ECON 202 LATEST TEST PAPER ALL EXAM
QUESTIONS AND ANSWERS SURE A+
✔✔Output Gap - ✔✔the difference between actual output and potential output
✔✔Business Cycle Anatomy - ✔✔the pattern of ups and downs in the economy
✔✔Inflation Exceptions - ✔✔the rate at when average prices are anticipated to rise next
year
✔✔supply shocks and cost-push inflation - ✔✔inflation that results from an unexpected
rise in production costs
✔✔Vicious and Virtuous Cycle - ✔✔vicious: a negative loop where economy keeps
getting worse
virtuous: a postive loop where economy keeps improving
✔✔Aggregate Demand (AD) - ✔✔price level and the total quantity if output that buyers
plan to purchase
✔✔Aggregate Supply (AS) - ✔✔price level and the total quantity output that suppliers
collectively produce
✔✔Equilibrium Value Interpretation - ✔✔AD is equal at AS, economy is stable and not
changing
✔✔Micro and Macro Trade Offs - ✔✔Micro: across products
Macro: across time
✔✔Shifters of AD - ✔✔changes in price levels cause a movment along the AD curve
(anything that changes total spending in the economy)
✔✔Shifters of AS - ✔✔changes of production costs or productivity
, ✔✔Interest Rate Changing Directly - ✔✔= movement along AD
✔✔Changes that affect overall spending conditions - ✔✔= shifts AD
✔✔Expansionary Policy - ✔✔actions used to increase economic activity by increasing
spending or money
✔✔Contractionary Policy - ✔✔actions used to slow down the economy by reducing
spending or money to control inflation
✔✔Forecasting - ✔✔predicting what the economy will do in the future
✔✔Diagnosing - ✔✔identitying what is currently happening in the economy and what is
causing it
✔✔very short run (AS) - ✔✔prices are fixed
✔✔short and medium run (AS) - ✔✔prices are less sticky
✔✔long run (AS) - ✔✔prices are fully adjusted
✔✔Monetary Policy - ✔✔the process of setting interest rates in an effort to influence
economic conditions
✔✔Dual Mandate: Federal Reserves Two Goals - ✔✔1. Keep prices stable (low
inflation)
2. Keep unemployment low
✔✔Target Inflation - ✔✔- a publicly stated goal for the inflation rate
- 0% target inflation rate runs the risk of deflation so maybe 2%
✔✔Federal Funds Rate - ✔✔the interest rate that banks charge each other for short
term loans overnight
How Do they move it?
- To lower it: increase money supply by buying governemnt securities
- To Rasie it: decrease the money supply by selling government securities
✔✔Tool 1: the feds pay interest on reserves - ✔✔Banks only lend if they earn more than
the feds rate
✔✔Tool 2: borrows money overnight from financial institutions - ✔✔The feds borrow
from financial institutions overnight and pays them interest on the loan
QUESTIONS AND ANSWERS SURE A+
✔✔Output Gap - ✔✔the difference between actual output and potential output
✔✔Business Cycle Anatomy - ✔✔the pattern of ups and downs in the economy
✔✔Inflation Exceptions - ✔✔the rate at when average prices are anticipated to rise next
year
✔✔supply shocks and cost-push inflation - ✔✔inflation that results from an unexpected
rise in production costs
✔✔Vicious and Virtuous Cycle - ✔✔vicious: a negative loop where economy keeps
getting worse
virtuous: a postive loop where economy keeps improving
✔✔Aggregate Demand (AD) - ✔✔price level and the total quantity if output that buyers
plan to purchase
✔✔Aggregate Supply (AS) - ✔✔price level and the total quantity output that suppliers
collectively produce
✔✔Equilibrium Value Interpretation - ✔✔AD is equal at AS, economy is stable and not
changing
✔✔Micro and Macro Trade Offs - ✔✔Micro: across products
Macro: across time
✔✔Shifters of AD - ✔✔changes in price levels cause a movment along the AD curve
(anything that changes total spending in the economy)
✔✔Shifters of AS - ✔✔changes of production costs or productivity
, ✔✔Interest Rate Changing Directly - ✔✔= movement along AD
✔✔Changes that affect overall spending conditions - ✔✔= shifts AD
✔✔Expansionary Policy - ✔✔actions used to increase economic activity by increasing
spending or money
✔✔Contractionary Policy - ✔✔actions used to slow down the economy by reducing
spending or money to control inflation
✔✔Forecasting - ✔✔predicting what the economy will do in the future
✔✔Diagnosing - ✔✔identitying what is currently happening in the economy and what is
causing it
✔✔very short run (AS) - ✔✔prices are fixed
✔✔short and medium run (AS) - ✔✔prices are less sticky
✔✔long run (AS) - ✔✔prices are fully adjusted
✔✔Monetary Policy - ✔✔the process of setting interest rates in an effort to influence
economic conditions
✔✔Dual Mandate: Federal Reserves Two Goals - ✔✔1. Keep prices stable (low
inflation)
2. Keep unemployment low
✔✔Target Inflation - ✔✔- a publicly stated goal for the inflation rate
- 0% target inflation rate runs the risk of deflation so maybe 2%
✔✔Federal Funds Rate - ✔✔the interest rate that banks charge each other for short
term loans overnight
How Do they move it?
- To lower it: increase money supply by buying governemnt securities
- To Rasie it: decrease the money supply by selling government securities
✔✔Tool 1: the feds pay interest on reserves - ✔✔Banks only lend if they earn more than
the feds rate
✔✔Tool 2: borrows money overnight from financial institutions - ✔✔The feds borrow
from financial institutions overnight and pays them interest on the loan
