Understand the following concepts:
· Scarcity
· Opportunity costs
· Diminishing marginal product and increasing costs
· Law of demand and law of supply
· Demand versus quantity demanded; supply versus quantity supplied
· Market equilibrium and price/quantity adjustment from disiliquibria
· Shifters of the demand and supply curves
Know the circular flow model
Know the Production Possibilities Curve
Factors of production
· Roles of government
Provide legal and economic stability
Provide public goods
Redistribute income
Deal with externalities
Etc.
· What we trade and with whom
· Importance of trade and how it leads to specialization
· Laws of absolute and comparative advantage
· Free trade agreements and obstacles to free trade
Chapter 7.
Measuring GDP.
· Definition of GDP. Why only value of final goods? Double counting.
· Definitions of the components. Consumption, Investment, Government expenditures and Net exports.
· Inflation and real versus nominal income. Price indexes – the CPI and GDP deflator. Problems of using a fixed basket. Inflation, deflation and disinflation.
· GDP and social welfare.
Chapter 8. Macro
instability – Inflation and Unemployment
· The stages of the business cycle.
· Unemployment – definition and types.
· Full employment and the “natural rate” and what affects it.
· GDP gap and Okun’s Law.
· Inflation facts; rule of 70; and types of inflation.
· Adverse effects of inflation – redistribution effects, etc.
· Anticipated versus unanticipated inflation.
· Hyperinflation and its effects.
Chapter 9.
Building the Aggregate Expenditure model.
· Say’s Law and classical theory.
· The Great Depression and JM Keynes.
· The consumption function, the marginal propensity to consume.
· Investment function a lá Keynes.
· Real versus nominal interest rate and which matters more.
· Equilibrium GDP Y = C + I + G + X.
· Leakages and injections.
· Planned versus actual investment and the role of inventories as signals.
Chapter 10.
Aggregate expenditures, the multiplier, etc.
· Calculating the multiplier and using it to analyze effects of expenditure changes.
· The multiplier effect.
· Adding G and X to the model.
· Role of Government in maintaining full employment.
· Balanced budget multiplier. (= 1)
· Recessionary and inflationary gaps defined and their calculations.
Chapter 11.
Aggregate demand and aggregate supply.
· Aggregate demand curve and why it is down-sloping.
· The wealth, interest rate and foreign purchases effects.
· Shifts in aggregate demand.
· Aggregate supply curve.
· The three ranges: horizontal, intermediate and vertical.
· Determinants of aggregate supply.
· Equilibrium in the AD-AS model.
Chapter 12.
Fiscal Policy.
· Employment Act of 1946.
· Discretionary fiscal policy.
· Built-in stabilizers and entitlements.
· Full employment budget – what the deficit or surplus would have been if at full employment.
· Problems with discretionary policy: timing, political business cycle, crowding out, Ricardian equivalence, inflationary effects.
· Supply-side fiscal policy.
· Definitions of money and what it is
· The Fed; what it is, its role, and how it operates
· Money creation by the Fed
· How banks create money from base money
· The money multiplier
· Tools of monetary policy: open market operations, discount window, reserve requirement
· Effects of policy
Chapter 16.
· The aggregate supply curve in the short-run and the long-run
· The Phillips Curve and the Natural Rate Hypothesis
· Supply-side economics and the Laffer Curve
Chapter 17.
· Classical view of the economy; the classical dichotomy
· Keynes on the Classicals
· Monetarists
· Real Business Cycle model
· Rational expectations
· Effectiveness of monetary and fiscal policy measures using each model
Chapter 18.
· Growth and accounting for it
· Policies to stimulate growth
Chapter 19.
· Balanced budget versus cyclically balanced budget
· Size of the debt
· Causes of deficits
· Effects of debt; crowding out and trade deficits