ECN 211 EXAM 1 QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026
Economic Growth - Answers sustained increase in nations standard of living, measured as real GDP
per capita
Problems with Real GDP per capita - Answers doesn't measure quality of life (ex. pollution = negative
externality of production), congestion, inequality
Nominal GDP - Answers total value of final goods + services produced in an economy during a
particular time period
Problems with Nominal GDP - Answers GDP increases when prices increase over time, inputs don't
count bc only looks at final goods
Real GDP - Answers nominal GDP measured at a certain price level (nominal GDP/price level)
Growth Rate - Answers (Yt-Yt-1)/Yt-1
Gt - Answers growth rate from period t-1 to t
When was GDP constructed? - Answers WWII, trying to see how much they can tax to fund the war
3 Ways to Measure GDP - Answers expenditure, income, value-added
Expenditure Approach - Answers sum of all expenditure spent on final goods + services (Y= C + I + G +
X - M), subtract M bc it is also in C + you don't want to count 2x
Income Approach - Answers sum of all income earned by two factors of production (L + K), Y= total
wages + total rent (labor income + capital income)
Value-Added/Product Approach - Answers sum of value added/all firms in economy
Final Goods - Answers those sold directly to end users (ex. groceries)
Value-Added - Answers difference in value of final goods + intermediates used to produce goods
Law of Motion of Capital - Answers Kt+1 = (1-δ)Kt + It, Kt = capital stock at time t, It = investment at
time t, δ = depreciation rate (0-1)
Gross Investment - Answers amount of new capital created at given time
Net Investment - Answers amount of capital added to existing capital stock (It - δKt)
Net Domestic Product - Answers value of all final goods + services produced in an economy during a
time period - depreciation (C + I - δK + G + X - M)
Civilian Adult Population - Answers people over 16 years, not institutionalized, not in armed forces
Labor Force - Answers working or looking for work, this can change significantly over time (ex.
women during WWII, Great Resignation --> old people retiring during COVID)
Labor Force Participation Rate - Answers # people in labor force/# people in CAP
Employed - Answers those working for pay for at least 1 hr in past week (or 15 hrs in family business,
sick leave, vacation)
Employment Rate - Answers # people employed/# people in CAP
Unemployed - Answers not working in past week but looked for work in past 4 weeks
Unemployment Rate - Answers # people unemployed/ labor force
Why do economists like employment rate better? - Answers people exit the labor mkt when they
can't find a job --> shows up as improvement in unemployment when it's not
Light Emissions Data - Answers see how much light is on --> can estimate economic activity
Inflation - Answers change in economies overall price level, It = (Pt-Pt-1)/Pt-1, where P = aggregate
price level measured commonly in form of price index, can erode standard of living over time
Consumer Price Index (CPI) - Answers weighted avg price of a representative basket of consumer
goods, determine weights by expenditure weights
Producer Price Index (PPI) - Answers weighted avg price of a representative basket of producer
inputs, leading indicator of CPI bc cost of producer inputs influences future prices
Pandemic High Inflation - Answers Chinese PPI increase, closely watched bc our consumer goods
from China
Why do we care about inflation? - Answers erodes standard of living, distribution effects, distorts
decisions by consumers + firms, index for contracts, bracket creep --> if brackets don't change then
inflation taxes you higher, Brick + Mortor/houses hedge inflation, now we change brackets every year
Deflation - Answers people leave off purchases for longer, creates bad cycle
Hyperinflation - Answers too much inflation, prices change throughout day, Germany during WWII,
Zimbabwe
Backward Bending Labor Supply Curve - Answers wage is so high that you start to work less
Propensity to Hold Money - Answers fraction of value of goods + services demanded that HH chooses
to keep in cash, K= Md/PYD
Economic Growth - Answers sustained increase in nations standard of living, measured as real GDP
per capita
Problems with Real GDP per capita - Answers doesn't measure quality of life (ex. pollution = negative
externality of production), congestion, inequality
Nominal GDP - Answers total value of final goods + services produced in an economy during a
particular time period
Problems with Nominal GDP - Answers GDP increases when prices increase over time, inputs don't
count bc only looks at final goods
Real GDP - Answers nominal GDP measured at a certain price level (nominal GDP/price level)
Growth Rate - Answers (Yt-Yt-1)/Yt-1
Gt - Answers growth rate from period t-1 to t
When was GDP constructed? - Answers WWII, trying to see how much they can tax to fund the war
3 Ways to Measure GDP - Answers expenditure, income, value-added
Expenditure Approach - Answers sum of all expenditure spent on final goods + services (Y= C + I + G +
X - M), subtract M bc it is also in C + you don't want to count 2x
Income Approach - Answers sum of all income earned by two factors of production (L + K), Y= total
wages + total rent (labor income + capital income)
Value-Added/Product Approach - Answers sum of value added/all firms in economy
Final Goods - Answers those sold directly to end users (ex. groceries)
Value-Added - Answers difference in value of final goods + intermediates used to produce goods
Law of Motion of Capital - Answers Kt+1 = (1-δ)Kt + It, Kt = capital stock at time t, It = investment at
time t, δ = depreciation rate (0-1)
Gross Investment - Answers amount of new capital created at given time
Net Investment - Answers amount of capital added to existing capital stock (It - δKt)
Net Domestic Product - Answers value of all final goods + services produced in an economy during a
time period - depreciation (C + I - δK + G + X - M)
Civilian Adult Population - Answers people over 16 years, not institutionalized, not in armed forces
Labor Force - Answers working or looking for work, this can change significantly over time (ex.
women during WWII, Great Resignation --> old people retiring during COVID)
Labor Force Participation Rate - Answers # people in labor force/# people in CAP
Employed - Answers those working for pay for at least 1 hr in past week (or 15 hrs in family business,
sick leave, vacation)
Employment Rate - Answers # people employed/# people in CAP
Unemployed - Answers not working in past week but looked for work in past 4 weeks
Unemployment Rate - Answers # people unemployed/ labor force
Why do economists like employment rate better? - Answers people exit the labor mkt when they
can't find a job --> shows up as improvement in unemployment when it's not
Light Emissions Data - Answers see how much light is on --> can estimate economic activity
Inflation - Answers change in economies overall price level, It = (Pt-Pt-1)/Pt-1, where P = aggregate
price level measured commonly in form of price index, can erode standard of living over time
Consumer Price Index (CPI) - Answers weighted avg price of a representative basket of consumer
goods, determine weights by expenditure weights
Producer Price Index (PPI) - Answers weighted avg price of a representative basket of producer
inputs, leading indicator of CPI bc cost of producer inputs influences future prices
Pandemic High Inflation - Answers Chinese PPI increase, closely watched bc our consumer goods
from China
Why do we care about inflation? - Answers erodes standard of living, distribution effects, distorts
decisions by consumers + firms, index for contracts, bracket creep --> if brackets don't change then
inflation taxes you higher, Brick + Mortor/houses hedge inflation, now we change brackets every year
Deflation - Answers people leave off purchases for longer, creates bad cycle
Hyperinflation - Answers too much inflation, prices change throughout day, Germany during WWII,
Zimbabwe
Backward Bending Labor Supply Curve - Answers wage is so high that you start to work less
Propensity to Hold Money - Answers fraction of value of goods + services demanded that HH chooses
to keep in cash, K= Md/PYD
