ECON 104 Final Exam | Expert Verified
Questions and Answers | Most Recent
2026 Update
• Autonomous Expenditure -✓✓ an expenditure that does not depend on the level
of GDP.
• Consumption Function -✓✓ the relationship between consumption spending and
disposable income
• Inventories -✓✓ goods that have been produced but not yet sold.
• Marginal Propensity to Consume (MPC) -✓✓ the slope of the consumption
function: the amount by which consumption spending changes when disposable
income changes.
• Marginal Propensity to Save (MPS) -✓✓ the amount by which saving changes
when disposable income changes.
• Multiplier (Spending Multiplier) -✓✓ The change in equilibrium real GDP
divided by the increase in autonomous expenditure.
• Multiplier Effect -✓✓ The process by which a change in autonomous expenditure
leads to a larger change in real GDP.
• Aggregate Demand (AD) Curve -✓✓ a curve that shows the relationship between
the price level and the quantity of real GDP demanded by households, firms, and
the government (both inside and outside of the country).
, • Aggregate Demand and Aggregate Supply Model -✓✓ a model that explains
short-run fluctuations in real GDP and the price level.
• Demand Shock -✓✓ An unexpected event that causes the aggregate demand
curve to shift.
• Long-run Aggregate Supply (LRAS) Curve -✓✓ a curve that shows the
relationship in the long run between the price level and the quantity of real GDP
supplied.
• Self-correcting Mechanism -✓✓ The process of adjustment back to the long-run
equilibrium after a demand shock or supply shock. The SRAS curve will adjust to
return the economy to long-run equilibrium.
• Short-run Aggregate Supply (SRAS) Curve -✓✓ a curve that shows the
relationship in the short run between the price level and the quantity of real GDP
supplied by firms.
• Stagflation -✓✓ A combination of inflation and recession, usually resulting from
a supply shock.
• Supply Shock -✓✓ An unexpected event that causes the short-run aggregate
supply curve to shift.
• Automatic Stabilizers -✓✓ government spending and taxes that automatically
increase or decrease along with the business cycle.
Questions and Answers | Most Recent
2026 Update
• Autonomous Expenditure -✓✓ an expenditure that does not depend on the level
of GDP.
• Consumption Function -✓✓ the relationship between consumption spending and
disposable income
• Inventories -✓✓ goods that have been produced but not yet sold.
• Marginal Propensity to Consume (MPC) -✓✓ the slope of the consumption
function: the amount by which consumption spending changes when disposable
income changes.
• Marginal Propensity to Save (MPS) -✓✓ the amount by which saving changes
when disposable income changes.
• Multiplier (Spending Multiplier) -✓✓ The change in equilibrium real GDP
divided by the increase in autonomous expenditure.
• Multiplier Effect -✓✓ The process by which a change in autonomous expenditure
leads to a larger change in real GDP.
• Aggregate Demand (AD) Curve -✓✓ a curve that shows the relationship between
the price level and the quantity of real GDP demanded by households, firms, and
the government (both inside and outside of the country).
, • Aggregate Demand and Aggregate Supply Model -✓✓ a model that explains
short-run fluctuations in real GDP and the price level.
• Demand Shock -✓✓ An unexpected event that causes the aggregate demand
curve to shift.
• Long-run Aggregate Supply (LRAS) Curve -✓✓ a curve that shows the
relationship in the long run between the price level and the quantity of real GDP
supplied.
• Self-correcting Mechanism -✓✓ The process of adjustment back to the long-run
equilibrium after a demand shock or supply shock. The SRAS curve will adjust to
return the economy to long-run equilibrium.
• Short-run Aggregate Supply (SRAS) Curve -✓✓ a curve that shows the
relationship in the short run between the price level and the quantity of real GDP
supplied by firms.
• Stagflation -✓✓ A combination of inflation and recession, usually resulting from
a supply shock.
• Supply Shock -✓✓ An unexpected event that causes the short-run aggregate
supply curve to shift.
• Automatic Stabilizers -✓✓ government spending and taxes that automatically
increase or decrease along with the business cycle.
