BYU ECON 110 EXAM QUESTIONS WITH
CORRECT ANSWERS 2026/2027
What is the Price Level? - CORRECT ANSWER -The average level of prices of goods and services
in the economy.
What is inflation and how is it measured? - CORRECT ANSWER -An increase in the price level,
decrease in power of money and is measured by the percent change in the price level.
What is deflation and how is it measured? - CORRECT ANSWER -A decrease in the price level,
that is, a general decrease in the average of all prices.
What is disinflation and how is it measured? - CORRECT ANSWER -This occurs when the rate of
inflation declines.
How is a price index created? - CORRECT ANSWER -You start with an initial base period for
prices then gather the different prices of those same items over time
What are some problems with the CPI as a measure of the price level? - CORRECT ANSWER -It
does not accurately reflect what happens to the price of any particular good.
What is real output and how is it measured? - CORRECT ANSWER -The actual amount an
economy produces and it is measured by the GDP.
How is real GDP measured? - CORRECT ANSWER -In dollars and in relation to aggregate or total
output.
, What are some problems with real GDP as a measure of real output? - CORRECT ANSWER -1). It
may change because of price changes even if the rate of production doesn't change in an
economy
2). Only measures activities in markets, ignoring non-markets or illegal market transactions
3). Does not include the value of leisure
4). Does not include financial and second-hand transactions
5). Does not include intermediate goods
6). Does not account for the size of a population nor do changes account for population growth
7). Not a measure of individual well-being
What is potential real output? - CORRECT ANSWER -If all the products that an economy can
produced are employed fully and efficiently, then it is the maximum amount of goods an
economy can produced.
What determines changes in potential real output? - CORRECT ANSWER -Changes in resources,
advances in technology, advances in labor etc...
What is the role of the labor market in determining potential real output? - CORRECT ANSWER -
The labor market is a measure of how many people are working or looking for work. So if all of
those people had jobs then that would be the potential real output.
what is real wage? - CORRECT ANSWER -Real wage= (nominal wage)/(price level) --> how much
your wage is actually worth in the economy, takes inflation, deflation, and disinflation into
account.
What is the difference between nominal or money wages vs. real wages? - CORRECT ANSWER -
nominal wages are measured in terms of money and not their buying power like real wages
CORRECT ANSWERS 2026/2027
What is the Price Level? - CORRECT ANSWER -The average level of prices of goods and services
in the economy.
What is inflation and how is it measured? - CORRECT ANSWER -An increase in the price level,
decrease in power of money and is measured by the percent change in the price level.
What is deflation and how is it measured? - CORRECT ANSWER -A decrease in the price level,
that is, a general decrease in the average of all prices.
What is disinflation and how is it measured? - CORRECT ANSWER -This occurs when the rate of
inflation declines.
How is a price index created? - CORRECT ANSWER -You start with an initial base period for
prices then gather the different prices of those same items over time
What are some problems with the CPI as a measure of the price level? - CORRECT ANSWER -It
does not accurately reflect what happens to the price of any particular good.
What is real output and how is it measured? - CORRECT ANSWER -The actual amount an
economy produces and it is measured by the GDP.
How is real GDP measured? - CORRECT ANSWER -In dollars and in relation to aggregate or total
output.
, What are some problems with real GDP as a measure of real output? - CORRECT ANSWER -1). It
may change because of price changes even if the rate of production doesn't change in an
economy
2). Only measures activities in markets, ignoring non-markets or illegal market transactions
3). Does not include the value of leisure
4). Does not include financial and second-hand transactions
5). Does not include intermediate goods
6). Does not account for the size of a population nor do changes account for population growth
7). Not a measure of individual well-being
What is potential real output? - CORRECT ANSWER -If all the products that an economy can
produced are employed fully and efficiently, then it is the maximum amount of goods an
economy can produced.
What determines changes in potential real output? - CORRECT ANSWER -Changes in resources,
advances in technology, advances in labor etc...
What is the role of the labor market in determining potential real output? - CORRECT ANSWER -
The labor market is a measure of how many people are working or looking for work. So if all of
those people had jobs then that would be the potential real output.
what is real wage? - CORRECT ANSWER -Real wage= (nominal wage)/(price level) --> how much
your wage is actually worth in the economy, takes inflation, deflation, and disinflation into
account.
What is the difference between nominal or money wages vs. real wages? - CORRECT ANSWER -
nominal wages are measured in terms of money and not their buying power like real wages
