ECON100 Final Exam with Complete
Solutions
Microeconomics - ANSWER-The study of how households and firms make choices,
how they interact in markets and how the government attempts to influence their
choices
Macroeconomics - ANSWER-The study of the economy as a whole including topics
such as inflation, unemployment and economic growth
Economic growth - ANSWER-The expansion of society's productive potential, usually
measured by the rate of growth in real GDP
Unemployment rate - ANSWER-The percentage of the labour force that is unemployed
Business cycle - ANSWER-Alternating periods of economic expansion and economic
contraction relative to the trend rate of economic growth
Expansion - ANSWER-The period of a business cycle during which total production and
total employment are increasing above the trend growth
Contraction - ANSWER-The period of a business cycle during which total production
and total employment are falling below the trend growth
Recession - ANSWER-The period of a business cycle during which total production and
total employment are decreasing
Inflation rate - ANSWER-The percentage increase in the general price level in the
economy from one year to the next
Gross Domestic Product (GDP) - ANSWER-The market value of all final goods and
services produced in a country during a period of time
Final good or service - ANSWER-A new good or service which is the end product of the
production process that is purchased by the final user
Intermediate good or service - ANSWER-A good or service that is an input into another
good or service
Value added - ANSWER-The market value a firm adds to a product
, Measuring GDP - ANSWER-1. Production method
2. Expenditure method
3. Income method
Circular-flow diagram - ANSWER-
Transfer payments - ANSWER-Payments by the government to individuals for which the
government does not receive a good or service in return
Components of GDP - ANSWER-Y = C + I +G + (X-M)
Consumption (C) - ANSWER-Spending by households on goods and services, not
including spending on new houses
Investment (I) - ANSWER-Spending by firms on new factories, office buildings,
machinery and inventories, plus spending by households on new houses
Government purchases - ANSWER-Spending by federal state and local government on
goods and services
Net exports (X-M) - ANSWER-The expenditure on exports minus the expenditure on
imports
Inflation targeting - ANSWER-Conducting monetary policy so as to commit the central
bank to achieving a publicly announced level of inflation (between 2-3% per annum)
the money market - ANSWER-market in which money is lent for periods of less than a
year
Money demand curve - ANSWER-Downward sloping to show the inverse relationship
between the interest rate on financial assets and the quantity of money demanded
Variables that shift the money demand curve - ANSWER-1. Real GDP
2. The price level
Open market operations (OMOs) - ANSWER-The RBA purchasing or selling financial
instruments (i.e. bonds), either by outright purchase or sale, or by the use of repurchase
agreements
Repurchase agreement - ANSWER-The RBA offers to buy (or sell) Commonwealth
Government Securities and other eligible financial instruments, from banks or other
authorized financial dealers, provided the same bank or dealers are prepared to
repurchase (or resell) them at a future date, often in a few days time, at a price agreed
at the outset.
Cash Rate - ANSWER-The interest rate that financial institutions charge on loans or pay
to borrow funds in the overnight money market
Solutions
Microeconomics - ANSWER-The study of how households and firms make choices,
how they interact in markets and how the government attempts to influence their
choices
Macroeconomics - ANSWER-The study of the economy as a whole including topics
such as inflation, unemployment and economic growth
Economic growth - ANSWER-The expansion of society's productive potential, usually
measured by the rate of growth in real GDP
Unemployment rate - ANSWER-The percentage of the labour force that is unemployed
Business cycle - ANSWER-Alternating periods of economic expansion and economic
contraction relative to the trend rate of economic growth
Expansion - ANSWER-The period of a business cycle during which total production and
total employment are increasing above the trend growth
Contraction - ANSWER-The period of a business cycle during which total production
and total employment are falling below the trend growth
Recession - ANSWER-The period of a business cycle during which total production and
total employment are decreasing
Inflation rate - ANSWER-The percentage increase in the general price level in the
economy from one year to the next
Gross Domestic Product (GDP) - ANSWER-The market value of all final goods and
services produced in a country during a period of time
Final good or service - ANSWER-A new good or service which is the end product of the
production process that is purchased by the final user
Intermediate good or service - ANSWER-A good or service that is an input into another
good or service
Value added - ANSWER-The market value a firm adds to a product
, Measuring GDP - ANSWER-1. Production method
2. Expenditure method
3. Income method
Circular-flow diagram - ANSWER-
Transfer payments - ANSWER-Payments by the government to individuals for which the
government does not receive a good or service in return
Components of GDP - ANSWER-Y = C + I +G + (X-M)
Consumption (C) - ANSWER-Spending by households on goods and services, not
including spending on new houses
Investment (I) - ANSWER-Spending by firms on new factories, office buildings,
machinery and inventories, plus spending by households on new houses
Government purchases - ANSWER-Spending by federal state and local government on
goods and services
Net exports (X-M) - ANSWER-The expenditure on exports minus the expenditure on
imports
Inflation targeting - ANSWER-Conducting monetary policy so as to commit the central
bank to achieving a publicly announced level of inflation (between 2-3% per annum)
the money market - ANSWER-market in which money is lent for periods of less than a
year
Money demand curve - ANSWER-Downward sloping to show the inverse relationship
between the interest rate on financial assets and the quantity of money demanded
Variables that shift the money demand curve - ANSWER-1. Real GDP
2. The price level
Open market operations (OMOs) - ANSWER-The RBA purchasing or selling financial
instruments (i.e. bonds), either by outright purchase or sale, or by the use of repurchase
agreements
Repurchase agreement - ANSWER-The RBA offers to buy (or sell) Commonwealth
Government Securities and other eligible financial instruments, from banks or other
authorized financial dealers, provided the same bank or dealers are prepared to
repurchase (or resell) them at a future date, often in a few days time, at a price agreed
at the outset.
Cash Rate - ANSWER-The interest rate that financial institutions charge on loans or pay
to borrow funds in the overnight money market
