ECN 111 Final Exam Study Outline – Fall 2004
Based on Chapter Checkpoints in Foundations of Macroeconomics 2nd Edition – Bade & Parkin
The final exam will consist of 50 multiple choice questions from the following sections of the book.
1.3. Explain four core ideas that define the way economists think about macroeconomic questions.
A. Rational Choice and Incentives
1. Cost: What You Must Give Up
2. Benefit: Gain Measured by What You Are Willing To Give Up
3. On The Margin
4. Responding to incentives
B. The Standard of Living and Productivity
C. The Cost of Living and The Quantity of Money
D. Expenditure and Productivity Fluctuations
1. Expenditure Fluctuations
2. Productivity Fluctuations
3. Smoothing the Business Cycle
3.3. Explain how people gain from specialization and trade.
A. Comparative Advantage
B. Achieving the Gains from Trade
C. Absolute Advantage
4.1. Distinguish between quantity demanded and demand and explain what determines demand.
A. Markets
B. The Law of Demand
C. Demand Schedule and Demand Curve
D. Changes in Demand
1. Prices of Related Goods
2. Income
3. Expectations
4. Number of Buyers
5. Preferences
6. Illustrating a Change in Demand
4.2. Distinguish between quantity supplied and supply and explain what determines supply.
A. The Law of Supply
B. Supply Schedule and Supply Curve
C. Changes in Supply
1. Prices of Related Goods
2. Prices of Resources and Other Inputs
3. Expectations
4. Number of Sellers
5. Productivity
6. Illustrating a Change in Supply
5.2.
Describe how economic statisticians measure GDP in the
A. The Expenditure Approach
B. Expenditures Not in GDP
1. Used Goods
2. Financial Assets
C. The Income Approach
1. Compensation of Employees
2. Net Interest
3. Rental Income of Persons
4. Corporate Profits
5. Proprietors’ Income
6. From Factor Cost to Market Price
7. From Gross to Net
D. Valuing the Output of Industries
6.3. Describe the sources and types of unemployment, define full employment, and explain the link between unemployment and real GDP.
A. Sources of Unemployment
1. Job Losers
2. Job Leavers
3. Entrants and Reentrants
B. How Unemployment Ends
1. Hires and Recalls
2. Withdrawls
C. Types of Unemployment
1. Frictional Unemployment
2. Structural Unemployment
3. Seasonal Unemployment
4. Cyclical Unemployment
D. Duration and Demographics of Unemployment
E. Full Employment
F. Unemployment and Real GDP
7.3. Adjust money values for inflation and calculate real wage rates and real interest rates.
A. Dollars and Cents at Different Dates
B. Nominal and Real Values in Macroeconomics
C. Nominal and Real Wage Rates
D. Nominal and Real Interest Rates
8.2. Explain the forces that determine potential GDP and the distribution of income between labor and other factors of production.
A. The Production Function
B. The Labor Market
1. The Demand for Labor
2. The Supply of Labor
3. Labor Market Equilibrium
4. Full Employment and Potential GDP
C. The Functional Distribution of Income
9.2. Explain how investment and saving decisions are made and how these decisions interact in financial markets to determine the real interest rate.
A. Investment Demand
1. Investment Demand Curve
2. Changes in Investment Demand
3. Shifts of the Investment Demand Curve
B. Saving Supply
1. Saving Supply Curve
2. Changes in Saving Supply
3. Shifts of the Saving Supply Curve
C. Financial Market Equilibrium
10.2. Identify the main sources of economic growth.
A. Aggregate Hours
B. Labor Productivity
1. Saving and Investment in Physical Capital
2. Expansion of Human Capital
3. Discovery of New Technologies
C. Sources of Growth: A Summary
D. The Productivity Curve
1. Diminishing Returns
2. The One Third Rule
10.4. Describe policies that might speed economic growth.
A. Preconditions for Economic Growth
1. Economic Freedom
2. Property Rights
3. Markets
B. Policies to Achieve Faster Growth
1. Create Incentive Mechanisms
2. Encourage Saving
3. Encourage Research and Development
4. Encourage International Trade
5. Improve the Quality of Education
C. How Much Difference Can Policy Make?
11.1. Define money and describe its functions.
A. Definition of Money
1. A Commodity or Token
2. Generally Accepted
3. Means of Payment
B. Medium of Exchange
C. Unit of Account
D. Store of Value
E. Money Today
1. Currency
2. Deposits
3. Currency in a Bank Is Not Money
4. Deposits Are Money but Checks Are Not
F. Credit Cards, Debit Cards, E-Checks, and E-Cash
1. Credit Cards
2. Debit Cards
3. E-Checks
4. E-Cash
G. Official Measures of Money: M1 and M2
1. Are M1 and M2 Really Money?
12.2. Explain how the Fed controls the quantity of money.
A. How Required Reserve Ratios Work
B. How the Discount Rate Works
C. How an Open Market Operation Works
1. The Fed Buys Securities
a. A Commercial Bank Sells
b. The Nonbank Public Sells
2. The Fed Sells Securities
D. The Multiplier Effect of an Open Market Operation
E. The Money Multiplier
13. 2. Explain how in the long run, the quantity of money determines the price level and money growth brings inflation.
A. The Money Market in the Long Run
1. Potential GDP and Financial Technology
2. The Nominal Interest Rate in the Long Run
3. Money Market Equilibrium in the Long Run
B. A Change in the Quantity of Money
C. The Quantity Theory of Money
1, The Velocity of Circulation and Equation of Exchange
2. The Quantity Theory Prediction
D. Inflation and the Quantity Theory of Money
1. Changes in the Inflation Rate
E. Hyperinflation
14.2. Explain the influences on aggregate supply.
A. Aggregate Supply Basics
B. Aggregate Supply and Potential GDP
1. Why the AS Curve Slopes
Upward
a. Business Failure and Startup
b. Temporary Shutdowns and Restarts
c. Changes in Output Rate
2. Production at a Pepsi Plant
C. Changes in Aggregate Supply
1. Changes in Potential GDP
2. Changes in Money Wage Rate and Other Resource Prices
14.3. Explain the influences on aggregate demand.
A. Aggregate Demand Basics
B. Aggregate Demand and the AD
Curve
1. The Buying Power of Money
2. The Real Interest Rate
3. The Real Prices of Exports and Imports
C. Changes in Aggregate Demand
1. Expectations
2. Fiscal Policy and Monetary Policy
3. The World Economy
D. The Aggregate Demand Multiplier
15.3. Describe and explain the expenditure multiplier.
A. The Basic Idea of the Multiplier
B. The Size of the Multiplier
C. Why is the Multiplier Greater Than 1?
D. The Multiplier and the MPC
E. Imports and Income Taxes
F. Business-Cycle Turning Points
16. 1. Describe the federal budget process and explain the effects of fiscal policy.
A. The Federal Budget
1. Budget Time Line
2. The Employment Act of 1946
3. Council of Economic Advisers and National Economic Council
4. Types of Fiscal Policy
a. Discretionary Fiscal Policy
b. Automatic Fiscal Policy
B. Discretionary Fiscal Policy: Demand-Side Effects
1. The Government Purchases Multiplier
2. The Tax Multiplier
3. The Balanced Budget Multiplier
4. Discretionary Fiscal Stabilization
C. Discretionary Fiscal Policy: Supply-Side Effects
1. Supply-Side Effects of Government Purchases
2. Supply-Side Effects of Taxes
3. Balanced Budget Supply-Side Effects
4. Supply-Side Effects on the AS Curve
5. Combined Demand and Supply Effects
D. Limitations of Discretionary Fiscal Policy
1. Law-Making Time Lags
2. Estimating Potential GDP
3. Economic Forecasting
E. Automatic Fiscal Policy
1. Induced Taxes
2. Needs-Tested Spending
18.1. Discuss whether fiscal policy or monetary policy is the better stabilization tool.
A. Policy Effects
1. The Effects of Monetary Policy
2. The Effects of Fiscal Policy
3. Extreme Conditions
4. Reality
B. Goal Conflicts
1. Fiscal Policy Goal Conflicts
2. Monetary Policy Goal Conflicts
C. Timing and Flexibility
1. Inflexible Fiscal Policy
2. Flexible Monetary Policy
D. And the Winner Is?
19.3. Explain how trade barriers reduce international trade.
A. Tariffs
1. Rise in Price of a T-Shirt
2. Decrease in Purchases
3. Increase in Domestic Production
4. Decrease in Imports
5. Tariff Revenue
6.
B. Nontariff
Barriers
1. How a Quota Works
2. Health, Safety, and Other Nontariff Barriers