TAMU ECON 203 EXAM 2 FINAL PAPER 2026
EXAM QUESTIONS AND SOLUTIONS 100
PERCENT CORRECT
◉ Natural Resources Answer: production inputs that come from the
earth.
◉ Trade-offs: The poorer the country.... Answer: the harder the
trade-off
◉ "Poverty Trap" Answer: one of the main justifications for foreign
aid that provides loans or funding for investment and development
◉ What is the main focus of growth theories? Answer: accumulation
of physical capital
◉ Growth Theories Answer: Early growth models
GDP per capita = f (physical capital per worker)
◉ diminishing marginal returns Answer: as physical capital
increases the resulting increases in GDP are getting smaller and
smaller
,◉ Diminishing marginal return on a country's capital Answer:
countries that start with very little physical capital will get a higher
return from adding a unit of capital then a country that starts at a
higher initial level will
◉ Absolute Convergence (catch-up) effect Answer: Poor countries
will grow faster then rich ones, until they "catch up" and all
countries "converge" to the same growth rate and income level
◉ Convergence Answer: conditional convergence means that
standards of living will converge only within groups of countries
having similar characteristics
◉ full employment Answer: only natural unemployment (no
cyclical)
◉ Components of Aggregate Expenditure Answer: Consumption (C)
Investment (I)
Government Spending (G)
Net Exports (NX)
◉ Aggregate Expenditure (calculation) Answer: Y= C+I+G+NX
, ◉ Factors that affect CONSUMPTION: Answer: Current Income
Wealth
Expected future income
Interest rates on saving and borrowing
◉ Marginal Propensity to Consume (MCP) Answer: traction of the
disposable income that is spent on consumption
(higher for poor households)
◉ Determinants of Aggregate Consumption Answer: if current
income, wealth or expected future income increase, effect on
consumption increases
if interest rate increases, effect on consumption decreases
◉ Investment: economic terms Answer: -savings: households set
aside resources (savings accounts, stocks, bonds)
-investment: firms borrow in order to invest in new productive
capital
◉ factors the affect investment: Answer: expected profitability
interest rates
EXAM QUESTIONS AND SOLUTIONS 100
PERCENT CORRECT
◉ Natural Resources Answer: production inputs that come from the
earth.
◉ Trade-offs: The poorer the country.... Answer: the harder the
trade-off
◉ "Poverty Trap" Answer: one of the main justifications for foreign
aid that provides loans or funding for investment and development
◉ What is the main focus of growth theories? Answer: accumulation
of physical capital
◉ Growth Theories Answer: Early growth models
GDP per capita = f (physical capital per worker)
◉ diminishing marginal returns Answer: as physical capital
increases the resulting increases in GDP are getting smaller and
smaller
,◉ Diminishing marginal return on a country's capital Answer:
countries that start with very little physical capital will get a higher
return from adding a unit of capital then a country that starts at a
higher initial level will
◉ Absolute Convergence (catch-up) effect Answer: Poor countries
will grow faster then rich ones, until they "catch up" and all
countries "converge" to the same growth rate and income level
◉ Convergence Answer: conditional convergence means that
standards of living will converge only within groups of countries
having similar characteristics
◉ full employment Answer: only natural unemployment (no
cyclical)
◉ Components of Aggregate Expenditure Answer: Consumption (C)
Investment (I)
Government Spending (G)
Net Exports (NX)
◉ Aggregate Expenditure (calculation) Answer: Y= C+I+G+NX
, ◉ Factors that affect CONSUMPTION: Answer: Current Income
Wealth
Expected future income
Interest rates on saving and borrowing
◉ Marginal Propensity to Consume (MCP) Answer: traction of the
disposable income that is spent on consumption
(higher for poor households)
◉ Determinants of Aggregate Consumption Answer: if current
income, wealth or expected future income increase, effect on
consumption increases
if interest rate increases, effect on consumption decreases
◉ Investment: economic terms Answer: -savings: households set
aside resources (savings accounts, stocks, bonds)
-investment: firms borrow in order to invest in new productive
capital
◉ factors the affect investment: Answer: expected profitability
interest rates
