ECOM p2

•  Fall 2024 

• ECON E-10a 

• Final Exam Study Guide – Material Covered After the Midterm* 

• *Note: there will be questions related to material covered before the midterm, please refer to  the midterm guide to review these topics 

• Key concepts that involve topics from multiple chapters: 

• - Recession – what is the definition? What are the implications? Can they be avoided? - What is the relationship between unemployment and GDP? Inflation and GDP? - What is stagflation? 

• GDP Measuring Total Production and Income 

Key Concepts to Understand: 

• - The definition of Gross Domestic Product (GDP), how it is measured, and why we care  about it 

  • o The difference between a final good or service and an intermediate good or service 

  • o What is included in each: consumption, investment, government purchases, and net exports 

  • o How these four values are used to calculate GDP 

• - The difference between nominal GDP and real GDP 

  • o The formula for the GDP deflator, how to use it, and its purpose 

• Terms to Know: 

• - Microeconomics 

• - Macroeconomics 

• - Expansion 

• - Recession 

• - Economic growth 

• - Inflation rate 

• - Gross National Product 

• - Personal Income 

• - Disposable Personal Income 

• - Price level 

• - Value added

• Fall 2024 

• Unemployment and Inflation 

• Key Concepts to Understand: 

• - Who is included in the labor force 

• - Both the definitions and calculations for unemployment rates and labor force participation rate 

• - The various types of unemployment (frictional unemployment, structural unemployment, cyclical unemployment) 

• - The Beveridge curve and the relationship it represents 

• - The definition of inflation, costs of unexpected or high inflation, and how inflation is measured 

• Economic Growth, the Financial System, and the Business Cycles 

• Key Concepts to Understand: 

• - The business cycle (including peak, recession, trough, and expansion) 

• - What determines the rate of long-run growth? 

• - Actual GDP and Potential GDP, definitions, how they differ, and the implications of  actual GDP being higher or lower than potential 

• - Supply & Demand for Money (the Market of Loanable Funds) – 

  • o Why the “saving” curve/ supply curve is upward sloping and the “investment” curve/demand curve is downward sloping 

  • o what causes shifts in the curves (remember the difference between movement  along the curves vs. shifts) 

• Aggregate Expenditure and Output in the Short Run & Aggregate Demand and Aggregate  Supply Analysis 

• Key Concepts to Understand: 

• - Marginal Propensity to Consume (MPC) and the multiplier effect – you should know the  formula, understand the purpose of each, why policy makes would care about these and  how they could use them in decision-making 

• - Aggregate demand and aggregate supply model 

  • o Reasons why the aggregate demand curve slopes downwards (the wealth effect,  interest-rate effect, and international-trade effect) 

  • o The difference between movement along the curves vs. shift of the curve o Variables that would cause a shift in the aggregate demand curve 

  • o Variables that would cause a shift in the Short-run aggregate supply (SRAS) curve o How policy makers can or cannot shift each curve 

• Terms to Know: 

• - Aggregate expenditure 

• - Aggregate expenditure model 

• - Autonomous expenditure 

• - Consumption function 

• - Marginal propensity to save (MPS) 

• - Multiplier

• Fall 2024 

• - Fiscal policy 

• - Long-run aggregate supply (LRAS) curve 

• - Monetary policy 

• Money, Banks, and the Federal Reserve System, Monetary Policy, Fiscal Policy 

• Key Concepts to Understand: 

• - Monetary Policy: 

  • o Who is in charge of monetary policy? 

  • o What are the goals of monetary policy? 

  • o What tools do they have at their disposal? 

  • o In which situations do they use these tools and what is the impact? 

  • o Understand how these tools might relate to the demand for money 

  • o Note the difference between movement along vs. shift of the demand for money  curve or supply of money curve 

• - How can the Federal Reserve affect employment? GDP? 

• - Expansionary monetary policy vs. contractionary monetary policy 

• - Expansionary fiscal policy vs. contractionary fiscal policy 

• Terms to Know: 

• - Discount rate 

• - Federal Open Market Committee (FOMC) 

• - Open market operations 

• - Required reserve ratio 

• - Federal funds rate

• Discount rate: The interest rate charged to commercial banks for short-term loans from the Federal Reserve.