Macroeconomics CLEP prep Exam
Questions & Answers
LRAS - ANSWER-Long Run Aggregate Supply, The natural level of GDP, shown
vertical on a graph. When LRAS shifts, SRAS (Short Run Aggregate Supply) will follow .
Tangible Assets - ANSWER-Real Estate, Equipment, and Cash (physical assets)
Intangible Assets - ANSWER-Patents, Goodwill, and Trademarks (lack physical
substance)
Substitution effect - ANSWER-Economic rule stating that if two items satisfy the same
need and the price of one rises, people will buy the other.
Equilibrium price - ANSWER-The price at which the number of products that businesses
are willing to supply equals the amount of products that consumers are willing to buy at
a specific point in time.
Excess Supply - ANSWER-When quantity supplied is more than quantity demanded.
The formula for excess supply is: Supply - Demand = Excess Supply
Reservation price - ANSWER-Maximum price that a customer is willing to pay for a
good
Buyer's surplus - ANSWER-The difference between a buyer's reservation price (the
price they want to pay) and the actual price paid for a good or service
Seller's surplus - ANSWER-The difference between the price received by the seller and
the seller's reservation price
Total surplus - ANSWER-The difference between the buyer's reservation price and the
seller's reservation price. Consumer surplus + Producer surplus
Free market - ANSWER-A market with unrestricted trading of goods, where the prices
of goods are determined by supply and demand.
Traditional economic system - ANSWER-In a traditional economic system, the
availability of resources is based on inheritance. Goods are only produced for
consumption and surpluses do not occur. This type of economy is normally found in
South American, Asian, and African countries.
, Command economic system - ANSWER-An economic system in which all factors of
production are owned and controlled by the government. Often referred to as a centrally
planned economic system. Example: Former Soviet Union.
Mixed market - ANSWER-Combines pure market and command.
Example: Japan
Law of Diminishing Marginal Utility - ANSWER-A law stating that as a person consumes
additional units of a good, eventually the utility gained from each additional unit of the
good decreases.
Law of Demand - ANSWER-A law stating that as the price of a product increases the
demand of that product decreases, while if the price of a product decreases the demand
for that product increases.
Law of Supply - ANSWER-The law that states that as the price of any good or service
increases, the quantity of that good or service will increase and vice versa.
Liquidity - ANSWER-The ease with which an asset can be converted to currency.
Macroeconomics - ANSWER-The part of economics study that looks at the operation of
a nation's economy as a whole
Asset - ANSWER-(n) something of value; a resource; an advantage
Standard of living - ANSWER-The degree to which people have access to goods and
services that make their lives better.
Labor productivity - ANSWER-The output per employed worker
Seller's reservation price - ANSWER-The smallest dollar amount for which a seller
would be willing to sell an additional unit, generally equal to marginal cost
Aggregation - ANSWER-The adding up of individual economic variables to obtain a
large, general picture of the economy.
Aggregate demand - ANSWER-The total demand for a country's output. It includes
demands for consumption, investment, government purchases, and net exports.
Aggregate supply - ANSWER-Total supply of goods and services in an economy
Business cycle - ANSWER-A record of economic increases and decreases over time.
Capitalism - ANSWER-A free market system that relies on private property ownership
and supply and demand
Questions & Answers
LRAS - ANSWER-Long Run Aggregate Supply, The natural level of GDP, shown
vertical on a graph. When LRAS shifts, SRAS (Short Run Aggregate Supply) will follow .
Tangible Assets - ANSWER-Real Estate, Equipment, and Cash (physical assets)
Intangible Assets - ANSWER-Patents, Goodwill, and Trademarks (lack physical
substance)
Substitution effect - ANSWER-Economic rule stating that if two items satisfy the same
need and the price of one rises, people will buy the other.
Equilibrium price - ANSWER-The price at which the number of products that businesses
are willing to supply equals the amount of products that consumers are willing to buy at
a specific point in time.
Excess Supply - ANSWER-When quantity supplied is more than quantity demanded.
The formula for excess supply is: Supply - Demand = Excess Supply
Reservation price - ANSWER-Maximum price that a customer is willing to pay for a
good
Buyer's surplus - ANSWER-The difference between a buyer's reservation price (the
price they want to pay) and the actual price paid for a good or service
Seller's surplus - ANSWER-The difference between the price received by the seller and
the seller's reservation price
Total surplus - ANSWER-The difference between the buyer's reservation price and the
seller's reservation price. Consumer surplus + Producer surplus
Free market - ANSWER-A market with unrestricted trading of goods, where the prices
of goods are determined by supply and demand.
Traditional economic system - ANSWER-In a traditional economic system, the
availability of resources is based on inheritance. Goods are only produced for
consumption and surpluses do not occur. This type of economy is normally found in
South American, Asian, and African countries.
, Command economic system - ANSWER-An economic system in which all factors of
production are owned and controlled by the government. Often referred to as a centrally
planned economic system. Example: Former Soviet Union.
Mixed market - ANSWER-Combines pure market and command.
Example: Japan
Law of Diminishing Marginal Utility - ANSWER-A law stating that as a person consumes
additional units of a good, eventually the utility gained from each additional unit of the
good decreases.
Law of Demand - ANSWER-A law stating that as the price of a product increases the
demand of that product decreases, while if the price of a product decreases the demand
for that product increases.
Law of Supply - ANSWER-The law that states that as the price of any good or service
increases, the quantity of that good or service will increase and vice versa.
Liquidity - ANSWER-The ease with which an asset can be converted to currency.
Macroeconomics - ANSWER-The part of economics study that looks at the operation of
a nation's economy as a whole
Asset - ANSWER-(n) something of value; a resource; an advantage
Standard of living - ANSWER-The degree to which people have access to goods and
services that make their lives better.
Labor productivity - ANSWER-The output per employed worker
Seller's reservation price - ANSWER-The smallest dollar amount for which a seller
would be willing to sell an additional unit, generally equal to marginal cost
Aggregation - ANSWER-The adding up of individual economic variables to obtain a
large, general picture of the economy.
Aggregate demand - ANSWER-The total demand for a country's output. It includes
demands for consumption, investment, government purchases, and net exports.
Aggregate supply - ANSWER-Total supply of goods and services in an economy
Business cycle - ANSWER-A record of economic increases and decreases over time.
Capitalism - ANSWER-A free market system that relies on private property ownership
and supply and demand
