EC 111- ZIRLOTT - FINAL EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Recession - Answers A period of declining real incomes and rising unemployments
Depression - Answers Severe recession
3 Key Facts about economic fluctuations - Answers Fact 1- economic fluctuations are irregular and
unpredictable
- Fluctuations in the economy are often called the business cycle
- When GDP grows rapidly, business is good
- GDP falls during recessions
Fact 2- most macroeconomic quantities fluctuate together
- When monitoring short run fluctuations it doesn't matter which measure of economic activity you
look at
Fact 3- as output falls, unemployment rises
- Changes in the economy's output of goods and services are strongly correlated with the changes in
the economy's utilization of its labor force
- GDP declines, rate of unemployment rises
The assumption of classical economics - Answers - according to the classical macroeconomics theory,
changes in the money supply affect nominal variables but not real variables
The Model of aggregate demand and aggregate supply - Answers - aggregate- demand curve shows
the quantity of goods and services that households, firms, the government, and customers abroad
want to buy at each price level
- Aggregate- supply curve shows the quantity of goods and services that firms produce and sell at
each price level.
Aggregate Demand Curve - Answers - slopes downward
- a decrease in the economy overall level of prices raises the quantity of goods and services
demanded
Why does the AG demand curve downward - Answers - Y= C + I + G + NX
- Three distinct reasons a fall in price level increases the quantity of goods and services demanded
- Consumers are wealthier, which stimulates the demand for consumption good
- Interest rates fall, which stimulates the demand for investment goods
- The currency depreciates, which stimulates the demand for net exports
- Each of these also work in reverse
Aggregate Supply Curve - Answers - In the long run the supply curve is vertical
- The overall price level does not affects ability to produce goods
- Why the long run curve may shift
- Shift are caused by changes in natural level of output
- Shifts are caused by:
- Changes in labor
-- If minimum wage was raised, less goods are produced, long run curve would shift left
- Changes in capital
-- Increase in capital stock, more good, long run curve shift right
- Changes in natural resources
-- Discover new material, more goods, long run shift to right
--Change in weather making goods harder to produce, long run shift to left
- Changes in technological knowledge
- Easier to make good, long run shift to right
Two most important forces- technology and monetary policy - Answers technology - shifts supply
curve because more goods
Fed increases money supply demand curve would shift right
The short run aggregate supply curve slopes upward - Answers Price level does affect
Three theories for upward slope
Sticky- wage theory - Answers Wages are based on expected prices and do not respond immediately
when actual price is different
sticky - price theory - Answers Slow adjustment to prices
Quantity of output supplied= natural level of output+a - Answers a= Actual price level- expected price
level
, effects of a shift in aggregate demand - Answers -In the short run, shifts in aggregate demand cause
fluctuations in the economy's output of goods and services
-In the long run, shifts in aggregate demand affect the overall price level but do not affect output
Effects of a shift in aggregate supply - Answers -Shifts in aggregate supply can cause stagflation (falling
output and rising prices)
- Policymakers can make output return to natural level but cause inflation
Phillips Curve - Answers short run tradeoff between inflation and unemployment
Vertical long run phillips curve - Answers natural rate hypothesis - the claim that unemployment
eventually returns to its normal or natural rate regardless of the inflation rate
Market - Answers a group of buys and sellers of a particular good or service
- buyers determine demand
- sellers determine supply
competitive market - Answers a market in which there are so many buyers and so many sellers that
each has a negligible impact on market price
perfectly competitive market - Answers - the goods are offered for sale are all exactly the same time
- the buyers and sellers are so numerous that no single buyer or seller has any influence over the
market price
monopoly - Answers one seller, seller determines the market price
quantity demanded - Answers - the amount of the good that buyers are willing and able to purchase
law of demand - Answers - other things equal, when the price of a good rises, quantity demanded
falls, when the price, quantity demand rises
demand schedule - Answers - table that shows the relationship between the price of a good and the
quantity demanded
demand curve - Answers the line relating price and quantity demanded
- the demand curve slopes downward because lower price means greater quantity demanded
market demand - Answers - the sum of the individual demands for a particular good or service
normal good - Answers - the demand for a good falls when income falls
-ex: buy less ice cream when lose job
inferior good - Answers - demand for a good rises when income falls
- ex: a bus ride instead of buying a car
substitutes - Answers -when the fall in price of one good reduces the demand for another good
- ex: the price of hotdogs fall, people buy less hamburgers
Compliments - Answers - when a fall in price of one goods raises the demand for another good
- ex: the price in peanut butter falls people buy more jelly
Tastes - Answers - if you like ice cream, you will buy more of it
expectations - Answers - how your expectations for the future will affect your demand for a good or
service today
Number of buyers - Answers - if more people buy something quantity demanded would increase and
market demand would increase
Quantity Supplied - Answers - the amount that sellers are willing and able to sell
Law of supply - Answers - other things equal, when the price of a good rises, quantity supplied rises,
when the price falls, the quantity supplied falls
supply schedule - Answers the relationship between the price of a good and the quantity supplied
- supply curve curves upward because other things equal a higher price means a greater quantity
supplied
things that shift the demand curve - Answers income and price of related goods
things that shift the supply curve - Answers input prices, technology, expectations, number of sellers
equilibrium price - Answers - the quantity of the good that buyers are willing and able to buy exactly
balances the quantity that sellers are willing and able to sell
surplus - Answers suppliers are unable to sell all they want at a price
- excess supplu
- to fix a surplus firms must lower prices
shortage - Answers demanders are unable to buy all they want at a price
- excess demand
- to fix shortage firms must raise price
law of supply and demand - Answers - the price of any good adjusts to bring the quantity supplied and
quantity demanded for the good into balance
Recession - Answers A period of declining real incomes and rising unemployments
Depression - Answers Severe recession
3 Key Facts about economic fluctuations - Answers Fact 1- economic fluctuations are irregular and
unpredictable
- Fluctuations in the economy are often called the business cycle
- When GDP grows rapidly, business is good
- GDP falls during recessions
Fact 2- most macroeconomic quantities fluctuate together
- When monitoring short run fluctuations it doesn't matter which measure of economic activity you
look at
Fact 3- as output falls, unemployment rises
- Changes in the economy's output of goods and services are strongly correlated with the changes in
the economy's utilization of its labor force
- GDP declines, rate of unemployment rises
The assumption of classical economics - Answers - according to the classical macroeconomics theory,
changes in the money supply affect nominal variables but not real variables
The Model of aggregate demand and aggregate supply - Answers - aggregate- demand curve shows
the quantity of goods and services that households, firms, the government, and customers abroad
want to buy at each price level
- Aggregate- supply curve shows the quantity of goods and services that firms produce and sell at
each price level.
Aggregate Demand Curve - Answers - slopes downward
- a decrease in the economy overall level of prices raises the quantity of goods and services
demanded
Why does the AG demand curve downward - Answers - Y= C + I + G + NX
- Three distinct reasons a fall in price level increases the quantity of goods and services demanded
- Consumers are wealthier, which stimulates the demand for consumption good
- Interest rates fall, which stimulates the demand for investment goods
- The currency depreciates, which stimulates the demand for net exports
- Each of these also work in reverse
Aggregate Supply Curve - Answers - In the long run the supply curve is vertical
- The overall price level does not affects ability to produce goods
- Why the long run curve may shift
- Shift are caused by changes in natural level of output
- Shifts are caused by:
- Changes in labor
-- If minimum wage was raised, less goods are produced, long run curve would shift left
- Changes in capital
-- Increase in capital stock, more good, long run curve shift right
- Changes in natural resources
-- Discover new material, more goods, long run shift to right
--Change in weather making goods harder to produce, long run shift to left
- Changes in technological knowledge
- Easier to make good, long run shift to right
Two most important forces- technology and monetary policy - Answers technology - shifts supply
curve because more goods
Fed increases money supply demand curve would shift right
The short run aggregate supply curve slopes upward - Answers Price level does affect
Three theories for upward slope
Sticky- wage theory - Answers Wages are based on expected prices and do not respond immediately
when actual price is different
sticky - price theory - Answers Slow adjustment to prices
Quantity of output supplied= natural level of output+a - Answers a= Actual price level- expected price
level
, effects of a shift in aggregate demand - Answers -In the short run, shifts in aggregate demand cause
fluctuations in the economy's output of goods and services
-In the long run, shifts in aggregate demand affect the overall price level but do not affect output
Effects of a shift in aggregate supply - Answers -Shifts in aggregate supply can cause stagflation (falling
output and rising prices)
- Policymakers can make output return to natural level but cause inflation
Phillips Curve - Answers short run tradeoff between inflation and unemployment
Vertical long run phillips curve - Answers natural rate hypothesis - the claim that unemployment
eventually returns to its normal or natural rate regardless of the inflation rate
Market - Answers a group of buys and sellers of a particular good or service
- buyers determine demand
- sellers determine supply
competitive market - Answers a market in which there are so many buyers and so many sellers that
each has a negligible impact on market price
perfectly competitive market - Answers - the goods are offered for sale are all exactly the same time
- the buyers and sellers are so numerous that no single buyer or seller has any influence over the
market price
monopoly - Answers one seller, seller determines the market price
quantity demanded - Answers - the amount of the good that buyers are willing and able to purchase
law of demand - Answers - other things equal, when the price of a good rises, quantity demanded
falls, when the price, quantity demand rises
demand schedule - Answers - table that shows the relationship between the price of a good and the
quantity demanded
demand curve - Answers the line relating price and quantity demanded
- the demand curve slopes downward because lower price means greater quantity demanded
market demand - Answers - the sum of the individual demands for a particular good or service
normal good - Answers - the demand for a good falls when income falls
-ex: buy less ice cream when lose job
inferior good - Answers - demand for a good rises when income falls
- ex: a bus ride instead of buying a car
substitutes - Answers -when the fall in price of one good reduces the demand for another good
- ex: the price of hotdogs fall, people buy less hamburgers
Compliments - Answers - when a fall in price of one goods raises the demand for another good
- ex: the price in peanut butter falls people buy more jelly
Tastes - Answers - if you like ice cream, you will buy more of it
expectations - Answers - how your expectations for the future will affect your demand for a good or
service today
Number of buyers - Answers - if more people buy something quantity demanded would increase and
market demand would increase
Quantity Supplied - Answers - the amount that sellers are willing and able to sell
Law of supply - Answers - other things equal, when the price of a good rises, quantity supplied rises,
when the price falls, the quantity supplied falls
supply schedule - Answers the relationship between the price of a good and the quantity supplied
- supply curve curves upward because other things equal a higher price means a greater quantity
supplied
things that shift the demand curve - Answers income and price of related goods
things that shift the supply curve - Answers input prices, technology, expectations, number of sellers
equilibrium price - Answers - the quantity of the good that buyers are willing and able to buy exactly
balances the quantity that sellers are willing and able to sell
surplus - Answers suppliers are unable to sell all they want at a price
- excess supplu
- to fix a surplus firms must lower prices
shortage - Answers demanders are unable to buy all they want at a price
- excess demand
- to fix shortage firms must raise price
law of supply and demand - Answers - the price of any good adjusts to bring the quantity supplied and
quantity demanded for the good into balance
