ECON 200 PRACTICE TEST | ACTUAL QUESTIONS
AND MULTIPLE ANSWER CHOICES | LATEST 2026/27
| RATED A+|83 Qs & ANSWERS
1. What would be appropriate government action to close a recessionary
e. e. e. e. e. e. e. e. e.
gap?
e.
e . Use policy to decrease aggregate supply
e. e. e. e. e.
e . Use counter-cyclical fiscal policy to decrease aggregate
e. e. e. e. e. e.
demand
e. e. e. Use policy to decrease potential GDP
e. e. e. e. e.
e . Use counter-cyclical fiscal policy to increase aggregate demand.
e. e. e. e. e. e. e.
2. Describe the relationship between the income-expenditure multiplier
e. e. e. e. e. e.
and government purchases in addressing an output gap.
e. e. e. e. e. e. e. e.
e . The income-expenditure multiplier reduces the effect of government
e. e. e. e. e. e. e.
e. purchases on output, making government spending less effective.
e. e. e. e. e. e. e.
e. The income-expenditure multiplier only applies to tax changes, not
e. e. e. e. e. e. e. e.
e. government spending. e.
The income-expenditure multiplier amplifies the effect of
e . e. e. e. e. e. e.
government purchases on output, meaning that an increase in
e. e. e. e. e. e. e. e.
government spending can lead to a larger increase in overall
e. e. e. e. e. e. e. e. e. e.
economic output.
e. e.
e . The income-expenditure multiplier has no effect on government
e. e. e. e. e. e. e.
e. purchases or output. e. e.
3. What type of gap is created when an adverse inflation shock
e. e. e. e. e. e. e. e. e. e.
increases inflation from π to π1 starting from long-run equilibrium?
e. e . e. e. e. e. e. e. e. e.
,e . an expansionary
e.
e . a recessionary
e.
e . a deflationary
e.
, e . a neutral
e.
4. If the Federal Reserve wants to increase planned aggregate expenditure
e. e. e. e. e. e. e. e. e.
to stimulate the economy, what action regarding the real interest rate
e. e. e. e. e. e. e. e. e. e. e.
would they likely take?
e. e. e. e.
e . Keep the real interest rate unchanged
e. e. e. e. e.
Increase government spending without changing the interest
e . e. e. e. e. e. e.
e. rate
e . Lower the real interest rate e. e. e. e.
e . Raise the real interest rate e. e. e. e.
5. Describe the impact of a favorable supply shock on the economy's
e. e. e. e. e. e. e. e. e. e.
potential output.
e. e.
e . A favorable supply shock only affects short-run aggregate supply.
e. e. e. e. e. e. e. e.
e. A favorable supply shock decreases potential output, leading to
e. e. e. e. e. e. e. e.
e. a lower long-run aggregate supply.
e. e. e. e.
e . A favorable supply shock has no effect on potential output.
e. e. e. e. e. e. e. e. e.
e. A favorable supply shock increases potential output, leading to
e. e. e. e. e. e. e. e.
e. a higher long-run aggregate supply.
e. e. e. e.
6. According to Okun's law, when cyclical unemployment increases from
e. e. e. e. e. e. e. e.
1 percent to 2 percent, the recessionary gap increases from _.
e. e. e. e. e. e. e. e. e. e.
e . -2 percent to -4 percent
e. e. e. e.
e . 1 percent to 2 percent
e. e. e. e.
e . 2 percent to 4 percent
e. e. e. e.
e . -1 percent to -2 percent
e. e. e. e.
, 7. What can be inferred about the relationship between real GDP and
e. e. e. e. e. e. e. e. e. e.
potential GDP when real GDP is less than potential GDP?
e. e . e. e. e. e. e. e. e. e.
e. The actual unemployment rate is less than the natural rate
e. e. e. e. e. e. e. e. e.
of unemployment.
e. e.
e. The actual unemployment rate is greater than the natural rate
e. e. e. e. e. e. e. e. e.
of unemployment.
e. e.
e. The actual unemployment rate equals zero.
e. e. e. e. e.
e. e. The output gap is positive.
e. e. e. e.
8. Describe the impact of an adverse inflation shock on short-run
e. e. e. e. e. e. e. e. e.
equilibrium and its relation to economic gaps.
e. e. e. e. e. e. e.
e. An adverse inflation shock has no effect on short-run
e. e. e. e. e. e. e. e.
equilibrium.
e. e. e. An adverse inflation shock stabilizes the economy.
e. e. e. e. e. e.
e . An adverse inflation shock leads to an expansionary gap.
e. e. e. e. e. e. e. e.
e. An adverse inflation shock leads to a short-run equilibrium
e. e. e. e. e. e. e. e.
that results in a recessionary gap.
e. e. e. e. e. e.
9. A favorable supply shock will shift short-run aggregate supply
e. e. e. e. e. e. e. e.
e. left, making output rise.e. e. e.
e. e. left, making output fall.e. e. e.
e . right, making output rise. e. e. e.
e . right, making output fall. e. e. e.
10. What is the primary factor that determines output in the long run
e. e. e. e. e. e. e. e. e. e. e.
according to economic principles?
e. e. e. e.
e . total spending e.
AND MULTIPLE ANSWER CHOICES | LATEST 2026/27
| RATED A+|83 Qs & ANSWERS
1. What would be appropriate government action to close a recessionary
e. e. e. e. e. e. e. e. e.
gap?
e.
e . Use policy to decrease aggregate supply
e. e. e. e. e.
e . Use counter-cyclical fiscal policy to decrease aggregate
e. e. e. e. e. e.
demand
e. e. e. Use policy to decrease potential GDP
e. e. e. e. e.
e . Use counter-cyclical fiscal policy to increase aggregate demand.
e. e. e. e. e. e. e.
2. Describe the relationship between the income-expenditure multiplier
e. e. e. e. e. e.
and government purchases in addressing an output gap.
e. e. e. e. e. e. e. e.
e . The income-expenditure multiplier reduces the effect of government
e. e. e. e. e. e. e.
e. purchases on output, making government spending less effective.
e. e. e. e. e. e. e.
e. The income-expenditure multiplier only applies to tax changes, not
e. e. e. e. e. e. e. e.
e. government spending. e.
The income-expenditure multiplier amplifies the effect of
e . e. e. e. e. e. e.
government purchases on output, meaning that an increase in
e. e. e. e. e. e. e. e.
government spending can lead to a larger increase in overall
e. e. e. e. e. e. e. e. e. e.
economic output.
e. e.
e . The income-expenditure multiplier has no effect on government
e. e. e. e. e. e. e.
e. purchases or output. e. e.
3. What type of gap is created when an adverse inflation shock
e. e. e. e. e. e. e. e. e. e.
increases inflation from π to π1 starting from long-run equilibrium?
e. e . e. e. e. e. e. e. e. e.
,e . an expansionary
e.
e . a recessionary
e.
e . a deflationary
e.
, e . a neutral
e.
4. If the Federal Reserve wants to increase planned aggregate expenditure
e. e. e. e. e. e. e. e. e.
to stimulate the economy, what action regarding the real interest rate
e. e. e. e. e. e. e. e. e. e. e.
would they likely take?
e. e. e. e.
e . Keep the real interest rate unchanged
e. e. e. e. e.
Increase government spending without changing the interest
e . e. e. e. e. e. e.
e. rate
e . Lower the real interest rate e. e. e. e.
e . Raise the real interest rate e. e. e. e.
5. Describe the impact of a favorable supply shock on the economy's
e. e. e. e. e. e. e. e. e. e.
potential output.
e. e.
e . A favorable supply shock only affects short-run aggregate supply.
e. e. e. e. e. e. e. e.
e. A favorable supply shock decreases potential output, leading to
e. e. e. e. e. e. e. e.
e. a lower long-run aggregate supply.
e. e. e. e.
e . A favorable supply shock has no effect on potential output.
e. e. e. e. e. e. e. e. e.
e. A favorable supply shock increases potential output, leading to
e. e. e. e. e. e. e. e.
e. a higher long-run aggregate supply.
e. e. e. e.
6. According to Okun's law, when cyclical unemployment increases from
e. e. e. e. e. e. e. e.
1 percent to 2 percent, the recessionary gap increases from _.
e. e. e. e. e. e. e. e. e. e.
e . -2 percent to -4 percent
e. e. e. e.
e . 1 percent to 2 percent
e. e. e. e.
e . 2 percent to 4 percent
e. e. e. e.
e . -1 percent to -2 percent
e. e. e. e.
, 7. What can be inferred about the relationship between real GDP and
e. e. e. e. e. e. e. e. e. e.
potential GDP when real GDP is less than potential GDP?
e. e . e. e. e. e. e. e. e. e.
e. The actual unemployment rate is less than the natural rate
e. e. e. e. e. e. e. e. e.
of unemployment.
e. e.
e. The actual unemployment rate is greater than the natural rate
e. e. e. e. e. e. e. e. e.
of unemployment.
e. e.
e. The actual unemployment rate equals zero.
e. e. e. e. e.
e. e. The output gap is positive.
e. e. e. e.
8. Describe the impact of an adverse inflation shock on short-run
e. e. e. e. e. e. e. e. e.
equilibrium and its relation to economic gaps.
e. e. e. e. e. e. e.
e. An adverse inflation shock has no effect on short-run
e. e. e. e. e. e. e. e.
equilibrium.
e. e. e. An adverse inflation shock stabilizes the economy.
e. e. e. e. e. e.
e . An adverse inflation shock leads to an expansionary gap.
e. e. e. e. e. e. e. e.
e. An adverse inflation shock leads to a short-run equilibrium
e. e. e. e. e. e. e. e.
that results in a recessionary gap.
e. e. e. e. e. e.
9. A favorable supply shock will shift short-run aggregate supply
e. e. e. e. e. e. e. e.
e. left, making output rise.e. e. e.
e. e. left, making output fall.e. e. e.
e . right, making output rise. e. e. e.
e . right, making output fall. e. e. e.
10. What is the primary factor that determines output in the long run
e. e. e. e. e. e. e. e. e. e. e.
according to economic principles?
e. e. e. e.
e . total spending e.
