ECON 103 STUDY EXAMS GUIDE ALL QUESTIONS
AND ANSWERS SURE A+
✔✔Debt-Deflation Theory - ✔✔Irving Fisher's concept where falling prices transfer
wealth from debtors to creditors, dropping aggregate spending because debtors have a
higher propensity to spend.
✔✔Open Economy Trade Identity - ✔✔Net Exports (NX) must always exactly equal Net
Capital Outflow (S - I).
✔✔Nominal Exchange Rate Valuation Formula - ✔✔Percentage change in nominal
exchange rate equals foreign inflation minus domestic inflation (%Δe = π* - π).
✔✔Protectionist Tariff Impact - ✔✔Net exports (NX) do not change because savings
and investment are untouched; instead, the real exchange rate appreciates to offset the
policy.
✔✔Firms hire factors of production until marginal product equals - ✔✔Real factor price
(e.g., W/P or R/P)
✔✔Constant returns to scale means labor income plus capital income equals - ✔✔Total
income (or Total Output / Y)
, ✔✔An increase in the budget deficit (G up) causes national savings to - ✔✔Decrease
(shift left)
✔✔An increase in the budget deficit (G up) causes the real interest rate to - ✔✔Rise
(increase)
✔✔An increase in the budget deficit (G up) causes private investment to - ✔✔Fall (be
crowded out)
✔✔An increase in investment demand when loanable funds supply is fixed causes
interest rates to - ✔✔Rise (increase)
✔✔An increase in investment demand when loanable funds supply is fixed causes
equilibrium investment to - ✔✔Remain unchanged
✔✔An increase in the saving rate affects steady-state growth - ✔✔Temporarily (not in
the long run)
✔✔The Solow steady-state growth rate of income per person depends solely on -
✔✔Exogenous rate of technological progress
✔✔If an economy is over-saved (K > Kgold), policy should - ✔✔Decrease the saving
rate
✔✔Decreasing the saving rate when K > Kgold causes consumption to - ✔✔Increase
immediately and remain higher
✔✔If an economy is under-saved (K < Kgold), increasing the saving rate causes current
consumption to - ✔✔Decrease (short-term sacrifice)
✔✔If an economy is under-saved (K < Kgold), increasing the saving rate causes future
consumption to - ✔✔Increase
✔✔The Quantity Theory of Money assumes that the velocity of money is - ✔✔Constant
(or stable)
✔✔The Fisher effect states that the nominal interest rate moves one-for-one with -
✔✔Expected inflation
✔✔Unexpected inflation arbitrarily redistributes wealth away from - ✔✔Creditors (or
lenders)
AND ANSWERS SURE A+
✔✔Debt-Deflation Theory - ✔✔Irving Fisher's concept where falling prices transfer
wealth from debtors to creditors, dropping aggregate spending because debtors have a
higher propensity to spend.
✔✔Open Economy Trade Identity - ✔✔Net Exports (NX) must always exactly equal Net
Capital Outflow (S - I).
✔✔Nominal Exchange Rate Valuation Formula - ✔✔Percentage change in nominal
exchange rate equals foreign inflation minus domestic inflation (%Δe = π* - π).
✔✔Protectionist Tariff Impact - ✔✔Net exports (NX) do not change because savings
and investment are untouched; instead, the real exchange rate appreciates to offset the
policy.
✔✔Firms hire factors of production until marginal product equals - ✔✔Real factor price
(e.g., W/P or R/P)
✔✔Constant returns to scale means labor income plus capital income equals - ✔✔Total
income (or Total Output / Y)
, ✔✔An increase in the budget deficit (G up) causes national savings to - ✔✔Decrease
(shift left)
✔✔An increase in the budget deficit (G up) causes the real interest rate to - ✔✔Rise
(increase)
✔✔An increase in the budget deficit (G up) causes private investment to - ✔✔Fall (be
crowded out)
✔✔An increase in investment demand when loanable funds supply is fixed causes
interest rates to - ✔✔Rise (increase)
✔✔An increase in investment demand when loanable funds supply is fixed causes
equilibrium investment to - ✔✔Remain unchanged
✔✔An increase in the saving rate affects steady-state growth - ✔✔Temporarily (not in
the long run)
✔✔The Solow steady-state growth rate of income per person depends solely on -
✔✔Exogenous rate of technological progress
✔✔If an economy is over-saved (K > Kgold), policy should - ✔✔Decrease the saving
rate
✔✔Decreasing the saving rate when K > Kgold causes consumption to - ✔✔Increase
immediately and remain higher
✔✔If an economy is under-saved (K < Kgold), increasing the saving rate causes current
consumption to - ✔✔Decrease (short-term sacrifice)
✔✔If an economy is under-saved (K < Kgold), increasing the saving rate causes future
consumption to - ✔✔Increase
✔✔The Quantity Theory of Money assumes that the velocity of money is - ✔✔Constant
(or stable)
✔✔The Fisher effect states that the nominal interest rate moves one-for-one with -
✔✔Expected inflation
✔✔Unexpected inflation arbitrarily redistributes wealth away from - ✔✔Creditors (or
lenders)
