New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

ECON 222 Final Study Guide

by: Chloe Fisher

ECON 222 Final Study Guide ECON 221

Chloe Fisher
Cal Poly

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

This is the study guide for the macroeconomics cumulative final exam
Solina Lindahl
Study Guide
50 ?




Popular in Macroeconomics

Popular in Economcs

This 10 page Study Guide was uploaded by Chloe Fisher on Friday February 19, 2016. The Study Guide belongs to ECON 221 at California State Polytechnic University taught by Solina Lindahl in Winter 2016. Since its upload, it has received 67 views. For similar materials see Macroeconomics in Economcs at California State Polytechnic University.


Reviews for ECON 222 Final Study Guide


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/19/16
12/11/15 ECON 222 STUDY GUIDE 1. INTRO TO MARKETS AND THE BIRTH OF ECONOMICS A. Explain how (and why) the study of economics developed- what was the philosophy about self- interest before the industrial revolution, and who/what guided our economic decisions? Hunting and gathering was not sustainable so with the Industrial Revolution, economics started. The catholic church believed self interest was bad but Adam Smith disagreed because competition promotes competition. B. Identify the economic problem: Scarce resources and unlimited wants C. Know difference between Macro and Microeconomics: Macro is the broad study of econ and how it influences society as a whole (government). Micro is the study of firms and individuals and how they spend their money D. List the 4 types of resources, give examples of each. Land(raw materials), Labor(human capital), capital(machines) and technology(innovations). E. Describe the business cycle and label its phases. The business cycle is how an economy moves from expansion to recession. F. Define inflation, disinflation and deflation. i. Inflation: the overall rising of prices ii. Disinflation: lessening inflation (but there is still inflation); when the level of inflation decreases iii. Deflation: negative inflation 2. PRODUCTION AND TRADE A. Be able to explain the PPF and its shape. The shape is based on the law of diminishing marginal returns (to add to the production of one good takes away from the production of another). Every point on the curve is attainable at full production. Above the curve is impossible with current resources (only possible with trade or increases in technology). Below the curve is represents inefficient production. B. Know the difference between allocative and productive efficiency. i. Allocative efficiency: efficiently producing what society desires ii. Productive efficiency: producing at the most efficient level for any good or service regardless of its demand C. Predict which country will be the exporter and which will be the importer when given number to calculate opportunity costs. (Go over comparative advantage examples) D. Define comparative vs. absolute advantage (and be able to identify) i. Comparative advantage: country that has a lower opportunity cost of producing one good over the other ii. Absolute advantage: country that produces the most of a good 3. MARKETS A. Be able to graph supply and demand for a good. B. Know why the supply slopes up and the demand slopes down. Supply slopes upward because as price rises, companies have a higher incentive to produce. Demand slopes down because as the price decreases, more people will want and be able to buy the good or service. C. What causes shifts? i. In supply: improvements in technology, when cost of production rises or falls, natural disasters, and changes in government (taxes or subsidies) ii. In demand: changes in preference, level of income, composition of the population (ex. More kids = demand of diapers increases), consumer confidence D. Explain how and why markets always move toward equilibrium: they move towards equilibrium because it is the price and company companies want to sell at and the price and quantity that consumers want to buy at. E. Be able to show the shortage or surplus when price is not at equilibrium. 4. GDP, UNEMPLOYMENT, AND INFLATION A. How do we measure GDP? i. Consumer approach(demand): C+I+G+(X-M)(exports-imports) ii. Spending approach (supply): durable and non-durable goods, structures, inventory services B. What is the difference between nominal and real GDP? Nominal GDP is not adjusted for inflation(shows the inflation) and real GDP is(does not show effects of inflation). C. Using the expenditure approach, discuss the 4 components and their relative sizes. i. C Consumption: anything that people buy in the economy (largest portion) ii. I investment spending: iii. G government spending: anything that the government purchases iv. X net Exports: exports - imports D. What IS included in GDP and what’s not? GDP includes all goods and services that are produced in the U.S. E. Describe how the Bureau of Labor Statistics (BLS) measures unemployment: unemployed/total number of people in the labor force (employed + unemployed) F. Be able to explain and give examples of frictional, cyclical, and structural unemployment: i. Frictional: when a person is in between jobs ii. Cyclical: Unemployment flows with the business cycle (recession = less jobs and vice versa) iii. Structural: when your skills are not needed G. Terms: marginally attached workers, underemployment. i. marginally attached workers: discouraged workers, people who are unemployed and stopped looking for employment and therefore are counted as out of the labor force ii. underemployment: when a person is employed but is doing a job below his/her skill level H. Explain the idea of the natural rate of unemployment: includes frictional and structural but does not include cyclical I. Who is hurt and who may benefit from unanticipated inflation? It helps borrowers and hurts lenders, people with cash, and fixed incomes or benefits J. Be able to define nominal vs. real interest rates and calculate the real rate if given the inflation and the nominal interest rates: nominal interest rates take inflation into account. Real interest rates (nominal – inflation) EX. Nominal is 6% inflation is 2% real is 4% K. Be able to calculate a price index and the rate of inflation: i. Price index: CPI-fixed basket of goods for a family of 4 ii. Inflation: ((current year price index/base year price index) x100) - 100 5. AGGREGATE SUPPLY/AGGREGATE DEMAND MODEL A. Define aggregate demand and aggregate supply. i. AD: total spending on domestic goods and services in an economy ii. AS: Total quantity of output firms will produce and sell B. Explain the slopes of the AS/AD model i. AS slopes up because as price levels rise there are incentives to produce and AD slopes down because as the price level rises, consumption decreases C. What factors cause shifts? AD shifts by change in C, I, G, (X-M), and consumer confidence. AS shifts by workers, inputs, and productivity D. Explain the shape and position of the long-run aggregate supply curve. LRAS is to the right and is a vertical line, it represents max productivity E. Explain the shape of the short-run aggregate supply curve, focusing on “sticky wages”. SRAS is similar to a tradition supply curve. Sticky wages means that wages don’t catch up with inflation. F. Demonstrate and explain the effects of shifts in aggregates supply on the equilibrium price level and real domestic output of an economy: shift to the left = increase interest rates, decrease loans. A shift to the right = decrease interest rate, increase loans G. Be able to graph (and explain) the shift in AD that occurred during the Great Depression and the shift in SRAS that occurred in the 1970’s oil shocks. AD of Great Depression (demand side because prices went down) and 1970s oil shock (supply side because prices went up) H. Be able to use the model to predict changes to the economy when given a scenario. Predict changes…supply and demand shifts I. Explain which type of recession is most common, and be able to predict which way price level, GDP and unemployment move in both types (supply and demand) of recessions. Demand side is most common. Demand side: Price level-decrease, GDP-decrease, unemployment-increase. Supply side: Price level-increase, GDP- decrease, unemployment-increase J. Terms: supply shock, demand shock. i. Supply shock-when prices increase because supply shifts left ii. Demand shock-when prices decrease because demand shifts left 6. MONEY AND MONETARY POLICY A. List and explain the 3 functions of money. i. Medium of exchange: money is an intermediary between buyer and seller ii. Store of value: money holds its value for the most part; it remains money iii. Unit of account: it is the ruler by which other values are measured iv. Standard of deferred payment: money must also be acceptable to make purchases today to be paid in the future B. Types of Money Supply: M1 money is liquid such as cash, checkable (demand) deposits, and traveler’s checks. M2 money is less liquid and includes M1 plus savings and time deposits, certificates of deposits, and money market funds. C. Describe what happens to the money supply when a commercial bank makes a loan. Increase in money supply because more money is being circulated D. Compute the size of the monetary multiplier and the money creating potential of the banking system when provided with the reserve ratio. The lower the reserve ratio, the less banks have to keep in the bank, the more they can loan out, increasing the money supply E. Identify the goals of monetary policy. To increase or decrease the money supply in order to decrease or increase interest rates F. Define: i. Excess reserves: reserves banks hold that exceed the legally mandated limit (will decrease money supply and spending) ii. Federal funds rate: the interest rate at which one bank lends funds to another bank overnight iii. Discount rate: the interest rate charged by the central bank on the loans that it gives to other commercial banks iv. Open-market operation: the central bank buying or selling treasury bonds to influence the quantity of money and the level of interest rates v. Financial intermediary: an institution that operates between a saver with financial assets to invest and an entity who will borrow those assets and pay a rate of return G. Use the ‘loanable funds model’ to explain what happens to interest rates when the government increases its borrowing (the “crowding out” effect)   H. How does the Fed increase and decrease short-term interest rates: sells bonds to increase interest rates and buys bonds to decrease interest rates I. Quantitative easing: the purchase of long term government and private mortgage backed securities by central banks to make credit available in hopes of stimulating aggregate demand J. 3 tools of monetary policy: reserve requirement, discount rates, and open market operations (see flipit notes to see how these affect supply and demand) K. what is the problem of the ‘zero lower bound’: when the banks want to lower the interest rates but the interest rates cannot possibly fall below 0 L. Who is the current FED chairperson: Janet Yellen 7. LONG-RUN GROWTH A. Discuss how productivity is affected by quantities of physical and human capital: the more physical and human capital in an economy, the higher the productivity B. Graph the production function and describe the gains from more capital vs. better technology C. Explain and apply the “rule of 70.” 70/annual growth rate= the approximate number of years it will take for income to double D. What are the ingredients necessary for economic growth (besides capital and technology)? i. Human capital, technological change (innovation and invention), aggregate production function, labor productivity ii. Physical capital, capital deepening E. What role does/can the government play in creating growth? Promoting new jobs, taxes, etc F. Terms: i. Capital: factors of production that helps produce other goods (physical, etc) ii. Human capital: the accumulated skills and education of workers iii. Infrastructure: a component of physical capital such as roads, rail systems, etc 8. FISCAL POLICY, DEFICITS AND DEBT: A. What is fiscal policy: how the government affects money flow, the economy, inflation, taxes, etc B. What’s the difference between discretionary fiscal policy and automatic stabilizers? Discretionary fiscal policy is when the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level or overall economic activity (ex. The stimulus package of 2009). Automatic stabilizers are tax and spending rules that have the effect of slowing down the rate of decrease in AD when the economy slows down and restraining AD when the economy speeds up, without any additional change in legislation (ex. Unemployment insurance and food stamps which already stimulate AD in a recession and hold down AD in potential inflation) C. AD/AS graph with expansionary and contractionary policies D. Explain the difference between deficit and debt and explain why they exist. A deficit is when the government spends more money than it is earning in revenue. Debt is the money the government has borrowed and has not yet paid it back E. What is the difference between a cyclical deficit and and structural deficit? A cyclical deficit is when you are spending more than you are taking in due to a change in the business cycle. A structural deficit is when there is a mismatch between spending and tax revenue even when the economy is doing ok F. What are the arguments for and against a requirement to annually balance the federal budget? For: households do it and so should the government. Against: there would be fluctuations in this short time due to automatic stabilizers and this would prevent automatic stabilizers from working and would worsen the severity of economic fluctuations.


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.