EC250 Final Latest Update 2025-2026 100 Questions and 100% Verified Correct Answers Guaranteed A+ Define Absolute PPP & the PPP exchange rate - CORRECT ANSWER: Simply the Law of One Price applied to the aggregate of all consumption
PPP ER - exchange rate at which the price level in the 2 countries is equal
Define forward guidance - CORRECT ANSWER: Promise to hold interest rates low for an extended period of time (encourages spending rather than saving)
Define Quantitative easing - CORRECT ANSWER: Government purchase of assets of
longer maturity with the goal of affecting long term interest rates directly
Define sterilization - CORRECT ANSWER: Approach to avoid inflation in which bank buys foreign exchange assets and sells an equal amount of domestic bonds. This way the money supply stays constant
Define structural unemployment & frictional unemployment - CORRECT ANSWER:
Structural - Unemployment occurring due to mismatch of skill (skills no longer wanted by firms)
Frictional - unemployment due to job search
Describe the Easterlin Paradox - CORRECT ANSWER: Relative wealth correlates with higher satisfaction. Long-term wealth gain does not
Describe the relationship between hours worked and output in the current recession -
CORRECT ANSWER: Current recession hours dropped more than output because
those who lost their jobs were less productive (blue-collar workers) & in previous 1 / 3
recessions many workers were put on part time which did not happen as much in the lockdown
Describe the substitution and income effects on the labour market - CORRECT ANSWER: Substitution - Moving away from one thing and towards another because of the cheaper price. In terms of employment, employees will substitute their hours/leisure depending on the real wage and how they value their leisure
Income effect - Change in demand for something because of a change in income. In terms of employment, those with higher wages will want more leisure instead of more hours/consumption
Total effect on hours worked is based on the balance of the 2 effects, substitution will raise demand, income will lower it
How do governments encourage investment? - CORRECT ANSWER: 1. Tax credits
- Accelerated depreciation allowance - allows for companies to right off more expenses
and thus save more of their profits
How do you calculate the unemployment rate? - CORRECT ANSWER: Job separation
rate / (Job finding rate + Job separation rate)
How is CPI calculated? - CORRECT ANSWER: (P current year * Q base year) / (P base year * Q base year)
How is real interest rate calculated? - CORRECT ANSWER: (real interest rate =
nominal interest rate - inflation rate) - approximate formula
[ Base * (1 + real i) * (1 + inflation) - Base ] / Base
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How is the primary surplus calculated? - CORRECT ANSWER: Revenue - program
spending (excludes interest on debt)
How is the real wage calculated? - CORRECT ANSWER: nominal wage / price level
Change in real wage = (1 + % change in w) / (1 + % change in p)
In what scenarios would MPC be negative? - CORRECT ANSWER: 1. worker loses
their job but receives severance (increase in income, decrease in spending)
- Economy expects recession & taxes are cut (increase in income, decrease in
spending)
In which recession did output drop more and for what reasons? - CORRECT ANSWER:
Current (lockdown) recession
- Services stable in previous recessions, not in current
Is GDP a stock or a flow? - CORRECT ANSWER: * A flow meaning that is it based on an INTERVAL OF TIME as opposed to one moment which is a stock
Name & describe the new approaches to monetary policy that exist? - CORRECT
ANSWER: 1. Quantitative easing
- Purchase of long-term assets with the intention of raising their price, & flattening the
- Operation twist is the selling of short-term assets = to long-term assets to fight inflation
term structure
- Forward guidance
- Government promise to keep interest rates low in order to promote spending
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