BADM 7200 EXAM 1 TERMS AND
FORMULAS
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📋 DOCUMENT OVERVIEW 169 Qs
This document covers macroeconomics concepts, such as GDP, inflation, deflation, unemployment rate,
and recession, as well as microeconomic topics including function of elasticity (sig) and efficiency wage
theories. The document contains 169 questions with correct answers and detailed explanations,
providing a comprehensive review and understanding of various economic concepts. Students can utilize
this resource to study, review, and reinforce their knowledge, ultimately enhancing their comprehension
and preparation for exams.
✓ Verified Answers ✓ Exam Ready ✓ Study Guide
Trusted by thousands of students and professionals worldwide
EXAM QUESTIONS
QUESTION 1
Macroeconomics
CORRECT ANSWER
Study of forces that influence the economy as a whole
RATIONALE: Macroeconomics focuses on the big picture, analyzing the overall economy by examining the aggregate
variables that affect it, such as inflation, unemployment, and economic growth. This approach allows economists to
understand the broader trends and patterns that shape the economy as a whole, rather than focusing on individual
markets or sectors.
QUESTION 2
Real GDP
CORRECT ANSWER
Measures total income of everyone in the economy (adjusted for the level of prices i.e. inflation)
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, RATIONALE: Real GDP measures the total income of everyone in the economy adjusted for inflation, which means it
uses a price level index to account for changes in the cost of goods and services over time, providing a more accurate
picture of economic growth. This adjustment is crucial because nominal GDP, which doesn't account for inflation, can
give a misleading picture of economic activity if inflation is high, as it would suggest the economy is growing faster than
it actually is.
QUESTION 3
Inflation Rate
CORRECT ANSWER
Measures how fast prices are rising
RATIONALE: The inflation rate measures the change in prices over a specific period, indicating how quickly the general
level of prices is increasing or decreasing within an economy. This is achieved by tracking the percentage change in a
basket of goods and services, which helps to quantify the rate at which prices are rising or falling.
QUESTION 4
Deflation Rate
CORRECT ANSWER
Measures how fast prices are falling
RATIONALE: The term "deflation rate" specifically refers to the rate at which prices are decreasing, making it a measure
of how quickly prices are falling over a certain period of time. This concept is rooted in the idea that deflation, as a
phenomenon, involves a sustained decrease in the general price level of goods and services within an economy.
QUESTION 5
Unemployment Rate
CORRECT ANSWER
Measures the fraction of the labor force that is out of work
RATIONALE: The unemployment rate specifically focuses on the labor force, which is the subset of the population that is
actively seeking work or is already employed, thereby excluding those outside the labor market. Measuring the fraction
of this labor force that is out of work provides a direct and relevant indicator of the level of unemployment within the
economy.
QUESTION 6
Recession
CORRECT ANSWER
Repeated periods of negative GDP growth
RATIONALE: A recession is defined by repeated periods of negative GDP growth, which indicates a sustained decline in
economic activity. This definition focuses on the negative impact of economic contraction on GDP, a key measure of a
country's economic performance, making negative GDP growth a hallmark of a recession.
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, QUESTION 7
Depression
CORRECT ANSWER
Long term recession
RATIONALE: A depression is characterized by a prolonged and severe economic downturn, often lasting for multiple
years, which aligns with the concept of a long-term recession that has a more significant impact on the economy. This
prolonged nature distinguishes a depression from a recession, allowing the terms to be used interchangeably in
academic and economic contexts.
QUESTION 8
Models
CORRECT ANSWER
Economists used theses to understand the world, examples: GDP, Inflation, unemployment
RATIONALE: Economists utilize theoretical frameworks represented by concepts like GDP, Inflation, and unemployment
to construct models that help explain and predict economic phenomena. These models provide a structured way to
analyze and understand the complex interactions within an economy, allowing economists to make informed decisions
and recommendations.
QUESTION 9
Endogenous Variables
CORRECT ANSWER
Variables that a model explains
RATIONALE: In an economic model, endogenous variables are those that are determined within the model itself and are
influenced by the other variables included in the model, which is why "Variables that a model explains" accurately
describes this concept. This means that the values of endogenous variables are dependent on the interactions and
relationships among the variables within the model, rather than being exogenously determined.
QUESTION 10
Exogenous Variables
CORRECT ANSWER
variables that a model takes as given
RATIONALE: Exogenous variables are factors outside the model itself that influence its behavior, and since a model takes
them as given, it does not attempt to explain or predict their behavior, but rather treats them as external inputs. This
distinction highlights the model's focus on analyzing relationships within its defined scope, while accounting for external
influences that drive the system.
QUESTION 11
Market Clearing
CORRECT ANSWER
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, the assumption that markets are normally in equilibrium, so the price of any good or service is found
where the supply and demand curves intersect
RATIONALE: This assumption is correct because it is based on the fundamental principle of economics that in a free
market, the equilibrium price is where the forces of supply and demand are in balance, resulting in no net change in
quantity sold or bought. In this state, the price reflects the intersection of the supply and demand curves, indicating that
the quantity supplied equals the quantity demanded.
QUESTION 12
Flexible and Sticky Prices
CORRECT ANSWER
Market Clearing Models assume all prices are flexible(LR), in reality some wages and prices are sticky (SR)
RATIONALE: Market clearing models assume all prices are flexible in the long run (LR) because they are based on the
idea that in a perfectly competitive market, prices adjust quickly to equilibrium levels, ensuring that supply equals
demand. In reality, however, some wages and prices are sticky in the short run (SR), meaning they don't change quickly
in response to changes in market conditions, leading to inefficiencies and disequilibrium.
QUESTION 13
Microeconomics
CORRECT ANSWER
The study of how households and firms make decisions and how these decision makers interact in the
marketplace. The central principle of microeconomics is that households and firms optimize.
RATIONALE: This answer is correct because it accurately captures the fundamental nature of microeconomics, which
focuses on the individual decision-making units within an economy, such as households and firms, and their interactions
in the marketplace. The concept of optimization is a key principle in microeconomics as it assumes that decision-makers
aim to maximize their utility or profits given the constraints they face.
QUESTION 14
Quantity Demanded Model
CORRECT ANSWER
Qd = D(P,Y)
RATIONALE: The model "Qd = D(P,Y)" accurately represents the Quantity Demanded Model because it states that the
quantity demanded of a good (Qd) is a function of two main factors: the price of the good (P), which affects the quantity
demanded through the law of demand, and the income of consumers (Y), which influences their purchasing power and
ability to demand the good. By including both price and income as variables, this model captures the complex interplay
between these two fundamental factors that shape consumer behavior in the market.
QUESTION 15
Quantity Supplied Model
CORRECT ANSWER
Qs = S(P,Pm)
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Page 4 of 43
FORMULAS
160+ (Latest 2026 Edition) 100% Verified Q&A + Answer Key Solutions
100% Guarantee Pass
📋 DOCUMENT OVERVIEW 169 Qs
This document covers macroeconomics concepts, such as GDP, inflation, deflation, unemployment rate,
and recession, as well as microeconomic topics including function of elasticity (sig) and efficiency wage
theories. The document contains 169 questions with correct answers and detailed explanations,
providing a comprehensive review and understanding of various economic concepts. Students can utilize
this resource to study, review, and reinforce their knowledge, ultimately enhancing their comprehension
and preparation for exams.
✓ Verified Answers ✓ Exam Ready ✓ Study Guide
Trusted by thousands of students and professionals worldwide
EXAM QUESTIONS
QUESTION 1
Macroeconomics
CORRECT ANSWER
Study of forces that influence the economy as a whole
RATIONALE: Macroeconomics focuses on the big picture, analyzing the overall economy by examining the aggregate
variables that affect it, such as inflation, unemployment, and economic growth. This approach allows economists to
understand the broader trends and patterns that shape the economy as a whole, rather than focusing on individual
markets or sectors.
QUESTION 2
Real GDP
CORRECT ANSWER
Measures total income of everyone in the economy (adjusted for the level of prices i.e. inflation)
Trusted by thousands of students and professionals worldwide Page 1 of 43
, RATIONALE: Real GDP measures the total income of everyone in the economy adjusted for inflation, which means it
uses a price level index to account for changes in the cost of goods and services over time, providing a more accurate
picture of economic growth. This adjustment is crucial because nominal GDP, which doesn't account for inflation, can
give a misleading picture of economic activity if inflation is high, as it would suggest the economy is growing faster than
it actually is.
QUESTION 3
Inflation Rate
CORRECT ANSWER
Measures how fast prices are rising
RATIONALE: The inflation rate measures the change in prices over a specific period, indicating how quickly the general
level of prices is increasing or decreasing within an economy. This is achieved by tracking the percentage change in a
basket of goods and services, which helps to quantify the rate at which prices are rising or falling.
QUESTION 4
Deflation Rate
CORRECT ANSWER
Measures how fast prices are falling
RATIONALE: The term "deflation rate" specifically refers to the rate at which prices are decreasing, making it a measure
of how quickly prices are falling over a certain period of time. This concept is rooted in the idea that deflation, as a
phenomenon, involves a sustained decrease in the general price level of goods and services within an economy.
QUESTION 5
Unemployment Rate
CORRECT ANSWER
Measures the fraction of the labor force that is out of work
RATIONALE: The unemployment rate specifically focuses on the labor force, which is the subset of the population that is
actively seeking work or is already employed, thereby excluding those outside the labor market. Measuring the fraction
of this labor force that is out of work provides a direct and relevant indicator of the level of unemployment within the
economy.
QUESTION 6
Recession
CORRECT ANSWER
Repeated periods of negative GDP growth
RATIONALE: A recession is defined by repeated periods of negative GDP growth, which indicates a sustained decline in
economic activity. This definition focuses on the negative impact of economic contraction on GDP, a key measure of a
country's economic performance, making negative GDP growth a hallmark of a recession.
Trusted by thousands of students and professionals worldwide Page 2 of 43
, QUESTION 7
Depression
CORRECT ANSWER
Long term recession
RATIONALE: A depression is characterized by a prolonged and severe economic downturn, often lasting for multiple
years, which aligns with the concept of a long-term recession that has a more significant impact on the economy. This
prolonged nature distinguishes a depression from a recession, allowing the terms to be used interchangeably in
academic and economic contexts.
QUESTION 8
Models
CORRECT ANSWER
Economists used theses to understand the world, examples: GDP, Inflation, unemployment
RATIONALE: Economists utilize theoretical frameworks represented by concepts like GDP, Inflation, and unemployment
to construct models that help explain and predict economic phenomena. These models provide a structured way to
analyze and understand the complex interactions within an economy, allowing economists to make informed decisions
and recommendations.
QUESTION 9
Endogenous Variables
CORRECT ANSWER
Variables that a model explains
RATIONALE: In an economic model, endogenous variables are those that are determined within the model itself and are
influenced by the other variables included in the model, which is why "Variables that a model explains" accurately
describes this concept. This means that the values of endogenous variables are dependent on the interactions and
relationships among the variables within the model, rather than being exogenously determined.
QUESTION 10
Exogenous Variables
CORRECT ANSWER
variables that a model takes as given
RATIONALE: Exogenous variables are factors outside the model itself that influence its behavior, and since a model takes
them as given, it does not attempt to explain or predict their behavior, but rather treats them as external inputs. This
distinction highlights the model's focus on analyzing relationships within its defined scope, while accounting for external
influences that drive the system.
QUESTION 11
Market Clearing
CORRECT ANSWER
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, the assumption that markets are normally in equilibrium, so the price of any good or service is found
where the supply and demand curves intersect
RATIONALE: This assumption is correct because it is based on the fundamental principle of economics that in a free
market, the equilibrium price is where the forces of supply and demand are in balance, resulting in no net change in
quantity sold or bought. In this state, the price reflects the intersection of the supply and demand curves, indicating that
the quantity supplied equals the quantity demanded.
QUESTION 12
Flexible and Sticky Prices
CORRECT ANSWER
Market Clearing Models assume all prices are flexible(LR), in reality some wages and prices are sticky (SR)
RATIONALE: Market clearing models assume all prices are flexible in the long run (LR) because they are based on the
idea that in a perfectly competitive market, prices adjust quickly to equilibrium levels, ensuring that supply equals
demand. In reality, however, some wages and prices are sticky in the short run (SR), meaning they don't change quickly
in response to changes in market conditions, leading to inefficiencies and disequilibrium.
QUESTION 13
Microeconomics
CORRECT ANSWER
The study of how households and firms make decisions and how these decision makers interact in the
marketplace. The central principle of microeconomics is that households and firms optimize.
RATIONALE: This answer is correct because it accurately captures the fundamental nature of microeconomics, which
focuses on the individual decision-making units within an economy, such as households and firms, and their interactions
in the marketplace. The concept of optimization is a key principle in microeconomics as it assumes that decision-makers
aim to maximize their utility or profits given the constraints they face.
QUESTION 14
Quantity Demanded Model
CORRECT ANSWER
Qd = D(P,Y)
RATIONALE: The model "Qd = D(P,Y)" accurately represents the Quantity Demanded Model because it states that the
quantity demanded of a good (Qd) is a function of two main factors: the price of the good (P), which affects the quantity
demanded through the law of demand, and the income of consumers (Y), which influences their purchasing power and
ability to demand the good. By including both price and income as variables, this model captures the complex interplay
between these two fundamental factors that shape consumer behavior in the market.
QUESTION 15
Quantity Supplied Model
CORRECT ANSWER
Qs = S(P,Pm)
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Page 4 of 43
