Review for the Final Exam
Students should
consider the following approach to preparing for the final:
- Study all your notes for the entire semester. Skimming your
notes is insufficient. Students should work through their notes diligently.
They should take time to think carefully about each topic. Rewriting
notes is often very helpful.
- Review your old unit exams. Look at what questions you
missed on old unit exams. Since you're likely to see similar
questions on the final, go back and study these trouble spots. You should be able to explain
why each right answer is correct and why all the wrong options are
incorrect.
- Students can use old finals to identify topics that they have not
yet mastered. After studying for many hours, take a couple practice runs at old exams.
Pay attention to what questions you miss. Go back and study these
topics. Don't spend too much time with these exams. Use them
only as an indicator of what topics you have mastered and what topics you
still need to study.
- Visit me or the department
tutors. After using your notes and the old finals to
identify material you have not yet mastered, seek help on those topics.
- Review your book. Students should go back and review margin
notes, highlighted passages, and end-of-the-chapter reviews. They
should also reread any passages that explain topics with which the student
is still having trouble.
- Study you notes again and again. See #1 above.
Introduction
- Definitions: Economics, Macroeconomics, Microeconomics, Scarcity, Resources, ceteris
paribus
- Economic Questions: What?, How?, for Whom?
- Positive versus Normative Statements
- Models and Theories
- Fallacies: Fallacy of Composition, Post Hoc Fallacy
- Efficiency: Allocative and Productive
- Economic Systems: Market System, Command System
- Markets: Definitions, Function of Price, Invisible Hand
- In a Market System: Producers and Consumers act in their own self-interest--Producers
seek profits, consumers seek satisfaction (utility)
PPF Model
- Calculate Opportunity Cost
- PPF Curve: Definition, Shape, Areas, Shifts, Opportunity Cost
- Increasing Opportunity Cost
- Unemployment and Inefficiency
- Economic Growth: Show with Shifts of the PPF, Need Technological Advance or Capital
Accumulation
- Marginal Concept
Supply and Demand--Basics
- Demand: Definition, Shifters, Movements Along D
- Definitions: Substitutes, Complements, Inferior, Normal
- Why D Slopes Downward: Substitution and Income Effects
- Supply: Definition, Shifters, Movements Along S
- Movements Along the Curve Versus Curve Shifts: Change in QD vs. D,
Change in QS vs. S
Supply and Demand--Equilibrium and Applications
- Equilibrium: Definition, Shortages, Surpluses, Adjustments to Equilibrium
- Shortage = Excess Demand, Surplus = Excess Supply
- Changes in Equilibrium Price and Quantity: Changes in D, Changes in S, Simultaneous
Changes in D & S
- Price Controls: Price Floors, Price Ceilings, Examples, Effects on P, QS, and
QD
- Interpret Graphs
National Income Accounting
- GDP: Definition, Difference Between GDP and GNP, Uses of GDP
- Real versus Nominal GDP
- Measuring GDP with the Expenditure Approach: GDP = C + I + G + NX
- Measuring GDP with the Income Approach: NI = Employees Compensation (Wages) +
Proprietor's Income + Corporate Profit + Net Interest
- Reconciling GDP and NI: NDP = GDP - depreciation; NI = NDP - indirect business taxes
- Transfer Payments: Definitions, Examples (Social Security)
- Other Things Excluded from GDP: Financial Instruments, Non-market Activities (Housework)
- Personal Income and Disposable Personal Income
- Note: PI = NI - corporate profits, social security taxes, and net interest + transfer
payments, personal interest and dividends. DPI = PI - personal taxes
Inflation and Unemployment
- Inflation: Definitions, CPI, GDP deflator, Interpreting, Savers versus Borrowers
- Note: Unexpected Inflation can Redistribute Wealth in the Economy
- Calculations: Inflation Rate, Real Income, real GDP
- Real Interest Rate = Nominal Interest Rate - Inflation Rate
- Cost-Push Inflation and Demand-Pull Inflation
- Unemployment: Full Employment, Labor Force, Unemployed, Employed, Discouraged Workers
- Types of Unemployment: Frictional, Structural, Cyclical, Induced
- Characteristics of Recessions and Expansions
Aggregate Supply and Aggregate Demand
- Aggregate Demand: C + I + G + NX, Shifters, Determinants
- Aggregate Supply: Definition, Graph Shifters, Determinants
- AS: Classical versus Keynesian
Income Determination or Aggregate Expenditures
- Classical Macroeconomics: Say's Law, Assumptions of Flexible Prices, Wages and Interest
Rates ensure the Economy always adjusted to full employment (because the goods, labor, and
investment markets adjust) S=I
- Keynesian Macroeconomics: Aggregate Expenditure Model ( AE = C + I + G + NX), Markets do
not always adjust--role for the government
- Consumption Function: C = Ca + (MPC)Yd
- MPC, MPS , Yd
- Savings: Saving versus Dissaving
- I depends on the interest rate, I is autonomous (independent of real GDP in the simple
model)
- G and NX are autonomous
- Keynesian Equilibrium: AE, 45-degree line, Equilibrium, What if AE does not equal real
GDP (not in equilibrium)? (If AE > real GDP inventories decrease...)
- Recessionary and Inflationary Gaps (if real GDP is not equal to potential GDP what
policy will get us there)
- Autonomous Spending Multiplier = 1/mps
- Lump-sum (Tax) Multiplier = mpc/mps
- Calculate: mpc, mps, multipliers, total effect, initial effect
- APC, APS, Yd
Fiscal Policy
- Fiscal Policy: Government Spending, Tax Revenues, Expansionary Policy, Contractionary
Policy
- Fiscal Policy: Automatic Stabilizers versus Discretionary Policy
- Fiscal Policy Multipliers: calculations to get to potential GDP, to stimulate the
economy, to contract the economy (attach inflation)
- Deficit versus Debt
- Government Budget: Balanced Budget, Budget Deficit, Budget Surplus
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