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ECON 104 BILLE GOFFE FINAL EXAM
QUESTIONS WITH 100% CORRECT ANSWERS
“Capital (K) - CORRECT ANSWER manufactured goods used to produce other goods and
services"
"D in GDP - CORRECT ANSWER produced domestically, no matter the nationality of the
producer"
"Money - CORRECT ANSWER a specific asset that is a:
medium of exchange a store of value a unit of account a standard of deferred payment"
"=cash + checkable deposits - CORRECT ANSWER M1"
"$2.5 Trillion - CORRECT ANSWER US value for M1"
"M1 + savings accounts - CORRECT ANSWER M2"
"$10.4 Trillion - CORRECT ANSWER US value for M2"
"Spending - CORRECT ANSWER C + I + G + NX"
"Production - CORRECT ANSWER final
value added"
"the fall of prices in an economy - CORRECT ANSWER Deflation definition"
"less inflation but not a fall in prices - CORRECT ANSWER Disinflation definition"
"a price index that measures the price level for consumers - CORRECT ANSWER CPI
definition"
"CPI - CORRECT ANSWER average consumer prices together but
things that consumers purchase more of are more heavily "weighted" assume consumers purchase the same items every month - "market basket" (the weights come from the market baskets)"
"Y = real GDP , L = hours worked( or number of workers)
Y/L is labor productivity - CORRECT ANSWER What are the components of labor
productivity?" "More capital per hour worked (K/L increase)
Technological change - CORRECT ANSWER Why does Y/L increase?"
"more human capital better capital
better organized production - CORRECT ANSWER Technological change examples"
"real GDP when the economy is at "capacity" - CORRECT ANSWER Potential GDP definition"
"an easy to use approximation for the approximate number of years something takes to double -
CORRECT ANSWER Rule of 70 definition"
"years to double = 70/(growth rate) - CORRECT ANSWER rule of 70 formula"
"households are smaller more compensation into health care
most gains to the highest income/most educated - CORRECT ANSWER reasons why real per
capita GDP has increased 1.5%/yr and real median income has flat lined from 1999 -2007"
"unemployed - CORRECT ANSWER if you're not working and haven't looked for a job in the
last month"
"labor force - CORRECT ANSWER all those working and all those looking the last month or
those willing and able to work"
"(unemployed / labor force) * 100 - CORRECT ANSWER unemployment rate"
62% - CORRECT ANSWER Values for:
unemployment rate participation rate"
"underemployment rate (U-6) - CORRECT ANSWER people who have looked in the past 12
months but not in the past month
often long lasting effects - CORRECT ANSWER Financial shock that causes recessions"
"rapid move to raise federal tax (T) and/or cut federal purchases (G)
rare - CORRECT ANSWER Fiscal Shock"
"Financial Asset - CORRECT ANSWER a legal claim for future payments"
"student loans, car loans, checking accounts, mortgage, bond, stock - CORRECT ANSWER
examples of financial assets"
"security - CORRECT ANSWER a financial asset that can be bought or sold"
"stocks and bonds - CORRECT ANSWER examples of securities"
"share - CORRECT ANSWER ownership in a corporation"
"G + transfers + interest payments - CORRECT ANSWER federal expenditures formula"
"federal expenditures - federal taxes - CORRECT ANSWER federal deficit formula"
"more federal expenditures
increase in the federal deficit - CORRECT ANSWER increases in these increase G"
"Exports - imports - CORRECT ANSWER NX formula"
"if increase of foreign income
if increase in foreign currency value (depreciation) - CORRECT ANSWER increases in these
will cause increase in NX" "When you calculate GDP you need -the prices of goods & services -the amount of goods & services produced -both the prices and quantities of produced goods & services
-none of the above - CORRECT ANSWER both the prices and quantities of produced goods &
services" "If you computed nominal GDP every year over a decade, which is fixed or held constant over these years? -prices
-quantities
-neither prices nor quantities - CORRECT ANSWER neither prices nor quantities"
"Which is NOT part of the definition of capital, as used by economists? It ___. -must be manufactured -is used by firms -is used up in production
-produces other goods and services - CORRECT ANSWER is used up in production"
"The best example of fiscal policy is ___. the Fed lowering interest rates
the government raising taxes - CORRECT ANSWER the government raising taxes"
"Fundamentally, fiscal policy deals with which of the following? changes in the federal budget changes in M1 (one way to measure money in the economy) changes in interest rates
changes in the vlaue of the dollar - CORRECT ANSWER changes in the federal budget"
"If the President and Congress made decisions that increase the federal budget deficit, how will GDP growth change? It will grow more quickly. It will grow at the same rate.
It will grow more slowly. - CORRECT ANSWER It will grow more quickly"
"Which is most affected by the FOMC and Jerome Powell's decisions? tariffs the federal deficit taxes
interest rates - CORRECT ANSWER interest rates"
"If the core CPI was increasing faster than the headline (or regular) CPI, then what is most likely happening? gas prices are rising gas prices are falling the GDP deflator is rising
the GDP deflator is falling - CORRECT ANSWER gas prices are falling"
"When was the most rapid growth in the CPI in the period since 1970? at the start of this period
"Say that the price of cat food increased by 5% one year and the CPI increased by 2%. Then you know that the real price of cat food changed by __. -7% -3% -3%
7% - CORRECT ANSWER "
"Which of the following tends to be more stable from year to year? inflation measured by the regular (or "headline") CPI
inflation measured by the core CPI - CORRECT ANSWER inflation measured by the core CPI"
"If the CPI went from 100 last year to 110 this year, and if a newspaper's nominal price was $1 last year, in this year's values it would be worth ___. 100•$1. 110•$1. (100/110)•$1.
(110/100)•$1.00 - CORRECT ANSWER (110/100)•$1.00"
"If the inflation rate was 2% and the dollars people earned at work was unchanged, then ___. real wages fell real wages rose nominal wages fell
nominal wages rose - CORRECT ANSWER real wages fell"
"Let's say that over the last year your nominal salary increased by 4% and that the CPI increased by 1%. Then your real salary increased by ___. -5% -3% 1% 3% 4%
5% - CORRECT ANSWER 3%"
"One would ___ when you're converting a nominal price from one year to another. subtract multiply add
divide - CORRECT ANSWER divide"
"Someone would use ___ when they have the rate of inflation and want to compute ___ prices. subtraction, real subtraction, nominal
division, real
division, nominal - CORRECT ANSWER subtraction, real"
"Say that the CPI this year is 200 and that last year it was 180. The nominal price of a gallon of milk was $4.00 last year. After adjusting for inflation, what would it be in today's prices? (180/200)$4. (200/180)$4. 200*$4.
$180$4.00 - CORRECT ANSWER (200/180)$4.00"
"Which of the following government actions would be the most harmful to economic growth? granting patents fixing prices reducing corruption
increasing protecting for property rights - CORRECT ANSWER fixing prices"
"Markets seem to be an essential ingredient for sustained economic growth. (True or False) -
CORRECT ANSWER true"
"Which of the following leads to diminishing returns? increases in the money supply adding more of existing types of capital improving human capital
finding better ways to organize production - CORRECT ANSWER adding more of existing
types of capital" "Across the economy the following take place: (i) people have more education, (ii) firms add machines that are more efficient (iii) firms import ideas to run factories more efficiently. For how many of the above listed reasons does the curve in the per-worker production function shift up? 0 1 2
3 - CORRECT ANSWER 3"
"Economic growth is likely to be ___ if the government fixed or set the price of important goods to make them affordable for consumers. hindered aided
neither of the above - CORRECT ANSWER hindered"
"Which of the following is the best reason for the difference in economic growth between North and South Korea?
"___ is not part of disposable income. income T G
transfers - CORRECT ANSWER G"
"An increase in P has the same effect on the AD curve as an increase in G. true
false - CORRECT ANSWER false"
"Say that both G and T grow. The AD curve then ___. would be sure to shift right would be sure to shift left
might shift right or might shift left - CORRECT ANSWER might shift right or might shift left"
"Say that both interest rates fell and that the U.S. dollar depreciated against foreign currencies. The AD curve then ___. would be sure to shift right would be sure to shift left
might shift right or might shift left - CORRECT ANSWER would be sure to shift right"
"If the price of final goods and services (P) increases then ___. the SRAS curve shifts right the SRAS curve shifts left you move down along the SRAS curve
you move up along the SRAS curve - CORRECT ANSWER you move up along the SRAS curve"
"In our recent graphs, we have P on the vertical axis and Y on the horizontal axis. In an expansion with deflation, the economy would be moving ___. down and to the right down and to the left up and to the left
up and to the right. - CORRECT ANSWER down and to the right"
"What do we mean by "costs" in this part of the course? The value of real GDP. The average price of all final goods and services. What households pay for things they purchase.
What businesses pay for things they purchase. - CORRECT ANSWER What businesses pay for
things they purchase."
"When the Federal funds rate drops, the AD curve shifts ___ as other interest rates, like ones that consumer use, are most likely to ___. left, rise left, fall right, rise
right, fall - CORRECT ANSWER right, fall"
"By value of the dollar, economists mean ___. how many U.S. dollars it takes to buy foreign currency how prices have risen in the U.S.
both the previous answers - CORRECT ANSWER how many U.S. dollars it takes to buy
foreign currency" "In our static model of aggregate demand and supply, if oil prices fall the AD curve will shift to the
right. (True or False) - CORRECT ANSWER false"
"As one moves up the SRAS curve, profits of business ___. falls stay the same
rises - CORRECT ANSWER rises"
"Which of the following NOT will shift AD right? lower T more G more K
lower value of the dollar - CORRECT ANSWER more K"
"Back in Section 2 on long-run growth, we described several reasons why the per-worker production function will shift up. Will these same factors shift the AD curve right? yes
no - CORRECT ANSWER no"
"If we plot the GDP deflator on the vertical axis and real GDP on the horizontal one, in which direction is the economy moving if it is experiencing inflation and an expansion? up and left up and right down and left
down and right - CORRECT ANSWER up and right"
"Which of the following would occur if technology improved? -the per-worker production function curve shifts up and the SRAS curve shifts right -the SRAS shifts right and the AD curve shifts right
AD shifts right AD shifts left SRAS shifts right
SRAS shifts left - CORRECT ANSWER AD shifts left"
"In our AD-SRAS graph, if the "value of the dollar fell," we mean that there has been inflation.
(True or False) - CORRECT ANSWER false"
"What would happen if the GDP deflator rose? AD shifts right AD shifts left move up along the AD curve
move down along the AD curve - CORRECT ANSWER move up along the AD curve"
"What would be the best explanation if you saw an economy with falling prices and rising real GDP? taxes fell taxes rose technology decreased
technology increased - CORRECT ANSWER technology increased"
"What would happen if costs to businesses fell? AD shifts right AD shifts left SRAS shifts right
SRAS shifts left - CORRECT ANSWER SRAS shifts right"
"Which of the following can have a negative value? C I G
NX - CORRECT ANSWER NX"
"Is it possible for Y/L to grow if technology and the amount of capital per worker are constant?
(Yes or No) - CORRECT ANSWER No"
"What would you expect to see if transfers from the government to individuals rose? -a fail in P and a rise in Y -an increase in P and a fall in Y -an increase in both P and Y
-a decrease in both P and Y - CORRECT ANSWER an increase in both P and Y"
"Which of the following is the most common cause of recessions in the U.S. since 1945? -a pandemic -the federal government moving to balance their budget -a financial shock
-the Fed acting to reduce the rate of inflation - CORRECT ANSWER the fed acting to reduce
the rate of inflation" "What would happen if the price of oil rose? -only the AD curve would shift -both the AD and SRAS curves would shift -neither the AD nor the SRAS curves would shift
-only the SRAS curve would shift - CORRECT ANSWER only the SRAS curve would shift"
"Which of the following is the current approximate value of the GDP deflator? -7.20% -6.40%
-300 - CORRECT ANSWER 130"
"Which is an individual doing if they buy a bond? -borrowing (intending to pay back with interest)
-investing (hoping to make a financial return) - CORRECT ANSWER investing (hoping to
make a financial return)" "Which of the following had the least upward trend from 1970 to 2022? -inflation measured with the CPI -real GDP
-the CPI - CORRECT ANSWER inflation measured with the CPI"
"The division method of computing a real price requires that the nominal prices that are used be in what form? -percent changes -dollar amounts
-both dollar amounts and percent changes - CORRECT ANSWER dollar amounts"
"In general, inflation harms those who borrow money. (True or False) - CORRECT ANSWER
False" "When would you need 2012 prices in the U.S.? -when computing real and nominal GDP for any year -when computing real GDP for any year
I = 13%
G = 20%
NX = -3% - CORRECT ANSWER US percentages for GDP components"
"$15.8 Trillion - CORRECT ANSWER Nominal value for US GDP"
"GDP - CORRECT ANSWER measures production, spending, and income in a nation's
economy in a very precise way"
"G in GDP - CORRECT ANSWER Includes all investment ("gross investment") including that
which replaces capital goods that wear out ("depreciation")"
"Income - CORRECT ANSWER with some adjustments, a dollar spent on production is
spending and it generates income for someone"
"GDP per capita - CORRECT ANSWER the measure of GDP person"
"roughly measures well-being - CORRECT ANSWER what does GDP per capita analyze?"
"$48,300 - CORRECT ANSWER US value of GDP per capita"
"$1,200, US in 1800 - CORRECT ANSWER Haiti value of GDP per capita, and when was this
value in US (year)"
"$8,400, US in 1935 - CORRECT ANSWER China value of GDP per capita, and when was this
value in US (year)"
"current year quantities, base year prices - CORRECT ANSWER Real GDP definition"
"= Q(c) * P(b) + ... or
(nominal GDP / GDP deflator) * 100 - CORRECT ANSWER Real GDP formula
(2 formulas)"
"when valuing production, it uses prices from the year in question - CORRECT ANSWER
Nominal GDP def"
"fell by .6 trillion (4.7%) - CORRECT ANSWER What happened to GDP during the Great
Recession? ($/%)"
"10% unemployment - CORRECT ANSWER What did the unemployment rate rise too in the
Great Recession?"
"increase expenditures (G and trans increased)
cut taxes (to help C and I) - CORRECT ANSWER What fiscal policy changes did the federal
goverment do to deal with the great recession? (what they did/what it affected)" "cut interest rates (stimulate C and I)
aided the financial system - CORRECT ANSWER What monetary policy did the federal
reserve do to deal with the great recession? (what they did/ what did it affect)"
"GDP deflator - CORRECT ANSWER one way to measure the price level
it is part of measuring inflation"
"uses nominal and real GDP to measure the "price level" - CORRECT ANSWER GDP Deflator
definition"
"=(nominal GDP)/(real GDP) * 100 - CORRECT ANSWER GDP Deflator formula"
"=[(GDP deflator (c)) - (GDP deflator (b))]/(GDP deflator (b) * 100 - CORRECT ANSWER
Inflation formula using GDP Deflator"
"[(market basket value of current year)/(market basket value of base year)] * 100 - CORRECT
ANSWER CPI formula"
"% change in price index - CORRECT ANSWER inflation"
"[(CPI(c)) - (CPI(b))]/(CPI(b)) - CORRECT ANSWER inflation formula using CPI"
"Core rate of inflation - CORRECT ANSWER measures inflation w/o food and energy"
"Food and energy prices are particularly volatile - CORRECT ANSWER Why is Food and
energy not included in Core rate of inflation?"
"=(nominal value/ price index) * 100 - CORRECT ANSWER Real Value formula"
"% change of real (value) = % change nominal value - inflation
income, interest rate - CORRECT ANSWER Rate of change subtraction
what does this apply too?" "rise in nominal wages so real wages don't change
higher nominal interest rates - CORRECT ANSWER Effects from anticipated inflation"
"can reduce real wages
"countries that trade more w/ other countries grow more rapidly
globalization aids investment (better K, increase human capital, better organized firms) -
CORRECT ANSWER Globalization impact in helping K and technological change?"
"markets set wage rates above minimum all nominal prices are set in markets and are flexible markets foster innovation and respond to customer interest
institutions increase markets growth - CORRECT ANSWER What do markets do to aid
growth in countries?"
"marginally attatched - CORRECT ANSWER people that have looked in the past 12 months
but not in the last month" "(unemployed + marginally attached + part time wanting full time)/(labor force + marginally
attached) - CORRECT ANSWER U-6 unemployment rate"
"when cyclical unemployment is 0 the unemployment rate is 5%-6% at full employment
economy is at potential GDP - CORRECT ANSWER the natural rate of unemployment is
when"
"cyclical unemployment - CORRECT ANSWER unemployment caused by a business cycle
recession"
"frictional unemployment - CORRECT ANSWER short-term unemployment that arises from
the process of matching workers with their jobs"
"structural unemployment - CORRECT ANSWER unemployment that arises from a
persistent mismatch between skills and attributes of workers and the requirements of jobs"
"Turnover in the Labor Market - CORRECT ANSWER every year, numerous jobs are lost and
created - part of "creative destruction""
"Okun's law - CORRECT ANSWER the connection between real GDP (Y) and the
unemployment rate (u)" "since the labor force grows with populations increases and since productivity rises, some
economic growth is needed to keep the unemployment rate constant over time - CORRECT
ANSWER Idea about okun's law"
"% change of real GDP = 3-2(change in unemployment) - CORRECT ANSWER Okun's law
formula"
"corporations sell stock to raise funds - CORRECT ANSWER why does a corporation sell
stock?" "vote on corporate matters may get "dividends"
sell stock for more than the purchase price (appreciation) - CORRECT ANSWER What do
investors get to do with stock?"
"bonds - CORRECT ANSWER a way for a large business or governments to borrow from
willing investors"
"they promise fixed nominal payments in the future to the investors from the issuer - CORRECT
ANSWER agreement when purchasing a bond"
"the price of a bond varies and they trade in very active markets - CORRECT ANSWER How
are bonds and stocks similar in price trends?"
"They buy through mutual funds - CORRECT ANSWER How do most individual investors
buy bonds?"
"stocks are risky and they offer higher returns - CORRECT ANSWER compared stock and
bonds, which is more risky and which offers higher returns"
"stocks over time increase in value - CORRECT ANSWER what is the overall trend in stock
prices?"
"Defined Benefit - CORRECT ANSWER your employer sets funds aside for your retirement,
manages them and pays you from your retirement until your death"
"save early and save often - CORRECT ANSWER what is the method to saving for
retirement?" "defined contribution plans employers match contributions you make
IRAs - CORRECT ANSWER How to save?"
"Price level (P) - CORRECT ANSWER average prices in the entire economy"
