ECON 200 PRACTICE EXAM
QUESTIONS AND DETAILED
SOLUTIONS 2026
▶ unemployment rate. Answer: # unemployed/ total labor
force=unemployment rate
▶ What is considered to be full employment?. Answer: •When the only
remaining unemployment is structural and frictional then the economy is
said to be at full employment
•This is considered the natural rate of unemployment
•
•Only 4-6.4% unemployed
•
•Current unemployment rate: 8.4 % ( 7.4 for CO) according to the US
Department of Labor Bureau of Labor Statistics
▶ frictional unemployment. Answer: Acceptable unemployment
•People in between jobs. They are in the process of looking for a new job.
•Those that quit, those that are seasonally unemployed, or those entering
the job force for the first time.
•This is usually short term.
▶ structural unemployment. Answer: Acceptable unemployment
•This occurs when there is a mismatch between job skills of workers and
the requirements necessary for jobs.
•This is often long term because workers need time to learn new skills.
▶ Clynical unemployment. Answer: Not acceptable
•When a person loses their job because the business cycle is in a lull and
the economy is weak.
•Recession
•When the only remaining unemployment is structural and frictional then
the economy is said to be at full employment
•This is considered the natural rate of unemployment
,Deals with the business cycle
▶ What is Consumer Price Index?. Answer: The CPI is used to measure
price-level changes on a range of consumer products.
It can be used to compare the price-level in one year with price levels in
earlier years.
It is calculated in urban areas and provides a fairly good look at how much
inflation has occurred in the country.
▶ price stability. Answer: Prices do not fluctuate too much.
▶ What is inflation?. Answer: When there is too much money in the
economy relative to the supply of goods and services=rising prices
Inflation is caused by too much money chasing too few goods
Current inflation rate is .76% and US long term average is 3.32%
An extended period of rising prices.
The value of the dollar decreases during
periods
of inflation.
▶ Types of inflation. Answer: Hyperinflation
Demand Pull Inflation
Cost Push Inflation
▶ Hyperinflation. Answer: Inflation that is "out of control"
Prices increase rapidly as a currency loses its value.
▶ Demand Pull Inflation. Answer: When demand increases faster than an
industry's ability to satisfy that demand, prices increase.
▶ Cost Push inflation. Answer: A period of rising prices due to an increase
in the cost of production.
Management may choose to raise prices to maintain profits.
Workers then ask for more money to keep up with rising costs.
This leads to an inflationary spiral.
▶ Who is Hurt or Helped by Inflation?. Answer: Hurt- people on fixed
incomes, savers, lenders, businesses.
Helped- Those who can increase their incomes, borrowers, and the
government (bracket creep).
, ▶ How is Inflation Calculated?. Answer: MV=PQ
▶ MV=PQ meaning. Answer: M- supply of money in the economy
V- velocity of money. Number of times a year that the average dollar is
spent on final goods and service
P- the overall price level in the economy, reflecting the average price at
which all output is sold
Q- the quantity of all goods and services produces; also known as real
output
▶ What if There is Too Little Money in the Economy?. Answer: If there is
too little money in the economy relative to the supply of goods and services
this can lead to deflation/falling prices, declining GDP, and unemployment.
▶ Deflation. Answer: -A decrease in the general level of prices; a period in
which the purchasing power of the dollar rises.
The Great Depression
▶ Socioeconomic Goals (5). Answer: 1) Environmental Protection
Preserving resources and the environment.
2) Financial Security
Examples are welfare, subsidies, tax breaks, low interest loans.
3) Economic Equity
People are given fair chances in the market.
4) Economic Justice
People have laws that protect them in the market.
5) Economic Freedom
People are allowed to have choices and preferences in the market.
▶ Other unemployment facts. Answer: Discouraged workers: Leave labor
force because they do not feel confident in the job market for suitable jobs.
Underemployment: Being employed but in a job below your human
capital/skill level.
Part -time employment is considered employed.
▶ Traditional Economies or Economies in Transition. Answer: Things are
done because it's the way it has always been done.
QUESTIONS AND DETAILED
SOLUTIONS 2026
▶ unemployment rate. Answer: # unemployed/ total labor
force=unemployment rate
▶ What is considered to be full employment?. Answer: •When the only
remaining unemployment is structural and frictional then the economy is
said to be at full employment
•This is considered the natural rate of unemployment
•
•Only 4-6.4% unemployed
•
•Current unemployment rate: 8.4 % ( 7.4 for CO) according to the US
Department of Labor Bureau of Labor Statistics
▶ frictional unemployment. Answer: Acceptable unemployment
•People in between jobs. They are in the process of looking for a new job.
•Those that quit, those that are seasonally unemployed, or those entering
the job force for the first time.
•This is usually short term.
▶ structural unemployment. Answer: Acceptable unemployment
•This occurs when there is a mismatch between job skills of workers and
the requirements necessary for jobs.
•This is often long term because workers need time to learn new skills.
▶ Clynical unemployment. Answer: Not acceptable
•When a person loses their job because the business cycle is in a lull and
the economy is weak.
•Recession
•When the only remaining unemployment is structural and frictional then
the economy is said to be at full employment
•This is considered the natural rate of unemployment
,Deals with the business cycle
▶ What is Consumer Price Index?. Answer: The CPI is used to measure
price-level changes on a range of consumer products.
It can be used to compare the price-level in one year with price levels in
earlier years.
It is calculated in urban areas and provides a fairly good look at how much
inflation has occurred in the country.
▶ price stability. Answer: Prices do not fluctuate too much.
▶ What is inflation?. Answer: When there is too much money in the
economy relative to the supply of goods and services=rising prices
Inflation is caused by too much money chasing too few goods
Current inflation rate is .76% and US long term average is 3.32%
An extended period of rising prices.
The value of the dollar decreases during
periods
of inflation.
▶ Types of inflation. Answer: Hyperinflation
Demand Pull Inflation
Cost Push Inflation
▶ Hyperinflation. Answer: Inflation that is "out of control"
Prices increase rapidly as a currency loses its value.
▶ Demand Pull Inflation. Answer: When demand increases faster than an
industry's ability to satisfy that demand, prices increase.
▶ Cost Push inflation. Answer: A period of rising prices due to an increase
in the cost of production.
Management may choose to raise prices to maintain profits.
Workers then ask for more money to keep up with rising costs.
This leads to an inflationary spiral.
▶ Who is Hurt or Helped by Inflation?. Answer: Hurt- people on fixed
incomes, savers, lenders, businesses.
Helped- Those who can increase their incomes, borrowers, and the
government (bracket creep).
, ▶ How is Inflation Calculated?. Answer: MV=PQ
▶ MV=PQ meaning. Answer: M- supply of money in the economy
V- velocity of money. Number of times a year that the average dollar is
spent on final goods and service
P- the overall price level in the economy, reflecting the average price at
which all output is sold
Q- the quantity of all goods and services produces; also known as real
output
▶ What if There is Too Little Money in the Economy?. Answer: If there is
too little money in the economy relative to the supply of goods and services
this can lead to deflation/falling prices, declining GDP, and unemployment.
▶ Deflation. Answer: -A decrease in the general level of prices; a period in
which the purchasing power of the dollar rises.
The Great Depression
▶ Socioeconomic Goals (5). Answer: 1) Environmental Protection
Preserving resources and the environment.
2) Financial Security
Examples are welfare, subsidies, tax breaks, low interest loans.
3) Economic Equity
People are given fair chances in the market.
4) Economic Justice
People have laws that protect them in the market.
5) Economic Freedom
People are allowed to have choices and preferences in the market.
▶ Other unemployment facts. Answer: Discouraged workers: Leave labor
force because they do not feel confident in the job market for suitable jobs.
Underemployment: Being employed but in a job below your human
capital/skill level.
Part -time employment is considered employed.
▶ Traditional Economies or Economies in Transition. Answer: Things are
done because it's the way it has always been done.
