STUDY GUIDE FOR OUR SECOND EXAM IN PRINCIPLES OF MACROECONOMICS

Because the withdrawal deadline is Friday, 14 March 2008, all of the forty exam questions will be multiple choice, and computer graded. Our midterm exams are each worth 20 percent of your semester grade. Bring two #2 pencils, a good eraser, a picture ID, and a basic calculator (no calculators that can store text allowed). You will not be allowed to use your cell phones. There are 40 multiple-choice questions, eight from each chapter (chapters  six through chapter ten).

Concepts you should know from the lectures, assigned reading and other homework:

Chapter 6, Productivity and Growth: The relationships among productivity, per-capita real GDP, and our standard of living; measurement of labor productivity; international comparisons; convergence hypothesis; determinants of economic growth; policies to improve economic growth (e.g., capital formation, research and development, education, and industrial policy); per-worker production function --capital deepening (accumulation) versus technological progress; “rule of 70”

Chapter 7, Measuring Economic Aggregates and the Circular Flow of Income: National income accounting and related concepts, including stock versus flow variables, computation of GDP (from aggregate expenditure (Y = C + I + G + X – M), or aggregate income (Y = DI + NT = C + S + NT); computation of personal savings; computation of; treatment of sales of used goods, intermediate goods, financial assets, and non-market productive activity; leakages & injections; limitations of national income accounting as a measure of our welfare; Gross versus Net investment and its relation to the capital stock; Computation of value added at each stage of production

How the price level is measured: Price indices and their computation and interpretation -- Consumer Price Index, GDP deflator, base year, market basket, nominal versus real, etc; why the BEA moved to a chain weighted system; Computation of the inflation rate given values of the Consumer Price Index; Computation of real GDP given nominal GDP and the GDP Price Index

 

Chapter 8, Unemployment and Inflation: How unemployment and related concepts are measured -- Labor force, employed, unemployed, marginally attached to the labor force, discouraged worker, working-age population, unemployment rate, labor-force participation rate, employment to population ratio, labor market flows including job creation and destruction, underemployment; frictional, structural, cyclical, and natural unemployment; full employment; hyperinflation; calculation of the annual inflation rate from a price index; demand-pull versus cost-push inflation; anticipated versus unanticipated inflation; transaction costs and inflation; inflation versus changes in relative prices; inflation and interest rates

Chapter 9, Aggregate Expenditure Components and their determinants: the consumption function; marginal propensities to consume, save, and import; non-income determinants of consumption, investment, exports and imports; autonomous versus induced expenditure; investment demand – nominal (market) interest rates, and expected rate of return on an investment; net exports as a function of real GDP.

The formula sheet from the Hoover exercise will be provided for your use, with its list of symbols

Chapter 10, Aggregate Expenditure and Aggregate Demand: Expenditure equilibrium versus disequilibrium; multiplier process; contractionary and expansionary fiscal policies; current stimulus plan; gap between equilibrium expenditure and potential real GDP; derivation of Aggregate Demand from the Aggregate Expenditure model; multipliers – their calculation and application (including shifts in Aggregate Demand).

Also study the Aplia homework, including experiments and news-analysis assignments; study the in-class activities; plus the Case Studies from the text (Chapters 6-10) .

People you should know:

Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776.

David Ricardo published On the Principles of Political Economy and Taxation (London, John Murray, 1817).

John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936.

Don’t forget to try the practice exam. It will grade your responses.