ECN 211 ASU EXAM 3 2026/2027 | VERIFIED
AND ANSWERS | UPDATED STUDY
Core Domains:
1. Aggregate Demand and Aggregate Supply Model
2. Fiscal Policy and Government Budgets
3. Money, Banking, and Monetary Policy
4. Inflation, Deflation, and the Phillips Curve
5. Unemployment and Labor Markets
6. Economic Growth and Productivity
7. International Trade and Exchange Rates
8. Macroeconomic Schools of Thought
This comprehensive examination is designed to assess mastery of
macroeconomic principles covered in the second half of ECN 211 at
Arizona State University. It emphasizes the application of aggregate
demand and aggregate supply analysis, fiscal and monetary policy tools,
and the determinants of long-run growth. The exam consists of 150
multiple-choice questions, blending foundational theory with real-world
policy scenarios. You will be tested on your ability to interpret shifts in the
AD-AS model, evaluate the effects of government spending and taxation,
understand the Federal Reserve's role in controlling inflation and
unemployment, and analyze the impact of international trade on the
domestic economy. Each question is accompanied by a detailed rationale,
clarifying why the correct answer is right and reinforcing key economic
concepts. Use this resource to solidify your understanding, identify areas
for further study, and achieve a top score on your Exam 3.
SECTION ONE: QUESTIONS 1–150
1. According to the aggregate demand and aggregate supply model,
an increase in consumer confidence will cause the aggregate
, demand curve to:
A. Shift to the left
B. Shift to the right
C. Become steeper
D. Remain unchanged
RATIONALE: Higher consumer confidence encourages
spending, increasing consumption at every price level. This shifts
the AD curve to the right. A leftward shift would result from
decreased spending.
2. The long-run aggregate supply (LRAS) curve is vertical at the
natural rate of output because:
A. Prices are sticky in the long run.
B. The economy always produces at full employment.
C. In the long run, output is determined by the supply of labor,
capital, natural resources, and technology, not by the price level.
D. Wages are fixed.
RATIONALE: The LRAS reflects the economy's potential
output, which is independent of the price level. It depends on real
factors of production. The vertical shape indicates that changes in
aggregate demand only affect the price level in the long run.
3. A negative supply shock, such as a large increase in oil prices,
would most likely cause:
A. A decrease in the price level and an increase in real GDP.
B. An increase in the price level and a decrease in real GDP
(stagflation).
C. A decrease in both the price level and real GDP.
D. An increase in both the price level and real GDP.
RATIONALE: A negative supply shock shifts the short-run
aggregate supply (SRAS) curve leftward, raising production costs
and reducing output. This results in higher prices (inflation) and
lower output (recession), a combination known as stagflation.
,4. Fiscal policy refers to:
A. The Federal Reserve's control of the money supply.
B. Government decisions about spending and taxation.
C. The regulation of financial markets.
D. The exchange rate policy of the Treasury.
RATIONALE: Fiscal policy involves changes in government
purchases and taxes to influence the economy. Monetary policy is
conducted by the central bank (the Fed in the U.S.) to manage
interest rates and the money supply.
5. An increase in government spending, holding taxes constant, will
likely lead to:
A. A decrease in aggregate demand.
B. An increase in aggregate demand.
C. No change in aggregate demand.
D. A decrease in the price level.
RATIONALE: Government spending is a component of
aggregate demand (AD = C + I + G + NX). An increase in G directly
boosts AD, shifting the curve rightward.
6. The multiplier effect suggests that an initial increase in
government spending of $100 billion can increase GDP by more
than $100 billion because:
A. The government prints more money.
B. One person's spending becomes another person's income,
leading to further rounds of spending.
C. Taxes automatically decrease.
D. Imports increase.
RATIONALE: The multiplier effect occurs because an initial
injection of spending leads to a chain reaction of increased
consumption. The size of the multiplier depends on the marginal
propensity to consume.
7. If the Federal Reserve wants to expand the money supply, it could:
A. Increase the reserve requirement.
, B. Buy government bonds in open market operations.
C. Increase the discount rate.
D. Sell government bonds.
RATIONALE: When the Fed buys bonds, it pays with reserves
that enter the banking system, increasing the monetary base and
allowing banks to create more money through lending. Selling
bonds does the opposite.
8. The discount rate is:
A. The interest rate banks charge each other for overnight loans.
B. The interest rate the Federal Reserve charges on loans to
commercial banks.
C. The rate on 30-year mortgages.
D. The rate at which the government borrows.
RATIONALE: The discount rate is the rate the Fed charges
banks for short-term loans. The federal funds rate is the rate
banks charge each other. Changing the discount rate is one of the
Fed's policy tools.
9. When the Fed conducts an open market purchase, bank reserves:
A. Decrease, and the money supply decreases.
B. Increase, and the money supply increases.
C. Increase, and the money supply decreases.
D. Decrease, and the money supply increases.
RATIONALE: An open market purchase injects reserves into
the banking system, which can be lent out, expanding the money
supply through the money multiplier process.
10. The natural rate of unemployment consists of:
A. Cyclical unemployment only.
B. Frictional and structural unemployment.
C. Frictional, structural, and cyclical unemployment.
D. Only frictional unemployment.
RATIONALE: The natural rate is the normal rate of
AND ANSWERS | UPDATED STUDY
Core Domains:
1. Aggregate Demand and Aggregate Supply Model
2. Fiscal Policy and Government Budgets
3. Money, Banking, and Monetary Policy
4. Inflation, Deflation, and the Phillips Curve
5. Unemployment and Labor Markets
6. Economic Growth and Productivity
7. International Trade and Exchange Rates
8. Macroeconomic Schools of Thought
This comprehensive examination is designed to assess mastery of
macroeconomic principles covered in the second half of ECN 211 at
Arizona State University. It emphasizes the application of aggregate
demand and aggregate supply analysis, fiscal and monetary policy tools,
and the determinants of long-run growth. The exam consists of 150
multiple-choice questions, blending foundational theory with real-world
policy scenarios. You will be tested on your ability to interpret shifts in the
AD-AS model, evaluate the effects of government spending and taxation,
understand the Federal Reserve's role in controlling inflation and
unemployment, and analyze the impact of international trade on the
domestic economy. Each question is accompanied by a detailed rationale,
clarifying why the correct answer is right and reinforcing key economic
concepts. Use this resource to solidify your understanding, identify areas
for further study, and achieve a top score on your Exam 3.
SECTION ONE: QUESTIONS 1–150
1. According to the aggregate demand and aggregate supply model,
an increase in consumer confidence will cause the aggregate
, demand curve to:
A. Shift to the left
B. Shift to the right
C. Become steeper
D. Remain unchanged
RATIONALE: Higher consumer confidence encourages
spending, increasing consumption at every price level. This shifts
the AD curve to the right. A leftward shift would result from
decreased spending.
2. The long-run aggregate supply (LRAS) curve is vertical at the
natural rate of output because:
A. Prices are sticky in the long run.
B. The economy always produces at full employment.
C. In the long run, output is determined by the supply of labor,
capital, natural resources, and technology, not by the price level.
D. Wages are fixed.
RATIONALE: The LRAS reflects the economy's potential
output, which is independent of the price level. It depends on real
factors of production. The vertical shape indicates that changes in
aggregate demand only affect the price level in the long run.
3. A negative supply shock, such as a large increase in oil prices,
would most likely cause:
A. A decrease in the price level and an increase in real GDP.
B. An increase in the price level and a decrease in real GDP
(stagflation).
C. A decrease in both the price level and real GDP.
D. An increase in both the price level and real GDP.
RATIONALE: A negative supply shock shifts the short-run
aggregate supply (SRAS) curve leftward, raising production costs
and reducing output. This results in higher prices (inflation) and
lower output (recession), a combination known as stagflation.
,4. Fiscal policy refers to:
A. The Federal Reserve's control of the money supply.
B. Government decisions about spending and taxation.
C. The regulation of financial markets.
D. The exchange rate policy of the Treasury.
RATIONALE: Fiscal policy involves changes in government
purchases and taxes to influence the economy. Monetary policy is
conducted by the central bank (the Fed in the U.S.) to manage
interest rates and the money supply.
5. An increase in government spending, holding taxes constant, will
likely lead to:
A. A decrease in aggregate demand.
B. An increase in aggregate demand.
C. No change in aggregate demand.
D. A decrease in the price level.
RATIONALE: Government spending is a component of
aggregate demand (AD = C + I + G + NX). An increase in G directly
boosts AD, shifting the curve rightward.
6. The multiplier effect suggests that an initial increase in
government spending of $100 billion can increase GDP by more
than $100 billion because:
A. The government prints more money.
B. One person's spending becomes another person's income,
leading to further rounds of spending.
C. Taxes automatically decrease.
D. Imports increase.
RATIONALE: The multiplier effect occurs because an initial
injection of spending leads to a chain reaction of increased
consumption. The size of the multiplier depends on the marginal
propensity to consume.
7. If the Federal Reserve wants to expand the money supply, it could:
A. Increase the reserve requirement.
, B. Buy government bonds in open market operations.
C. Increase the discount rate.
D. Sell government bonds.
RATIONALE: When the Fed buys bonds, it pays with reserves
that enter the banking system, increasing the monetary base and
allowing banks to create more money through lending. Selling
bonds does the opposite.
8. The discount rate is:
A. The interest rate banks charge each other for overnight loans.
B. The interest rate the Federal Reserve charges on loans to
commercial banks.
C. The rate on 30-year mortgages.
D. The rate at which the government borrows.
RATIONALE: The discount rate is the rate the Fed charges
banks for short-term loans. The federal funds rate is the rate
banks charge each other. Changing the discount rate is one of the
Fed's policy tools.
9. When the Fed conducts an open market purchase, bank reserves:
A. Decrease, and the money supply decreases.
B. Increase, and the money supply increases.
C. Increase, and the money supply decreases.
D. Decrease, and the money supply increases.
RATIONALE: An open market purchase injects reserves into
the banking system, which can be lent out, expanding the money
supply through the money multiplier process.
10. The natural rate of unemployment consists of:
A. Cyclical unemployment only.
B. Frictional and structural unemployment.
C. Frictional, structural, and cyclical unemployment.
D. Only frictional unemployment.
RATIONALE: The natural rate is the normal rate of
