ECN 211 Final Exam Review Questions
and Answers12
Wealth effect - ANSWERS -As the price level decreases, the real value of a households holding of
money increases. So when real wealth increases, quantity demanded increases.
Interest rate effect - ANSWERS -When the price level decreases, that decreases the amount of
money that households want to hold which then decreases the interest rate and increases
quantity demanded.
What effect does an increase in interest rate have on the quantity of money demanded? -
ANSWERS -An increase in interest rate, increases the cost of holding mean which then
decreases the quantity of money demanded.
Real GDP is commonly used for what? - ANSWERS -Short run changes.
When real GDP falls, so does what? - ANSWERS -- Personal income
- Corporate profits
- Consumer spending
- Investment spending
- Industrial production
When the overall economy declines that is due to what? - ANSWERS -- Reduction in spending in
factories
- Housing
- Inventory
, When real GDP declines, what happens to the unemployment rate? - ANSWERS -It increases.
What is the natural rate of unemployment? - ANSWERS -5% or 6%.
In the short run, what can money supply do? - ANSWERS -It can temporarily push real GDP away
from the long run.
Model of aggregate demand/supply - ANSWERS -Explains the short-run fluctuations around its
long-run trend.
Aggregate demand - ANSWERS -The curve that shows the quantity of goods and services
households, firms, government, and customers from abroad want to buy at each price level.
Aggregate supply - ANSWERS -The curve that shows the quantity of goods and services firms
choose to produce or sell at each price level.
When there's a lower interest rate, what affect does that have on the quantity demanded? -
ANSWERS -It increases.
When the price level decreases, what affect does that have on the interest rate, spending, and
quantity? - ANSWERS -- Interest rate decreases
- Spending increases
- Quantity increases
As the real exchange dollar value decreases... - ANSWERS -Quantity demanded increases.
When consumption (C), investment (I), government purchases (G), and net exports (NX)
increases, how does the aggregate demand curve shift? - ANSWERS -It shifts to the right.
and Answers12
Wealth effect - ANSWERS -As the price level decreases, the real value of a households holding of
money increases. So when real wealth increases, quantity demanded increases.
Interest rate effect - ANSWERS -When the price level decreases, that decreases the amount of
money that households want to hold which then decreases the interest rate and increases
quantity demanded.
What effect does an increase in interest rate have on the quantity of money demanded? -
ANSWERS -An increase in interest rate, increases the cost of holding mean which then
decreases the quantity of money demanded.
Real GDP is commonly used for what? - ANSWERS -Short run changes.
When real GDP falls, so does what? - ANSWERS -- Personal income
- Corporate profits
- Consumer spending
- Investment spending
- Industrial production
When the overall economy declines that is due to what? - ANSWERS -- Reduction in spending in
factories
- Housing
- Inventory
, When real GDP declines, what happens to the unemployment rate? - ANSWERS -It increases.
What is the natural rate of unemployment? - ANSWERS -5% or 6%.
In the short run, what can money supply do? - ANSWERS -It can temporarily push real GDP away
from the long run.
Model of aggregate demand/supply - ANSWERS -Explains the short-run fluctuations around its
long-run trend.
Aggregate demand - ANSWERS -The curve that shows the quantity of goods and services
households, firms, government, and customers from abroad want to buy at each price level.
Aggregate supply - ANSWERS -The curve that shows the quantity of goods and services firms
choose to produce or sell at each price level.
When there's a lower interest rate, what affect does that have on the quantity demanded? -
ANSWERS -It increases.
When the price level decreases, what affect does that have on the interest rate, spending, and
quantity? - ANSWERS -- Interest rate decreases
- Spending increases
- Quantity increases
As the real exchange dollar value decreases... - ANSWERS -Quantity demanded increases.
When consumption (C), investment (I), government purchases (G), and net exports (NX)
increases, how does the aggregate demand curve shift? - ANSWERS -It shifts to the right.
