ECN 211 FINAL EXAM QUESTIONS WITH VERIFIED
ACCURATE ANSWERS
scarcity - Answers -the limited nature of society's resources
Opportunity cost - Answers -Whatever must be given up to obtain some item
principles of specialization and exchange - Answers -trade can benefit everyone in
society because it allows people to specialize in activities in which they have
comparative advantage
Absolute advantage - Answers -The ability to produce a good using fewer inputs than
another producer
Comparative advantage - Answers -The ability to produce a good at a lower opportunity
cost than another producer
Law of demand - Answers -the claim that, other things being equal, the quantity
demanded of a good falls when the price of the good rises
Law of supply - Answers -the claim that other things being equal, the quantity supplied
of a good rises when the price of the good rises
Market equilibrium - Answers -A situation in which the market price has reached the
level at which quantity supplied equals quantity demanded
Factors that shift the demand curve - Answers -Income, wealth, prices of related goods,
population, expected price, taste
Factors that shift the supply curve - Answers -input prices, price of alternatives,
technology, number of firms, expectations, changes in weather, or other natural events
GDP - Answers -the market value of all final goods and services purchased within a
country in a given period of time
real vs nominal GDP - Answers -real is valued at constant prices while nominal is
valued at current prices
unemployment - Answers -those who were not employed, were available for work, and
had tried to find employment during the previous four weeks
discouraged workers - Answers -individuals who would like to work but have given up
looking for a job
, consumer price index (CPI) - Answers -an index of the cost, through time of a market
basket of good purchased by a typical household
Calculating the inflation rate - Answers -amount in today's dollars = amount in year t
dollars * price level today/price level in year t
Real wages - Answers -purchasing power of your wage adjusted for inflation: nominal
wage in the year/CPI in that year * 100
nominal wages - Answers -number of dollars you earn not adjusted for inflation
nominal interest rate - Answers -interest rate not corrected for inflation
real interest rate - Answers -corrected for inflation: nominal interest rate - rate of
inflation
inflation and purchasing power - Answers -inflation, an increase in the price level,
decreases the purchasing power of money
Redistributive affects of inflation - Answers -inflation can shift purchasing power away
from those who are awaiting future payments specified in dollars and toward those who
are obligated to make such payments
money - Answers -the set of assets in an economy that people regularly use to buy
goods and services from other people
money supply - Answers -the set of money available in the economy which includes
currency and demand deposits
functions of the fed - Answers -supervising and regulating banks, acting as a "bank for
banks," issuing paper currency, check clearing, guiding the macroeconomy, dealing with
financial crises
objectives of the fed - Answers -price stability, full employment exchange rate stability,
financial stability
monetary policy tools - Answers -instruments of the fed to conduct monetary policy
through the FOMC (increasing and decreasing money supply) including open market
operations (primary tools), changes in the required reserve ratio, changes in the
discount rate, and changes in the interest rate on reserves
the fed and the money supply - Answers -open market purchases increase the money
supply and open market sales decrease the money supply
ACCURATE ANSWERS
scarcity - Answers -the limited nature of society's resources
Opportunity cost - Answers -Whatever must be given up to obtain some item
principles of specialization and exchange - Answers -trade can benefit everyone in
society because it allows people to specialize in activities in which they have
comparative advantage
Absolute advantage - Answers -The ability to produce a good using fewer inputs than
another producer
Comparative advantage - Answers -The ability to produce a good at a lower opportunity
cost than another producer
Law of demand - Answers -the claim that, other things being equal, the quantity
demanded of a good falls when the price of the good rises
Law of supply - Answers -the claim that other things being equal, the quantity supplied
of a good rises when the price of the good rises
Market equilibrium - Answers -A situation in which the market price has reached the
level at which quantity supplied equals quantity demanded
Factors that shift the demand curve - Answers -Income, wealth, prices of related goods,
population, expected price, taste
Factors that shift the supply curve - Answers -input prices, price of alternatives,
technology, number of firms, expectations, changes in weather, or other natural events
GDP - Answers -the market value of all final goods and services purchased within a
country in a given period of time
real vs nominal GDP - Answers -real is valued at constant prices while nominal is
valued at current prices
unemployment - Answers -those who were not employed, were available for work, and
had tried to find employment during the previous four weeks
discouraged workers - Answers -individuals who would like to work but have given up
looking for a job
, consumer price index (CPI) - Answers -an index of the cost, through time of a market
basket of good purchased by a typical household
Calculating the inflation rate - Answers -amount in today's dollars = amount in year t
dollars * price level today/price level in year t
Real wages - Answers -purchasing power of your wage adjusted for inflation: nominal
wage in the year/CPI in that year * 100
nominal wages - Answers -number of dollars you earn not adjusted for inflation
nominal interest rate - Answers -interest rate not corrected for inflation
real interest rate - Answers -corrected for inflation: nominal interest rate - rate of
inflation
inflation and purchasing power - Answers -inflation, an increase in the price level,
decreases the purchasing power of money
Redistributive affects of inflation - Answers -inflation can shift purchasing power away
from those who are awaiting future payments specified in dollars and toward those who
are obligated to make such payments
money - Answers -the set of assets in an economy that people regularly use to buy
goods and services from other people
money supply - Answers -the set of money available in the economy which includes
currency and demand deposits
functions of the fed - Answers -supervising and regulating banks, acting as a "bank for
banks," issuing paper currency, check clearing, guiding the macroeconomy, dealing with
financial crises
objectives of the fed - Answers -price stability, full employment exchange rate stability,
financial stability
monetary policy tools - Answers -instruments of the fed to conduct monetary policy
through the FOMC (increasing and decreasing money supply) including open market
operations (primary tools), changes in the required reserve ratio, changes in the
discount rate, and changes in the interest rate on reserves
the fed and the money supply - Answers -open market purchases increase the money
supply and open market sales decrease the money supply
