INSTRUCTOR: JAMES SONDGEROTH
All the questions above were answered in class lectures. I will give the pages in the textbook where you can also find the answers. If all or part of the answer can only be found in lecture notes or handouts I will indicate that too. The questions listed above can be answered by consulting the following sources:For the essay and multiple choice parts of the exam, students will be allowed to use one sheet of paper (8.5 X 11) with handwritten notes on both sides of it. This information sheet must be turned in with the exam. Answers to the essay questions must be written in a Blue Book. Two of the following questions will be randomly drawn on the day of the exam; you will have to answer those two questions for the exam.
This exam covers Chapters 6, 7, 8, 9, and 10 in your textbook.
- Circular Flow Model
- Draw the circular flow of economic activity, labeling all economic actors, markets, and money flows.
- Point out on the graph (and explain in words) where one might build a dam or dams to measure GDP by:
- the expenditure approach
- and also by the income approach.
- GDP
- What is the definition of the GDP?
- How is it calculated using the expenditure approach?
- How is it calculated using the income approach?
- Why are money prices used in calculating GDP?
- Explain the problem of "double-counting" and how it can be avoided.
- Discuss the strengths and weaknesses (i.e., problems) of using GDP data:
- to measure the social well being of a nation,
- in making comparisons of one nation to another,
- and in making comparisons of one time period in a given nation's history with another time period in the same nation's history if there has been a large passage of time between the periods.
- Suppose you are given the following information about some hypothetical economy and its national income accounts. Use this information to answer the questions that follow. (Amounts are in billions of dollars)
Indirect Business Taxes $198 Corporate profits $251 Corporate profits taxes $96 Retained earnings $74 Proprietors' income $123 Rents and interest earned $148 Exports $157 Imports $224 Income Earned from rest of world by US citizens $219 Income Earned by rest of world in US $219 Net Domestic Product $2151 Government expenditures $483 Transfer Payments $510 Social Security Taxes (employee & employer) $370 Consumption expenditures $1505 Gross Investment $470 Disposable personal income $1673
- Find GDP.
- Find depreciation (capital consumption allowance).
- Find National Income.
- Find Personal Income.
- Find Personal Income Taxes.
- Find Personal Saving.
- Business Cycle
- What is the business cycle?
- Draw a hypothetical graph of a business cycle labeling the four phases of the cycle.
- Explain what is happening during each phase of the cycle with:
- output,
- employment,
- and inflation.
- Aggregate Demand
- Draw a graph of an Aggregate Demand Curve and list and explain the three reasons that the textbook gives for its slope.
- Shifts in the Aggregate Demand Curve
- Illustrate a change (or shift) in A.D. with a graph, and list and explain the things that might cause this shift.
- Aggregate Supply--Short and Long Run
- Draw a graph of the Short Run Aggregate Supply curve and explain why it is upward sloping.
- Now, on the same graph, draw the Long Run Aggregate Supply Curve and explain why it is vetical.
- Explain what the intersection of the Short Run Aggregate Supply and the Long Run Aggregate Supply curves indicates in our model of the macroeconomic economy.
- Shifts in the Aggregate Supply Curves
- List and discuss the things that will make the Short Run Aggregate Supply curve shift to the left or to the right. Illustrate.
- List and discuss the things that will make the Long Run Aggregate Supply curve shift to the left or to the right. Illustrate.
- With the use of the Aggregate Demand and the Short Run and Long Run Aggregate Supply curves, explain and illustrate the two basic causes of recession. (One graph needed for each cause.)
- Inflation, Recession, and Government Non-intervention
- Draw an A.D./A.S. graph showing an inflationary gap.
- Draw an A.D./A.S. graph showing a recessionary gap.
- Using the same graphs you have drawn in A and B, show what the long run equilibrium position would be in each case if the government did nothing (i.e., let the economy self-adjust).
- Say's Law
- What is Say's Law?
- Explain why the classical economists thought there was no inherent tendency in the market system to overproduction, recession, and depression.
- If the market itself did not cause recessions, what did they believe did cause them?
- Explain Keynes' four main criticisms of classical economic theory. Note in your discussion what Keynes thought was the most important reason.
- Based on Keynes' criticisms of classical economic theory, what did he propose to do to get the U.S. and British economies out of the Great Depression.
- Keynesian Consumption Function
- What are the basic characteristics of the Keynesian consumption function?
- What is meant by "autonomous consumption"?
- What are the definitions of:
- Marginal Propensity to Consume,
- and Marginal Propensity to Save?
- How are MPC and MPS related?
- To show your understanding of the Consumption function, build a table with at least six income levels showing the following information:
- Disposable Income,
- Change in Disposable Income,
- Consumption,
- Change in Consumption,
- Marginal Propensity to Consume,
- Saving,
- Change in Saving,
- Marginal Propensity to Save.
- Fiscal Policy
- What is fiscal policy?
- What is expansionary fiscal policy?
- What is a budget surplus?
- What is a budget deficit? How are budget deficits related to the national debt?
- With the use of the Aggregate Demand and the Short Run and Long Run Aggregate Supply curves, explain and illustrate how policymakers can use fiscal policy to get the economy out of a recession.
- Explain in detail what the "multiplier effect" is. Not only define it but explain how and why it works.
- Negative Effects of Fiscal Policy
- Explain in detail what is meant by "crowding out" and how it relates to fiscal policy.
- Explain how expansionary fiscal policy might result in a fall in net exports.
- Often a rather long period of time elapses between the start of a macroeconomic problem and the point in time when fiscal policy starts affecting the economy to hopefully correct the problem. There are a number of time lags involved here. Explain what these time lags are explain how these lags might in turn cause macroeconomic problems themselves.