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CLICK HERE TO ACCESS FULL TEST BANKTEST BANK FOR Macroeconomics2nd Edition By Acemoglu ISBN13-9780134492056CLICK HERE TO ACCESS FULL VERSIONMacroeconomics, 2e…
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CLICK HERE TO ACCESS FULL TEST BANKTEST BANK FOR Macroeconomics2nd Edition By Acemoglu ISBN13-9780134492056CLICK HERE TO ACCESS FULL VERSIONMacroeconomics, 2e (Acemoglu) Chapter 2 Economic Methods and Economic Questions 2.1The Scientific Method1) Empiricism  refers  to  using    to  analyze  the  world.     A)  data   B)  beliefs   C)  traditions   D)  value  judgments   Answer:     A   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     The  Scientific  Method    2) The  scientific  method  refers  to  the  process  by  which  economists  and  other  scientists   .   A)  collect  data  for  further  use  in  research   B)  develop  models  of  the  world  and  test  those  models  with  data   C)  develop  models  to  explain  the  past  but  not  to  predict  the  future   D)  plot  graphs  to  illustrate  relationships  between  different  economic  variables   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     The  Scientific  Method    3) Which  of  the  following  statements  is  true?   A)  Models  that  economists  use  are  perfect  replicas  of  reality.   B)  The  scientific  method  used  by  economists  is  based  on  idealism  and  not  empiricism.     C)  Models  help  economists  explain  the  past  but  do  not  help  predict  the  future.     D)  Testing  with  data  enables  economists  to  distinguish  between  good  models  and  bad  models.   Answer:     D   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    4) Which  of  the  following  is  a  feature  of  the  scientific  method?   A)  The  scientific  method  is  not  based  on  data,  statistics,  or  measurements.   B)  The  scientific  method  allows  improvisation  and  correction  of  inconsistent  models.   C)  The  scientific  method  enables  the  creation  of  perfectly  accurate  models  of  the  real  world.   D)  The  scientific  method  is  used  only  for  studying  topics  related  to  economics.   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data  1 Copyright © 2018 Pearson Education, Inc.5) Which  of  the  following  statements  is  true  of  the  scientific  method?   A)  The  scientific  method  may  not  reveal  a  "ʺtrue"ʺ  model  of  the  world.   B)  The  scientific  method  does  not  require  the  models  to  be  tested  with  data.     C)  The  scientific  method  used  by  economists  and  scientists  is  independent  of  empiricism.   D)  The  scientific  method  can  help  develop  accurate  models  even  when  data  are  unavailable.   Answer:     A   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    6) A  model  refers  to   .   A)  a  perfect  replica  of  reality   B)  a  simplified  description,  or  representation,  of  reality   C)  facts,  measurements,  or  statistics  that  describe  the  world   D)  a  set  of  facts  established  by  observation  and  measurement   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    7) Which  of  the  following  is  a  feature  of  models?   A)  Models  are  the  same  as  hypotheses.   B)  Models  help  in  making  predictions  for  the  future.   C)  Models  are  more  complicated  than  real  life  phenomena.   D)  Models  are  as  complex  as  the  phenomenon  being  studied.   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    8) Which  of  the  following  statements  is  true  of  models?   A)  The  predictions  of  a  model  are  referred  to  as  data.     B)  A  model  is  formulated  after  developing  a  hypothesis.     C)  Models  are  always  based  on  assumptions  that  are  known  to  be  true.     D)  It  is  more  important  for  a  model  to  be  simple  and  useful  than  to  be  precisely  accurate.     Answer:     D   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    9) A  model   .   A)  is  often  based  on  simplifying  assumptions  that  are  not  necessarily  true     B)  can  be  tested  without  data  or  statistics   C)  is  a  more  complex  representation  of  reality  than  a  theory   D)  can  never  be  used  to  predict  the  future,  but  it  helps  explain  the  past   Answer:     A   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data  2 Copyright © 2018 Pearson Education, Inc.10) Facts,  measurements,  or  statistics  that  describe  the  world  are  referred  to  as   .   A)  data   B)  models   C)  hypothesis   D)  empiricism   Answer:     A   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    11) Which  of  the  following  statements  is  true  about  data?   A)  Empiricism  does  not  necessarily  involve  data.   B)  Consistency  of  models  can  be  checked  using  data.   C)  Facts  that  describe  the  world  are  not  considered  data.   D)  Convincing  data  analysis  in  economics  relies  on  using  a  small  sample.   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    12) Empirical  evidence  refers  to   .   A)  a  simplified  representation  of  reality   B)  a  proposed  explanation  for  a  phenomenon   C)  the  process  of  developing  and  testing  models   D)  a  set  of  facts  established  by  observation  and  measurement   Answer:     D   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    13) Which  of  the  following  statements  is  true?   A)  Theories  are  statistics  that  describe  the  real  world.   B)  Hypotheses  are  predictions  that  can  be  tested  with  data.   C)  Data  are  facts  established  by  observation  and  measurement.   D)  Empirical  evidence  consists  of  facts,  measurements,  or  statistics  that  describe  the  world.     Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    14) A  model'ʹs  predictions  are  referred  to  as   .   A)  statistics   B)  theories   C)  hypotheses   D)  empirical  evidence   Answer:     C   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data  3 Copyright © 2018 Pearson Education, Inc.15) Which  of  the  following  statements  correctly  differentiates  between  a  model  and  a  hypothesis?   A)  Testing  a  hypothesis  does  not  require  data,  whereas  testing  a  model  requires  data.   B)  Testing  a  model  requires  data,  whereas  testing  a  hypothesis  does  not  require  data.   C)  A  hypothesis  can  be  used  to  make  predictions  for  the  future,  whereas  a  model  can  only  explain  the   past.   D)  A  model  is  a  simplified  representation  of  reality,  whereas  hypotheses  are  a  model'ʹs  predictions.   Answer:     D   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    16) What  is  meant  by  the  term  "ʺscientific  method?"ʺ  What  are  the  key  components  of  the  scientific  method?     Answer:     The  scientific  method  is  the  name  for  the  ongoing  process  that  economists,  social  scientists,   and  natural  scientists  use  to  develop  models  of  the  world  and  to  test  those  models  with  data.  The  key   components  of  the  scientific  method  are:   i)  Models,  which  are  simplified  descriptions,  or  representations,  of  reality   ii)  Data,  which  are  facts,  measurements,  or  statistics  that  describe  the  world   iii)  Empirical  evidence,  which  consists  of  facts  established  by  observation  and  measurement   iv)  Hypotheses,  which  are  predictions  that  can  be  tested  with  data   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    17) Why  do  almost  all  models  begin  with  assumptions?   Answer:     Researchers  develop  a  model,  which  is  a  simplified  description  of  reality,  to  study  a  problem  at   hand.  Real-­‐‑world  phenomena  are  often  very  complex,  thus  making  them  difficult  to  analyze  in  their  true   form.  Therefore,  assumptions  are  required  to  simplify  complex  phenomena  and  help  researchers  make   good  predictions  about  the  future.   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data    18) Why  are  data  essential  components  of  the  scientific  method?   Answer:     Data  are  important  for  testing  a  model.  Testing  with  data  enables  economists  to  separate  the   good  models  from  the  bad  ones.  When  a  model  is  overwhelmingly  inconsistent  with  data,  economists  try   to  fix  the  model  or  replace  it  altogether.  Thus,  data  enable  empirical  testing  of  models  to  determine   whether  a  model  is  suitable  for  analyzing  the  problem  at  hand.   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Models  and  Data  19) Economic  models  are  often  based  on  assumptions  because  they   .   A)  help  explain  the  past   B)  help  simplify  complex  real-­‐‑world  phenomena   C)  help  predict  the  future  with  greater  accuracy   D)  help  test  models  even  when  relevant  data  are  unavailable   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     An  Economic  Model  4 Copyright © 2018 Pearson Education, Inc.A model  is  based  on  an  assumption  that  an  additional  year  of  education  increases  a  student'ʹs  future  wage   by  20  percent.       20)  Refer  to  the  scenario  above.  The  hypothesis  of  the  model  is  that   .     A)  college  graduates  will  earn  about  80  percent  more  than  high  school  graduates     B)  college  graduates  will  earn  about  107  percent  more  than  high  school  graduates   C)  college  graduates  will  earn  about  200  percent  more  than  high  school  graduates   D)  college  graduates  will  earn  about  275  percent  more  than  high  school  graduates   Answer:     B   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model    21) Refer  to  the  scenario  above.  Which  of  the  following  statements  is  true  of  the  model?   A)  The  predictions  of  this  model  cannot  be  tested  with  data.   B)  The  predictions  of  this  model  are  accurate  and  will  hold  for  all  individuals.   C)  The  predictions  of  this  model  can  be  applied  to  unlimited  years  of  additional  education.   D)  The  model  predicts  that  two  additional  years  of  education  is  likely  to  increase  future  earnings  by  60   percent.     Answer:     C   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model    22) Refer  to  the  scenario  above.  Which  of  the  followings  statements  is  true  of  the  model?   A)  The  predictions  of  this  model  can  be  verified  empirically.     B)  The  predictions  of  this  model  can  only  be  applied  for  a  limited  number  of  years  of  additional   education.     C)  According  to  the  model,  2  additional  years  of  education  will  increase  an  individual'ʹs  future  wages  1.20   times.     D)  According  to  the  model,  2  additional  years  of  education  will  increase  an  individual'ʹs  future  wages  2.98   times.     Answer:     A   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model  23) Refer  to  the  scenario  above.  Which  of  the  following  statements  is  true  about  the  model'ʹs  prediction?   A)  The  prediction  cannot  be  verified  empirically.   B)  The  prediction  is  precise,  exact,  and  accurate  for  the  entire  population.   C)  The  prediction  is  an  approximate  relationship  and  may  not  hold  for  everyone.   D)  The  prediction  can  be  applied  to  estimate  the  returns  only  for  a  limited  number  of  years  of  additional   education.     Answer:     C   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model    5 Copyright © 2018 Pearson Education, Inc.24) Refer  to  the  scenario  above.  Which  of  the  following  statements  is  true  about  the  model?   A)  The  model  is  not  based  on  any  assumption.   B)  The  predictions  of  the  model  will  hold  for  every  individual.   C)  The  model  describes  the  economic  payoff  of  more  education.   D)  The  model  can  be  applied  for  a  maximum  of  10  years  of  additional  education.   Answer:     C   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model    25) Which  of  the  following  implies  that  a  model  is  an  approximation?   A)  The  model  is  not  based  on  any  assumption.   B)  The  predictions  of  the  model  are  mostly  wrong.   C)  The  predictions  of  the  model  will  hold  in  most  cases  but  not  all.     D)  The  predictions  of  the  model  cannot  be  tested  with  data.   Answer:     C   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     An  Economic  Model    26) Which  of  the  following  is  a  key  property  of  models?   A)  All  economic  models  begin  with  assumptions.   B)  Empiricism  is  not  essential  for  testing  models.   C)  All  models  can  be  used  for  a  limited  time  only.   D)  All  models  are  consistent  and  do  not  make  incorrect  predictions.   Answer:     A   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     An  Economic  Model    27) What  are  the  two  important  properties  of  all  models?   Answer:       i)  All  models  are  approximations.  A  model  cannot  predict  how  a  certain  change  in  a  particular  variable   will  affect  all  individuals  in  the  population.  Instead,  it  predicts  what  will  happen  to  most  people  in  most   circumstances.  Thus,  any  model  is  just  a  simplified  approximation  of  the  features  of  a  more  complex   real-­‐‑life  phenomenon.     ii)  Predictions  of  all  models  can  be  tested  with  data.  Data  can  be  used  to  verify  and  evaluate  the   predictions  of  all  models.  Testing  with  data  enables  economists  and  other  scientists  to  refute  inconsistent   models  and  accept  good  models.     Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     An  Economic  Model  6 Copyright © 2018 Pearson Education, Inc.28) An  economic  model  suggests  that  for  every  additional  year  of  education,  an  individual'ʹs  future  wages   increase  by  5  percent.  If  Richard,  with  12  years  of  education,  earns  $20  per  hour,  how  much  will  he  earn   per  hour  if  he  decides  to  undertake  4  additional  years  of  education?   Answer:     The  model  suggests  that  if  Richard  earns  $20  per  hour,  an  additional  year  of  education  will   increase  his  hourly  wages  to  1.05  ×  $20.  Therefore,  4  additional  years  of  education  will  increase  his  hourly   wage  to  1.05  ×  1.05  ×  1.05  ×  1.05  ×  $20  or  $24.31  per  hour.     Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model    29) An  economic  model  suggests  that  an  additional  year  of  education  increases  a  student'ʹs  future  wages   by  15  percent.  Using  this  model,  answer  the  following  questions.   a)  Gary  completes  8  years  of  education,  and  John  completes  9  years  of  education.  If  Gary  earns  $20  per   hour,  how  much  is  John  expected  to  earn?   b)  John  completes  9  years  of  education,  and  Kevin  completes  12  years  of  education.  Given  John'ʹs  earnings   (as  calculated  in  part  a),  how  much  is  Kevin  expected  to  earn?   c)  Is  there  any  limitation  to  such  a  model?  Explain  your  answer.   Answer:       a)  The  economic  model  suggests  that  an  additional  year  of  education  increases  a  student'ʹs  future  wages   by  15  percent.  Hence  an  additional  year  of  education  will  increase  the  student'ʹs  per-­‐‑hour  income  by  1.15   times.  If  Gary  earns  $20  per  hour  with  8  years  of  education,  John  is  expected  to  earn  1.15  ×  $20  or  $23  per   hour.   b)  If  John  earns  $23  per  hour  with  9  years  of  education,  and  Kevin  completes  3  additional  years  of   education,  Kevin  is  expected  to  earn  1.15  ×  1.15  ×  1.15  ×  $23  or  $34.98  per  hour.   c)  One  of  the  major  limitations  of  models  like  these  is  that  they  are  approximations  of  real-­‐‑life   phenomena.  It  is  unlikely  that  an  additional  year  of  education  will  create  the  same  wage  increment  for  all   individuals.  It  is  also  unlikely  that  the  wage  increment  from  an  additional  year  of  high  school  education   will  be  similar  to  the  wage  increment  from  an  additional  year  of  college  education.  Hence,  the   relationship  between  education  and  earnings  as  established  by  this  model  is  not  exact  and  is  only  an   approximation  of  the  real-­‐‑world  relationship.   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     An  Economic  Model    30) Public-­‐‑use  data  refer  to   .   A)  data  that  have  to  be  purchased  from  an  external  agent   B)  data  that  are  available  to  anyone  who  wants  to  use  it   C)  data  published  by  the  government  only  during  political  campaigns   D)  data  collected  by  a  researcher  only  through  field  investigation   Answer:     B   Difficulty:     Easy   AACSB:     Analytical  Thinking   Topic:     Evidence-­‐‑Based  Economics:  How  Much  More  Do  Workers  with  a  College  Education  Earn?  7 Copyright © 2018 Pearson Education, Inc.31) In  country  X,  the  average  yearly  salary  of  50-­‐‑year-­‐‑olds  with  16  years  of  education  is  $50,275,  while  the   average  yearly  salary  of  50-­‐‑year-­‐‑olds  with  12  years  of  education  is  $36,265.  According  to  these  data,  4   additional  years  of  education  are  likely  to  be  correlated  with  higher  future  wages  of  about   .   A)  24  percent     B)  38  percent   C)  50  percent     D)  88  percent     Answer:     B   Difficulty:     Medium   AACSB:     Application  of  Knowledge   Topic:     Evidence-­‐‑Based  Economics:  How  Much  More  Do  Workers  with  a  College  Education  Earn?    32) In  a  hypothetical  country,  the  average  wage  of  five  40-­‐‑year-­‐‑old  citizens  with  a  college  education  is   $36,896,  and  the  average  wage  of  five  40-­‐‑year-­‐‑old  citizens  with  a  high  school  education  is  $25,864.  What  is   the  returns-­‐‑to-­‐‑college  education  in  the  country?  Is  there  any  limitation  of  this  analysis?  Explain  your   answer.   Answer:     Dividing  the  average  salary  of  40-­‐‑year-­‐‑old  college  graduates  by  the  average  salary  of   40-­‐‑year-­‐‑old  high  school  graduates  results  in  the  ratio  ($36,896/$25,864)  =  1.426.  Hence,  a  college  education   is  likely  to  raise  a  citizen'ʹs  income  by  42.6  percent.   Yes,  this  analysis  has  a  major  limitation.  It  does  not  make  sense  to  generalize  overall  returns  to  education   on  the  basis  of  a  sample  representing  a  single  age  group.  Thus,  this  model  will  provide  information  for   only  40-­‐‑year-­‐‑old  citizens.  Returns  to  education  could  be  high  immediately  after  graduation  but  taper  off   with  age,  or  they  could  increase  with  age.  Either  way,  this  measure  does  not  capture  the  true  returns  to   education.  Moreover,  to  arrive  at  the  conclusion,  in  each  category,  the  average  income  of  only  five   citizens  is  taken  into  account.  The  number  of  observations  in  this  case  is  very  small,  and  this  may  wea
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