Study ideas for Quiz 1 The things you should know for this quiz are: The nature of economics and Macroeconomics; the meaning of direct and inverse relationships; name of the resources; definition of GDP; distinction between Nominal and Real GDP; items which are included and excluded in the calculation of GDP; use of the GDP deflator formula. EXAM 1 STUDY GUIDE Items you are allowed to bring to the exam: Plain sheets of white paper; calculator; dictionary; and notes written on one side of a 8.5" by 11" sheet. Study strategy: Make summary notes as you are reading the course material so that you don't have to read the chapters more than once. 1.a) Define Gross Domestic Product and discuss its four expenditure categories. b) I will give you several items and you will determine if they are included in the measurement of GDP. c) Difference between nominal GDP and real GDP (not NDP) d) I will give you the magnitude of two of the following three items: GDP price deflator: nominal GDP; and real GDP, and I will ask you to calculate the third item. e) Be able to calculate Per Capita GDP and its growth rate (%). f) Discuss several of the reasons why the level of GDP may fail to reflect the true wellbeing in a society. Use the arguments found under Genuine Progress Indicator (GPI) in the following link: http://www.flora.org/sustain/Question/GPI.html as well as the shortcomings of GDP found on page 125 in the book. g) Be able to compare the historical trends of the GDP and the GPI as reported in the following document: http://www.rprogress.org/projects/gpi/updates/gpi1999.html 2.a) Know what a business cycle is. Know when an economy is in a recession officially. b) Be able to define frictional, structural, and cyclical rates of unemployment c) I will give you some figures and will ask you to calculate the unemployment rate (%). d) Be able to discuss the reasons why official unemployment statistics fail to measure true unemployment rate. 3.a) Explain the two major causes of inflation. b) How can inflation benefit some people while hurting others? c) Given a CPI index, be able to calculate the rate of inflation (%) between specific years. d) Be able to calculate inflation adjusted price of an item in different years and compare them. For example, price of gas 20 years ago expressed in today's or in some base year prices and then compared to current gas prices. e) Be able to give examples of types of individuals who might benefit or hurt from unanticipated inflation. . EXAM 2 STUDY GUIDE Items you are allowed to bring to the exam: Plain sheets of white paper, calculator, dictionary, nd notes written on one side of a 8.5" by 11" sheet. Study strategy: Make summary notes as you are reading the course material so that you don't have to read the chapters more than once. 1.a) Distinguish between "Discretionary" and "Non-discretionary" fiscal policy. b) Be able to decribe the way "Built-in Stabilizers: work. c) Be able to give an overview of the pattern of federal budget deficits and surpluses in recent years. See "Recent U.S. Fiscal Policy" in CH 11. 2. a) Be able to determine the kind of fiscal policy actions needed if an economy is experiencing a recession or an inflation. b) Given the MPC, calculate the change in government spending or taxation necessary to bring about a desired level of change in the real GDP. For this you need to know how to calculate and use a multiplier c) Be able define productivity and be able to calculate per unit costy of production from a given productivity and input price data. 3. You will be asked to explain and show graphically the impact of given macroeconomic event on AD, AS, and on the equilibrium price and real GDP level. For this question you need to know the non-price determinants of AD and AS and also be able to draw the changes graphically. 4. Be able to discuss the Problems, Criticisms, and Complications involving fiscal policy. 5. Be able to discuss the relative strengths and weaknesses of fiscal policies that rely on government spending and those that rely on tax changes. 6. Describe briefly three of the 10 Leading Economic Indicators. For this read the "Last Word" in Chapter 11. 7. Determine the share (%) of the top five (largest $ amount) spending categories of the Federal Budget. For this do the following: a) Go to the Economic Report of the President web site at: http://www.gpoaccess.gov/eop/download.html and click on year 2006 under "Statistical Tables" and go to table B-81. b) On the second half of the table locate the top five (largest $ amount) categories of "Outlays" for year 2005 and write them down on a piece of paper. Ignore the "Offbudget" categories. c) Divide each category's amount by the total "Outlays" to get % share of each category in the Federal Budget. For 2005, the total "Outlays" amount is $2,472,205 in millions. The rest of the questions below are based on the articles I distributed in class. There are no electronic version of them so make sure you get a hard-copy from me. Using the questions below as your guide, you should take summary notes as you read the articles so that you can have a quick reference for the exam. 8. a) Be able to discuss some of the myths listed in the article "The Truth About Taxes." b) Be able to summarize some of the points made in the articles "American’s Ardor for the Tax Issue Cools" and "Tax-Cutters Offer Voodoo Medicine." 9. Be able to discuss several of the “non-welfare” welfare programs. Sources: "Which of Us Isn’t Taking Welfare?", "The Pot Calls the Kettle Socialist," Exploring the GOP’s Small Spending Lie." and "Fittest Survive On the Backs of Children and Poor." 10. Using empirical evidence, discuss some manifestations of income and class inequality in the U.S. Sources: "The Least of These Our Brethren," American Dream vs. The American System" and the information on the reverse side. Items listed under Assignments for CH 11 titled "Fun Facts About Inequality in the USA." 11. Why does a capitalist economy need to have permanent unemployment and welfare? Source" "Welfare Integral to Our System." 12. Summarize the main points raised in the article “A warning From a Consummate Player." FINAL EXAM STUDY GUIDE Items you are allowed to bring to the exam: Plain sheets of white paper; calculator; dictionary; and notes written on one side of a 8.5" by 11" sheet. Study strategy: Make summary notes as you are reading the course material so that you don't have to read the chapters more than once. 1.a) Describe the 3 functions of money. b) Be able to explain how persistent inflation will affect those functions. 2.a) Be able to discuss the three factors which enable an item to act as money. b) Who backs the demand deposits in the commercial banks and who backs currency in circulation. c) Be able to list the components of M1. 3.a) Be able to discuss Federal Reserve’s history and describe its structure. b) Be able to explain the roles the Federal Reserve System plays. 4. Be able to explain the determinants of the transaction and asset demand for money. 5. Describe the mechanics by which the changes in the demand/supply of money determines the interest rates in the money market via the bond market. How do the changes in interest rates influence investment demand and GDP. 6. Ba able to explain what is meant by “Fractional Reserve” and the role it plays in banking. 7.a) Given a balance sheet of a bank, be able to show the changes to the balance sheet as the bank engages in activities of accepting deposits, making loans, selling and buying government bonds (securities). b) Be able to determine the maximum potential increase in the money supply from an initial increase in money. 8.a) What type of monetary policy would you recommend for inflation or for recession? b) List and explain the actions the monetary authorities would take to implement the prescribed policies. 9.a) Discuss the strengths and weaknesses of the monetary policy. b) In discussing the weaknesses, be able to give references from the articles “As Fed cuts rates yet again, its powers seem to be limited," "Can’t give it away, A puzzle for Japan," and "Setting rates becomes a delicate task as inflation and growth move in the wrong directions." The first two articles are distributed in class and the last article is in Bb "under Assignments" for chapter 14.