ECON 214
Principles of Macroeconomics
Finals Exam (Qns & Ans)
2025
General Instructions
1. Read All Questions Carefully: Make sure you understand each question.
2. Time Management: You have a specific amount of time to complete the exam.
Keep an eye on the clock and pace yourself.
3. Allowed Materials: Only use materials that are explicitly allowed. Unauthorized
materials can lead to disqualification.
4. ANS Format: Follow the required format for your ANS. For example, multiple-
choice questions might need you to select the best ANS, while essay questions
require detailed responses.
5. Academic Integrity: Adhere to the university's honor code. Any form of cheating or
plagiarism is strictly prohibited.
6. Technical Requirements: Ensure your computer and internet connection are
stable. For online exams, you might need a webcam and microphone for proctoring
purposes.
7. Submission: Submit your ANS before the time expires. Late submissions might
not be accepted.
©2024/2025
,1. What is the primary objective of contractionary monetary
policy?
a) Increase employment
b) Lower inflation
c) Stimulate economic growth
d) Increase government expenditure
ANS: b) Lower inflation
Rationale: Contractionary monetary policy aims to reduce
the money supply and increase interest rates to curb inflation.
2. Which of the following is considered a lagging economic
indicator?
a) GDP growth
b) Unemployment rate
c) Consumer confidence index
d) Stock market returns
ANS: b) Unemployment rate
Rationale: The unemployment rate is often slow to respond
to economic changes, making it a lagging indicator.
©2024/2025
,3. A negative output gap occurs when:
a) Real GDP exceeds potential GDP
b) Potential GDP exceeds real GDP
c) The economy is at full employment
d) Inflation is above 2%
ANS: b) Potential GDP exceeds real GDP
Rationale: A negative output gap indicates underutilization
of resources, meaning actual output is below potential output.
4. Which of the following effects of inflation may lead
consumers to change their spending habits?
a) Menu costs
b) Shoe leather costs
c) Wealth effects
d) All of the above
ANS: d) All of the above
Rationale: Each of these effects can lead consumers to
alter their purchasing behavior in response to inflation.
5. The liquidity trap suggests that:
©2024/2025
, a) Interest rates are high despite low inflation
b) Monetary policy is ineffective at stimulating the economy
c) Governments should increase taxes
d) Inflation is always harmful to an economy
ANS: b) Monetary policy is ineffective at stimulating the
economy
Rationale: In a liquidity trap, people prefer holding cash
over investing, leaving traditional monetary policy less
effective.
Fill-in-the-Blank Questions
6. The __________ hypothesis states that current economic
conditions can influence expectations about future inflation.
ANS: adaptive expectations
Rationale: The adaptive expectations hypothesis suggests
that people form their future expectations based on past
experiences.
7. In the context of the IS-LM model, an increase in
government spending shifts the ______ curve to the right.
ANS: IS
©2024/2025
Principles of Macroeconomics
Finals Exam (Qns & Ans)
2025
General Instructions
1. Read All Questions Carefully: Make sure you understand each question.
2. Time Management: You have a specific amount of time to complete the exam.
Keep an eye on the clock and pace yourself.
3. Allowed Materials: Only use materials that are explicitly allowed. Unauthorized
materials can lead to disqualification.
4. ANS Format: Follow the required format for your ANS. For example, multiple-
choice questions might need you to select the best ANS, while essay questions
require detailed responses.
5. Academic Integrity: Adhere to the university's honor code. Any form of cheating or
plagiarism is strictly prohibited.
6. Technical Requirements: Ensure your computer and internet connection are
stable. For online exams, you might need a webcam and microphone for proctoring
purposes.
7. Submission: Submit your ANS before the time expires. Late submissions might
not be accepted.
©2024/2025
,1. What is the primary objective of contractionary monetary
policy?
a) Increase employment
b) Lower inflation
c) Stimulate economic growth
d) Increase government expenditure
ANS: b) Lower inflation
Rationale: Contractionary monetary policy aims to reduce
the money supply and increase interest rates to curb inflation.
2. Which of the following is considered a lagging economic
indicator?
a) GDP growth
b) Unemployment rate
c) Consumer confidence index
d) Stock market returns
ANS: b) Unemployment rate
Rationale: The unemployment rate is often slow to respond
to economic changes, making it a lagging indicator.
©2024/2025
,3. A negative output gap occurs when:
a) Real GDP exceeds potential GDP
b) Potential GDP exceeds real GDP
c) The economy is at full employment
d) Inflation is above 2%
ANS: b) Potential GDP exceeds real GDP
Rationale: A negative output gap indicates underutilization
of resources, meaning actual output is below potential output.
4. Which of the following effects of inflation may lead
consumers to change their spending habits?
a) Menu costs
b) Shoe leather costs
c) Wealth effects
d) All of the above
ANS: d) All of the above
Rationale: Each of these effects can lead consumers to
alter their purchasing behavior in response to inflation.
5. The liquidity trap suggests that:
©2024/2025
, a) Interest rates are high despite low inflation
b) Monetary policy is ineffective at stimulating the economy
c) Governments should increase taxes
d) Inflation is always harmful to an economy
ANS: b) Monetary policy is ineffective at stimulating the
economy
Rationale: In a liquidity trap, people prefer holding cash
over investing, leaving traditional monetary policy less
effective.
Fill-in-the-Blank Questions
6. The __________ hypothesis states that current economic
conditions can influence expectations about future inflation.
ANS: adaptive expectations
Rationale: The adaptive expectations hypothesis suggests
that people form their future expectations based on past
experiences.
7. In the context of the IS-LM model, an increase in
government spending shifts the ______ curve to the right.
ANS: IS
©2024/2025
