11) Which of the following best describes the relationship between positive and normative statements in economics?
A) Normative statements are those with which all economists agree; positive statements may give rise to some disagreement.
B) Positive and normative statements are alternate ways of describing the desirability of certain economic policies.
C) Normative statements evaluate the desirability of certain economic changes; positive statements do not.
D) Neither positive nor normative statements are concerned with the desirability of certain economic changes.
E) Economists generally agree with each other regardless of whether a question is positive or normative.
12) A theory
A) enables one to make prophesies about the future.
B) is designed to explain and predict what we observe.
C) is used to impose order on the world.
D) can only be tested with a controlled experiment.
E) assumes definitions for variables.
13) An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely
A) a theory.
B) a testable proposition.
C) a hypothesis.
D) a normative statement.
E) a positive statement.
14) An economic theory requires, among other things,
A) a set of definitions of the variables to be considered.
B) a controlled laboratory setting in which the theory can be tested.
C) that the set of predictions be correct.
D) a set of value judgments to interpret the empirical evidence.
E) the use of endogenous variables only.
15) Choose the statement that best describes how endogenous variables differ from exogenous variables.
A) An endogenous variable is explained within the theory, while an exogenous variable influences the endogenous variables but is determined outside the theory.
B) An endogenous variable is a flow, while an exogenous variable is a stock.
C) An endogenous variable is explained outside the theory and influences an exogenous variable while an exogenous variable is explained within the theory.
D) An exogenous variable is a function of the endogenous variable, and both are flow variables.
E) An endogenous variable is a function of the exogenous variable, and both are stock variables.
16) Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is
A) an endogenous variable, as it influences the price of fish.
B) an exogenous variable, as it is determined outside the theory.
C) a stock, as it influences the quantity of fish caught.
D) an act of God and, therefore, has no legitimate connection with the theory.
E) an endogenous variable, as it is determined within the theory.
17) The statement that a country’s rate of economic growth is influenced by its firms’ investment behaviour is an example of a(n)
A) variable.
B) prediction.
C) normative statement.
D) theory.
E) economic law.
18) The statement that a 2% increase in the money supply leads to a 2% increase in the price level is an example of a(n)
A) prediction.
B) assumption.
C) normative statement.
D) variable.
E) model.
19) The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of a(n)
A) assumption.
B) prediction.
C) theory.
D) normative statement.
E) model.
20) Choose the statement that best characterizes an economic theory. A valid theory
A) allows one to deduce a normative statement.
B) appeals to the law of large numbers.
C) generates a hypothesis that can predict future events.
D) extrapolates from the past behaviour of a variable to predict its future course.
E) allows one to prove irrefutably one’s hypothesis.
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