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Macroeconomics 4th Australian Edition Glenn Hubbard - Test Bank
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,Chapter 1Economics: foundations and models
Choose the one alternative that best completes the statement or answers the question.
1) In economics, choices must be made because we live in a world of:
A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.
Answer: B
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
2) Which of the following statements is true about scarcity?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity arises when there is a wide disparity in income distribution.
Answer: A
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
3) The basic economic problem of ________ has always existed and will continue to exist.
A) scarcity
B) efficiency
C) inflation
D) recession
Answer: A
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
4) By definition, economics is the study of:
A) how to make money in the stock market.
Copyright © 2018 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –
9781488612527/Hubbard/Macroeconomics/4e
,B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.
Answer: C
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
5) An economic ________ is a simplified version of some aspect of economic life used to analyse an
economic issue.
A) market
B) trade-off
C) variable
D) model
Answer: D
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
6) Where do economic agents, such as individuals, firms and nations, interact with each other?
A) In public locations monitored by the government.
B) In any arena that brings together buyers and sellers.
C) In any physical location people where people can physically get together for selling goods, such as
shopping malls.
D) In any location where transactions can be monitored by consumer groups and taxed by the
government.
Answer: B
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
7) In economics, the place where buyers and sellers come together to trade is called a
A) market.
B) cooperative.
C) collective.
D) trade-off.
Answer: A
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
Copyright © 2018 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –
9781488612527/Hubbard/Macroeconomics/4e
, incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
8) What do economists assume about individuals?
A) That they are rational and respond to incentives.
B) That they prefer to live in a society that values fairness above all else.
C) That they will never take action to help others.
D) That they behave in unpredictable ways.
Answer: A
Difficulty: Basic
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
9) Economists assume that rational behaviour is useful in explaining choices people make:
A) because irrational people do not make economic choices.
B) even though people may not behave rationally all the time.
C) because individuals act rationally all the time in all circumstances.
D) even though people rarely, if ever, behave in a rational manner.
Answer: B
Difficulty: Moderate
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
10) Economists assume that rational people do all of the following except:
A) use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) weigh the benefits and costs of all possible alternative actions.
D) respond to economic incentives.
Answer: B
Difficulty: Moderate
Learning Objective: 1.1 Explain these three key economic ideas: people are rational, people respond to
incentives, and optimal decisions are made at the margin.
Topic: Three key economic ideas
AACSB: Able to analyse and frame problems
11) Economics does not study correct or incorrect behaviours but rather it assumes that economic agents
behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
A) equitably
B) rationally
C) emotionally
Copyright © 2018 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –
9781488612527/Hubbard/Macroeconomics/4e
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