ECON 364 - Intermediate Macroeconomics

Study Questions for the First Exam

 

These questions are not designed to take the place of studying your notes and the reading assignments.  Do not e-mail me and ask me to answer all or some of these questions for you.  If you have missed class, it is your responsibility to get the notes from another student.  Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not.  Don't be afraid to ask me questions, I just want you to try to answer the questions yourself first.

  1. What is macroeconomics?
  2. What are the four "trends" that macroeconomics studies?
  3. What are the three normative goals that most macroeconomists have?
  4. How might we categorize different schools of thought in macro?  That is, what are the bases for some of the major differences?
  5. Who is Adam Smith and what book did he write?
  6. What does Adam Smith mean by the invisible hand?
  7. What are some of the reasons behind Keynes "winning" over much of the economics profession (younger than 50)?
  8. What happened that contributed to the downfall of the "reign" of Keynesian economics and when did it happen?
  9. What are the schools of thought in modern macroeconomics?
  10. What is the difference between normative and positive economics?
  11. What does "potential output" mean? 
  12. What is a business cycle?
  13. What is the unemployment rate and how is it measured?
  14. What are the six "inflows" to the unemployed ranks; what are the three "outflows" to the unemployed ranks? (See handout I gave out in class).
  15. What are some of the problems with measuring the unemployment rate?
  16. What is the natural rate of unemployment?  Why isn't it zero?
  17. What are frictional and structural unemployment?
  18. What is inflation?
  19. What is the difference between the nominal and real rate of interest?
  20. What is monetary policy?  Fiscal policy? 
  21. What is a balanced budget?  Budget surplus?  Budget Deficit?
  22. What is a trade balance?  Balance of Payments Accounts?
  23. How are the Balance of Payments recorded?  When is a credit reported?  Debit?  What is the capital account?  Current Account?
  24. Why on the balance of payments, should the capital and current accounts sum to zero?  (See handout I gave out in class)
  25. How is a balanced budget related to the level of economic activity?  (See handout I gave out in class)
  26. What is trade policy?
  27. What are demand-side policies?  Example?  Supply-side policies?  Example?
  28. What is GDP and how is it measured?
  29. What are the four categories of expenditures used in the National Income Accounts used to measure GDP? 
  30. Why are transfer payments and imports excluded from GDP?
  31. What's the difference between real and nominal GDP?
  32. What is per capita GDP?  How is it found?
  33. What is a recession?
  34. What is the CPI?  PPI?  How are they measured?
  35. What is the labor force participation rate?
  36. What is labor productivity?
  37. Who are the other characters, besides Adam Smith, involved in the Classical School?
  38. What is the broad message of the classical school?
  39. What time frame did the classical school focus on in their models (short run or long run)?
  40. The classical model explains real output, real and nominal wages, the price level, and the real rate of interest.  What are the assumptions of the model?
  41. What are the two sectors of the economy in the classical model?
  42. Explain why aggregate GDP = Y in the circular flow diagram?
  43. What is the short-run production function in the classical model?  (Graph)
  44. Explain the positive relationship between employment and output in the classical model.
  45. Explain why the production function exhibits diminishing marginal returns to labor.
  46. What will shift the production function upward?
  47. Explain, theoretically, why a firm would hire a quantity of labor where MPL - real wage.
  48. Explain the labor/leisure trade off and the income and substitution effects.  What do the classical economists assume about this?
  49. Graph the competitive equilibrium in the labor market in the classical model.
  50. Graphically and in words, explain the competitive equilibrium levels of output and employment in the classical model - and how they relate to each other.  (Graphs that relate to each other)
  51. What will change these levels (in the above question)?
  52. What is voluntary unemployment?
  53. Graphically and in words, show how an increase in technology or a change in population will change employment and/or output. (Graph)
  54. What could cause a situation where markets would NOT clear in the classical model?
  55. What is Say's Law?  Explain it.
  56. Relate Say's Law to the circular flow diagram and equilibrium (strong form).
  57. Why and how, in the classical model, is it assured that S = I?  Explain why this also means Leakages = Injections.
  58. If C (consumption) falls, there are market forces that operate to bring expenditures back up to the previous level (without government intervention).  Explain this process. 
  59. What determines the price level in the classical model?
  60. What is the Fisher (income) approach to money in the classical model (i.e., the equation of exchange)?
  61. Explain why money is neutral in the classical model. (Graph)
  62. Explain why, according to Marx, Capitalism contains the seeds to its own destruction.  Be sure to include the labor theory of value, exploitation, class conflict, competition and the falling rate of profit, etc. in your answer.
  63. Be sure to read the two articles I sent to you from the WSJ -- they are also game for the exam.