ECON 103 UPDATED EXAMS TEST PAPER
QUESTIONS AND ANSWERS SURE A+
Returns to Scale - ✔✔A production function property where doubling all factor inputs
perfectly doubles total output.
✔✔Loanable Funds Equilibrium Variable - ✔✔The real interest rate (r), which adjusts to
equate national saving with investment demand.
✔✔Crowding Out - ✔✔The decrease in private investment that results from a leftward
shift in saving caused by an expansionary fiscal deficit.
✔✔Solow Growth Long-Run Determinant - ✔✔Exogenous technological progress;
changes in the saving rate only alter steady-state growth temporarily.
✔✔Golden Rule Level of Capital - ✔✔The specific steady-state capital stock that
maximizes consumption per worker.
✔✔Over-saved Solow Economy (K > Kgold) - ✔✔An economy with too much capital;
reducing the saving rate increases consumption immediately and permanently.
✔✔Under-saved Solow Economy (K < Kgold) - ✔✔An economy with too little capital;
increasing the saving rate drops consumption today but raises it for future generations.
, ✔✔Malthusian Model Prediction - ✔✔The theory that unchecked population growth will
outstrip food supply, resulting in mass human poverty.
✔✔Kremerian Model Premise - ✔✔The theory that a larger population drives faster
economic growth by generating more technological innovations.
✔✔Endogenous Growth Theory - ✔✔Models that internalize technological progress by
explaining the explicit R&D choices and knowledge creation incentives.
✔✔Creative Destruction - ✔✔Joseph Schumpeter's term describing how technological
progress introduces superior innovations that displace incumbent firms.
✔✔Fractional Reserve Banking - ✔✔A banking system where commercial banks hold
only a portion of deposits as reserves and lend out the rest, creating money.
✔✔Leverage Danger in Banking - ✔✔The high ratio of debt to equity; a tiny drop in
bank asset values can instantly wipe out bank capital.
✔✔Quantity Theory of Money Assumption - ✔✔The velocity of money (V) is assumed to
be perfectly constant in the long run.
✔✔Quantity Theory of Money Conclusion - ✔✔The money supply growth rate
completely determines the long-run baseline inflation rate.
✔✔Fisher Effect - ✔✔The one-for-one adjustment of the nominal interest rate to
changes in the expected inflation rate.
✔✔Costs of Unexpected Inflation - ✔✔Arbitrary redistribution of wealth from creditors
(lenders) to debtors (borrowers).
✔✔Classical Dichotomy - ✔✔The theoretical separation of real and nominal variables,
implying money is neutral in the long run.
✔✔Frictional Unemployment - ✔✔Unemployment caused by the natural time delays
required to match searching workers with open job vacancies.
✔✔Structural Unemployment - ✔✔Unemployment resulting from real-wage rigidity,
where wages are held structurally above market-clearing levels.
✔✔Causes of Wage Rigidity - ✔✔Minimum wage laws, labor union power, and
efficiency wages paid by firms to boost worker productivity.
QUESTIONS AND ANSWERS SURE A+
Returns to Scale - ✔✔A production function property where doubling all factor inputs
perfectly doubles total output.
✔✔Loanable Funds Equilibrium Variable - ✔✔The real interest rate (r), which adjusts to
equate national saving with investment demand.
✔✔Crowding Out - ✔✔The decrease in private investment that results from a leftward
shift in saving caused by an expansionary fiscal deficit.
✔✔Solow Growth Long-Run Determinant - ✔✔Exogenous technological progress;
changes in the saving rate only alter steady-state growth temporarily.
✔✔Golden Rule Level of Capital - ✔✔The specific steady-state capital stock that
maximizes consumption per worker.
✔✔Over-saved Solow Economy (K > Kgold) - ✔✔An economy with too much capital;
reducing the saving rate increases consumption immediately and permanently.
✔✔Under-saved Solow Economy (K < Kgold) - ✔✔An economy with too little capital;
increasing the saving rate drops consumption today but raises it for future generations.
, ✔✔Malthusian Model Prediction - ✔✔The theory that unchecked population growth will
outstrip food supply, resulting in mass human poverty.
✔✔Kremerian Model Premise - ✔✔The theory that a larger population drives faster
economic growth by generating more technological innovations.
✔✔Endogenous Growth Theory - ✔✔Models that internalize technological progress by
explaining the explicit R&D choices and knowledge creation incentives.
✔✔Creative Destruction - ✔✔Joseph Schumpeter's term describing how technological
progress introduces superior innovations that displace incumbent firms.
✔✔Fractional Reserve Banking - ✔✔A banking system where commercial banks hold
only a portion of deposits as reserves and lend out the rest, creating money.
✔✔Leverage Danger in Banking - ✔✔The high ratio of debt to equity; a tiny drop in
bank asset values can instantly wipe out bank capital.
✔✔Quantity Theory of Money Assumption - ✔✔The velocity of money (V) is assumed to
be perfectly constant in the long run.
✔✔Quantity Theory of Money Conclusion - ✔✔The money supply growth rate
completely determines the long-run baseline inflation rate.
✔✔Fisher Effect - ✔✔The one-for-one adjustment of the nominal interest rate to
changes in the expected inflation rate.
✔✔Costs of Unexpected Inflation - ✔✔Arbitrary redistribution of wealth from creditors
(lenders) to debtors (borrowers).
✔✔Classical Dichotomy - ✔✔The theoretical separation of real and nominal variables,
implying money is neutral in the long run.
✔✔Frictional Unemployment - ✔✔Unemployment caused by the natural time delays
required to match searching workers with open job vacancies.
✔✔Structural Unemployment - ✔✔Unemployment resulting from real-wage rigidity,
where wages are held structurally above market-clearing levels.
✔✔Causes of Wage Rigidity - ✔✔Minimum wage laws, labor union power, and
efficiency wages paid by firms to boost worker productivity.
