ECON 110 EXAM REVIEW QUESTIONS
WITH ACCURATE SOLUTIONS 2026
▶ Opportunity cost. Answer: A resource can only be allocated to one thing
at a time. The opportunity cost of deciding to do one thing is the next best
alternative use of the resource. The next best thing on the list.
▶ Costs. Answer: To be obtained at a certain expenditure.
All choices have costs.
▶ implicit vs explicit costs. Answer: Explicit Costs- Out-of-pocket expenses
Implicit Costs- The value of resources that could be used elsewhere (OC)
or what could have been.
▶ Benefit Cost Analysis. Answer: Is it worth it?
▶ Comparative Benefit Cost Analysis. Answer: Even if it's a good deal, is it
the best deal?
▶ Marginal cost benefit analysis. Answer: You have used all your
resources but now get some more. Where should they go so that you get
the greatest additional benefit for every additional resource you use? How
much is too much? How much is not enough?
▶ Sunk costs. Answer: Regardless of how high costs were in the past, the
important question is whether future additional benefits are great than
future additional costs. Past costs are not relevant in the decision.
▶ Economic goals. Answer: Goals in Terms of Time
All goals can be achieved or determined according to long run or short
decision making.
Trade-offs
Incentives
Costs
,▶ GDP growth. Answer: Growth in jobs, businesses, factories, markets.
Increasing GDP.
▶ GDP. Answer: The basic measure of a nation's economic output and
income
The value of all final goods and services produced within a country's
national borders in a year
▶ GDP equation. Answer: C+I+G+(x-m)= GDP
C= Consumer Spending
I= Investment
G= Government Spending
(x-m)= Exports - Imports
▶ Parts of the GDP equation meanings. Answer: (C) Consumption: The
amount spent by households on goods and services. Includes durable
(cars, food, clothes, etc) and non-durable (haircuts, dentist appointments,
etc) goods.
Makes up 2/3rds of GDP spending
(I) Investment: Spending by businesses on machinery, factories,
equipment, tools. Spending by households on new homes. STOCKS
(G) Government: Spending by all levels of government on goods and
services. Includes spending on military, schools, and highways.
(X-M) Net Exports: Spending by people abroad on U.S. goods and services
(exports, or X) MINUS spending by people in the U.S. on foreign goods and
services (imports, or M). X is great than M= trade surplus. M is greater than
x= trade deficit
Economic Growth occurs when there is a sustained increase in real GDP.
▶ When the nation's overall standard of living increases.... Answer: The
overall standard of living refers to not just the individuals who have
improved their human capital, but all of their fellow citizens as well.When
the nation's overall standard of living increases
▶ Nominal vs. Real GDP. Answer: Nominal- The value of final goods and
services evaluated at the current year prices
Real- The total value of goods and services produced in the economy over
the course of a year, evaluated at base-year prices.
Calculations are adjusted for price changes
Year to year comparisons
, Nominal Rate-Inflation Rate= Real rate
▶ Why is GDP important?. Answer: When GDP increases, the economy
experiences economic growth and unemployment goes down
When GDP decreases for two consecutive quarters, the economy is in a
recession and unemployment goes up
▶ The business cycle. Answer: The Business Cycle
Is a positive-sum game.(everyone wins)
The business cycle shows periods of expansion and recession- Economic
Activity.
The periodic, but irregular up and down movements in economic activity,
measured by fluctuations in real GDP and other macroeconomic variables.
▶ The business cycle recession. Answer: Recessions cause the
unemployment rate to increase.
As firms see sales decline, they begin to reduce production and lay off
workers
▶ Efficiency. Answer: "More for your buck." Best use of resources with
least amount of costs.
Killing two birds with one stone.
▶ full employment. Answer: Does not mean 100%. An amount of laborers
employed differs for specific goals.
The goal in the US is 4-6.4%.
▶ Unemployment. Answer: The unemployment rate measures the percent
of the labor force that is unemployed
• People who are not considered a part of the labor force: retirees,
housemakers, full time students, people on active military service, people in
prison and mental hospitals, and those who are available for work but not
actively looking for a job
▶ unemployment rate. Answer: # unemployed/ total labor
force=unemployment rate
▶ What is considered to be full employment?. Answer: •When the only
remaining unemployment is structural and frictional then the economy is
said to be at full employment
WITH ACCURATE SOLUTIONS 2026
▶ Opportunity cost. Answer: A resource can only be allocated to one thing
at a time. The opportunity cost of deciding to do one thing is the next best
alternative use of the resource. The next best thing on the list.
▶ Costs. Answer: To be obtained at a certain expenditure.
All choices have costs.
▶ implicit vs explicit costs. Answer: Explicit Costs- Out-of-pocket expenses
Implicit Costs- The value of resources that could be used elsewhere (OC)
or what could have been.
▶ Benefit Cost Analysis. Answer: Is it worth it?
▶ Comparative Benefit Cost Analysis. Answer: Even if it's a good deal, is it
the best deal?
▶ Marginal cost benefit analysis. Answer: You have used all your
resources but now get some more. Where should they go so that you get
the greatest additional benefit for every additional resource you use? How
much is too much? How much is not enough?
▶ Sunk costs. Answer: Regardless of how high costs were in the past, the
important question is whether future additional benefits are great than
future additional costs. Past costs are not relevant in the decision.
▶ Economic goals. Answer: Goals in Terms of Time
All goals can be achieved or determined according to long run or short
decision making.
Trade-offs
Incentives
Costs
,▶ GDP growth. Answer: Growth in jobs, businesses, factories, markets.
Increasing GDP.
▶ GDP. Answer: The basic measure of a nation's economic output and
income
The value of all final goods and services produced within a country's
national borders in a year
▶ GDP equation. Answer: C+I+G+(x-m)= GDP
C= Consumer Spending
I= Investment
G= Government Spending
(x-m)= Exports - Imports
▶ Parts of the GDP equation meanings. Answer: (C) Consumption: The
amount spent by households on goods and services. Includes durable
(cars, food, clothes, etc) and non-durable (haircuts, dentist appointments,
etc) goods.
Makes up 2/3rds of GDP spending
(I) Investment: Spending by businesses on machinery, factories,
equipment, tools. Spending by households on new homes. STOCKS
(G) Government: Spending by all levels of government on goods and
services. Includes spending on military, schools, and highways.
(X-M) Net Exports: Spending by people abroad on U.S. goods and services
(exports, or X) MINUS spending by people in the U.S. on foreign goods and
services (imports, or M). X is great than M= trade surplus. M is greater than
x= trade deficit
Economic Growth occurs when there is a sustained increase in real GDP.
▶ When the nation's overall standard of living increases.... Answer: The
overall standard of living refers to not just the individuals who have
improved their human capital, but all of their fellow citizens as well.When
the nation's overall standard of living increases
▶ Nominal vs. Real GDP. Answer: Nominal- The value of final goods and
services evaluated at the current year prices
Real- The total value of goods and services produced in the economy over
the course of a year, evaluated at base-year prices.
Calculations are adjusted for price changes
Year to year comparisons
, Nominal Rate-Inflation Rate= Real rate
▶ Why is GDP important?. Answer: When GDP increases, the economy
experiences economic growth and unemployment goes down
When GDP decreases for two consecutive quarters, the economy is in a
recession and unemployment goes up
▶ The business cycle. Answer: The Business Cycle
Is a positive-sum game.(everyone wins)
The business cycle shows periods of expansion and recession- Economic
Activity.
The periodic, but irregular up and down movements in economic activity,
measured by fluctuations in real GDP and other macroeconomic variables.
▶ The business cycle recession. Answer: Recessions cause the
unemployment rate to increase.
As firms see sales decline, they begin to reduce production and lay off
workers
▶ Efficiency. Answer: "More for your buck." Best use of resources with
least amount of costs.
Killing two birds with one stone.
▶ full employment. Answer: Does not mean 100%. An amount of laborers
employed differs for specific goals.
The goal in the US is 4-6.4%.
▶ Unemployment. Answer: The unemployment rate measures the percent
of the labor force that is unemployed
• People who are not considered a part of the labor force: retirees,
housemakers, full time students, people on active military service, people in
prison and mental hospitals, and those who are available for work but not
actively looking for a job
▶ unemployment rate. Answer: # unemployed/ total labor
force=unemployment rate
▶ What is considered to be full employment?. Answer: •When the only
remaining unemployment is structural and frictional then the economy is
said to be at full employment
