ECON 2120 - UNIT 1 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

ECON 2120 - UNIT 1 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 Microeconomics - Answers the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. Macroeconomics - Answers the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Business Cycle - Answers Alternating periods of economic expansion and economic recession. Expansion - Answers The period of a business cycle during which the total production and total employment are increasing. Recession - Answers The period of a business cycle during which total production and total employment are decreasing. Economic growth - Answers The ability of an economy to produce increasing quantities of goods and services. Inflation rate - Answers The percentage increase in the price level from one year to the next. gross domestic product, or G D P. - Answers The market value of all final goods and services produced in a country during a period of time, typically one year. production and income - Answers When we measure one, we are also measuring the other. Why? •Everything that is produced and sold constitutes income for someone; so, we have the choice of measuring the value of products produced and sold or the value of incomes. •Each is a valid way of measuring economic activity. Components of GDP - Answers consumption, investment, government purchases, and net exports Consumption - Answers Personal consumption expenditures Investment - Answers Gross private domestic investment Government Purchases - Answers Government consumption and gross investment Net Exports - Answers net exports of goods and services (exports-imports) Shortcomings of GDP - Answers Measure of total production and a Measure of well-being. GDP per capita - Answers GDP / population doesnt take into account: •The value of leisure •Pollution and other negative effects of production •Crime and other social problems •The distribution of income Nomial GDP - Answers the value of final goods and services evaluated at current-year prices Price Level - Answers A measure of the average prices of goods and services in the economy. GDP Deflator - Answers a measure of the price level, calculated by dividing nominal G D P by real G D P and multiplying by 100: Gross National Product - Answers •Production performed by citizens of a nation, including overseas production. Labor Force - Answers The sum of employed and unemployed workers in the economy. Unemployment Rate - Answers The percentage of the labor force that is unemployed Household Survey - Answers conducted by U.S. census bureau, callcs 60,000 households to be "representative" Employed - Answers •In government statistics, someone who currently has a job or who is temporarily away from his or her job. Unemployed - Answers •In government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during the previous month. Not in the labor force - Answers if neither of the above apply Discouraged Workers - Answers People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them. labor force participation rate - Answers The percentage of the working-age population in the labor force LFPR = (labor force / working age population) x 100 employment population rate - Answers The percentage of the working-age population that is employed: (employed / working age population) x 100 frictional unemployment - Answers •Short-term unemployment that arises from the process of matching workers with jobs. Structural unemployment - Answers Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs. Cyclical unemployment - Answers Unemployment causes by a business cycle recession. factors increasing unemployment - Answers unemployment insurance minimum wage laws factors decreasing unemployment - Answers Efficiency wage: An above-market wage that a firm pays to increase workers' productivity. measures of inflation - Answers consumer price index (cpi) producer price index (ppi) cpi - Answers is a measure of the average of the prices a typical urban family of four pays for the goods and services they purchase. = (cost of goods / cost in base year) x 100 cpi accurate measure of inflation? - Answers •Substitution bias: Consumers may change their purchasing habits away from goods that have increased in price. •Increase in quality bias: Difficult to separate improvement in quality from increase in price, say in cars or computers. •New product bias: The basket of goods used to change only every 10 years. (Now it updates every 2 years.) There is a delay to including new goods like cell phones. •Outlet bias: C P I used to only survey prices at traditional retail outlets. Now, it tries to minimize this bias by surveying people about where they actually buy products, including discount stores and online sellers. ppi - Answers is an average of the prices received by producers of goods and services at all stages of the production process. nomial and real variables - Answers Values like wages in current-year dollars are called nominal variables. When we adjust them for inflation, by dividing by the current year's price index and multiplying by 100, we convert them to real variables. menu costs - Answers •The cost to firms of changing prices. Frequently changing prices are inconvenient for firms (and consumers too!) to deal with. Long Run Economic Growth - Answers the process by which rising productivity increases the average standard of living. •This is in contrast to the short-run swings in the economy inherent to the business cycle, the alternating periods of economic expansion and economic recession. Calculating Growth Rates - Answers (later year - earlier year) / earlier year Rule of 70 - Answers A useful shortcut called the Rule of 70 can help us determine how long it will take for an economic variable to double: number of years to double = 70 / growth rate labor productivity - Answers Increases in real G D P per capita rely on increases in labor productivity: The quantity of goods and services that can be produced by one worker or by one hour of work. factors affecting labor productivity - Answers 1.Increases in capital per hour worked 2.Technological change 3.Property rights potential gdp - Answers Potential G D P is the level of real G D P attained when all firms are operating at capacity. Capacity here refers to "normal" hours and a "normal" sized workforce. •Potential G D P rises when the labor force expands, when a nation acquires more capital stock, or when new technologies are created.