ECO 111 Final Exam Review
(2025/2026) questions n answers
Long Run Aggregate Supply Curve - correct answer ✔✔- A vertical line representing the real
output of goods and services after full adjustment has occurred
- It represents the real GDP of the economy under conditions of full employment; the economy
is on its production possibilities curve
Aggregate Demand - correct answer ✔✔When the aggregate demand curve is derived, we are
looking at total planned expenditures on all goods and services (i.e., the entire economic
system)
Aggregate Supply - correct answer ✔✔The total of all planned production for the economy
Effect of Full-Employment level - correct answer ✔✔- No, classical economists assumed wages
would always adjust to the full employment level
- Or wages would drop to a level that enables full employment
Long-run equilibrium persistent inflation - correct answer ✔✔Occurs when the price level
adjusts until total planned real expenditures equal actual real GDP
Total planned real expenditures and total planned production - correct answer ✔✔
, Effect of inflation or deflation - correct answer ✔✔Inflation: One event that causes inflation is a
decline in LRAS; another occurs in a growing economy when AD growth exceeds the increase in
LRAS
Deflation: If AD is stationary during a period of economic growth, the LRAS curve shifts
rightward along the AD curve and the equilibrium price level falls
Effect of devaluation or appreciation of the dollar - correct answer ✔✔
Say's Law - correct answer ✔✔- "Build it & they will come"
- A dictum of economist J.B. Say that supply creates its own demand
- Producing goods and services generates the means and the willingness to purchase other
goods and services
- Supply creates its own demand; hence it follows that desired expenditures will equal actual
expenditures
Money Illusion - correct answer ✔✔Reacting to changes in money prices rather than relative
prices
Keynesian Model - correct answer ✔✔- Relationship between total planned economywide
production and the price level in the short run, all other things held constant
- If prices adjust incompletely in the short run, the curve is positively sloped
Short-run aggregate supply curve - correct answer ✔✔Relationship between total planned
economywide production and the price level in the short run, all other things held constant
If prices adjust incompletely in the short run, the curve is positively sloped
(2025/2026) questions n answers
Long Run Aggregate Supply Curve - correct answer ✔✔- A vertical line representing the real
output of goods and services after full adjustment has occurred
- It represents the real GDP of the economy under conditions of full employment; the economy
is on its production possibilities curve
Aggregate Demand - correct answer ✔✔When the aggregate demand curve is derived, we are
looking at total planned expenditures on all goods and services (i.e., the entire economic
system)
Aggregate Supply - correct answer ✔✔The total of all planned production for the economy
Effect of Full-Employment level - correct answer ✔✔- No, classical economists assumed wages
would always adjust to the full employment level
- Or wages would drop to a level that enables full employment
Long-run equilibrium persistent inflation - correct answer ✔✔Occurs when the price level
adjusts until total planned real expenditures equal actual real GDP
Total planned real expenditures and total planned production - correct answer ✔✔
, Effect of inflation or deflation - correct answer ✔✔Inflation: One event that causes inflation is a
decline in LRAS; another occurs in a growing economy when AD growth exceeds the increase in
LRAS
Deflation: If AD is stationary during a period of economic growth, the LRAS curve shifts
rightward along the AD curve and the equilibrium price level falls
Effect of devaluation or appreciation of the dollar - correct answer ✔✔
Say's Law - correct answer ✔✔- "Build it & they will come"
- A dictum of economist J.B. Say that supply creates its own demand
- Producing goods and services generates the means and the willingness to purchase other
goods and services
- Supply creates its own demand; hence it follows that desired expenditures will equal actual
expenditures
Money Illusion - correct answer ✔✔Reacting to changes in money prices rather than relative
prices
Keynesian Model - correct answer ✔✔- Relationship between total planned economywide
production and the price level in the short run, all other things held constant
- If prices adjust incompletely in the short run, the curve is positively sloped
Short-run aggregate supply curve - correct answer ✔✔Relationship between total planned
economywide production and the price level in the short run, all other things held constant
If prices adjust incompletely in the short run, the curve is positively sloped
