ECON 104 Final Exam | Newest and Updated
Questions and Answers | 2026 Review Guide
• aggregate demand . CORRECT ANSWER: total demand for goods and services in an
economy
• aggregate demand curve . CORRECT ANSWER: shows the relationship between the
price level and quantity of real GDP demanded by households, firms, and the govt
• relationship between G and price level . CORRECT ANSWER: G is exogenous
(independent of price level). the govt can do whatever it wants
• the wealth effect . CORRECT ANSWER: impact on the price level on consumption
• relationship between C and P . CORRECT ANSWER: as P increases, C decreases
because if P increases, then real wealth decreases because you have less purchasing
power because it eats away at your savings. if wealth decreases, then consumption
decreases
• wealth = . CORRECT ANSWER: assets- liability
NOT EQUAL TO INCOME
• relationship between I and P . CORRECT ANSWER: as P increases, I decreases
because an increase in P causes an increase in demand for money (transactions
demand) so people sell off their bonds to get more money, causing the price of bonds to
decrease. price of bonds moves in the opposite direction of its interest rate, so interest
rate increases causing the price of loans to increase so firms will incest less
• relationship between NX and P . CORRECT ANSWER: as P increases, NX
decreases
because if US prices go up, exports decrease because they are more expensive relative
to foreign products
• international trade effect . CORRECT ANSWER: impact of the price level on NX
• why is the AD curve downward sloping? . CORRECT ANSWER: The relationship
between P and Y=C+I+G+NX. as P increases, every part of Y decreases, so Y
decreases
, • when do you move along the AD curve? . CORRECT ANSWER: if the general price
level changes
• when do you shift the AD curve? (3) . CORRECT ANSWER: 1. change in govt
policies
2. change in expectations about the future
3. changes in foreign variables
• 2 govt policies that shift AD curve . CORRECT ANSWER: 1. monetary policy
2. fiscal policy
• monetary policy . CORRECT ANSWER: the actions the federal reserve takes to
manage the money supply and interest rate
• fiscal policy . CORRECT ANSWER: changes in the federal taxes and purchases that
are intended to achieve objectives like high employment, price stability, economic
growth. implemented by president and congress ("the govt")
when govt issues a stimulus package
• Long run aggregate supply curve (LRAS) . CORRECT ANSWER: a curve taht shows
the relationship in the long run between the rice level and quantity of real GDP supplied
• production function . CORRECT ANSWER: Ybar= A x F(L,K)
• what determines real GDP in the LR? . CORRECT ANSWER: workers who produce
output
• LRAS is determined by . CORRECT ANSWER: equilibrium in labor market where
labor demanded =labor supplied and everyone produces at capacity (potential GDP or
Ybar)
• what shifts the LRAS or Ybar? . CORRECT ANSWER: economic growth
• Why does the SRAS curve shift upward? (3) . CORRECT ANSWER: 1. contracts (for
workers or machinery) make some wages and prices "sticky"
2. firms are slow to adjust wages
3. menu costs make prices sticky
butttt in general, the percent change in price of inputs (workers and machinery) is less
than the price recieved by firms so profits increase. so as P increases, Y increases
• price stickiness . CORRECT ANSWER: Keynes concept that describes when prices
cannot move freely
Questions and Answers | 2026 Review Guide
• aggregate demand . CORRECT ANSWER: total demand for goods and services in an
economy
• aggregate demand curve . CORRECT ANSWER: shows the relationship between the
price level and quantity of real GDP demanded by households, firms, and the govt
• relationship between G and price level . CORRECT ANSWER: G is exogenous
(independent of price level). the govt can do whatever it wants
• the wealth effect . CORRECT ANSWER: impact on the price level on consumption
• relationship between C and P . CORRECT ANSWER: as P increases, C decreases
because if P increases, then real wealth decreases because you have less purchasing
power because it eats away at your savings. if wealth decreases, then consumption
decreases
• wealth = . CORRECT ANSWER: assets- liability
NOT EQUAL TO INCOME
• relationship between I and P . CORRECT ANSWER: as P increases, I decreases
because an increase in P causes an increase in demand for money (transactions
demand) so people sell off their bonds to get more money, causing the price of bonds to
decrease. price of bonds moves in the opposite direction of its interest rate, so interest
rate increases causing the price of loans to increase so firms will incest less
• relationship between NX and P . CORRECT ANSWER: as P increases, NX
decreases
because if US prices go up, exports decrease because they are more expensive relative
to foreign products
• international trade effect . CORRECT ANSWER: impact of the price level on NX
• why is the AD curve downward sloping? . CORRECT ANSWER: The relationship
between P and Y=C+I+G+NX. as P increases, every part of Y decreases, so Y
decreases
, • when do you move along the AD curve? . CORRECT ANSWER: if the general price
level changes
• when do you shift the AD curve? (3) . CORRECT ANSWER: 1. change in govt
policies
2. change in expectations about the future
3. changes in foreign variables
• 2 govt policies that shift AD curve . CORRECT ANSWER: 1. monetary policy
2. fiscal policy
• monetary policy . CORRECT ANSWER: the actions the federal reserve takes to
manage the money supply and interest rate
• fiscal policy . CORRECT ANSWER: changes in the federal taxes and purchases that
are intended to achieve objectives like high employment, price stability, economic
growth. implemented by president and congress ("the govt")
when govt issues a stimulus package
• Long run aggregate supply curve (LRAS) . CORRECT ANSWER: a curve taht shows
the relationship in the long run between the rice level and quantity of real GDP supplied
• production function . CORRECT ANSWER: Ybar= A x F(L,K)
• what determines real GDP in the LR? . CORRECT ANSWER: workers who produce
output
• LRAS is determined by . CORRECT ANSWER: equilibrium in labor market where
labor demanded =labor supplied and everyone produces at capacity (potential GDP or
Ybar)
• what shifts the LRAS or Ybar? . CORRECT ANSWER: economic growth
• Why does the SRAS curve shift upward? (3) . CORRECT ANSWER: 1. contracts (for
workers or machinery) make some wages and prices "sticky"
2. firms are slow to adjust wages
3. menu costs make prices sticky
butttt in general, the percent change in price of inputs (workers and machinery) is less
than the price recieved by firms so profits increase. so as P increases, Y increases
• price stickiness . CORRECT ANSWER: Keynes concept that describes when prices
cannot move freely
