ECO 372 Principles of Macroeconomics
Final Exam Review (Qns & Ans)
2025
Multiple Choice Questions
Which of the following is not a component of Gross Domestic
Product (GDP)?
A) Consumption
B) Investment
C) Government Spending
D) Net Exports
E) Underground Economy
©2025
,ANS: E) Underground Economy Rationale: The underground
economy is not officially measured in GDP calculations.
Which of the following is a tool of monetary policy?
A) Government spending
B) Taxation
C) Open market operations
D) Price controls
ANS: C) Open market operations Rationale: Open market
operations are actions by a central bank to buy or sell government
bonds to influence the money supply.
A decrease in interest rates is most likely to result in:
A) Higher savings
B) Increased borrowing
C) Reduced consumer spending
D) Decreased investment
ANS: B) Increased borrowing Rationale: Lower interest rates
make borrowing cheaper, typically leading to increased borrowing
by consumers and businesses.
In the long run, which of the following is a determinant of
economic growth?
©2025
,A) Market prices
B) Labor force participation
C) Government spending levels
D) Consumption patterns
ANS: B) Labor force participation Rationale: An increased labor
force can contribute positively to long-run economic growth
through higher productivity.
What is the primary goal of contractionary monetary policy?
A) Decrease inflation
B) Increase employment
C) Stimulate economic growth
D) Reduce government debt
ANS: A) Decrease inflation Rationale: Contractionary monetary
policy aims to reduce inflation by limiting the money supply and
increasing interest rates.
Fill-in-the-Blank Questions
The _____________ measures the total dollar value of all final
goods and services produced in a country in a given year.
©2025
, ANS: Gross Domestic Product (GDP) Rationale: GDP reflects the
economy's output and is a key indicator of economic
performance.
The ____________ effect describes how changes in the price
level can alter the real value of money and affect consumer
spending.
ANS: Wealth Rationale: The wealth effect indicates that as prices
rise, consumers feel less wealth and spend less, impacting
aggregate demand.
A negative output gap occurs when actual GDP is __________
potential GDP.
ANS: Below Rationale: A negative output gap indicates
underutilization of resources in an economy, showing it is not
operating at full capacity.
The _____________ curve represents the relationship between
inflation and unemployment in an economy.
ANS: Phillips Rationale: The Phillips Curve illustrates the trade-
off between inflation and unemployment rates.
_____________ is the term used to describe the total production
of goods and services in an economy over a period, adjusted for
inflation.
©2025
Final Exam Review (Qns & Ans)
2025
Multiple Choice Questions
Which of the following is not a component of Gross Domestic
Product (GDP)?
A) Consumption
B) Investment
C) Government Spending
D) Net Exports
E) Underground Economy
©2025
,ANS: E) Underground Economy Rationale: The underground
economy is not officially measured in GDP calculations.
Which of the following is a tool of monetary policy?
A) Government spending
B) Taxation
C) Open market operations
D) Price controls
ANS: C) Open market operations Rationale: Open market
operations are actions by a central bank to buy or sell government
bonds to influence the money supply.
A decrease in interest rates is most likely to result in:
A) Higher savings
B) Increased borrowing
C) Reduced consumer spending
D) Decreased investment
ANS: B) Increased borrowing Rationale: Lower interest rates
make borrowing cheaper, typically leading to increased borrowing
by consumers and businesses.
In the long run, which of the following is a determinant of
economic growth?
©2025
,A) Market prices
B) Labor force participation
C) Government spending levels
D) Consumption patterns
ANS: B) Labor force participation Rationale: An increased labor
force can contribute positively to long-run economic growth
through higher productivity.
What is the primary goal of contractionary monetary policy?
A) Decrease inflation
B) Increase employment
C) Stimulate economic growth
D) Reduce government debt
ANS: A) Decrease inflation Rationale: Contractionary monetary
policy aims to reduce inflation by limiting the money supply and
increasing interest rates.
Fill-in-the-Blank Questions
The _____________ measures the total dollar value of all final
goods and services produced in a country in a given year.
©2025
, ANS: Gross Domestic Product (GDP) Rationale: GDP reflects the
economy's output and is a key indicator of economic
performance.
The ____________ effect describes how changes in the price
level can alter the real value of money and affect consumer
spending.
ANS: Wealth Rationale: The wealth effect indicates that as prices
rise, consumers feel less wealth and spend less, impacting
aggregate demand.
A negative output gap occurs when actual GDP is __________
potential GDP.
ANS: Below Rationale: A negative output gap indicates
underutilization of resources in an economy, showing it is not
operating at full capacity.
The _____________ curve represents the relationship between
inflation and unemployment in an economy.
ANS: Phillips Rationale: The Phillips Curve illustrates the trade-
off between inflation and unemployment rates.
_____________ is the term used to describe the total production
of goods and services in an economy over a period, adjusted for
inflation.
©2025
