ECN 211 EVALUATION EXAM 2026 QUESTIONS AND
SOLUTIONS GRADED A+
✔✔Why is the long run supply curve vertical? - ✔✔It's vertical because overall prices
doesn't affect the ability to produce goods and services.
✔✔Sticky wage theory - ✔✔Slopes upward because it is slow to adjust to nominal
wages when their expected price turns out different. If it turns out higher than expected
then they will produce more. If it turns out lower than expected they will produce less.
✔✔Sticky price theory - ✔✔Some goods and services also adjust slowly due to some
menu costs.
✔✔Misperceptions theory. How do they respond to the higher price? - ✔✔Says that the
changes in overall price level misleads suppliers about what is happening in individual
markets. They respond to higher price by increasing the quantity supplied.
✔✔What are the two economic fluctuations? - ✔✔1. In the short run, shifts in the
aggregate demand causes fluctuations in the economy's output of goods and services
2. In the long run, shifts in the aggregate demand affects the overall price level not
output
✔✔What are the effects of aggregate supply shifting? - ✔✔It can cause stagflation.
✔✔How and why does the aggregate supply curve shift upward? - ✔✔If there's an
increase in unit costs for any reason other than an increase in real GDP.
✔✔Short run demand shock - ✔✔Causes an increase in government purchases which
will also increase real GDP and price level.
✔✔When there's a demand shock how will it adjust to long run? - ✔✔- In the short run
input prices are sticky
- In the long run input prices can adjust; if the output is higher than the full employment
then the wage rate will rise which will shift the aggregate supply curve upward
✔✔What causes the long run aggregate supply to shift to the right? - ✔✔If there's an
increase in labor, capital, natural resources, and technology.
✔✔Specialization and exchange allows what? - ✔✔- Enables us to have greater
production and higher living standards
- Develop expertise
- Minimize downtime
, ✔✔Absolute advantage - ✔✔The ability to produce goods with fewer inputs than
another producer.
✔✔Comparative advantage - ✔✔The ability to produce goods with a lower opportunity
cost than another producer.
✔✔Law of demand - ✔✔When the price of good increases, quantity demanded will fall.
✔✔What causes the demand curve to shift rightward? - ✔✔- If income increases
- If the price of the substitute increases
- If the price of complement decreases
- If population increases
- If they expect that prices will increase in the future
- If tastes transfers toward the good
✔✔Law of supply - ✔✔As the price of good increases, the quantity supplied increases.
✔✔What causes the supply curve to shift to the right? - ✔✔- If input prices decreases
- If the price of alternative decreases
- If the number of firms increases
- If they expect that the price in the future will increase
- Technological advancement
- Favorable weather
✔✔What are the effects of an increase in demand? - ✔✔- Increase in price
- Increase in quantity
✔✔What are the effects of a decrease in supply? - ✔✔- Higher prices
- Lower quantity
✔✔What are the effects of an increase in demand and decrease in supply? - ✔✔-
Higher prices
- Quantity can rise, fall, or remain unchanged
✔✔GDP - ✔✔Market value of all goods and services produced within a country in a
given period of time.
✔✔GDP measures what? - ✔✔It measures the total income of everyone in the economy
and expenditure.
✔✔Nominal GDP - ✔✔Measured without the adjustment to the change in dollar value
and not adjusted for inflation.
✔✔Real GDP - ✔✔Adjusted for the change in dollar value and corrected for inflation.
SOLUTIONS GRADED A+
✔✔Why is the long run supply curve vertical? - ✔✔It's vertical because overall prices
doesn't affect the ability to produce goods and services.
✔✔Sticky wage theory - ✔✔Slopes upward because it is slow to adjust to nominal
wages when their expected price turns out different. If it turns out higher than expected
then they will produce more. If it turns out lower than expected they will produce less.
✔✔Sticky price theory - ✔✔Some goods and services also adjust slowly due to some
menu costs.
✔✔Misperceptions theory. How do they respond to the higher price? - ✔✔Says that the
changes in overall price level misleads suppliers about what is happening in individual
markets. They respond to higher price by increasing the quantity supplied.
✔✔What are the two economic fluctuations? - ✔✔1. In the short run, shifts in the
aggregate demand causes fluctuations in the economy's output of goods and services
2. In the long run, shifts in the aggregate demand affects the overall price level not
output
✔✔What are the effects of aggregate supply shifting? - ✔✔It can cause stagflation.
✔✔How and why does the aggregate supply curve shift upward? - ✔✔If there's an
increase in unit costs for any reason other than an increase in real GDP.
✔✔Short run demand shock - ✔✔Causes an increase in government purchases which
will also increase real GDP and price level.
✔✔When there's a demand shock how will it adjust to long run? - ✔✔- In the short run
input prices are sticky
- In the long run input prices can adjust; if the output is higher than the full employment
then the wage rate will rise which will shift the aggregate supply curve upward
✔✔What causes the long run aggregate supply to shift to the right? - ✔✔If there's an
increase in labor, capital, natural resources, and technology.
✔✔Specialization and exchange allows what? - ✔✔- Enables us to have greater
production and higher living standards
- Develop expertise
- Minimize downtime
, ✔✔Absolute advantage - ✔✔The ability to produce goods with fewer inputs than
another producer.
✔✔Comparative advantage - ✔✔The ability to produce goods with a lower opportunity
cost than another producer.
✔✔Law of demand - ✔✔When the price of good increases, quantity demanded will fall.
✔✔What causes the demand curve to shift rightward? - ✔✔- If income increases
- If the price of the substitute increases
- If the price of complement decreases
- If population increases
- If they expect that prices will increase in the future
- If tastes transfers toward the good
✔✔Law of supply - ✔✔As the price of good increases, the quantity supplied increases.
✔✔What causes the supply curve to shift to the right? - ✔✔- If input prices decreases
- If the price of alternative decreases
- If the number of firms increases
- If they expect that the price in the future will increase
- Technological advancement
- Favorable weather
✔✔What are the effects of an increase in demand? - ✔✔- Increase in price
- Increase in quantity
✔✔What are the effects of a decrease in supply? - ✔✔- Higher prices
- Lower quantity
✔✔What are the effects of an increase in demand and decrease in supply? - ✔✔-
Higher prices
- Quantity can rise, fall, or remain unchanged
✔✔GDP - ✔✔Market value of all goods and services produced within a country in a
given period of time.
✔✔GDP measures what? - ✔✔It measures the total income of everyone in the economy
and expenditure.
✔✔Nominal GDP - ✔✔Measured without the adjustment to the change in dollar value
and not adjusted for inflation.
✔✔Real GDP - ✔✔Adjusted for the change in dollar value and corrected for inflation.
