ECON 103 FINAL EXAM STUDY GUIDE QUESTIONS AND ANSWERS GRADED A
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ECON 103
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ECON 103
Final Exam Study Guide
Mixing of chapters to put things together:
A short-run equilibrium (SRE) is an intersection between which curves?
AD & SRAS
A long-run equilibrium (LRE) is an intersection between which curves?
AD & SRAS & LRAS (resources institutions technology)
(Classify these points ...
econ 103 final exam study guide questions and answers graded a
econ 103 final exam study guide
a short run equilibrium sre is an intersection between which curves
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ECON 103 FINAL EXAM STUDY GUIDE QUESTIONS
AND ANSWERS GRADED A
Final Exam Study Guide
Mixing of chapters to put things together:
A short-run equilibrium (SRE) is an intersection between which curves?
AD & SRAS
A long-run equilibrium (LRE) is an intersection between which curves?
AD & SRAS & LRAS (resources institutions technology)
(Classify these points as short run equilibriums, long run equilibriums, recessions, and/or overheated
economies and make up unemployment rates for each point)
At A the economy is at Recession (U>U=5%) (U=7%) (U=17%)
At B the economy is LRE (U=5%)
At C the economy is Overheated (u<u*)
At D the economy is LRE (u=5%)
AD=GDP=C+I+G+Ex-Im(go back and check out chapter 6 for details)
What are some signs that the economy is in a recession: y<y* & u>u*
What are some signs that the economy is overheated: y>y* & u<u*
, Initial Moves: List the reasons that a curves might shift and give an situation as an example and explain
which way the curve would shift for it.
AD:
1. Real wealth goes up: AD shifts right
2.Expected Future Income goes up: AD shifts right
3. Expected prices in the future go up: AD shifts right
4. Foreign Income goes up: AD shifts right
5. Currency becomes more valuable, our currency goes up in foreign currency , imports go up,
our exports go down, NX goes down: AD shifts left
LRAS:
1.Resources go up: LRAS shifts right
2. Technology go up: LRAS shifts right
3. Institutions become more business friendly go up: LRAS shifts right
SRAS:
1.Sticky Input Prices: PL goes up: SRAS goes up
2. Menu Costs: PL goes up: SRAS goes down
3. Money Illusion : PL goes down: SRAS goes down
Return to LRE: What are the three options for how the economy can return to LRE from a SRE? Which
curve to they effect?
1. Do Nothing (Wait for Prices /Wages to Adjust) SRAS
2. Fiscal Policy (Gov Spending or taxes) AD
3. Monetary Policy (Interest Rates -> Investments) AD
In chapter 13, when the economy is not in LRE, there was no fiscal or monetary policy used, so the SRAS
curve adjusts to bring the economy back to LRE.
In Chapter 13 when the economy got in a recession (so not in long run equilibrium), the SRAS curve
would move RIGHT over time to bring the economy back into LRE. This would happen because the HIGH
unemployment rate would cause people to be willing to work for LESS . When wages FALL employers’
profit margins INCREASE giving them MORE incentives to produce.
In Chapter 13 when the economy got overheated, the SRAS curve would move LEFT over time to bring
the economy back into LRE. This would happen because the LOW unemployment rate would cause firms
to struggle to find people to hire requiring them to pay MORE . When wages INCREASE , employers’
profit margins DECREASE giving them LESS incentives to produce.
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