PCM

 ECON 2301 MACROECONOMICS   

Below you will find the learning objective, concept, idea, term, or theory that each question on the exam will cover. Each number in the following list refers to the question number on Exam 3 that will test your knowledge of that specific learning objective. Each of these topics/learning objectives is discussed in the textbook in the order that they are listed below.  A much better understanding can often be attained by working through MyEconLab assignments connected to any of these objectives.

Chapter 10

 
    After reading Chapter 10, you should be able to:

    Long Run Aggregate Supply and Economic Growth:

  1. To do the following:
    a) draw a sketch of a long run aggregate supply curve (LRAS), and
    b) discuss the relationship between the production possibilities curve and the LRAS curve.
  2. Explain why the long run aggregate supply curve has the shape that it has and its meaning to economic analysis.
  3. Illustrate economic growth with a PPC and with a LRAS curve and list the sources of that growth.

    The Aggregate Demand Curve:

  4. Draw a sketch of the aggregate demand (AD) curve and discuss its meaning to economic analysis.
  5. Explain the impact of price level changes on the quantity demanded of all output with the use of the real balance effect, the interest rate effect, and the open economy effect.
  6. Discuss what factors can cause a shift of the AD curve to the right (an increase in AD) and what factors can cause a shift of the AD curve to the left (a decrease in AD).

    Long Run Macroeconomic Equilibrium:

  7. Explain how to use the model of the LRAS curve with the AD curve to determine macroeconomic equilibrium and to further explain what happens if the price level is not at the equilibrium level.

    LRAS/AD Model, Economic Growth, and the Price Level:

  8. Explain how economic growth can lead to deflation using the LRAS/AD model.

    LRAS/AD Model and Inflation:

  9. Use the LRAS/AD model to illustrate and explain supply side inflation.
  10. Use the LRAS/AD model to illustrate and explain demand side inflation.

Chapter 11

 
    After reading Chapter 11, you should be able to:

    The Classical Model of Macroeconomic Activity:

  1. Explain who the Classical Economists were, state what Say's Law is and explain what it means.
  2. List the four assumptions of the Classical Model and explain the implications of these assumptions.
  3. Explain and illustrate why Saving and Investment tend to equality and explain and illustrate why unemployment will not be a persistent problem in the labor market.
  4. Describe the short- and long-run determination of equilibrium real GDP and the price level in the Classical Model based on the LRAS.

    The Keynesian Model: Short Run Aggregate Supply:

  5. Explain the circumstances under which the short-run aggregate supply curve may be either horizontal or upward sloping but not vertical like the LRAS.
  6. Explain how the national economy might experience fixed or changing price levels and output in the short run using the SRAS and shifts in AD.

    Shifts in Aggregate Supply, Short-Run and Long-Run:

  7. List and explain what factors can cause shifts in the short-run and the long-run aggregate supply curves respectively.

    Consequences of Changes in AD in the Short-Run:

  8. Explain and illustrate the consequence of an increase in AD and the consequence of a decrease in AD (assuming that the SRAS and LRAS curves are stable).

    Explaining Short-Run variations in Inflation with the AD/SRAS/LRAS model:

  9. Explain what Demand-Pull Inflation and Cost-Push Inflation are and how they differ. Students should be able to use the AD/SRAS/LRAS model in doing so.
  10. Explain how the appreciation or depreciation of the dollar affects the national economy using the AD/SRAS/LRAS model.

Chapter 12

 
    After reading Chapter 12, you should be able to:

    The Keynesian Model of Macroeconomic Activity, Basics:

  1. List and explain the four simplifying assumptions of the Keynesian Model and explain the implications of these assumptions.
  2. Define and explain the relationship between the following terms:
    a) consumption,
    b) consumption goods,
    c) saving,
    d) disposable income,
    e) investment,
    f) capital goods,
    g) stocks, and
    h) flows.

    The Keynesian Model, Consumption Function:

  3. Explain what the Keynesian Consumption Function is, and they should be able graph it on a graph with a 45-degree reference line and be able to interpret such a graph.
  4. Define, distinguish between, and explain the relationship between the following concepts related to the Keynesian Consumption Function:
    a) Autonomous Consumption,
    b) Average Propensity to Consume,
    c) Average Propensity to Save,
    d) Marginal Propensity to Consume, and
    e) Marginal Propensity to Save.

    The Keynesian Model, Investment Function:

  5. Explain what the Keynesian Planned Investment Function is and how planned investment is determined by the function. Students should also understand how investment spending is included in the Keynesian 45-degree graph with consumption spending, See Figure 12-4.

    The Keynesian Model, Consumption and Investment together but excluding the Government Sector and the Foreign Sector:

  6. Explain how equilibrium is determined in a simple Keynesian model that includes only consumption spending and investment spending in the context of the 45-degree reference line graph and the Saving and Investment graph. In reference to both these graphs, students should also be able to distinguish between Planned and Actual Investment and explain how unplanned changes in business inventories affect the national economy.

    The Keynesian Model with Government and the Foreign Sector Added:

  7. Explain and illustrate (using the 45-degree reference line graph) how the national economy comes to an equilibrium when Government Spending (G) and Net Exports (X=exports – imports) are added to Consumption Spending and Investment Spending. Students should understand in this context what it means to say that Investment Spending, Government Spending, and Net Exports are autonomous from Real GDP.

    8. The Keynesian Model and the Autonomous Spending Multiplier under the assumption of a fixed Price Level (i.e., a horizontal SRAS):

  8. Explain what the Multiplier Effect is and how it works in the context of Table 12-3 and Figure C-1.
  9. State the two different formulas for the multiplier (First: Multiplier = 1/(1-MPC) = 1/MPS; Second: Multiplier = (Ultimate change in equilibrium real GDP)/(change in autonomous spending)) and be able to solve simple algebraic problems involving these formulas.

    10. The Keynesian Model and the Autonomous Spending Multiplier dropping the assumption of a fixed Price Level (i.e., a horizontal SRAS) AND the Relationship between Total Planned Expenditures (45-degree graph) and the Aggregate Demand Curve :

  10. Explain how the Multiplier works when we assume Price Level is not fixed (SRAS slopes upward) in the context of Figure 12-7, AND the relationship between Total Planned Expenditure (C+I+G+X) and Aggregate Demand in the context of Figure 12-8.

Chapter 13

 
    After reading Chapter 13, you should be able to:

    Keynesian fiscal policy:

  1. Define: discretionary fiscal policy, expansionary, contractionary, policy tools.
  2. Explain how Congress can use fiscal policy to close inflationary and recessionary gaps, changing both real GDP and the price level.
  3. Be able to show how fiscal policy changes appear on the AD/AS graph and determine the appropriate policy choice.

    Crowding out and the Laffer curve:

  4. Explain and show graphically how crowding out reduces the effectiveness of fiscal policy.
  5. How does the Ricardian equivilence theorem explain why frequent changes in tax rates produce very little change in consumer spending?
  6. Explain and show graphically how direct expenditure offsets will reduce the effectiveness of discretionary fiscal policy.
  7. Be able to draw the Laffer curve and use it to show how supply-side economists explain how a reduction in marginal tax rates could bring about an increase in tax revenues.

    Fiscal policy lags:

  8. Define the three fiscal policy lags (recognition, action and effect) and how they complicate using fiscal policy to 'fine-tune' the economy.

    Automatic stabilizers:

  9. Be able to identify the automatic stabilizers and explain how they minimize changes in the GDP.

    What Do We Really Know about Fiscal Policy? 

  10. When is fiscal policy most likely to be effective? Least likely? Why?