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ECON 304 Exam #1 questions and answers graded A+ 2024/2025
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ECON 304 Exam #1 questions and answers graded A+ 2024/2025
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ECON 304 Exam #1Economic Model
A description of consumers and firms, their objectives and constraints, and how they interact.
Long-Run Growth
The increase in a nation's productive capacity and average standard of living that occurs over a long
period of time.
Business Cycles
Short-run ups and downs, or booms and recessions, in aggregate economic activity.
Gross Domestic Product
The quantity of goods and services produced within a country's borders during some specified period of
time.
Trend
the smooth growth path around which an economic variable cycles.
Models
Artificial devices that can replicate the behavior of real systems.
Optimize
The process by which economic agents (firms and consumers) do the best the can given the constraints
they face.
Equilibrium
The situation in an economy when the actions of all firms are consistent.
Competitive Equilibrium
Equilibrium in which firms and households are assumed to be price-takers, and market prices are such
that the quantity supplied equals the quantity demanded in each market in the economy.
Rational Expectations Revolution
Macroeconomics movement that occurred in the 1970s, introducing more microeconomics into
macroeconomics.
, Lucas Critique
The idea that macroeconomic policy analysis can be done in a sensible way only if microeconomic
behavior is taken seriously.
Endogenous Growth Models
Models that describe the economic mechanism determining the rate of economic growth.
Keynesian
Describes macroeconomists who are followers of J.M. Keynes and who see an active role for government
in smoothing business cycles.
Non-Keynesian
Describes macroeconomists who pursue business cycle analysis that does not derive from the work of
J.M. Keynes.
Real Business Cycle Theory
Initiated by Finn Kydland and Edward Prescott, this theory implies that business cycles are caused
primarily by shocks to technology and that the government should play a passive role over the business
cycle.
Coordination Failures
A modern incarnation of Keynesian business cycle theory positing that business cycles are caused by self-
fulfilling waves of optimism and pessimism, which may be countered with government policy.
New Keynesian Economics
a modern version of Keynesian business cycle theory in which prices an/or wages are sticky.
Inflation
the rate of change in the average level of prices over time.
Federal Reserve System
The central bank of the United States.
Phillips Curve
A positive relationship between the deviation of aggregate output from trend and the inflation rate.
Average Labor Productivity
The quantity of aggregate output produced per worker. Equal to Y/N where Y is aggregate output and N
is total labor input.
Productivity Slowdown
The period of low productivity growth occurring from the late 1960s until the early 1980s.
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