Download ECN 211 MIDTERM 2026 COMPREHENSIVE STUDY GUIDE COMPLETE SOLUTIONS VERIFIED and more Exams Economics of Education in PDF only on Docsity!
ECN 211 MIDTERM 2026 COMPREHENSIVE
STUDY GUIDE COMPLETE SOLUTIONS
VERIFIED
โ Gross Domestic Product Equation. Answer: C + I + G + NX (C + I + G + (Exports - Imports)) โ Included in GDP. Answer: Tangible goods: Cars, Appliances, Food items Intangible goods: Dentist visit, Salon trip, Tax service Any final goods produced in country (even if foreign owned) Goods and Services currently produced โ 4 Expenditures of GDP. Answer: Consumption, Investment, Government Purchases, and Net Exports โ Consumption. Answer: Spending by households on goods/services with the exception of new housing โ Investment. Answer: Purchase of capital goods by businesses that will be used to produce more goods in the future
โ Government Purchases. Answer: Spending on goods/services by local, state, and federal governments from the private sector. Does not include transfer payments โ Net Exports. Answer: Exports - Imports โ Real GDP. Answer: Measures output in regards to inflation Allows for better comparison of GDP year to year โ Real GDP Equation. Answer: Base year prices x Current Output โ Nominal GDP. Answer: Measure of output using current prices Growth can be overstated โ Nominal GDP Equation. Answer: Current price x Current output โ GDP Deflator. Answer: Measures changes in price for all goods and services produced โ GDP Deflator Equation. Answer: (Nominal GDP/Real GDP) x 100 โ What is unemployment?. Answer: Someone who is actively searching for work and cannot find a job
โ Discouraged Workers. Answer: Someone who wants a job and does not have one, but has given up looking for a job. Not part of the labor force after spending 4 weeks not looking for work. โ Underemployment. Answer: Someone who is employed at a level that is below skill set. Employed part time that wants full time โ Marginally Attached Workers. Answer: Has not looked for work within past 4 weeks but has searched for work within past 12 months โ Different types of Unemployment rates. Answer: Natural Rate Cyclical Structural Frictional โ Natural rate of unemployment. Answer: normal rate of unemployment around which the unemployment rate fluctuates โ Cyclical unemployment. Answer: Deviation of unemployment from its natural rate
โ Structural unemployment. Answer: Unemployment due to market not being able to supply as many jobs as demanded โ Frictional unemployment. Answer: A result of workers taking time to search for jobs that best suit their tastes/skills โ Factors that influence Natural rate. Answer: Sector Shifts in economy Unemployment Insurance Internet Government job programs Minimum wage laws Labor Unions โ Sector shifts in economy. Answer: New products, preferences shift, and international trade โ Unemployment Insurance. Answer: Decreases incentive to get a job and provides safety net โ Internet. Answer: Allows jobs to be fond quickly
โ National Savings Equation. Answer: S = Y - C - G (Y - T - C) + (T - G) โ Private Savings Equation. Answer: Y - T - C โ Private savings. Answer: amount households have leftover consumption and taxes โ Public Savings Equation. Answer: T - G โ Public savings. Answer: Amount of revenue government has leftover after paying for spending. (budget surplus and deficit) โ Supply and demand for loanable affected by interest rate and government policy. Answer: Tax rates on savings. Tax credits above or below equilibrium. Interest rate above or below equilibrium. Government budget surpluses or deficits. โ Supply of loanable funds comes from who?. Answer: Savers
โ Demand comes from who?. Answer: Invest by business or individuals โ Interest rate is the price of what?. Answer: Loan โ Money. Answer: Set of assets in the economy that people regularly use to buy goods and services from each other โ Functions of money. Answer: Medium of exchange Unit of Account Store of Value โ Liquidity. Answer: The ease with which an asset can be converted into cash โ Commodity money. Answer: money that takes the form of a commodity with intrinsic value โ Intrinsic value. Answer: Item would have value even if it wasn't considered as money. i.e. Gold Standard
When banks only hold a fraction of reserves, they create money. Does not create wealth. โ Federal Reserve regulates what?. Answer: U.S. Fiat money โ Central bank. Answer: oversees banking system and regulates money supply โ Fed is run by how many governors who serve how many terms?. Answer: 7 governors, 14 year terms โ System consists of Fed Reserve Board in DC and has how many regional reserve banks?. Answer: 12 โ Fed regulates banks and serves as a what?. Answer: Lenders to banks โ Federal Open Market Committee (FOMC) consists of members of what?. Answer: Board of governors and 5/12 regional bank presidents โ FOMC can do what with the amount of dollars in the economy?. Answer: Increase or decrease
โ open market operations. Answer: primary tool to change money supply. Involves purchasing and selling U.S. government bonds. To create money, Fed buys bonds. To remove money, Fed sells bonds. โ Required reserve ratio. Answer: Amount of deposits a bank must keep on hand. Raising this prevents banks from lending out too much money. โ Interest rate paid on reserves. Answer: 2 main types: interest rate on required reserves (IORR) interest rate on excess reserves (IOER) Lowering the interest rate encourages banks to lend out more money. โ Changing the discount rate. Answer: Banks can borrow money from the Fed. Interest rate that the bank charges is the discount rate. Raising the discount rate makes it more expensive for banks to borrow from the Fed.
โ Gold Standards have typically led to deflation because. Answer: The rate of gold discoveries lagged behind the rate of economic growth โ Under a Gold Standard, a country must stop printing currency and only use gold. Answer: False โ A bank is defined as. Answer: Any institution that lends long and borrows short โ Borrowers are people who. Answer: Currently are short of funds โ If you invest money yourself in stock, you are. Answer: Entering financial markets โ The real interest rate can be broken into which two components?. Answer: The risk free rate and the risk premium โ Which of the following would be considered a high risk investment?. Answer: Small business loan โ A high leverage ratio suggests. Answer: A bank is taking on a lot of risk
โ Which of the following is NOT one of the actors involved in the creation of money?. Answer: State governments โ If the Federal Reserve raises the required reserve ratio for banks, all else equals. Answer: The money multiplier will fall โ If bank borrowers decide to deposit less money back into the banking system, all else equals. Answer: The money multiplier will fall โ If the Federal Reserve withdraws cash from the banking system. Answer: The monetary base will decrease โ Fractional Reserve Banking means banks. Answer: Hold less than 100% of deposits as reserves โ Bank runs affect banks that are illiquid. Answer: True โ The early stages of a financial system crisis is called. Answer: a credit crunch โ Prior to the creation of the Fed, the US banking system had a panic every 14-20 years. Answer: True
