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ECON 104 Bille Goffe Final Exam (NEW UPDATED VERSION) LATEST ACTUAL
EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED QUESTIONS AND
ANSWERS) | GUARANTEED PASS A+ [2026-2027]
ECON 104 — Practice Questions (Batch
1. GDP (nominal) = $10 trillion; price index (base year = 100) = 125. Real GDP = ?
A) $8 trillion
B) $10 trillion
C) $12.5 trillion
D) $7.5 trillion
Answer: A
Rationale: Real GDP = Nominal / (Price index/100) = .25 = $8 trillion.
2. If consumption = $6T, investment = $1T, government purchases = $2T, exports = $0.5T,
imports = $0.8T, GDP = ?
A) $8.7T
B) $8.5T
C) $9.3T
D) $7.7T
Answer: A
Rationale: GDP = C + I + G + (X − M) = 6 +1 +2 + (0.5 −0.8)=9 −0.3=8.7T.
3. A rise in the unemployment rate from 5% to 6% while labor force constant implies:
A) Employment rose
B) Employment fell
C) Labor-force participation rose
D) Natural rate decreased
Answer: B
Rationale: With constant labor force, higher unemployment rate means more
unemployed → fewer employed.
4. Which is included in GDP?
A) Resale of a used car via dealer
B) Purchase of a newly built house
C) Transfer payment to unemployed
D) Volunteer labor value
Answer: B
Rationale: New house counts as final good; used goods and transfer payments are
excluded.
5. CPI next year = 110, this year = 100. Inflation rate = ?
A) 10%
2026 2027 GRADED A+
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B) 9%
C) 11%
D) 100%
Answer: A
Rationale: (110 −100)/100 = 0.10 = 10%.
6. Real wage falls if:
A) Nominal wage rises slower than inflation
B) Nominal wage rises faster than inflation
C) Nominal wage unchanged and prices fall
D) None of the above
Answer: A
Rationale: Real wage = nominal wage / price level; if price increases faster, real wage
falls.
7. Structural unemployment is best described as:
A) Short-term job search
B) Skill mismatch between workers and jobs
C) Seasonal layoffs
D) Cyclical downturn
Answer: B
Rationale: Structural = mismatch of skills or geographic mismatch.
8. Marginal propensity to consume (MPC) = 0.8. A $1000 increase in income raises
consumption by:
A) $200
B) $800
C) $1000
D) $500
Answer: B
Rationale: ΔC = MPC × ΔY = 0.8 × 1000 = 800.
9. The spending multiplier (simple) with MPC=0.75 equals:
A) 1.25
B) 2
C) 4
D) 0.25
Answer: C
Rationale: Multiplier = 1/(1 − MPC) = 1/0.25 = 4.
10. If the Fed buys government bonds, then:
A) Reserves decrease, money supply decreases
B) Reserves increase, money supply increases
C) Interest rates increase
D) Bank lending falls
Answer: B
Rationale: Fed purchase credits bank reserves → increases money supply and lowers
rates.
11. Nominal interest rate = 6%, inflation expected = 2%. Real interest (approx) = ?
A) 8%
B) 4%
2026 2027 GRADED A+
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C) 3%
D) 2%
Answer: B
Rationale: Real ≈ nominal − inflation = 6% − 2% = 4%.
12. A binding price floor causes:
A) Shortage
B) Surplus
C) Equilibrium
D) None of the above
Answer: B
Rationale: Floor above equilibrium → quantity supplied > demanded = surplus.
13. If the economy is at full employment and gov’t increases spending without raising taxes,
in short run AD shifts:
A) Right → higher output, higher price level
B) Left → lower output
C) Right → no effect on prices
D) Uncertain
Answer: A
Rationale: Expansionary fiscal policy increases AD → higher output and inflation in
short run.
14. CPI overstates inflation if:
A) Substitution bias exists
B) Quality adjustments fully account for improvements
C) Only new goods bias exists
D) Index uses chained weights
Answer: A
Rationale: CPI uses fixed basket — ignores substitution toward relatively cheaper goods
→ overstates inflation.
15. Frictional unemployment increases if:
A) Job matching improves
B) People take longer to search for better jobs
C) Unemployment benefits shorten search
D) Technology eliminates jobs
Answer: B
Rationale: Frictional = short-term search; longer search increases it.
16. The natural rate of unemployment includes:
A) Only cyclical unemployment
B) Frictional + structural unemployment
C) Only frictional unemployment
D) Unemployment rate during recession
Answer: B
Rationale: Natural rate = frictional + structural; excludes cyclical.
17. If aggregate supply is vertical in the long run, an increase in AD leads to:
A) Higher real GDP only
B) Higher price level only
C) Lower price level only
2026 2027 GRADED A+
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D) No change at all
Answer: B
Rationale: Vertical LRAS → output at potential; AD shifts change price level, not real
output.
18. The Fisher effect predicts that:
A) Nominal rates adjust one-for-one with expected inflation in long run
B) Real rates equal nominal rates
C) Inflation causes real rate to fall permanently
D) None of the above
Answer: A
Rationale: Fisher effect: nominal interest ≈ real rate + expected inflation; long-run one-
to-one.
19. A country with trade surplus has:
A) NX > 0 and net capital outflow > 0
B) NX < 0 and NCO > 0
C) NX > 0 and NCO < 0
D) NX = 0
Answer: A
Rationale: NX = net exports = NCO in open-economy identity; surplus → positive
NCO.
20. Suppose required reserve ratio = 10%, initial deposit $1,000. Maximum change in money
supply = ?
A) $10,000
B) $9,000
C) $1,000
D) $100
Answer: B
Rationale: Money multiplier = 1/rr =10; max MS change = 1000 × (1/0.10 −1)
depending on definition; standard: total potential deposit creation = 1000 ×10 =10,000,
but initial $1,000 included; increase = 9,000. Many instructors accept 10,000 as total.
Here we select 9,000 as net increase.
21. AD curve shifts left if:
A) Consumers become more optimistic
B) The Fed increases money supply
C) Government reduces spending
D) Export demand rises
Answer: C
Rationale: Fiscal contraction (↓G) reduces AD → left shift.
22. A tariff imposed on imports will:
A) Increase consumer surplus
B) Increase domestic production and government revenue, reduce consumer surplus
C) Reduce domestic production
D) Make country better off if trading partner retaliates
Answer: B
Rationale: Tariff raises domestic price → protects producers, creates government
revenue, consumers lose.
2026 2027 GRADED A+
ECON 104 Bille Goffe Final Exam (NEW UPDATED VERSION) LATEST ACTUAL
EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED QUESTIONS AND
ANSWERS) | GUARANTEED PASS A+ [2026-2027]
ECON 104 — Practice Questions (Batch
1. GDP (nominal) = $10 trillion; price index (base year = 100) = 125. Real GDP = ?
A) $8 trillion
B) $10 trillion
C) $12.5 trillion
D) $7.5 trillion
Answer: A
Rationale: Real GDP = Nominal / (Price index/100) = .25 = $8 trillion.
2. If consumption = $6T, investment = $1T, government purchases = $2T, exports = $0.5T,
imports = $0.8T, GDP = ?
A) $8.7T
B) $8.5T
C) $9.3T
D) $7.7T
Answer: A
Rationale: GDP = C + I + G + (X − M) = 6 +1 +2 + (0.5 −0.8)=9 −0.3=8.7T.
3. A rise in the unemployment rate from 5% to 6% while labor force constant implies:
A) Employment rose
B) Employment fell
C) Labor-force participation rose
D) Natural rate decreased
Answer: B
Rationale: With constant labor force, higher unemployment rate means more
unemployed → fewer employed.
4. Which is included in GDP?
A) Resale of a used car via dealer
B) Purchase of a newly built house
C) Transfer payment to unemployed
D) Volunteer labor value
Answer: B
Rationale: New house counts as final good; used goods and transfer payments are
excluded.
5. CPI next year = 110, this year = 100. Inflation rate = ?
A) 10%
2026 2027 GRADED A+
,2|Page
B) 9%
C) 11%
D) 100%
Answer: A
Rationale: (110 −100)/100 = 0.10 = 10%.
6. Real wage falls if:
A) Nominal wage rises slower than inflation
B) Nominal wage rises faster than inflation
C) Nominal wage unchanged and prices fall
D) None of the above
Answer: A
Rationale: Real wage = nominal wage / price level; if price increases faster, real wage
falls.
7. Structural unemployment is best described as:
A) Short-term job search
B) Skill mismatch between workers and jobs
C) Seasonal layoffs
D) Cyclical downturn
Answer: B
Rationale: Structural = mismatch of skills or geographic mismatch.
8. Marginal propensity to consume (MPC) = 0.8. A $1000 increase in income raises
consumption by:
A) $200
B) $800
C) $1000
D) $500
Answer: B
Rationale: ΔC = MPC × ΔY = 0.8 × 1000 = 800.
9. The spending multiplier (simple) with MPC=0.75 equals:
A) 1.25
B) 2
C) 4
D) 0.25
Answer: C
Rationale: Multiplier = 1/(1 − MPC) = 1/0.25 = 4.
10. If the Fed buys government bonds, then:
A) Reserves decrease, money supply decreases
B) Reserves increase, money supply increases
C) Interest rates increase
D) Bank lending falls
Answer: B
Rationale: Fed purchase credits bank reserves → increases money supply and lowers
rates.
11. Nominal interest rate = 6%, inflation expected = 2%. Real interest (approx) = ?
A) 8%
B) 4%
2026 2027 GRADED A+
,3|Page
C) 3%
D) 2%
Answer: B
Rationale: Real ≈ nominal − inflation = 6% − 2% = 4%.
12. A binding price floor causes:
A) Shortage
B) Surplus
C) Equilibrium
D) None of the above
Answer: B
Rationale: Floor above equilibrium → quantity supplied > demanded = surplus.
13. If the economy is at full employment and gov’t increases spending without raising taxes,
in short run AD shifts:
A) Right → higher output, higher price level
B) Left → lower output
C) Right → no effect on prices
D) Uncertain
Answer: A
Rationale: Expansionary fiscal policy increases AD → higher output and inflation in
short run.
14. CPI overstates inflation if:
A) Substitution bias exists
B) Quality adjustments fully account for improvements
C) Only new goods bias exists
D) Index uses chained weights
Answer: A
Rationale: CPI uses fixed basket — ignores substitution toward relatively cheaper goods
→ overstates inflation.
15. Frictional unemployment increases if:
A) Job matching improves
B) People take longer to search for better jobs
C) Unemployment benefits shorten search
D) Technology eliminates jobs
Answer: B
Rationale: Frictional = short-term search; longer search increases it.
16. The natural rate of unemployment includes:
A) Only cyclical unemployment
B) Frictional + structural unemployment
C) Only frictional unemployment
D) Unemployment rate during recession
Answer: B
Rationale: Natural rate = frictional + structural; excludes cyclical.
17. If aggregate supply is vertical in the long run, an increase in AD leads to:
A) Higher real GDP only
B) Higher price level only
C) Lower price level only
2026 2027 GRADED A+
, 4|Page
D) No change at all
Answer: B
Rationale: Vertical LRAS → output at potential; AD shifts change price level, not real
output.
18. The Fisher effect predicts that:
A) Nominal rates adjust one-for-one with expected inflation in long run
B) Real rates equal nominal rates
C) Inflation causes real rate to fall permanently
D) None of the above
Answer: A
Rationale: Fisher effect: nominal interest ≈ real rate + expected inflation; long-run one-
to-one.
19. A country with trade surplus has:
A) NX > 0 and net capital outflow > 0
B) NX < 0 and NCO > 0
C) NX > 0 and NCO < 0
D) NX = 0
Answer: A
Rationale: NX = net exports = NCO in open-economy identity; surplus → positive
NCO.
20. Suppose required reserve ratio = 10%, initial deposit $1,000. Maximum change in money
supply = ?
A) $10,000
B) $9,000
C) $1,000
D) $100
Answer: B
Rationale: Money multiplier = 1/rr =10; max MS change = 1000 × (1/0.10 −1)
depending on definition; standard: total potential deposit creation = 1000 ×10 =10,000,
but initial $1,000 included; increase = 9,000. Many instructors accept 10,000 as total.
Here we select 9,000 as net increase.
21. AD curve shifts left if:
A) Consumers become more optimistic
B) The Fed increases money supply
C) Government reduces spending
D) Export demand rises
Answer: C
Rationale: Fiscal contraction (↓G) reduces AD → left shift.
22. A tariff imposed on imports will:
A) Increase consumer surplus
B) Increase domestic production and government revenue, reduce consumer surplus
C) Reduce domestic production
D) Make country better off if trading partner retaliates
Answer: B
Rationale: Tariff raises domestic price → protects producers, creates government
revenue, consumers lose.
2026 2027 GRADED A+
