MACROECONOMICS FINAL EXAM
STUDY GUIDE QUESTIONS &
VERIFIED ANSWERS PASSED
NEWEST VERSION
What is the "fundamental economic problem" that exists in every economy? -
CORRECT ANSWER Scarcity- satisfying unlimited wants with limited resources. Forces
people to make choices.
Scarcity - CORRECT ANSWER Insufficiency of resources to satisfy people's unlimited
wants
Economics - CORRECT ANSWER How people work to transform resources into goods
and services to distribute and satisfy wants
Difference between Macro and Micro economics - CORRECT ANSWER Micro- study
of individuals or specific firms or industries
Macro- study of the economy as a whole
What economic model depicts the flow of money, goods, and services between
households and firms? - CORRECT ANSWER Circular Flow Model
Opportunity Cost - CORRECT ANSWER quantity of goods that must be given up to
obtain another good
PPC - what is looks like and be able to determine opportunity cost and graph it -
CORRECT ANSWER One good v another good
(look on study guide)
What shifts the PPC curve outward and inward - CORRECT ANSWER Inward- capital
goods destroyed (natural disasters or war)
Outward- Innovations, new resources, new technology
Absolute v Comparative Advantage - CORRECT ANSWER Absolute- who can produce
more of a good with fewer resources
Comparative- who can produce more of a good at a lower opportunity cost
Factors of Production - CORRECT ANSWER Land
Labor
Capital
, Entrepreneurship
Define and Illustrate the Law of Supply and Demand - CORRECT ANSWER Demand-
as price goes up, quantity demanded goes down and vice versa (inverse relationship
between price and quantity demanded)
Supply- As price goes up quantity supplied goes up and vice versa (direct relationship
between price and quantity supplied)
(See review for picture)
What causes a movement along the demand and supply curve - CORRECT ANSWER
Changes in price
What are the determinants of supply and demand - CORRECT ANSWER Demand:
change in income, taste/preferences, price of substitute/complementary goods, future
expectations, population size
Supply: technology, resource prices, prices of related goods, number of suppliers,
expectations of future prices
A Short-Run supply curve is drawn as _________ line. Long-Run is drawn as a
_________line. - CORRECT ANSWER Upward Sloping,
Vertical
When would demand-pull inflation most likely occur? Illustrate Demand-Pull Inflation on
the aggregate model. - CORRECT ANSWER Aggregate demand curve increases
pulling the price level up. Usually as a result of military expansion (increase in
government spending)
(See study guide for graph)
What does the horizontal segment of the aggregate supply curve indicate - CORRECT
ANSWER Real GDP increase w/out affecting the economy's price level.
What are the determinants that would SHIFT the aggregate supply and demand curve -
CORRECT ANSWER AS: input changes, change in productivity, changes in ACTION of
government (Not gov't spending), environmental changes
AD: Changes in consumer spending, investment spending, gov't spending and net
exports(exports-imports) **C+I+G+(X-M)**
Cost-Push inflation will most likely occur during? Illustrate Cost-Push Inflation on the
aggregate model. - CORRECT ANSWER Aggregate supply curve decreases pushing
the price level up. Usually as a result of an increase in cost of basic goods (OPEC in
1970's causes Stagflation in U.S.)
(See study guide for picture)
Be able to identify a shortage and a surplus using a supply and demand curve graph. -
CORRECT ANSWER Surplus: QS >QD Shortage: QD > QS
(see graph on study guide)
STUDY GUIDE QUESTIONS &
VERIFIED ANSWERS PASSED
NEWEST VERSION
What is the "fundamental economic problem" that exists in every economy? -
CORRECT ANSWER Scarcity- satisfying unlimited wants with limited resources. Forces
people to make choices.
Scarcity - CORRECT ANSWER Insufficiency of resources to satisfy people's unlimited
wants
Economics - CORRECT ANSWER How people work to transform resources into goods
and services to distribute and satisfy wants
Difference between Macro and Micro economics - CORRECT ANSWER Micro- study
of individuals or specific firms or industries
Macro- study of the economy as a whole
What economic model depicts the flow of money, goods, and services between
households and firms? - CORRECT ANSWER Circular Flow Model
Opportunity Cost - CORRECT ANSWER quantity of goods that must be given up to
obtain another good
PPC - what is looks like and be able to determine opportunity cost and graph it -
CORRECT ANSWER One good v another good
(look on study guide)
What shifts the PPC curve outward and inward - CORRECT ANSWER Inward- capital
goods destroyed (natural disasters or war)
Outward- Innovations, new resources, new technology
Absolute v Comparative Advantage - CORRECT ANSWER Absolute- who can produce
more of a good with fewer resources
Comparative- who can produce more of a good at a lower opportunity cost
Factors of Production - CORRECT ANSWER Land
Labor
Capital
, Entrepreneurship
Define and Illustrate the Law of Supply and Demand - CORRECT ANSWER Demand-
as price goes up, quantity demanded goes down and vice versa (inverse relationship
between price and quantity demanded)
Supply- As price goes up quantity supplied goes up and vice versa (direct relationship
between price and quantity supplied)
(See review for picture)
What causes a movement along the demand and supply curve - CORRECT ANSWER
Changes in price
What are the determinants of supply and demand - CORRECT ANSWER Demand:
change in income, taste/preferences, price of substitute/complementary goods, future
expectations, population size
Supply: technology, resource prices, prices of related goods, number of suppliers,
expectations of future prices
A Short-Run supply curve is drawn as _________ line. Long-Run is drawn as a
_________line. - CORRECT ANSWER Upward Sloping,
Vertical
When would demand-pull inflation most likely occur? Illustrate Demand-Pull Inflation on
the aggregate model. - CORRECT ANSWER Aggregate demand curve increases
pulling the price level up. Usually as a result of military expansion (increase in
government spending)
(See study guide for graph)
What does the horizontal segment of the aggregate supply curve indicate - CORRECT
ANSWER Real GDP increase w/out affecting the economy's price level.
What are the determinants that would SHIFT the aggregate supply and demand curve -
CORRECT ANSWER AS: input changes, change in productivity, changes in ACTION of
government (Not gov't spending), environmental changes
AD: Changes in consumer spending, investment spending, gov't spending and net
exports(exports-imports) **C+I+G+(X-M)**
Cost-Push inflation will most likely occur during? Illustrate Cost-Push Inflation on the
aggregate model. - CORRECT ANSWER Aggregate supply curve decreases pushing
the price level up. Usually as a result of an increase in cost of basic goods (OPEC in
1970's causes Stagflation in U.S.)
(See study guide for picture)
Be able to identify a shortage and a surplus using a supply and demand curve graph. -
CORRECT ANSWER Surplus: QS >QD Shortage: QD > QS
(see graph on study guide)
