ECON 2120 EXAM 2 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
C. Borrowers - Answers In financial markets, which group best represents the demand side of the
market?
A. Stock markets
B. Banks
C. Borrowers
D. Savers
D. Paying tuition for a collage education. - Answers Which of the following is NOT considered a
saving?
A. Making a deposit in a savings account at the bank.
B. Buying a share of stock in a computer company.
C. Buying a corporate bond.
D. Paying tuition for a collage education.
C. a low savings rate - Answers The consumption-smoothing theory implies that a country whose
people have a very low life expectancy has:
A. low consumption
B. high investment
C. a low savings rate
D. a high borrowing rate
B. People are enticed to forgo consumption when interest rates are higher. - Answers The supply of
savings is positively sloped because:
A. Firms borrow more when interest rates are low.
B. People are enticed to forgo consumption when interest rates are higher.
C. When people have more incomes they save more.
D. Higher interest rates cause people to save less.
A. Decrease. - Answers Higher interest rates typically ________ borrowing, ceteris paribus.
A. Decrease.
B. Maintain.
C. Increase.
D. Indeterminately change.
D. Consumers become less patient. - Answers Which of the following reasons could cause the supply
curve for loanable funds to shift to the left?
A. The economy is expected to go into a recession.
B. An existing investment tax credit is abolished.
C. The government ceases taxing interest earnings.
D. Consumers become less patient.
C. A man who was laid off from an auto manufacturing plant in Detroit. - Answers Which of the
following individuals can be counted as unemployed?
A. A woman who works only part time.
B. A temp worker, who is currently responding to job advertisements from the newspaper.
C. A man who was laid off from an auto manufacturing plant in Detroit.
D. A husband who stays at home to raise his two children.
C. Understated. - Answers The presence of discouraged workers causes the measured unemployment
rate to be:
A. Correctly stated.
B. Overstated.
C. Understated.
D. Either overstated, understated, or correctly stated.
C. Scarcity of information. - Answers What is one of the causes of frictional unemployment?
A. Uneducated workforce.
B. Willingness to take lower level jobs.
C. Scarcity of information.
D. Overabundance of job vacancies.
B. Structural Unemployment. - Answers The shift toward more of a service economy and less of a
manufacturing economy in the United States has caused an increase in:
A. Frictional Unemployment.
B. Structural Unemployment.
C. Cyclical Unemployment.
D. Seasonal Unemployment.
, B. Cause more unemployment among restaurant workers than hotel workers. - Answers If the
equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and
both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in
both markets will:
A. Cause more unemployment among hotel workers than restaurant workers.
B. Cause more unemployment among restaurant workers than hotel workers.
C. Cause the same amount of unemployment in both markets.
D. Have no effect in either market.
NOT(you are a saver and you have a surplus that you are letting investors borrow) - Answers If you
buy stocks or bonds you are _______ an investor.
Borrowers - Answers Investors are actually this. They are represented by the downward sloping
demand curve because they have a *demand for savings*. They use YOUR money to buy things. These
can be: Firms, entrepreneurs, or households.
Savers - Answers Can be households, firms, or venture capitalists. They are represented by the upward
sloping supply curve because they have a *supply of savings*.
CAN(have a car loan and a savings account at the same time is one way) - Answers You ______ be a
borrower and a saver at the SAME time.
Greater - Answers The more capital an economy can invest, the ________ the GDP per capita.
Solow Model - Answers Based on this model we can see that connecting savers and borrowers
*increases* the gains from trade and *smoothens* economic growth.
Savings - Answers Are necessary for capital accumulation (based on the Solow Model).
Saving - Answers Income that is not spent on consumption goods(why stocks and bonds are not
included in GDP).
Investment - Answers The purchase of new capital goods.
Law of Demand - Answers States that demand is based on willingness to pay and that it is *downward
sloping* because marginal benefit is DECREASING as quantity demanded increases. Overall, when
the *quantity demanded* of a good FALLS the price of that good rises.
Law of Supply - Answers States the marginal costs RISE with the quantity supplied so there are
*diminishing marginal returns* (we require more inputs/costs to produce the same unit of output) but
we see and upward sloping curve. Overall, as the *QUANTITY supplied* of a good RISES then the
price of that good also rises.
Oversupply - Answers Occurs when the price is set too high (above equilibrium price) so the quantity
supplied exceeds quantity demanded and there is a *surplus*(sellers cannot sell what they want to so
they have to cut prices in order to attract customers).
Overdemand - Answers Occurs when the price is set to low (below equilibrium price) and the quantity
demanded exceeds the quantity supplied so there is a *shortage*(demanders cannot buy what they want
to so firms can raise prices without losing sales).
Investors - Answers SAVERS ARE NOTTTTTT
Less(downsize their firms and demand of money goes down), left - Answers If there is an economic
downturn then borrowers will borrow _______. This causes the demand curve to shift ______.
Lower - Answers In bad economic times the interest rate is ____.
Higher(higher interest rate means higher opportunity cost of consumption so people save more and
consume less and the quantity of money supplied increases) - Answers In good economic times the
interest rate is _____.
Smoothing Consumption - Answers A factor that determines the *supply of savings*; this means
saving during the working years and *dissaving* during the retirement years. This allows people to
maintain normal consumption beyond their working years OR in the case of unemployment/health
problems.
Impatience - Answers A factor that determines the *supply of savings*; this refers to people who
prefer to consume NOW rather than later. A person like a criminal, addict, or alcoholic often has this
trait and will discount the future more heavily and thus their *savings rate will be low*.
Marketing and Psychological Factors - Answers A factor that determines the *supply of savings*; says
that individuals will save MORE if saving is presented as the natural/default alternative (ex: a
retirement plan was used 25% more in businesses that used automatic enrollment). Other psychological
changes can change how much people save as well (behavioral aspect of economics).
Interest Rates - Answers A factor that determines the *supply of savings*; the *higher the interest
rate* the *greater quantity saved*. Since interest rate is the opportunity cost of consumption, the higher
the interest rate the more you give up when you consume (alternative is to save).
C. Borrowers - Answers In financial markets, which group best represents the demand side of the
market?
A. Stock markets
B. Banks
C. Borrowers
D. Savers
D. Paying tuition for a collage education. - Answers Which of the following is NOT considered a
saving?
A. Making a deposit in a savings account at the bank.
B. Buying a share of stock in a computer company.
C. Buying a corporate bond.
D. Paying tuition for a collage education.
C. a low savings rate - Answers The consumption-smoothing theory implies that a country whose
people have a very low life expectancy has:
A. low consumption
B. high investment
C. a low savings rate
D. a high borrowing rate
B. People are enticed to forgo consumption when interest rates are higher. - Answers The supply of
savings is positively sloped because:
A. Firms borrow more when interest rates are low.
B. People are enticed to forgo consumption when interest rates are higher.
C. When people have more incomes they save more.
D. Higher interest rates cause people to save less.
A. Decrease. - Answers Higher interest rates typically ________ borrowing, ceteris paribus.
A. Decrease.
B. Maintain.
C. Increase.
D. Indeterminately change.
D. Consumers become less patient. - Answers Which of the following reasons could cause the supply
curve for loanable funds to shift to the left?
A. The economy is expected to go into a recession.
B. An existing investment tax credit is abolished.
C. The government ceases taxing interest earnings.
D. Consumers become less patient.
C. A man who was laid off from an auto manufacturing plant in Detroit. - Answers Which of the
following individuals can be counted as unemployed?
A. A woman who works only part time.
B. A temp worker, who is currently responding to job advertisements from the newspaper.
C. A man who was laid off from an auto manufacturing plant in Detroit.
D. A husband who stays at home to raise his two children.
C. Understated. - Answers The presence of discouraged workers causes the measured unemployment
rate to be:
A. Correctly stated.
B. Overstated.
C. Understated.
D. Either overstated, understated, or correctly stated.
C. Scarcity of information. - Answers What is one of the causes of frictional unemployment?
A. Uneducated workforce.
B. Willingness to take lower level jobs.
C. Scarcity of information.
D. Overabundance of job vacancies.
B. Structural Unemployment. - Answers The shift toward more of a service economy and less of a
manufacturing economy in the United States has caused an increase in:
A. Frictional Unemployment.
B. Structural Unemployment.
C. Cyclical Unemployment.
D. Seasonal Unemployment.
, B. Cause more unemployment among restaurant workers than hotel workers. - Answers If the
equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and
both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in
both markets will:
A. Cause more unemployment among hotel workers than restaurant workers.
B. Cause more unemployment among restaurant workers than hotel workers.
C. Cause the same amount of unemployment in both markets.
D. Have no effect in either market.
NOT(you are a saver and you have a surplus that you are letting investors borrow) - Answers If you
buy stocks or bonds you are _______ an investor.
Borrowers - Answers Investors are actually this. They are represented by the downward sloping
demand curve because they have a *demand for savings*. They use YOUR money to buy things. These
can be: Firms, entrepreneurs, or households.
Savers - Answers Can be households, firms, or venture capitalists. They are represented by the upward
sloping supply curve because they have a *supply of savings*.
CAN(have a car loan and a savings account at the same time is one way) - Answers You ______ be a
borrower and a saver at the SAME time.
Greater - Answers The more capital an economy can invest, the ________ the GDP per capita.
Solow Model - Answers Based on this model we can see that connecting savers and borrowers
*increases* the gains from trade and *smoothens* economic growth.
Savings - Answers Are necessary for capital accumulation (based on the Solow Model).
Saving - Answers Income that is not spent on consumption goods(why stocks and bonds are not
included in GDP).
Investment - Answers The purchase of new capital goods.
Law of Demand - Answers States that demand is based on willingness to pay and that it is *downward
sloping* because marginal benefit is DECREASING as quantity demanded increases. Overall, when
the *quantity demanded* of a good FALLS the price of that good rises.
Law of Supply - Answers States the marginal costs RISE with the quantity supplied so there are
*diminishing marginal returns* (we require more inputs/costs to produce the same unit of output) but
we see and upward sloping curve. Overall, as the *QUANTITY supplied* of a good RISES then the
price of that good also rises.
Oversupply - Answers Occurs when the price is set too high (above equilibrium price) so the quantity
supplied exceeds quantity demanded and there is a *surplus*(sellers cannot sell what they want to so
they have to cut prices in order to attract customers).
Overdemand - Answers Occurs when the price is set to low (below equilibrium price) and the quantity
demanded exceeds the quantity supplied so there is a *shortage*(demanders cannot buy what they want
to so firms can raise prices without losing sales).
Investors - Answers SAVERS ARE NOTTTTTT
Less(downsize their firms and demand of money goes down), left - Answers If there is an economic
downturn then borrowers will borrow _______. This causes the demand curve to shift ______.
Lower - Answers In bad economic times the interest rate is ____.
Higher(higher interest rate means higher opportunity cost of consumption so people save more and
consume less and the quantity of money supplied increases) - Answers In good economic times the
interest rate is _____.
Smoothing Consumption - Answers A factor that determines the *supply of savings*; this means
saving during the working years and *dissaving* during the retirement years. This allows people to
maintain normal consumption beyond their working years OR in the case of unemployment/health
problems.
Impatience - Answers A factor that determines the *supply of savings*; this refers to people who
prefer to consume NOW rather than later. A person like a criminal, addict, or alcoholic often has this
trait and will discount the future more heavily and thus their *savings rate will be low*.
Marketing and Psychological Factors - Answers A factor that determines the *supply of savings*; says
that individuals will save MORE if saving is presented as the natural/default alternative (ex: a
retirement plan was used 25% more in businesses that used automatic enrollment). Other psychological
changes can change how much people save as well (behavioral aspect of economics).
Interest Rates - Answers A factor that determines the *supply of savings*; the *higher the interest
rate* the *greater quantity saved*. Since interest rate is the opportunity cost of consumption, the higher
the interest rate the more you give up when you consume (alternative is to save).
