ECN 211 ASU Exam 3: Complete
Study Guide with 200 Practice
Questions & Verified Answers
||ESN 211 ASU EXAM 3[MOST
RECENT] 2026/2027 ||100%
CORRECT ANSWERS
1. What is a recession?
Answer: A period of mildly falling incomes and rising
unemployment (e.g., 2007-2009), caused by a leftward shift in
aggregate demand and a leftward shift in aggregate supply .
2. What is a depression?
Answer: A severe period of falling incomes and rising
unemployment (e.g., the Great Depression) .
3. What is the business cycle?
Answer: The short-run fluctuations of the economy .
4. What are the key characteristics of economic fluctuations?
Answer: They are irregular and unpredictable. Most
macroeconomic variables measuring income, spending, or
production move in the same direction .
5. What happens to unemployment when output falls?
Answer: When real GDP declines, the rate of unemployment rises
because firms produce fewer goods and services and lay off
workers .
6. What is the classical dichotomy?
Answer: The theoretical separation of economic variables into real
and nominal variables. It is used for the long-run description of the
economy .
,7. What is monetary neutrality?
Answer: The property that changes in the money supply only
affect nominal variables (like prices and wages), not real variables
(like output and employment). Money is unlikely to be neutral in
the short run but is in the long run. If the money supply doubles,
prices, wages, and all dollar values double, while real output,
employment, and real wages remain unchanged .
8. What are nominal variables?
Answer: Variables measured in monetary units, affected by
changes in the money supply .
9. What are real variables?
Answer: Variables measured in physical units .
10. How does the short-run economy differ?
Answer: Changes in nominal variables such as money and prices
impact real variables. Nominal and real variables are not
independent .
11. What is the model of aggregate supply and aggregate
demand used for?
Answer: To explain short-run economic fluctuations around the
economy's long-run trend. The price level is on the vertical axis,
and real GDP is on the horizontal axis .
12. What is a commonality of the short-run aggregate-
supply curve theories?
Answer: Output rises above the natural level when the actual price
level exceeds the expected price level. The effects are temporary .
13. What causes the short-run aggregate-supply curve to
shift left?
Answer: An increase in the cost of production (e.g., an increase in
wages or oil prices) or a higher expected price level .
14. What causes the short-run aggregate-supply curve to
shift right?
Answer: A decrease in the cost of production or a lower expected
price level .
15. What does the aggregate-demand curve show?
Answer: The quantity of goods and services households, firms, the
government, and customers abroad are willing to buy at each price
level .
, 16. What is the shape of the aggregate-demand curve and
why?
Answer: It has a negative slope .
17. What is the wealth effect?
Answer: Consumers feel wealthier when there is a lower price level
of nominal money and spend more, which increases consumption .
18. What is the interest-rate effect?
Answer: When the price level is lower, households need to hold
less money. They lend money, which lowers interest rates. This
stimulates investment spending and spending on consumer
durables .
19. What is the exchange-rate effect?
Answer: Lower U.S. interest rates cause U.S. investors to invest
abroad, increasing the supply of U.S. dollars. This depreciates the
real exchange rate, which increases net exports .
20. What causes the aggregate-demand curve to shift left
(Consumption)?
Answer: Occurs when consumers spend less because they are
saving more, stock prices fall, or if taxes are increased .
21. What causes the aggregate-demand curve to shift right
(Investment)?
Answer: Occurs when firms become optimistic, an investment tax
credit is created, or the Fed increases the money supply (reducing
interest rates) .
22. What causes the aggregate-demand curve to shift left
(Net Exports)?
Answer: Occurs when foreign countries have a recession and buy
fewer U.S. goods, or if the value of the dollar rises on foreign
exchange markets .
23. What causes the aggregate-demand curve to shift right
(Government Spending)?
Answer: Occurs when federal, state, or local governments increase
their purchases .
24. What is the natural level of output?
Answer: The production of goods and services an economy
achieves in the long run when unemployment is at its natural or
normal rate .
Study Guide with 200 Practice
Questions & Verified Answers
||ESN 211 ASU EXAM 3[MOST
RECENT] 2026/2027 ||100%
CORRECT ANSWERS
1. What is a recession?
Answer: A period of mildly falling incomes and rising
unemployment (e.g., 2007-2009), caused by a leftward shift in
aggregate demand and a leftward shift in aggregate supply .
2. What is a depression?
Answer: A severe period of falling incomes and rising
unemployment (e.g., the Great Depression) .
3. What is the business cycle?
Answer: The short-run fluctuations of the economy .
4. What are the key characteristics of economic fluctuations?
Answer: They are irregular and unpredictable. Most
macroeconomic variables measuring income, spending, or
production move in the same direction .
5. What happens to unemployment when output falls?
Answer: When real GDP declines, the rate of unemployment rises
because firms produce fewer goods and services and lay off
workers .
6. What is the classical dichotomy?
Answer: The theoretical separation of economic variables into real
and nominal variables. It is used for the long-run description of the
economy .
,7. What is monetary neutrality?
Answer: The property that changes in the money supply only
affect nominal variables (like prices and wages), not real variables
(like output and employment). Money is unlikely to be neutral in
the short run but is in the long run. If the money supply doubles,
prices, wages, and all dollar values double, while real output,
employment, and real wages remain unchanged .
8. What are nominal variables?
Answer: Variables measured in monetary units, affected by
changes in the money supply .
9. What are real variables?
Answer: Variables measured in physical units .
10. How does the short-run economy differ?
Answer: Changes in nominal variables such as money and prices
impact real variables. Nominal and real variables are not
independent .
11. What is the model of aggregate supply and aggregate
demand used for?
Answer: To explain short-run economic fluctuations around the
economy's long-run trend. The price level is on the vertical axis,
and real GDP is on the horizontal axis .
12. What is a commonality of the short-run aggregate-
supply curve theories?
Answer: Output rises above the natural level when the actual price
level exceeds the expected price level. The effects are temporary .
13. What causes the short-run aggregate-supply curve to
shift left?
Answer: An increase in the cost of production (e.g., an increase in
wages or oil prices) or a higher expected price level .
14. What causes the short-run aggregate-supply curve to
shift right?
Answer: A decrease in the cost of production or a lower expected
price level .
15. What does the aggregate-demand curve show?
Answer: The quantity of goods and services households, firms, the
government, and customers abroad are willing to buy at each price
level .
, 16. What is the shape of the aggregate-demand curve and
why?
Answer: It has a negative slope .
17. What is the wealth effect?
Answer: Consumers feel wealthier when there is a lower price level
of nominal money and spend more, which increases consumption .
18. What is the interest-rate effect?
Answer: When the price level is lower, households need to hold
less money. They lend money, which lowers interest rates. This
stimulates investment spending and spending on consumer
durables .
19. What is the exchange-rate effect?
Answer: Lower U.S. interest rates cause U.S. investors to invest
abroad, increasing the supply of U.S. dollars. This depreciates the
real exchange rate, which increases net exports .
20. What causes the aggregate-demand curve to shift left
(Consumption)?
Answer: Occurs when consumers spend less because they are
saving more, stock prices fall, or if taxes are increased .
21. What causes the aggregate-demand curve to shift right
(Investment)?
Answer: Occurs when firms become optimistic, an investment tax
credit is created, or the Fed increases the money supply (reducing
interest rates) .
22. What causes the aggregate-demand curve to shift left
(Net Exports)?
Answer: Occurs when foreign countries have a recession and buy
fewer U.S. goods, or if the value of the dollar rises on foreign
exchange markets .
23. What causes the aggregate-demand curve to shift right
(Government Spending)?
Answer: Occurs when federal, state, or local governments increase
their purchases .
24. What is the natural level of output?
Answer: The production of goods and services an economy
achieves in the long run when unemployment is at its natural or
normal rate .
