter at 1.50 per pound then they will at 1.00 per pound.
d. As an economy develops, the nation's birth rate tends to fall.
Question 6Other things equal, an increase in aggregate demand will result in:
a. an economic expansion.
b. higher unemployment and a lower equilibrium price level.
c. an economic recession.
d. a decrease in equilibrium real GDP and an increase in the equilibrium price level.
e. a decrease in the overall economic welfare.
Question 7Which of the following is a positive statement?
a. The average high temperature in Miami, Florida in February is lower than the average high temperature in Chicago, Illinois.
b. An increase in cigarette smoking will lead to a decrease in the likelihood of getting lung cancer.
c. 30 minutes of exercise three or more times per week will decrease the occurrence of heart disease.
d. all of the above
Question 8Identify the correct statement.
a. Aggregate demand alone determines equilibrium price and output.
b. Aggregate supply alone determines equilibrium price and output.
c. Aggregate demand and aggregate supply determine equilibrium price and output.
d. Aggregate demand shows the positive relationship between price level and real GDP.
e. Aggregate supply shows the negative relationship between price level and real GDP.
Question 9Normative statements are:
a. prescriptive, making claims about how the world ought to be.
b. descriptive, making claims about how the world is.
c. optimistic, putting the best possible interpretation on things.
d. statements that establish production goals for the economy.
Question 10The intersection of the aggregate demand and the aggregate supply curve defines the equilibrium level of _____ and the price level.
a. real interest rate
b. nominal interest rate
c. nominal GDP
d. real GDP
e. unemployment
Question 11Positive statements are:
a. prescriptive, making claims about how the world ought to be.
b. descriptive, making claims about how the world is.
c. optimistic, putting the best possible interpretation on things.
d. affirmative, justifying existing economic policy.
Question 12To determine short-run equilibrium in the economy, we use an aggregate supply curve that is:
a. downward-sloping.
b. vertical.
c. upward-sloping.
d. horizontal.
e. parabolic.
Question 13Suppose there are two members of the U.S. Congress who were once economics professors. Why is it important to be able to distinguish their positive from their normative statements about economic policy?
a. Their positive statements help us understand the economy's response to a particular policy, while their normative statements reflect their value judgments.
b. Their positive statements help us understand the good results of a policy change, and their normative statements help us understand the negative results.
c. We really do not have to worry about them since trained economists never make normative statements.
d. Economists are always making assumptions, and policy should not be based on assumptions.
Question 14In the 1970s the international price of crude oil rocketed because:
a. the demand for crude oil fell short of its supply.
b. a new source of natural gas was discovered.
c. the demand for automobiles increased drastically.
d. the supply of oil was restricted by the oil exporting countries.
e. of the appreciation of dollar in the international market.
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