Arrangements for a makeup need to be made one week in advance!

Monday, May 7 10:30-12:30 a.m.

Final Format

60 multiple choice, chapters 5-21.

• old homework and exam questions are useful study tools!

• what is GDP? what does it measure? what does it NOT measure?
• nominal vs. real GDP--what’s the difference? which measures only changes in production?
• calculating real and nominal GDP in model economies, calculating percentage increases

• measurement--who is in the labor force? who is not in the labor force?
• calculating unemployment rate, labor force participation rate
• how does the official unemployment rate overstate/understate the unemployment problem?
• discouraged workers, underemployment, phantom unemployment
• types of unemployment
• frictional, structural, cyclical---what’s the difference? which are more serious?
• what do we mean by full employment and the natural rate of unemployment?


7. Inflation

• how does inflation redistribute income?
• why is inflation bad for the macroeconomy?
• CPI--what does it measure?
• using the CPI to calculate the rate of inflation

• why does the CPI tend to overstate inflation? why is this a problem for the federal government?

• Using a price index to calculate real and nominal values

• peak, trough, expansion, contraction (recession)
• Keynes vs. the Classicals: price/wage flexibility, self-adjustment, government intervention, inherent stability of economy
• the AD/AS model
• macro equilibrium --are all macro equilibria desirable? why or why not?

• modeling the components of aggregate expenditure, AE = C + I + G + (X-IM)
• consumption function C = a + bY
• slope = marginal propensity to consume, how to interpret the mpc?
• investment I
• planned investment does not vary with changes in Y but can change due to
• changes in interest rates, changes in expected profits, changes in technology
• calculating equilibrium output/income AE = C + I + G + (X-IM) = Y

• the multiplier
• calculating the multiplier given the mpc
• using the multiplier to predict changes in output that will result from changes in investment

• how can taxes, transfers and government spending be used to increase AD? to decrease AD?
• fiscal policy multipliers
• calculating and applying the multiplier for changes in G
• calculating and applying the multiplier for changes in T
• why is the tax multiplier different from the government spending multiplier? which is larger?
• what problems are associated with fiscal policy? crowding out, time lags

• what are the differences between a deficit, surplus & debt?
• why is the debt/GDP ratio a better measure of a nation's debt burden?
• Explain why
• the interest on the debt is not necessarily a burden to future generations
• the national debt is not out of control
• How does a large national debt
• redistribute income between taxpayers and bondholders?
• crowd out private investment?

• what are the functions of money?
• how does money eliminate the need for a double coincidence of wants?
• why is the U.S. dollar a good store of value?
• how do banks create money?
• using the money multiplier to calculate potential deposit creation from a change in reserves
• how do changes in the required reserve ratio affect the money multiplier?

• structure
• Board of Governors--appointment, terms, current chairman
• 12 regional banks--which is the most important?
• FOMC--how is it composed? what does it do?
• tools for controlling the money supply
• required reserve ratio--what is it? how does it work? why is it seldom used?
• discount rate--what is it? how does it work? why is it not very effective?
• open market operations--what are they? how do they work? why are they the most important tool?
• who votes on open market operations policy? who actually implements open market operations?

• how does the Fed shift the MS curve?
• Keynesian view on money and AD:
• how do changes in the MS (and interest rates) affect C, I, AD, output, prices, and unemployment?
• why do Monetarists believe that changes in the money supply ONLY affect prices when the economy is at full employtment?
• How do Monetarists and Keynesians differ in their monetary policy response to
• inflation? unemployment?

who favors rules? who favors discretion? what is the difference?

• What is stagflation? why are fiscal and monetary policies not good options in dealing with stagflation?
• Phillips curve
• why does shifting AD produce a tradeoff between inflation and unemployment?
• how does shifting the AS curve affect this tradeoff
• Supply-side policies
• contrast the views of Keynesians and supply-siders on tax cuts--AD vs. AS
• how could tax cuts actually increase tax revenue--the Laffer curve
• other ways to shift AS: human capital investment, deregulation, infrastructure investment
17 Economic Growth
• long-run economic growth shifts out the production possibilities curve vs. short-run economic growth which moves us from inside to on a given production possibilities curve
• economic growth is measured by the percentage change in real GDP
• why should we be concerned about slowdown in the rate of economic growth or productivity growth?
• change in growth rate vs. change in level of output.
• what factors influence economic growth?
• how do markets provide incentives that postpone resource exhaustion and extend the limits to growth?

 

• who is responsible for monetary and fiscal policies? what are the tools of monetary and fiscal policies?
• what does it mean to "fine tune" the economy?
• how have U.S. business cycles changed since WWII? how has the U.S. fared in achieving the economic goals set forth in 1978? (in general)
• what problems prevent us from achieving our economic goals through policies?
• goal conflicts, measurement issues, time lags
• how do monetarists, New Classicals, and New Keynesians differ on the role of government in fine tuning the economy?

 

• imports as a leakage; exports as an injection
• how the MPM changes the multiplier and the implications for fiscal policy
• the balance of trade
• trade deficit/trade surplus and exports vs. imports
• what is the balance of trade like in the U.S.? (in general)
• the flow of funds
• capital surplus/capital deficit
• why is a capital surplus associated with a trade deficit?
• how does international investment complicate monetary policy?
• why is cooperation important in a global economy? examples of cooperation: IMF, G-7, EMU

 

• who are our largest trading partners? (top five)
• the U.S. economy is less dependent on exports than most economies, but this varies substantially by industry
• illustrating the gains from trade (example from chapter 20 notes, homework 6 question 2)
• absolute advantage, comparative advantage, terms of trade, production possibilities
• barriers to trade: embargoes, tariffs, quotas--how do they work?
• the debate over free trade
• if there are gains to trade, why the debate?
• arguments in favor of protectionism
• the global momentum towards fewer trade barriers:
• NAFTA--who's involved? what jobs are lost in the U.S., what types of jobs are gained?
• GATT--who's involved? where does the WTO fit in?

• exchange rates--what are they, why are they important?
• calculating prices in different currencies, given the exchange rate --homework 6, question 2
• what does it mean when $ appreciates/is stronger/is weaker?
• impact of $ appreciation/depreciation on imports and exports ("winners and losers" of changes in exchange rates)
• exchange rate markets
• who demands U.S. $? who supplies then?
• what causes the supply & demand for $ to shift? (economic growth, inflation, government intervention, production)
• balance of payments
• what is the current account balance? what is the capital account balance?
• why must the current + capital account = 0?
• how does the exchange rate affect the balance of payments?
• exchange rate systems
• fixed exchange rate system--what is it?
• how is a fixed exchange rate maintained?
• what are the advantages/disadvantages to a fixed exchange rate?
• Bretton Woods, euro

• flexible exchange rate system--what is it?
• what is the tradeoff with allowing supply and demand to determine exchange rates?
• the U.S. dollar is basically on a flexible system, with occasional intervention
• managed exchange rate system--what is it?

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