Exam 4 study guide Econ

Exam 4 study guide.  Please refer to your textbook. I am using the table of contents from the text. I assume that you know everything under each heading unless I specify what you need to know or don’t need to know

IF something is crossed out below it will not be on the exam.

Chapter 15.

How does the government spend? pp 512 – 520

·        Government outlays

·        Social security and medicare

·        Spending and current fiscal issues

How does the government tax? Pp 520 - 525

·        Sources of tax revenue

·        Taxes on worker’s wages

·        Know how to calculate average tax rate and amount of tax paid (p 523)

·        Historical tax rates  

·        How are taxes distributed across income levels – need to know in general (not exact numbers)

Budget deficits pp 526 - 533

·        Deficits

·        Deficit vs debt

·        Publicly held portion vs total debt (p 529) need to know the difference between the two and the size of each

·        International debt to GDP ratios – need to know how debt to GDP ratio is calculated and that some countries have a higher debt to GDP ratio than the US. Don’t need to know specific numbers

·        Tax Cuts and Jobs Act  (p 530) - need to know that marginal tax rates were decreased and corporate income taxes were decreased and how that affected government tax revenue and deficit. Just the general direction, not the numbers

·        Foreign ownership of US Federal Debt (p 532) – need to know how it affects the loanable funds market, also need to know that the share of debt held by foreigners is less than 30% currently

Chapter 16

What is fiscal policy? (pp 540 – 550)

·        Expansionary fiscal policy

·        Fiscal policy during the Great Recession – need to know what the first fiscal stimulus consisted of (checks were being sent to families as a tax rebate), don’t need to know the size of each check, need to know what the second fiscal stimulus consisted of (mostly increase in government spending) and how you would show both on the AD-AS graph and their effects on that graph

·        Fiscal policy and budget deficits

·        Contractionary fiscal policy

·        Countercyclical fiscal policy

·        Multipliers

Shortcomings of fiscal policy pp 550-557

·        Time lags

·        Automatic stabilizers

·        Crowding out

·        Savings shifts

What is supply side fiscal policy? (p.557-562)

Chapter 17

What is money pp 572-578

·        Three functions of money (pp572-576)

·        Measuring the quantity of money

·        M1 and M2

How do banks create money?

·        The business of banking

·        The bank’s balance sheet – don’t need to know about owner’s equity, need to know how deposits, loans and reserves show up on the balance sheet

·        Bank reserves

·        FDIC and moral hazard

·        Creating money by multiplying deposits

How does the Federal Reserve implement monetary policy?

·        The many jobs of the Federal Reserve

·        Monetary policy tools

·        Interest rate on bank reserves

·        Open market operations

·        The discount window and new lending facilities

·        Reserve requirements – only thing you need to know about it as that they are no longer used as a monetary policy tool and why not

Chapter 18 pp 602-627

Effect of the monetary policy in the short run

·        Overview of monetary policy in the short run

·        Expansionary monetary policy

·        Real vs nominal effects – need to know everything but the figure 18.3 on p. 607

·        Unexpected inflation hurts some people

·        Contractionary monetary policy

Why doesn’t monetary policy always work?

·        Long-run adjustments

·        Adjustments in expectations

·        Aggregate supply shifts and the Great Recession

What is the Phillips curve?

·        Short run Phillips curve

·        Long-Run Phillips curve

·        Phillips curve and expectations (pp 619 –621)

·        A modern view of the Phillips curve (pp 621 – 623)

·        Implications for monetary policy (pp 623-624)