ECON 213 FINAL STUDY GUIDE
QUESTIONS AND ANSWERS
Law of Demand - ANSWER-Higher the price, lower quantity demanded
Law of Supply - ANSWER-higher the price, higher quantity supplied
Where do prices come from? - ANSWER-Intersection of supply and demand
Surplus - ANSWER-Quantity supplied is greater than quantity demanded
Shortage - ANSWER-Quantity demanded is larger than the quantity supplied
Consumer Surplus - ANSWER-Area beneath the demand curve and above the price
Producer Surplus - ANSWER-area underneath the price and above the supply curve
Nominal GDP - ANSWER-measures prices of goods/services in year they are sold, does not account for
inflation (only final goods)
Real GDP - ANSWER-measures prices of goods/services in some specified base year, does adjust for
inflation (only final goods)
GDP per capita - ANSWER-takes into account differences in size of countries by dividing GDP by
population
Expenditures Equation - ANSWER-Y=I+C+G+Nx (X-M)
Inflation - ANSWER-sustained increase in the overall level of prices of goods and services over time
Disinflation - ANSWER-Reduction in the rate of inflation
Deflation - ANSWER-a decline in the price level
Consumer Price Index - ANSWER-measures the weighted average change of prices for goods and services
bought by a typical family (100 in the base year)
Economic Expansion - ANSWER-Unemployment falls, prices rise
Economic Recessions - ANSWER-Unemployment rises, prices fall
Unemployment rate - ANSWER-people without a job/people without a job + people with a job
What does the rule of 70 measure? - ANSWER-estimates the time it will take for a country's economy to
double in size
Short Run Growth - ANSWER-when an economy makes use of existing but underutilized resources
Long Run Growth - ANSWER-when an economy finds new resources or finds ways to use existing
resources better
3 Pillars of an Economy - ANSWER-Financial System, Economic System, Government Policy
Aggregate Expenditures - ANSWER-summing up all of the spending
What does LRAS represent? - ANSWER-the potential of the economy (upward sloping)
Fiscal Policy - ANSWER-use of tax policy and spending by the government to achieve some
macroeconomic goal
AD Fiscal Policy - ANSWER-goal is to smooth out the macroeconomic effects of the business cycle
AS Fiscal Policy - ANSWER-goal is to change the trajectory of long run growth
Automatic Stabilizers - ANSWER-taxes and transfer payments that automatically adjust to economic
fluctuations
Demand Side Discretionary Policy - ANSWER-attempts by Congress to manipulate AD (taxes or gov't
spending)
Time Lags - ANSWER-time lag between when an economy begins a contraction phase and when fiscal
policy can be enacted and take effect
Financing Gov't Spending - ANSWER-Taxes, and then borrowing
Crowding Out - ANSWER-fiscal policies will increase the deficit, increase in interest rates which makes it
harder for private investment, which decreases I
QUESTIONS AND ANSWERS
Law of Demand - ANSWER-Higher the price, lower quantity demanded
Law of Supply - ANSWER-higher the price, higher quantity supplied
Where do prices come from? - ANSWER-Intersection of supply and demand
Surplus - ANSWER-Quantity supplied is greater than quantity demanded
Shortage - ANSWER-Quantity demanded is larger than the quantity supplied
Consumer Surplus - ANSWER-Area beneath the demand curve and above the price
Producer Surplus - ANSWER-area underneath the price and above the supply curve
Nominal GDP - ANSWER-measures prices of goods/services in year they are sold, does not account for
inflation (only final goods)
Real GDP - ANSWER-measures prices of goods/services in some specified base year, does adjust for
inflation (only final goods)
GDP per capita - ANSWER-takes into account differences in size of countries by dividing GDP by
population
Expenditures Equation - ANSWER-Y=I+C+G+Nx (X-M)
Inflation - ANSWER-sustained increase in the overall level of prices of goods and services over time
Disinflation - ANSWER-Reduction in the rate of inflation
Deflation - ANSWER-a decline in the price level
Consumer Price Index - ANSWER-measures the weighted average change of prices for goods and services
bought by a typical family (100 in the base year)
Economic Expansion - ANSWER-Unemployment falls, prices rise
Economic Recessions - ANSWER-Unemployment rises, prices fall
Unemployment rate - ANSWER-people without a job/people without a job + people with a job
What does the rule of 70 measure? - ANSWER-estimates the time it will take for a country's economy to
double in size
Short Run Growth - ANSWER-when an economy makes use of existing but underutilized resources
Long Run Growth - ANSWER-when an economy finds new resources or finds ways to use existing
resources better
3 Pillars of an Economy - ANSWER-Financial System, Economic System, Government Policy
Aggregate Expenditures - ANSWER-summing up all of the spending
What does LRAS represent? - ANSWER-the potential of the economy (upward sloping)
Fiscal Policy - ANSWER-use of tax policy and spending by the government to achieve some
macroeconomic goal
AD Fiscal Policy - ANSWER-goal is to smooth out the macroeconomic effects of the business cycle
AS Fiscal Policy - ANSWER-goal is to change the trajectory of long run growth
Automatic Stabilizers - ANSWER-taxes and transfer payments that automatically adjust to economic
fluctuations
Demand Side Discretionary Policy - ANSWER-attempts by Congress to manipulate AD (taxes or gov't
spending)
Time Lags - ANSWER-time lag between when an economy begins a contraction phase and when fiscal
policy can be enacted and take effect
Financing Gov't Spending - ANSWER-Taxes, and then borrowing
Crowding Out - ANSWER-fiscal policies will increase the deficit, increase in interest rates which makes it
harder for private investment, which decreases I
