ECON 110 FINAL EXAM QUESTIONS
AND CORRECT ANSWERS
autonomous consumption spending ✅✅CORRECT ANSW-the part of consumption spending that
is independent of income; the vertical intercept of the consumption function
consumption-income line ✅✅CORRECT ANSW-a line showing aggregate consumption spending at
each level of income or GDP
short-run macro model ✅✅CORRECT ANSW-a macroeconomic model that explains how changes
in spending can affect real GDP in the short run
short-run macroeconomic equilibrium ✅✅CORRECT ANSW-a combination of price level and GDP
consistent with both the AD and AS curves
aggregate expenditure (AE) ✅✅CORRECT ANSW-the sum of spending by households, business
firms, the government, and foreigners of final goods and services produced in the United States
disposable income ✅✅CORRECT ANSW-income that is available to you for saving or spending
after taxes have been paid and transfers received
consumption function ✅✅CORRECT ANSW-the positive relationship between consumption
spending and real disposable income
consumption ✅✅CORRECT ANSW-the part of GDP purchased by households as final users
marginal propensity to consume (MPC) ✅✅CORRECT ANSW-the amount by which consumption
spending rises when disposable income rises by one dollar; the slope of the consumption function
gross domestic product (GDP) ✅✅CORRECT ANSW-the total value of all final goods and services
produced for the marketplace during a given year, within the nation's borders
expenditure multiplier ✅✅CORRECT ANSW-the amount by which equilibrium real GDP changes as
a result of a one-dollar change in autonomous consumption, investment spending, government
purchases or net exports
, unit of account ✅✅CORRECT ANSW-provides buyers and sellers with a common reference point
for valuing goods and services
means of payment ✅✅CORRECT ANSW-anything acceptable as payment for goods and services
fiat money ✅✅CORRECT ANSW-something that serves as a means of payment by government
declaration
store of value ✅✅CORRECT ANSW-provides a form of transferring purchasing power from the
present to the future
legal tender ✅✅CORRECT ANSW-money that by law must be accepted for payment of public and
private debts
commodity money ✅✅CORRECT ANSW-a good used as money that also has value independent of
its use as money
open market operations ✅✅CORRECT ANSW-purchases or sales of government bonds by the
Federal Reserve System
Federal Reserve System ✅✅CORRECT ANSW-the monetary authority of the United States,
charged with creating and regulating the nation's supply of money
money demand curve ✅✅CORRECT ANSW-a curve indicating how much money will be demanded
at each nominal interest rate
bond ✅✅CORRECT ANSW-a promise to pay back borrowed funds, issued by a corporation or
government agency
required reserves ✅✅CORRECT ANSW-the minimum amount of reserves a bank must hold,
depending on the amount of its deposit liabilities
reserves ✅✅CORRECT ANSW-vault cash plus balances held at the Fed
AND CORRECT ANSWERS
autonomous consumption spending ✅✅CORRECT ANSW-the part of consumption spending that
is independent of income; the vertical intercept of the consumption function
consumption-income line ✅✅CORRECT ANSW-a line showing aggregate consumption spending at
each level of income or GDP
short-run macro model ✅✅CORRECT ANSW-a macroeconomic model that explains how changes
in spending can affect real GDP in the short run
short-run macroeconomic equilibrium ✅✅CORRECT ANSW-a combination of price level and GDP
consistent with both the AD and AS curves
aggregate expenditure (AE) ✅✅CORRECT ANSW-the sum of spending by households, business
firms, the government, and foreigners of final goods and services produced in the United States
disposable income ✅✅CORRECT ANSW-income that is available to you for saving or spending
after taxes have been paid and transfers received
consumption function ✅✅CORRECT ANSW-the positive relationship between consumption
spending and real disposable income
consumption ✅✅CORRECT ANSW-the part of GDP purchased by households as final users
marginal propensity to consume (MPC) ✅✅CORRECT ANSW-the amount by which consumption
spending rises when disposable income rises by one dollar; the slope of the consumption function
gross domestic product (GDP) ✅✅CORRECT ANSW-the total value of all final goods and services
produced for the marketplace during a given year, within the nation's borders
expenditure multiplier ✅✅CORRECT ANSW-the amount by which equilibrium real GDP changes as
a result of a one-dollar change in autonomous consumption, investment spending, government
purchases or net exports
, unit of account ✅✅CORRECT ANSW-provides buyers and sellers with a common reference point
for valuing goods and services
means of payment ✅✅CORRECT ANSW-anything acceptable as payment for goods and services
fiat money ✅✅CORRECT ANSW-something that serves as a means of payment by government
declaration
store of value ✅✅CORRECT ANSW-provides a form of transferring purchasing power from the
present to the future
legal tender ✅✅CORRECT ANSW-money that by law must be accepted for payment of public and
private debts
commodity money ✅✅CORRECT ANSW-a good used as money that also has value independent of
its use as money
open market operations ✅✅CORRECT ANSW-purchases or sales of government bonds by the
Federal Reserve System
Federal Reserve System ✅✅CORRECT ANSW-the monetary authority of the United States,
charged with creating and regulating the nation's supply of money
money demand curve ✅✅CORRECT ANSW-a curve indicating how much money will be demanded
at each nominal interest rate
bond ✅✅CORRECT ANSW-a promise to pay back borrowed funds, issued by a corporation or
government agency
required reserves ✅✅CORRECT ANSW-the minimum amount of reserves a bank must hold,
depending on the amount of its deposit liabilities
reserves ✅✅CORRECT ANSW-vault cash plus balances held at the Fed
