ECON 213 TOP EXAM FINAL PAPER 2026
COMPLETE QUESTIONS ANSWERS PREMIUM
STUDY GUIDE
◉ Causes of the 2007-2009 Recession
Answer: A housing bubble fueled by low interest rates, subprime
mortgages, risky ARMs, inflated AAA CDO ratings, excessive
leverage, and mass defaults that collapsed the financial system.
◉ Effects of the 2007-2009 Recession
Answer: 18-month recession; GDP took ~4 years to recover; deep
financial crisis; low inflation; slow job growth; long, painful recovery.
◉ Causes of the 2020 Recession
Answer: COVID-19 pandemic causing shutdowns, collapse in
consumer spending, global supply chain disruptions, and trade
interruptions.
◉ Effects of the 2020 Recession
Answer: Only 2 months long; GDP recovered in <1 year; extremely
fast rebound; followed by highest inflation in ~40 years.
◉ Fiscal Policy in 2007-2009
,Answer: TARP ($700B), ARRA stimulus ($787B), auto industry
bailouts, expanded FDIC insurance.
◉ Monetary Policy in 2007-2009
Answer: Fed cut rates to 0-0.25%, bailed out AIG, purchased trillions
in CDOs (quantitative easing), emergency lending.
◉ Fiscal Policy in 2020
Answer: Large stimulus packages (e.g., direct payments, expanded
unemployment benefits, business support programs).
◉ Monetary Policy in 2020
Answer: Fed cut rates to 0-0.25%, massive bond purchases, liquidity
injections to stabilize markets.
◉ Phillips Curve
Answer: An inverse relationship between unemployment and
inflation: lower unemployment → higher inflation; higher
unemployment → lower inflation.
◉ Why the Phillips Curve Exists
Answer: Tight labor markets raise wages; higher wages increase
costs; firms raise prices → inflation.
,◉ Inflationary Expectations
Answer: When people expect inflation, they demand higher wages;
firms raise prices; expectations shift the Phillips curve rightward.
◉ Why Expectations "Take on a Life of Their Own"
Answer: Expected inflation becomes actual inflation; policymakers
lose the ability to trade inflation for unemployment.
◉ Stagflation
Answer: High inflation + high unemployment, often caused by
supply shocks and rising inflation expectations.
◉ Adaptive Expectations
Answer: People base expectations on past inflation;
backward-looking; inflation adjusts slowly.
◉ Rational Expectations
Answer: People use all available information; forward-looking;
policy only works if unexpected; reduces effectiveness of
discretionary policy.
◉ Efficiency Wages
, Answer: Firms pay above-market wages to reduce shirking and
turnover; creates wage stickiness; weakens rational expectations
predictions.
◉ Major Macroeconomic Issues Today
Answer: High long-term inflation, rising deficits and debt,
globalization pressures, structural unemployment from automation.
◉ Monetized Debt
Answer: Government reduces real debt by increasing the money
supply; risks inflation and currency depreciation.
◉ Globalization
Answer: Movement of goods, services, labor, and capital across
borders; increases competition; affects domestic policy choices.
◉ Automation
Answer: Capital replaces labor; causes structural unemployment;
creates new jobs in tech, maintenance, and programming.
◉ Jobless Recovery
Answer: Output rises after a recession, but employment does not
because firms automate instead of rehiring.
COMPLETE QUESTIONS ANSWERS PREMIUM
STUDY GUIDE
◉ Causes of the 2007-2009 Recession
Answer: A housing bubble fueled by low interest rates, subprime
mortgages, risky ARMs, inflated AAA CDO ratings, excessive
leverage, and mass defaults that collapsed the financial system.
◉ Effects of the 2007-2009 Recession
Answer: 18-month recession; GDP took ~4 years to recover; deep
financial crisis; low inflation; slow job growth; long, painful recovery.
◉ Causes of the 2020 Recession
Answer: COVID-19 pandemic causing shutdowns, collapse in
consumer spending, global supply chain disruptions, and trade
interruptions.
◉ Effects of the 2020 Recession
Answer: Only 2 months long; GDP recovered in <1 year; extremely
fast rebound; followed by highest inflation in ~40 years.
◉ Fiscal Policy in 2007-2009
,Answer: TARP ($700B), ARRA stimulus ($787B), auto industry
bailouts, expanded FDIC insurance.
◉ Monetary Policy in 2007-2009
Answer: Fed cut rates to 0-0.25%, bailed out AIG, purchased trillions
in CDOs (quantitative easing), emergency lending.
◉ Fiscal Policy in 2020
Answer: Large stimulus packages (e.g., direct payments, expanded
unemployment benefits, business support programs).
◉ Monetary Policy in 2020
Answer: Fed cut rates to 0-0.25%, massive bond purchases, liquidity
injections to stabilize markets.
◉ Phillips Curve
Answer: An inverse relationship between unemployment and
inflation: lower unemployment → higher inflation; higher
unemployment → lower inflation.
◉ Why the Phillips Curve Exists
Answer: Tight labor markets raise wages; higher wages increase
costs; firms raise prices → inflation.
,◉ Inflationary Expectations
Answer: When people expect inflation, they demand higher wages;
firms raise prices; expectations shift the Phillips curve rightward.
◉ Why Expectations "Take on a Life of Their Own"
Answer: Expected inflation becomes actual inflation; policymakers
lose the ability to trade inflation for unemployment.
◉ Stagflation
Answer: High inflation + high unemployment, often caused by
supply shocks and rising inflation expectations.
◉ Adaptive Expectations
Answer: People base expectations on past inflation;
backward-looking; inflation adjusts slowly.
◉ Rational Expectations
Answer: People use all available information; forward-looking;
policy only works if unexpected; reduces effectiveness of
discretionary policy.
◉ Efficiency Wages
, Answer: Firms pay above-market wages to reduce shirking and
turnover; creates wage stickiness; weakens rational expectations
predictions.
◉ Major Macroeconomic Issues Today
Answer: High long-term inflation, rising deficits and debt,
globalization pressures, structural unemployment from automation.
◉ Monetized Debt
Answer: Government reduces real debt by increasing the money
supply; risks inflation and currency depreciation.
◉ Globalization
Answer: Movement of goods, services, labor, and capital across
borders; increases competition; affects domestic policy choices.
◉ Automation
Answer: Capital replaces labor; causes structural unemployment;
creates new jobs in tech, maintenance, and programming.
◉ Jobless Recovery
Answer: Output rises after a recession, but employment does not
because firms automate instead of rehiring.
