Question

1-Which of the following is a normative statement?

• The unemployment rate is 7.3%.
• Unemployment benefits usually expire after 26 weeks.
• The government provides some benefits to the poor.
• The distribution of income in the U.S. should be equal.

2-Consider two events:

Every morning, you get up. (Event A)

Every morning, the sun rises. (Event B)

Thus these two events occur together every day. Given that information, the best description of this relationship is which of the following?

• There is no relationship between the two events.
• The two events are correlated.
• Event A causes Event B.
• Event B causes Event A.

3-For a long time, when a team from the American Football Conference won the Super Bowl, the stock market had a bad year; when a team from the National Football Conference won the Super Bowl, the stock market had a great year. This is an illustration of:

• correlation without causation.
• reverse causality.
• inadequate information.
• omitted variables.

4-When we say rational people make decisions at the margin, we are saying that people:

• compare the additional costs and additional benefits of only the past choices.
• compare the additional costs and additional benefits of only the current choice.
• compare the additional costs and additional benefits of the current choice and past choices.
• compare the total costs and additional benefits of only the current choice.

5-People confuse correlation with causation because correlation means that:

• two events occur together. Since the two often occur together, people often believe that one causes the other.
• two events occur sequentially. Since the two often occur sequentially, people often believe that one causes the other.
• most events occur together. Since most events occur together, people often believe that events cannot be predicted.
• most events occur together. Since most events occur together, people often believe that events can be predicted.

Answer 1

1.

Normative statement is a value based and subjective statement while positive statement is objective and fact based. Given all these statements, distribution of income in the US should be equal is a normative statement.

Correct Ans - D

2.

Both these events are independent to each other. You may get up quite late in the afternoon but still sun rises in the morning implying that these events are uncorrelated and possess no relationship.

Correct Ans - A

3.

This is an example of correlation without causation. From the statistics, the two events seem to be correlated and have some degree of correlation but there is no logical causation among the two.

Correct Ans - A

4.

This statement means that rational people often make decisions by comparing marginal benefits and marginal costs i.e. additional benefit from one more unit (i.e. only the current choice) and additional cost incurred from one more unit (current choice).

Correct Ans - B