Last revision: 05/01/2009
Here are a list of questions based on the reading to help you prepare for the portion of the final exam that covers the new material. You should also study your text, notes, homework solutions and the in-class exercises. You need an understanding of the big picture; the review questions below should help you. Focus on understanding -- the questions on the exam will differ in the details but test the same concepts. Bring a calculator and a couple of number two pencils. There are 100 questions, with 50 questions over the review material (through chapter 13) and 50 questions from the new chapters (14, 15, 16, 17, 18, and 19). Chapter 20 will not be included, although you may still complete the homework assignment for extra credit. It does apply many of the concepts presented in the early chapters, so it may be useful as a review.
Use the study guides for the previous exams for the review portion (half)
of the final.
Exam 1 Here are
links to some multiple-choice questions
Exam 2
Exam 3
The new material includes Chapters 14 through 20. Please review your in-class quizzes and homework assignments for these chapters.
Chapter 14, Money and the Financial System: Barter; Functions of money; Desirable characteristics; Commodity and fiat money; The Federal Reserve System; Depository institutions; Developments in the banking industry. Stock variable versus flow variable; Monetary aggregates ; Tools of the Federal Reserve.
Chapter 15, Banking and the Money Supply: Monetary aggregates (M1 and M2); Checkable (or transaction) deposits; Balance sheets; Simple money multiplier (1/r); How banks work; How banks create money; The Federal Reserve System and its tools.
Chapter 16, Monetary Theory and Policy: the demand and supply of money; money and aggregate demand in the short run -- interest rates, investment, and exchange rates; Equation of Exchange; Quantity Theory of Money; targets for monetary policy.
Chapter 17, The Macro Policy Debate: Active or Passive? The role of expectations; policy rules versus discretionary policy; the Phillips Curve
Chapter 18, International Trade: the gains from trade; tariffs, quotas and welfare losses; arguments for trade restrictions
Chapter 19, International Finance: balance of payments; foreign exchange rates and markets -- fixed versus floating exchange rates. As always, you must pay attention to the units when answering questions concerning exchange rates. For example, on the arbitrage question (#15) several students mistakenly picked answer 3. See below:
Suppose the exchange rate is such that 1 UK pound equals 2.2 US
dollars in New York (NY) and 2.1 US dollars in London. An arbitrageur would sell
US dollars
|
1 |
in NY and buy UK
pounds in London |
3 |
in NY while buying
them in London |
|
2 |
in London and buy
UK pounds in NY |
4 |
in London while
buying them in NY |
This mistake may be avoided by noticing that $2.20 is the price of one UK Pound in NY, and $2.10 is the price of one UK Pound in London -- a price quoted in US dollars could not be the price of the US dollar, could it? Thus, you would buy Pounds in London, selling US dollars in London, and simultaneously sell Pounds in NY, buying US dollars.
Chapter 20, Developing and Transitional Economies: (NOT included on the final) international comparisons; productivity as the key to development; international trade and development; foreign aid and development; transitional economies; markets and institutions
Current events questions (some of these will appear): for the first quarter of 2009, know the annual rate of growth of real GDP, the level of real GDP, and the level of current-dollar GDP. You may look these up at the Bureau of Economic Analysis: www.bea.gov.
Visit www.federalreserve.gov and read the FOMC statement. Memorize the current target for the federal funds rate.
Visit the Bureau of Labor Statistics, www.bls.gov, and memorize the current unemployment rate, and the approximate number of unemployed persons as reported in the Employment Situation Summary released on April 3, 2009.
Visit www.treasurydirect.gov, follow the link to “Debt to the Penny” in the lower right corner, and memorize the current magnitude of the Debt Held by the Public. What is the distinction between this stock and the Total Public Debt Outstanding?