William Rainey Harper College MACROECONOMICS ONLINE! Final Exam Review

Home Syllabus Schedule Assignments Online Lectures Discussion Forum Review Textbook Website

ECO 212 ONLINE! does have a comprehensive final exam. There will be 80 multiple choice questions and NO extra credit essay. Students always ask me for suggestions on how to study for the final. Hopefully, you have been preparing for the final throughout the semester. There are some chapters that will be more important than others. These are usually the chapters with the new models (i.e. graphs) and concepts. You can probably figure out yourself which chapter they are, but here is a list: chapter 2: production possibilities graph chapter 3: supply and demand graph chapter 6 and 20: using the production possibilities graph to determine comparative advantage chapter 11: AD/AS graph chapter 7 calculating GDP, chapter 12: calculating and using the multipliers chapters 12, 14, 15: shoeing how monetary policy policy works on the set of 3 graphs Anything covered during the semester can be on the final exam, but there are some topics that are more likely to appear there. Chapter 1 What is structural adjustment, what are its policies, and why are countries doing it? What is economics? What role does scarcity play? What are the "5 Es" of economics and how does each one reduce scarcity? What are the 4 factors of production (types of resources)? Bonus Web Chapter Compare command and market economies What are the "coordinating problem" and the "incentive problem" found in command economies? Chapter 4 What are the characteristics of market (capitalist) economies? What is the "invisible hand" and how does it promote efficiency? Understand the important role of prices in a market economy Understand the connection between the market economy and the 5Es Chapter 2 What is the production possibilities table/graph (PPC)? What does it show? What are the assumptions behind the PPC? How can we demonstrate the following using the PPC? the necessity of choice opportunity costs law of increasing costs unemployment productive inefficiency economic growth (EG) present choices, future possibilities optimum product mix? Give two definitions of EG Understand the simple circular flow model Chapter 3 THIS CHAPTER IS IMPORTANT Be able to define and graph demand and supply . Know the law of demand the law of supply market demand market supply determinants of demand determinants of supply Know the difference between a change in quantity demanded (supplied) and a change in demand (supply) itself Be able to use the demand and supply graph , AND THEIR DETERMINANTS, to analyze why equilibrium prices change Chapter 5 No questions from chapter 5 pp. 84-89 will be on the final exam Chapter 6 and 20 Know the advantages and disadvantage of trade Be able to find which country has a comparative advantage using the production possibilities table and graph Be able to calculate the gains from trade when countries specialize 100% What are the types of trade barriers? KNOW THAT THE COSTS OF TRADE BARRIERS ARE GREATER THAN THEIR BENEFITS Understand the arguments used to support the use of trade barriers AND the problems associated with each argument Chapter 11 THIS CHAPTER IS IMPORTANT Know the business cycle and what happens to UE, IN, and EG in each stage Define AD, know why is it downward sloping, and know the determinants Define As, know why is it has the shape that it does, and know the determinants Be able to use the AD and AS graph , AND THEIR DETERMINANTS, to analyze why equilibrium real national output and the price level change, AND relate those change to UE, IN and EG. Know the definition and tools of the following: stabilization policies" demand management policies fiscal policy expansionary contraction monetary policy easy money tight money supply-side policies Chapter 5 Have a general understanding of federal, state, and local government's sources of revenue and expenditures Be able to calculate the marginal income tax rate and the average income tax rate Chapter 8 What is UE? who is included? who is not? What is full employment? What are frictional UE, structural UE, and cyclical UE? What is the "full employment rate of unemployment" or the "natural rate"? What are the costs of UE? What is inflation (IN)? What is a price index? What is the rule of 70? Be able to calculate the inflation rate using price index numbers Know demand-pull inflation and cost-push inflation. What are the effects of inflation? For chapters 7, 17, and 22 you may want to see: http://www.harpercollege.edu/mhealy/eco212/review/e2u2rev.htm Chapter 7 Define GDP What are the problems associated with using GDP as a measure of economic welfare? Be able to calculate: GDP using the expenditures approach NI using the income approach NDP (net domestic product). real GDP using a price index Chapter 17 Know the difference between the two (or three) types of economic growth increasing our ABILITY to produce or our Potential output (increasing AS and the PPC) increasing real GDP or ACHIEVING our potential output (increasing AD) increasing GDP per capita Have a general understanding of what has accounted for growth in the United States over the last few decades Chapter 22 Know the characteristics of the less developed countries (called "developing countries" or "DVCs" in our textbook) How does population growth affect the growth in GDP per capita? What is the "vicious cycle" and how does population growth affect it? Understand the "trade vs. aid" issue Chapter 12 THIS CHAPTER IS IMPORTANT if: equilibrium GDP is $400 billion, the full employment level of GDP is $500 billion, and MPC is 0.8, what change in government purchases is needed to achieve full employment? be able to define and calculate MPC, MPS, APC, APS using data from a table or from a graph of consumption and income Understand how/why the multiplier effect works (i.e. the rationale behind how it works) understand each of the multipliers listed at: http://www.harpercollege.edu/mhealy/eco212/lectures/fiscpol/multiply.htm What are "built-in stabilizers" and how do they work? What is the full-employment budget? What in the timing problem of fiscal policy? Know: recognition lag administrative lag operational lag What is "crowding out"? What is the "net export effect"? Chapter 13 What is money, liquidity, M1, money demand, transactions demand, asset demand? What is not money? Know the money market graph Have a general understanding of the structure of the Federal reserve system What are the functions of the FED? Chapter 14 THIS CHAPTER IS IMPORTANT Using the balance sheet of a single bank or the banking system be able to calculate: total reserves required (legal) reserves excess reserves What is fractional reserve banking and how do banks "create" money? Be able to calculate the "money multiplier" If $10 cash is deposited into a checking account at a bank and the RR is 0.2 how much can this bank legal loan out and how much money can be created by the banking system? See the study guide problems !!!! Chapter 15 Know the "Keynesian Cause-Effect Chain of Monetary Policy": 1. A change in the Fed tools CAUSES 2. a change in excess reserves CAUSES 3. a change in the money supply CAUSES 4. a change in the interest rate CAUSES 5. a change in investment CAUSES 6. a change in aggregate demand CAUSES 7. a change in real GDP and a change in the price level CAUSES 8. a change in unemployment and/or inflation Know how to use these graph to illustrate the effects of monetary policy: http://www.harpercollege.edu/mhealy/eco212/lectures/moneypol/chain.html http://www.harpercollege.edu/mhealy/ecogif/money/mp3grph.gif Understand how EACH of the three tools of monetary policy (OMO, RR, and the DR) can be used to change the money supply and hence UE, IN, and EG What are the strengths and shortcomings of monetary policy? FINAL NOTE: Questions may appear on the exam that are not on this final exam review list, but probably not many, if any. GOOD LUCK.

INSTRUCTOR: Mark L. Healy