Chapter 2 Review Question Answers

1.	Which of the following is FALSE, regarding economics as a science? d. Economic theories represent irrefutable facts.

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2.	Economists use assumptions in order to: c. simplify economic theories, so as to make it possible to answer economic questions.

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3.	Economic models are: d. all of the other options are true.

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4.	All of the following are characteristics of the Circular Flow Model of the economy, EXCEPT: c. the model describes two circular flows: one for inputs and one for resources.

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5.	The circular flow model of the economy demonstrates that: b. dollars in the economy are used over and over in an endless cycle.

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6.	Which of the following is true regarding the Production Possibilities Frontier Model of the economy? a. Any point along the PPF represents an efficient level of production.

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7.	Economic growth in the economy can be portrayed in the Production Possibilities Frontier model as a: b. shift of the PPF away from the origin.

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8.	Microeconomics is the study of: c. how households and firms make decisions and how they interact in markets.

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9.	Which of the following is an example of a normative statement? b. The government should increase spending during recessions, so that the economy recovers quickly.

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10.	Economists tend to disagree with each because: d. all the other options are true.