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ECN 211 ASU Exam 3 – Arizona State University (ASU) –
2026/2027 Academic Year – Verified Q&A
Questions 1–100
1. Business Cycles — Moderate
Which sequence best describes the typical phases of a business cycle?
A. Expansion → peak → contraction → trough
B. Trough → peak → expansion → contraction
C. Peak → expansion → trough → contraction
D. Contraction → expansion → peak → trough
Correct answer: A
Rationale: An economy generally moves from expansion to a peak, followed by
contraction, and eventually reaches a trough before another expansion begins. A
peak represents the high point of economic activity, whereas a trough represents
the low point.
• B: Places the phases in the wrong order.
• C: Expansion cannot normally follow a peak immediately in this sequence.
• D: A contraction generally follows a peak, not an expansion.
2. Real GDP — Moderate
Nominal GDP increases from $20 trillion to $21 trillion, while the GDP price index
rises by 8%. What is the most reasonable conclusion?
A. Real GDP definitely increased by 8%
B. Real GDP increased substantially more than nominal GDP
C. Real GDP likely decreased because prices rose faster than nominal output
D. Real GDP must equal nominal GDP
Correct answer: C
pg. 1
,2
Rationale: Nominal GDP reflects both quantities produced and prices. Real GDP
removes the effect of price changes. Nominal GDP increased only 5%, while the
price level increased approximately 8%, suggesting that the increase in nominal
GDP was more than offset by higher prices. Thus, real GDP likely declined.
3. Unemployment — Moderate
A worker voluntarily leaves a job and spends three months searching for a
position that better matches their skills. This is:
A. Structural unemployment
B. Frictional unemployment
C. Cyclical unemployment
D. Seasonal unemployment
Correct answer: B
Rationale: Frictional unemployment occurs when workers are temporarily
between jobs or searching for positions that better match their preferences and
skills.
Structural unemployment results from mismatches between workers' skills and
available jobs. Cyclical unemployment results from economic downturns.
Seasonal unemployment is associated with predictable seasonal changes in
employment.
4. Inflation — Moderate
The consumer price index rises from 250 to 260. What is the inflation rate?
A. 2%
B. 4%
C. 10%
D. 25%
Correct answer: B
Rationale:
pg. 2
,3
Therefore, the inflation rate is 4%.
5. Aggregate Demand — Difficult
Suppose consumer confidence falls sharply while other factors remain
unchanged. What is the most likely short-run effect?
A. AD shifts right
B. AD shifts left
C. SRAS shifts right
D. LRAS shifts left
Correct answer: B
Rationale: Lower consumer confidence tends to reduce household consumption.
Because consumption is a component of aggregate demand,
a decline in consumption shifts AD left.
6. Monetary Policy — Difficult
An economy is experiencing a significant recession. Which action would generally
represent expansionary monetary policy?
A. Increase the policy interest rate
B. Sell government securities
C. Reduce the money supply
D. Lower the policy interest rate
Correct answer: D
Rationale: Expansionary monetary policy attempts to increase aggregate demand.
Lower interest rates can encourage borrowing and investment and may stimulate
consumption. Selling securities and reducing money supply are contractionary
actions.
7. Fiscal Policy — Moderate
pg. 3
, 4
Which combination is most likely expansionary fiscal policy?
A. Higher taxes and lower government spending
B. Lower taxes and higher government spending
C. Higher taxes and unchanged spending
D. Lower government spending and unchanged taxes
Correct answer: B
Rationale: Expansionary fiscal policy increases aggregate demand through higher
government spending, lower taxes, or both.
8. Money — Moderate
Which characteristic is most important for something to function effectively as
money?
A. It must have intrinsic artistic value
B. It must be universally scarce
C. It must be widely accepted in exchange
D. It must be made from precious metal
Correct answer: C
Rationale: Money functions primarily as a medium of exchange, unit of account,
and store of value. Broad acceptability is essential for its monetary function.
9. Monetary Neutrality — Difficult
According to the classical long-run concept of monetary neutrality, a permanent
increase in the money supply will eventually:
A. Permanently increase real output
B. Permanently increase productivity
C. Primarily increase nominal variables such as the price level
D. Permanently reduce unemployment below its natural rate
Correct answer: C
pg. 4
ECN 211 ASU Exam 3 – Arizona State University (ASU) –
2026/2027 Academic Year – Verified Q&A
Questions 1–100
1. Business Cycles — Moderate
Which sequence best describes the typical phases of a business cycle?
A. Expansion → peak → contraction → trough
B. Trough → peak → expansion → contraction
C. Peak → expansion → trough → contraction
D. Contraction → expansion → peak → trough
Correct answer: A
Rationale: An economy generally moves from expansion to a peak, followed by
contraction, and eventually reaches a trough before another expansion begins. A
peak represents the high point of economic activity, whereas a trough represents
the low point.
• B: Places the phases in the wrong order.
• C: Expansion cannot normally follow a peak immediately in this sequence.
• D: A contraction generally follows a peak, not an expansion.
2. Real GDP — Moderate
Nominal GDP increases from $20 trillion to $21 trillion, while the GDP price index
rises by 8%. What is the most reasonable conclusion?
A. Real GDP definitely increased by 8%
B. Real GDP increased substantially more than nominal GDP
C. Real GDP likely decreased because prices rose faster than nominal output
D. Real GDP must equal nominal GDP
Correct answer: C
pg. 1
,2
Rationale: Nominal GDP reflects both quantities produced and prices. Real GDP
removes the effect of price changes. Nominal GDP increased only 5%, while the
price level increased approximately 8%, suggesting that the increase in nominal
GDP was more than offset by higher prices. Thus, real GDP likely declined.
3. Unemployment — Moderate
A worker voluntarily leaves a job and spends three months searching for a
position that better matches their skills. This is:
A. Structural unemployment
B. Frictional unemployment
C. Cyclical unemployment
D. Seasonal unemployment
Correct answer: B
Rationale: Frictional unemployment occurs when workers are temporarily
between jobs or searching for positions that better match their preferences and
skills.
Structural unemployment results from mismatches between workers' skills and
available jobs. Cyclical unemployment results from economic downturns.
Seasonal unemployment is associated with predictable seasonal changes in
employment.
4. Inflation — Moderate
The consumer price index rises from 250 to 260. What is the inflation rate?
A. 2%
B. 4%
C. 10%
D. 25%
Correct answer: B
Rationale:
pg. 2
,3
Therefore, the inflation rate is 4%.
5. Aggregate Demand — Difficult
Suppose consumer confidence falls sharply while other factors remain
unchanged. What is the most likely short-run effect?
A. AD shifts right
B. AD shifts left
C. SRAS shifts right
D. LRAS shifts left
Correct answer: B
Rationale: Lower consumer confidence tends to reduce household consumption.
Because consumption is a component of aggregate demand,
a decline in consumption shifts AD left.
6. Monetary Policy — Difficult
An economy is experiencing a significant recession. Which action would generally
represent expansionary monetary policy?
A. Increase the policy interest rate
B. Sell government securities
C. Reduce the money supply
D. Lower the policy interest rate
Correct answer: D
Rationale: Expansionary monetary policy attempts to increase aggregate demand.
Lower interest rates can encourage borrowing and investment and may stimulate
consumption. Selling securities and reducing money supply are contractionary
actions.
7. Fiscal Policy — Moderate
pg. 3
, 4
Which combination is most likely expansionary fiscal policy?
A. Higher taxes and lower government spending
B. Lower taxes and higher government spending
C. Higher taxes and unchanged spending
D. Lower government spending and unchanged taxes
Correct answer: B
Rationale: Expansionary fiscal policy increases aggregate demand through higher
government spending, lower taxes, or both.
8. Money — Moderate
Which characteristic is most important for something to function effectively as
money?
A. It must have intrinsic artistic value
B. It must be universally scarce
C. It must be widely accepted in exchange
D. It must be made from precious metal
Correct answer: C
Rationale: Money functions primarily as a medium of exchange, unit of account,
and store of value. Broad acceptability is essential for its monetary function.
9. Monetary Neutrality — Difficult
According to the classical long-run concept of monetary neutrality, a permanent
increase in the money supply will eventually:
A. Permanently increase real output
B. Permanently increase productivity
C. Primarily increase nominal variables such as the price level
D. Permanently reduce unemployment below its natural rate
Correct answer: C
pg. 4
