2026/2027
ECON 2030 Final Examination
Review 2026/2027 for LSU Roussel
Students Featuring Practice Tests,
Study Notes, Exam Prep Resources,
and Quiz-Based Learning
Question 1: Unemployment Classification
A 47-year-old man was laid off six weeks ago due to temporary plant closure and
expects to be rehired. According to the Bureau of Labor Statistics, how is he classified?
A. Employed
B. Structurally unemployed
C. Not in the labor force
D. Frictionally unemployed
Correct Answer: D. Frictionally unemployed
Rationale: Frictional unemployment occurs when individuals are temporarily between
jobs or expect short-term reemployment, such as layoffs due to temporary closures.
Structural unemployment is due to long-term mismatches in skills, while being “not in
the labor force” applies when individuals are neither working nor actively seeking
work. Since the man expects recall, he is best classified as frictionally unemployed.
Question 2: Labor Market Equilibrium
A shortage in the labor market is associated with which type of gap and adjustment?
A. Recessionary gap; decrease in wages
B. Inflationary gap; increase in wages
C. Recessionary gap; increase in wages
D. Inflationary gap; decrease in wages
Correct Answer: B. Inflationary gap; increase in wages
Rationale: A shortage of labor typically occurs in an inflationary gap where demand
exceeds supply. This pushes wages upward as employers compete for scarce workers.
Recessionary gaps instead involve excess labor supply and downward pressure on
wages.
,2026/2027
Question 3: Monetary Policy Effect
An increase in money supply when the economy is at full employment will cause:
A. Decrease in GDP and price level
B. Decrease in GDP and increase in price level
C. Increase in GDP and price level
D. No change in GDP or price level
Correct Answer: C. Increase in GDP and price level
Rationale: An expansion in money supply increases aggregate demand. In the short
run, this raises both output and price levels. At full employment, long-run output
remains stable, but price levels increase due to inflationary pressure.
Question 4: Aggregate Demand Curve
Why is the aggregate demand curve downward sloping?
A. Rising prices increase real wealth and interest rates
B. Rising prices decrease real wealth and increase interest rates
C. Rising prices increase exports
D. Rising prices decrease taxes
Correct Answer: B. Rising prices decrease real wealth and increase interest rates
Rationale: Higher price levels reduce real purchasing power (wealth effect) and
increase demand for money, raising interest rates (interest rate effect), both of which
reduce aggregate demand.
Question 5: Inflation Expectations
Which situation shows the highest expected inflation?
A. Real 1%, Nominal 1%
B. Real 3%, Nominal 7%
C. Real 11%, Nominal 8%
D. Real 8%, Nominal 9%
Correct Answer: B. Real 3%, Nominal 7%
Rationale: Expected inflation is approximated by subtracting real interest rate from
nominal interest rate. Option B gives the largest gap (7% - 3% = 4%), indicating the
highest expected inflation.
Question 6: GDP Components
, 2026/2027
A firm produces shoes in 2015 but sells them in 2016. They are counted in GDP as:
A. 2016 consumption
B. 2015 consumption
C. 2015 investment
D. 2016 government spending
Correct Answer: C. 2015 investment
Rationale: Unsold inventory is counted as investment in the year it is produced. GDP
measures production, not final sale timing, so inventory accumulation counts as
investment.
Question 7: Money Function
When a tourist mentally converts euro prices into dollars, the dollar is acting as:
A. Medium of exchange
B. Store of value
C. Unit of account
D. Standard of value
Correct Answer: D. Standard of value
Rationale: A standard of value allows comparison of prices across currencies. The
tourist uses the dollar as a benchmark for evaluating euro prices.
Question 8: Money Market Behavior
If a bank buys government bonds from the Fed, money supply will:
A. Increase
B. Decrease
C. Stay constant
D. Fluctuate unpredictably
Correct Answer: B. Decrease
Rationale: Purchasing bonds removes money from circulation, reducing reserves and
decreasing the money supply through contractionary monetary effects.
Question 9: Fiscal Policy
A decrease in taxes is an example of:
A. Contractionary monetary policy
B. Expansionary fiscal policy
ECON 2030 Final Examination
Review 2026/2027 for LSU Roussel
Students Featuring Practice Tests,
Study Notes, Exam Prep Resources,
and Quiz-Based Learning
Question 1: Unemployment Classification
A 47-year-old man was laid off six weeks ago due to temporary plant closure and
expects to be rehired. According to the Bureau of Labor Statistics, how is he classified?
A. Employed
B. Structurally unemployed
C. Not in the labor force
D. Frictionally unemployed
Correct Answer: D. Frictionally unemployed
Rationale: Frictional unemployment occurs when individuals are temporarily between
jobs or expect short-term reemployment, such as layoffs due to temporary closures.
Structural unemployment is due to long-term mismatches in skills, while being “not in
the labor force” applies when individuals are neither working nor actively seeking
work. Since the man expects recall, he is best classified as frictionally unemployed.
Question 2: Labor Market Equilibrium
A shortage in the labor market is associated with which type of gap and adjustment?
A. Recessionary gap; decrease in wages
B. Inflationary gap; increase in wages
C. Recessionary gap; increase in wages
D. Inflationary gap; decrease in wages
Correct Answer: B. Inflationary gap; increase in wages
Rationale: A shortage of labor typically occurs in an inflationary gap where demand
exceeds supply. This pushes wages upward as employers compete for scarce workers.
Recessionary gaps instead involve excess labor supply and downward pressure on
wages.
,2026/2027
Question 3: Monetary Policy Effect
An increase in money supply when the economy is at full employment will cause:
A. Decrease in GDP and price level
B. Decrease in GDP and increase in price level
C. Increase in GDP and price level
D. No change in GDP or price level
Correct Answer: C. Increase in GDP and price level
Rationale: An expansion in money supply increases aggregate demand. In the short
run, this raises both output and price levels. At full employment, long-run output
remains stable, but price levels increase due to inflationary pressure.
Question 4: Aggregate Demand Curve
Why is the aggregate demand curve downward sloping?
A. Rising prices increase real wealth and interest rates
B. Rising prices decrease real wealth and increase interest rates
C. Rising prices increase exports
D. Rising prices decrease taxes
Correct Answer: B. Rising prices decrease real wealth and increase interest rates
Rationale: Higher price levels reduce real purchasing power (wealth effect) and
increase demand for money, raising interest rates (interest rate effect), both of which
reduce aggregate demand.
Question 5: Inflation Expectations
Which situation shows the highest expected inflation?
A. Real 1%, Nominal 1%
B. Real 3%, Nominal 7%
C. Real 11%, Nominal 8%
D. Real 8%, Nominal 9%
Correct Answer: B. Real 3%, Nominal 7%
Rationale: Expected inflation is approximated by subtracting real interest rate from
nominal interest rate. Option B gives the largest gap (7% - 3% = 4%), indicating the
highest expected inflation.
Question 6: GDP Components
, 2026/2027
A firm produces shoes in 2015 but sells them in 2016. They are counted in GDP as:
A. 2016 consumption
B. 2015 consumption
C. 2015 investment
D. 2016 government spending
Correct Answer: C. 2015 investment
Rationale: Unsold inventory is counted as investment in the year it is produced. GDP
measures production, not final sale timing, so inventory accumulation counts as
investment.
Question 7: Money Function
When a tourist mentally converts euro prices into dollars, the dollar is acting as:
A. Medium of exchange
B. Store of value
C. Unit of account
D. Standard of value
Correct Answer: D. Standard of value
Rationale: A standard of value allows comparison of prices across currencies. The
tourist uses the dollar as a benchmark for evaluating euro prices.
Question 8: Money Market Behavior
If a bank buys government bonds from the Fed, money supply will:
A. Increase
B. Decrease
C. Stay constant
D. Fluctuate unpredictably
Correct Answer: B. Decrease
Rationale: Purchasing bonds removes money from circulation, reducing reserves and
decreasing the money supply through contractionary monetary effects.
Question 9: Fiscal Policy
A decrease in taxes is an example of:
A. Contractionary monetary policy
B. Expansionary fiscal policy
