ECON 110 CORE REVIEW ANSWERS AND QUESTIONS
SET A+
✔✔What is aggregate supply? - ✔✔goods and services that firms in a national economy
plan on selling during a specific time period. It is the total amount of goods and services
that firms are willing and able to sell at a given price level in an economy.
✔✔What is aggregate demand? - ✔✔is the total demand for final goods and services in
an economy at a given time. It specifies the amounts of goods and services that will be
purchased at all possible price levels.
✔✔What is consumption? - ✔✔The sum of all uses of resources across all individuals
within an economy.
✔✔What is investment? - ✔✔When part of the economy's output is used to produce
✔✔What is government? - ✔✔Another cause of demand shocks; what the government
uses/spends (military, social security, etc.)
✔✔What is net exports? - ✔✔(x(exports) - m(imports)); what a country sends away
minus what the country brings in
✔✔What is the marginal propensity to consume? - ✔✔The change in consumption per
dollar change in income.
✔✔What is the income multiplier? - ✔✔1/(1-MPC)
✔✔What is the tax multiplier? - ✔✔MPC/(1-MPC)
✔✔What is the balanced budget multiplier? - ✔✔(1-MPC)/(1-MPC)
✔✔What is saving? - ✔✔Forgone consumption that allows individuals to transfer
income from today to the future
, ✔✔What is money? - ✔✔something used in transactions to trade for goods, services, or
resources. Also known as the median of exchange.
✔✔What is an asset? - ✔✔Something held through time for the purpose of transferring
current or past income into future consumption.
✔✔What is the open market? - ✔✔An open market is characterized by the absence of
tariffs, taxes, licensing requirements, subsidies, unionization and any other regulations
or practices that interfere with the natural functioning of the free market. Anyone can
participate in an open market. There may be competitive barriers to entry, but there are
no regulatory barriers to entry.
✔✔What is a T-Bill? - ✔✔Bonds printed by the treasury that are sold to the public in
order for the government to pay the bills. The government pays interest on these bonds.
✔✔What is an interest rate? - ✔✔The interest rate charged on loans made to banks in
order for them to be legally allowed to continue business overnight.
✔✔What is the FED? - ✔✔The Federal Reserve is in charge of the money supply in the
economy and is who prints off money.
✔✔What is the money multiplier? - ✔✔1/RRR
✔✔What is the reserve ratio? - ✔✔The percentage of a bank's demand deposits they
actually have to keep on hand.
✔✔What is the discount rate? - ✔✔This is set by the federal reserve for the interest on
an overnight loan to banks.
✔✔What is the federal funds rate? - ✔✔The rate at which banks loan to each other.
✔✔What is an open market operation? - ✔✔The buying and selling of government
securities in the open market in order to expand or contract the amount of money in the
banking system. Purchases inject money into the banking system and stimulate growth
while sales of securities do the opposite.
✔✔What is economic growth? - ✔✔Economic growth is the sustainable increase in
GDP over time.
✔✔What is the domestic deficit? - ✔✔An economic measure of a negative balance of
trade in which a country's imports exceeds its exports. A trade deficit represents an
outflow of domestic currency to foreign markets.
SET A+
✔✔What is aggregate supply? - ✔✔goods and services that firms in a national economy
plan on selling during a specific time period. It is the total amount of goods and services
that firms are willing and able to sell at a given price level in an economy.
✔✔What is aggregate demand? - ✔✔is the total demand for final goods and services in
an economy at a given time. It specifies the amounts of goods and services that will be
purchased at all possible price levels.
✔✔What is consumption? - ✔✔The sum of all uses of resources across all individuals
within an economy.
✔✔What is investment? - ✔✔When part of the economy's output is used to produce
✔✔What is government? - ✔✔Another cause of demand shocks; what the government
uses/spends (military, social security, etc.)
✔✔What is net exports? - ✔✔(x(exports) - m(imports)); what a country sends away
minus what the country brings in
✔✔What is the marginal propensity to consume? - ✔✔The change in consumption per
dollar change in income.
✔✔What is the income multiplier? - ✔✔1/(1-MPC)
✔✔What is the tax multiplier? - ✔✔MPC/(1-MPC)
✔✔What is the balanced budget multiplier? - ✔✔(1-MPC)/(1-MPC)
✔✔What is saving? - ✔✔Forgone consumption that allows individuals to transfer
income from today to the future
, ✔✔What is money? - ✔✔something used in transactions to trade for goods, services, or
resources. Also known as the median of exchange.
✔✔What is an asset? - ✔✔Something held through time for the purpose of transferring
current or past income into future consumption.
✔✔What is the open market? - ✔✔An open market is characterized by the absence of
tariffs, taxes, licensing requirements, subsidies, unionization and any other regulations
or practices that interfere with the natural functioning of the free market. Anyone can
participate in an open market. There may be competitive barriers to entry, but there are
no regulatory barriers to entry.
✔✔What is a T-Bill? - ✔✔Bonds printed by the treasury that are sold to the public in
order for the government to pay the bills. The government pays interest on these bonds.
✔✔What is an interest rate? - ✔✔The interest rate charged on loans made to banks in
order for them to be legally allowed to continue business overnight.
✔✔What is the FED? - ✔✔The Federal Reserve is in charge of the money supply in the
economy and is who prints off money.
✔✔What is the money multiplier? - ✔✔1/RRR
✔✔What is the reserve ratio? - ✔✔The percentage of a bank's demand deposits they
actually have to keep on hand.
✔✔What is the discount rate? - ✔✔This is set by the federal reserve for the interest on
an overnight loan to banks.
✔✔What is the federal funds rate? - ✔✔The rate at which banks loan to each other.
✔✔What is an open market operation? - ✔✔The buying and selling of government
securities in the open market in order to expand or contract the amount of money in the
banking system. Purchases inject money into the banking system and stimulate growth
while sales of securities do the opposite.
✔✔What is economic growth? - ✔✔Economic growth is the sustainable increase in
GDP over time.
✔✔What is the domestic deficit? - ✔✔An economic measure of a negative balance of
trade in which a country's imports exceeds its exports. A trade deficit represents an
outflow of domestic currency to foreign markets.
