Chapters – 6 -10 12-16, 18

Chapters 6 – 9

What is GDP?
How does GDP avoid multiple counting and exaggeration of the value of GDP?
What are the things not included in GDP?
Calculate GDP using the expenditure approach.
What is The CPI? What is the biggest problem with the CPI?
What is the difference between NGDP and RGDP?
What is the difference between the CPI and GDP price index?
What are the four phases of the business cycle? Make sure you are able to explain what happens in each phase.
Define and give examples of the types of unemployment?
What is the economic cost of unemployment and how is it measured? What is Okun’s Law?
Define Full employment.
What are the unequal burdens of unemployment?
What is inflation, and how is the rate of inflation measured?
How is the unemployment rate measured?
Compare and contrast demand – pull and cost-push types of inflation.

Chapter 12– Aggregate Demand and Aggregate Supply

What is the aggregate demand curve? Draw a graph on one and explain its features.
Explain the three explanations for the downward sloping AD curve.

18. What are the determinants of AD and how does each affect the curve?

Explain the three distinct segments of the AS curve. What conditions prevail in the economy in each of the ranges?
What are the determinants of AS and how does each affect the curve?
What RGDP is the equilibrium RGDP? What will happen to RGDP if the price level is below equilibrium?
What are the effects on the RGDP and price level when AD increases in each of the three ranges along the AS curve?
What are the effects on the RGDP and the price level of a decrease in AS?
How does an increase in AS affect the price level and RGDP?
What are the effects on the RGDP and price level when AD decreases in each of the three ranges along the AS curve?

Chapter 18 Extended Analysis of AD and AS

What distinguishes the short-run from the long-run in macroeconomics?
Identify the basic difference between a short-run and long-run AS curve.
Explain what happens to AS when an increase in the price level results in an increase in nominal wages.
Explain how to find equilibrium in the extended AD-AS model.
Describe the process of demand-pull inflation in the short run and in the long run. How does demand-pull inflation influence the AS curve?
Describe cost-push inflation in the extended AD-AS model.
Describe recession in the extended AD-AS model.

What is the basic goal of monetary policy?
Explain the four tools of monetary policy. Which one is the most important?
What are the characteristics of easy money policy and tight money policy?
What policies will the Fed use to counter inflation, or unemployment and recession? Describe the effects on bank reserves, the money supply, interest rates, investment spending, aggregate demand, and real GDP from each policy.
How will a change in the money supply and the resulting shift in the aggregate demand curve affect the real domestic output and the price level in (a) horizontal range, and (b) vertical range, along the aggregate supply curve?
Why is monetary policy more effective in controlling inflation than in reducing unemployment?
What is the monetary multiplier?
Define the three types of reserves

41. What is the multiplier effect? Give a rationale for the multiplier effect.

How does the multiplier effect related to the marginal propensities? Explain in words and equations.
If the MPC is .40, .25, .33, .20, .50, what is the MPS respectively?
If Ig increase by 10 billion and the MPC is .75, what is the overall change in GDP?

What are the federal government’s three options for conducting expansionary or contractionary fiscal policy?
Under what economic conditions would expansionary or contractionary fiscal policy be used? What would be the effect on the Federal budget?
Compare and contrast the effect of expansionary and contractionary fiscal policy on aggregate demand. Draw a graph to illustrate the likely effects.

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