Download ASU ECON 211 2026 PRACTICE TEST SOLVED RESPONSES and more Exams Finance in PDF only on Docsity!
ASU ECON 211 2026 PRACTICE TEST SOLVED
RESPONSES
◉ Tess purchased an orange at Safeway in January. Lex ate a similar orange grown in his backyard. What is true. Answer: Tess' orange is included in consumption expenditures and GDP, Lex's is not. ◉ What is true about the CPI and the GDP deflator. Answer: The quantities and types of goods included in the CPI are fixed over time. ◉ When the Bureau of Labor Statistics calculated the CPI it is assumed that consumers purchase the same quantity of each good included in the basket, regardless of the change in price relative to other goods. This describes the WHAT (1) bias and usually results in the CPI WHAT (2) the true cost of inflation. Answer: (1) Substitution (2) Overstating ◉ The factors of production used to produce output include what?. Answer: Labor and capital ◉ What explains why poorer countries with low levels of capital often grow faster than rich countries?. Answer: There are diminishing marginal returns to capital.
◉ What is Human Capital?. Answer: The knowledge and skills workers gain from education and experience. ◉ Expenditures of WHAT are classified as "investment"?. Answer: Firms ◉ BLANK 1 are demanders of loanable funds. Quantity demanded BLANK 2 when interest rates increase.. Answer: 1. Firms
- Decreases ◉ Suppose the government budget deficit increases. All else constant national saving (1) and investment (2).. Answer: 1. Decreases
- Decreases ◉ Suppose there is an increase in the supply of loanable funds. As a result, the interest rate (1) and investment (2) .. Answer: 1. Decreases
- Increases
◉ The "headline" or U3 unemployment rate often (1) the actual level of idle labor resources because (2).. Answer: 1. Underestimates
- Discouraged workers are not considered part of the labor force. ◉ The natural rate of unemployment excludes what type of unemployment?. Answer: Cyclical unemployment ◉ What is currently considered money in the United States? Multiple answers.. Answer: 1. A $50 bill
- A money market deposit
- A checking account depoist ◉ Which sector of the economy's spending is included in investment expenditures?. Answer: Firms ◉ The inflation rate is measured as.... Answer: The percent change in a price index from one year to the next. ◉ T/F: Over the past 50 years, growth in real GDP per person has been roughly zero.. Answer: FALSE
◉ What best describes the labor force?. Answer: All civilian non- institutionalized individuals 16 and over who are employed or unemployed. ◉ When the unemployment rate is equal to the natural rate.... Answer: Cyclical unemployment is zero. ◉ (1) are suppliers of loanable funds. The quantity supplied (2) when interest rates increase.. Answer: 1. Households
- Government/Increases ◉ What does Nominal GDP measure?. Answer: 1. The value of income generated in an economy.
- The value of production that occurs in an economy.
- the value of output generated in an economy ◉ What appears under "assets" on a bank balance sheet?. Answer: Loans to households ◉ Suppose population demographics change such that households spend a higher fraction of income. All else constant, national saving **(1) and investment (2).. Answer: 1. Decreases
- Decreases
- Increases ◉ Real GDP is commonly used for what?. Answer: Short run changes. ◉ When real GDP falls, so does what?. Answer: - Personal income
- Corporate profits
- Consumer spending
- Investment spending
- Industrial production ◉ When the overall economy declines that is due to what?. Answer: - Reduction in spending in factories
- Housing
- Inventory ◉ When real GDP declines, what happens to the unemployment rate?. Answer: It increases. ◉ What is the natural rate of unemployment?. Answer: 5% or 6%. ◉ In the short run, what can money supply do?. Answer: It can temporarily push real GDP away from the long run.
◉ Model of aggregate demand/supply. Answer: Explains the short- run fluctuations around its long-run trend. ◉ Aggregate demand. Answer: The curve that shows the quantity of goods and services households, firms, government, and customers from abroad want to buy at each price level. ◉ Aggregate supply. Answer: The curve that shows the quantity of goods and services firms choose to produce or sell at each price level. ◉ When there's a lower interest rate, what affect does that have on the quantity demanded?. Answer: It increases. ◉ When the price level decreases, what affect does that have on the interest rate, spending, and quantity?. Answer: - Interest rate decreases
- Spending increases
- Quantity increases ◉ As the real exchange dollar value decreases.... Answer: Quantity demanded increases.
- Increase in capital stock
- New discovery of mineral
- Increase in technology
- When there is a decrease in the expected price level ◉ Why is the long run supply curve vertical?. Answer: It's vertical because overall prices doesn't affect the ability to produce goods and services. ◉ Sticky wage theory. Answer: Slopes upward because it is slow to adjust to nominal wages when their expected price turns out different. If it turns out higher than expected then they will produce more. If it turns out lower than expected they will produce less. ◉ Sticky price theory. Answer: Some goods and services also adjust slowly due to some menu costs. ◉ Misperceptions theory. How do they respond to the higher price?. Answer: Says that the changes in overall price level misleads suppliers about what is happening in individual markets. They respond to higher price by increasing the quantity supplied. ◉ What are the two economic fluctuations?. Answer: 1. In the short run, shifts in the aggregate demand causes fluctuations in the economy's output of goods and services
- In the long run, shifts in the aggregate demand affects the overall price level not output ◉ What are the effects of aggregate supply shifting?. Answer: It can cause stagflation. ◉ How and why does the aggregate supply curve shift upward?. Answer: If there's an increase in unit costs for any reason other than an increase in real GDP. ◉ Short run demand shock. Answer: Causes an increase in government purchases which will also increase real GDP and price level. ◉ When there's a demand shock how will it adjust to long run?. Answer: - In the short run input prices are sticky
- In the long run input prices can adjust; if the output is higher than the full employment then the wage rate will rise which will shift the aggregate supply curve upward ◉ What causes the long run aggregate supply to shift to the right?. Answer: If there's an increase in labor, capital, natural resources, and technology.
◉ Law of supply. Answer: As the price of good increases, the quantity supplied increases. ◉ What causes the supply curve to shift to the right?. Answer: - If input prices decreases
- If the price of alternative decreases
- If the number of firms increases
- If they expect that the price in the future will increase
- Technological advancement
- Favorable weather ◉ What are the effects of an increase in demand?. Answer: - Increase in price
- Increase in quantity ◉ What are the effects of a decrease in supply?. Answer: - Higher prices
- Lower quantity ◉ What are the effects of an increase in demand and decrease in supply?. Answer: - Higher prices
- Quantity can rise, fall, or remain unchanged
◉ GDP. Answer: Market value of all goods and services produced within a country in a given period of time. ◉ GDP measures what?. Answer: It measures the total income of everyone in the economy and expenditure. ◉ Nominal GDP. Answer: Measured without the adjustment to the change in dollar value and not adjusted for inflation. ◉ Real GDP. Answer: Adjusted for the change in dollar value and corrected for inflation. ◉ Unemployed. Answer: Those who are not working, were available to work, tried searching for jobs in the past 4 weeks, or waiting to be called back to a job in which they were laid off from. ◉ CPI. Answer: Measures the consumer's cost of living. ◉ Nominal wage. Answer: Number of dollars you earn. ◉ Real wage. Answer: Purchasing power of your wage. ◉ Nominal interest rate. Answer: Annual percent increase in dollars earned from making a loan.
saving means a decrease in consumption hence a trade off between current and future consumption. ◉ How much does a worker's wages increase for each year of schooling? And what trade off does it have?. Answer: It increases by 10%. It has a trade off between the present and future. Spending a year in year requires sacrificing a year's wages now for higher wages in the future. ◉ What are some policies to promote technological progress?. Answer: - Patent laws
- Tax incentives
- Grants ◉ How does population affect living standards?. Answer: - Stretching natural resources
- Diluting capital stock
- Technological progress ◉ Private saving. Answer: The income remaining after households have paid their taxes and consumption. ◉ Investment. Answer: Purchase of new capital.
◉ What does the market of loanable funds helps us understand?. Answer: It helps us understand how financial markets coordinates saving and investment and how government policies and other factors affect saving, investment, and interest rate. ◉ What happens to the quantity of loanable funds supplied when interest rate goes up?. Answer: It makes saving more attractive which means quantity of loanable funds supplied will increase. ◉ What happens when the interest rate falls?. Answer: Investment spending rises and business borrowing rises. ◉ What is money?. Answer: - Widely accepted means of payment
- Most liquid asset
- Solves double coincidence of wants
- Eliminates the need for barter ◉ What is part of the money supply?. Answer: - Currency
- Demand deposits ◉ What are the functions of the FED?. Answer: - Supervising and regulating banks
- Acting as a bank for banks
- Issuing paper currency
◉ What influences the quantity of reserves?. Answer: - Open market operations
- Lending to banks (changes in the discount rate) ◉ What influences the reserve ratio?. Answer: Changes in the required reserve ratio and interest rate on reserves ◉ Quantity theory of money. Answer: The quantity of money determines the overall price level in the economy (value of money). ◉ Liquidity preference theory. Answer: Interest rate adjusts to balance supply and demand for money. Money demand reflects how much wealth people want to hold in liquid form. ◉ What is the opportunity cost of money?. Answer: What you could have earned if you were holding onto a financial asset instead. ◉ What happens if real income (Y) increases?. Answer: As Y increases, households will want to buy more goods and services but in order to obtain that money, they will attempt to sell some of their bonds. An increase in Y increases money demand. ◉ What does the money supply not depend on?. Answer: Interest rate.
◉ If the interest rate falls, what affect does that have on money demand? If the price level falls, what affect does that have on money demand?. Answer: - If the interest rate (r) falls, money demand increases
- If the price level (p) falls, money demand decreases which also decreases r ◉ In order to change the interest rate AND shift the aggregate demand curve the Fed has to do what?. Answer: The Fed conducts open market operations to change money supply. ◉ How can the Fed increase the interest rate?. Answer: In order to increase the interest rate, money supply needs to decrease. If interest rate increases then the quantity of goods and services demanded decreases. ◉ Fiscal policy. Answer: The setting of government spending/taxation by government policymakers. ◉ Expand fiscal policy. Answer: An increase in G or decrease in T shifts aggregate demand curve to the right. ◉ Contract fiscal policy. Answer: A decrease in G or increase in T shifts aggregate demand curve to the left.
