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ECON 252: Midterm 1 Study Guide

by: Zach Weinkauf

ECON 252: Midterm 1 Study Guide ECON 252

Marketplace > Purdue University > Economcs > ECON 252 > ECON 252 Midterm 1 Study Guide
Zach Weinkauf

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About this Document

These notes cover likely material that will be on Midterm 1. This study guide includes most answers and formulas to the practice exam, along with some definitions and materials that I felt is neces...
Andres Vargas
Study Guide
Economics, Macroeconomics
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This 4 page Study Guide was uploaded by Zach Weinkauf on Thursday February 25, 2016. The Study Guide belongs to ECON 252 at Purdue University taught by Andres Vargas in Fall 2016. Since its upload, it has received 184 views. For similar materials see Macroeconomics in Economcs at Purdue University.


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Date Created: 02/25/16
ECON 252: Midterm 1 Notes Scarcity – having more than the amount of available resources. Equilibrium – situation where all agents are simultaneously optimizing. Problem #3 Practice Exam Direct Cost Commuting Cost Total Cost Train $400 4 hr x $15 = $60 $460 Drive $250 6 hr x $15 = $90 $340 Mean – Sum of all numbers divided by the amount of numbers in set. Correlation – a mutual relationship between two things. Causation – when one thing directly affects another. Randomization – assignment of subjects by chance, rather than by choice, to a treatment group or into a control group. Natural Experiment – empirical study in which some process – out of control of the experimenter – has assigned subjects to control and treatment groups in a random or nearly random way. Net Benefit = Benefit – Cost Opportunity Cost = Total Cost / Total Amount of Time (#9) Problem #10 Practice Exam Location Commuting Cost Total Cost (Rent + CC) Very Far $300 $2360 Far $250 $2350 Close $150 $2450 Very Close $50 $2550 Optimum Location = Far Market Demand = Sum of Everyone’s Demand Substitutes = Decrease of Price of One Good = Decrease Demand in the Other Consumers expect a Fall in Income = Decrease in Demand Increase in Price of Good = Increase of Supply of Good Increase in Technology = Increase in Quantity Supplied Equilibrium Price – where quantity supplied = quantity demanded. If demand and supply both shift right, but demand shift is greater – you can expect a higher price and a higher quantity. Problem #19 Practice Exam Y 1990 $30,000 Price Index1990= 100 PI2014 188 Y2014= (PI2014 PI1990 x Y1990 (188/100)x$30,000 = $56,400 Problem #20 Practice Exam – Calculate Consumption Y – GDP C – Consumption I – Investment G – Government Expenditure X – Exports M – Imports Y = C + I + G + X – M YRitzland120,000 I = $16,000 G = $35,000X = $10,000 M = $22,000 $120,000 = C + $16,000 + $35,000 + $10,000 - $22,000 C = $81,000 Added Value = $ of Sales * Percentage Kept Real GDP = (GDP Current Year – GDP Base Year) / GDP Base Year Nominal GDP = Quantity Current Year * Price Current Year Inflation Rate = (Price Index Year 2 – Price Index Year 1) / Price Index Year 1 Income per Capita = GDP / Population Problem #28 Practice Exam Country PPP Adjusted (Price U.S. / Income per Capita Price Country Adjusted (ICP * PPP) 1 $399/$999 = 0.4 15600*0.4 = 6,240 2 0.17 5,985 3 0.04 861 4 0.21 4,200 Country 1 has the highest income per capita. Productivity of workers is high if the economy has a high level of human capital. Increase Labor = Increase Output Aggregate Production Shifts Up  Discovery of advanced technology.  The same amount of labor and capital produce a higher output Growth Rate Y t+n = (1+g) x Yn t If savings rate of a country is higher than its Capital Accumulation will be faster. Malthus Theory – in the long run, income levels will stay at subsistence. Aggregate Capital Stock of Economy this Year K now= (1 – depreciation rate) x K lastyear I = s * Y Solow Growth Model  Steady-state Equilibrium – economic equilibrium in which the physical capital stock remains constant over time  Dynamic Equilibrium – traces out the behavior of the economy over time Stock of human capital and physical capital available to a nation can be considered proximate causes of prosperity.  Proximate causes of Prosperity – high levels of factors such as human capital, physical capital and technology that result in a high level of GDP per capita  Fundamental Causes of Prosperity – factors that are at the root of the differences in the proximate causes of prosperity Infectious Disease Spreads in sub-Saharan countries easily is an example of a Geography Hypothesis.  Geography Hypothesis – claims that the difference in geography; climate and ecology are ultimately responsible for the major differences in prosperity observed across the world  Culture Hypothesis – claims that the different values and cultural beliefs fundamentally cause the differences in prosperity around the world  Institutions – formal and informal rules governing the organization of a society including its laws and regulations  Institution Hypothesis – claims that the differences in institutions – that is, in the way societies have organize themselves and shaped the incentives of individuals and businesses – are at the root of the differences in prosperity across the world Inclusive Institution = well-defined property rights Extractive Institution = lack of well-defined property rights Political creative destruction is likely to be opposed less in an economy with inclusive institutions than in an economy with extractive institutions.


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