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NYU - ECON 1 - Study Guide - Midterm

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Schools > New York University > Engineering > ECON 1 > NYU - ECON 1 - Study Guide - Midterm

NYU - ECON 1 - Study Guide - Midterm

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background image Midterm 1: Thursday, October 6th, 2016 11:00-12:15 
Bring 4-function calculator!! 
The first exam covers Chapters: 1, 2, 4, 10 and 11 
Exam questions are drawn from: 
Lectures;  
Non-Aplia problem sets; 
Aplia problem sets.  
In general, you will not be tested on material in the textbook unless it has been covered in one of these 
three ways.  
Chapters 1 and 2  The Key Method of Economics    --Systematic observation and measurement   An interpretation of data: we measure rates, observed over time the government budget de- fect, income inequality, how income has grown    --Formulation of a hypothesis   We do this by using a model, can be simple or complex; going to college and pursuing a de- gree can come out at income inequality     --Test the Hypothesis  We do this with new data and assess it...then we either reject or fail to reject  If there is a rejection then we modify    --Modification or rejection of the hypothesis   **exactly like the scientific method** 
NOTE: THE METHOD OF ECONOMICS IS THE SCIENTIFIC METHOD  Economics is a Social Science   What are some other alternative models/guesses for the recent rise in income inequality in the  US?    -globalization: jobs being outsourced overseas, only people at top benefiting from the  growth, closing shops in the United States (this would only benefit owners)     -deregulation: loosening of laws and therefore easier for the big guys to get more mon- ey     -cost of living vs. taxes: could try figuring out inflation, what are taxes, how does infla- tion and taxation affect different groups of people     -technology: sometimes known as "skill biased technological change"; those who are  not technologically skilled are not given those advantages   --Microeconomics vs Macroeconomics  
background image     -Micro: small; studies the individual household, business firm or market, impor- tant crucial MICRO decisions on your life, individual markets (like housing market, stock market,  oil market)      -Macro: the BIG picture; studies the entire US economy; unemployment reces- sions, expansions, rapid growth, inflation, monetary policy (tools government can use to con- trol the money supply), fiscal policy (tax spending policies, etc...)     --Positive and Normative Economics *      -positive: descriptive, describing income shares, growth, education impacts,  etc...; it makes a claim about how the world is        --ex. "minimum wage laws CAUSES unemployment" (speaking like a sci- entist and making a claim)      -normative: prescriptive (aka doing something about it); it claims about how the  world SHOULD be; differences in views and so prescriptive statements are different         --ex. "the government SHOULD raise the minimum wage"  Economics uses models to understand complex reality     --simplifies the world so we can understand it; helps us ignore what's unimportant and  focus on what IS important    --all models are "wrong", but some models are useful: models are a HUGE simplifica- tion, but some give us understanding   TEN PRINCIPLES OF ECONOMICS (7 ARE MENTIONED IN LECTURE)  Principle 1: People face trade offs
 --this means that we can't always get everything we want/like, and will have to sacrifice  one over the other   --we live in a world of limits and have to make choices due to  scarcity        -ex: you start making choices as soon as you wake up in the morn- ing; do i get up or sleep in   Principle 2: The cost of something is what you give up to get it (opportunity cost)  --opportunity costs will vary from person to person because people value things  differently and costs are ultimately subjective       ex: going to college--> benefits include getting an education and  better opportunities, but costs are tuition and especially TIME  --be aware of the  opportunity costs  that accompany each possible decision   total costs=explicit costs vs. implicit costs  total costs=explicit costs vs. opportunity costs  efficiency vs. equality       --efficiency means getting the MOST out of our resources      --equality means distributing our prosperity more equally to our  society  **the two often come in conflict, one becomes the other's OC, and therefore  reduces incentives**   Principle 3: Rational people think at the margin"the edge"

background image -- rational people  understand that life is hardly ever this or that, black or white,  but rather a mixture or shades of gray; not one extreme or the other when mak- ing a decision       -rational people make decisions by comparing marginal costs vs  marginal benefits  (marginal change)  if MB>MC, then a rational person would want more of that   if MB<MC, then a rational person would do less  if MB=MC, then a rational person is fine with the circumstances       --this is also known as the optimal stopping point (optimality  point)   --Principle 4: People respond to incentives  -many policies change costs or benefits people face, therefore altering  incentive    -benefits are like rewards; costs are like punishments      --therefore, people decide according to marginal benefits and  costs      --ex. when oil prices rise, quantity demanded of oil falls (law of  demand); people decide to drive hybrids, drive less, take public transportation,  etc...  NOTE: not all people respond to every incentive all the time   Principle 5: Trade can make everyone better off  --rather than have one country beat the other in trade, it benefits both (or multi- ple) sides/countries   --it allows an individual or a country to specialize in what they are best at  (whether it be sewing, farming, etc)  --by trading, people can buy a greater variety of goods and services at a lower  cost  Principle 6: Markets are usually a good way to organize economic activity  --many countries have developed  market economies , rather than a central plan- ner controlling everything   --although decentralized and self-interest decisions, has proven to successful in  organizing government activity  -- "invisible hand"  helps guide economy   Principle 7: Governments can sometimes improve market outcomes   --needs to enforce rules that are key to market economics in order for the "invis- ible hand" to work   --must encourage institutions to enforce property rights over the things we pro- duce, by means of laws, police, courts    ex. A restaurant won't serve meals unless they know that they will get  paid before customer leaves   Principle 8: a country's standard of living depends on its ability to produce goods and  services   --variation in living standards (like annual income and luxuries) are based on a  country's  productivity   
background image --the larger the quantity of goods and services produced, the higher the stan- dard of living   --the growth of a nation's productivity determines the growth rate of its average  income  --productivity influences public policy  Principle 9: prices rise when the government prints too much money  --too much money printed =  inflation   --the larger the quantity of money that is circulating, the larger the decrease in  value of the money  Principle 10: society faces a short-run trade off between inflation and unemployment   --an increase in money printed leads to an increase in overall spending, aka an  increase in demands for goods and services   --an increase in demands causes firms to raise prices, but also encourages firms  to hire more workers to meet those demands   --hiring more workers = lower unemployment   --keep in mind this is SHORT-RUN: that means changes in policies that affect un- employment and inflation are within 1-2 year periods  CHAPTER 4  Market Forces of Demand and Supply : basic work tool of economists   Markets and Competition    --markets: group of buyers and sellers of a good or service      -this can be in an actual marketplace, online, etc...    --assume that these markets are in  perfect competition        -goods are exactly the same from market to market      -many buyers and sellers: businesses competing for $, and the buyer competing  with others to buy that good    --we cannot affect the market individually     --sellers are forced to sell at market price   **we assume no government intervention**  DEMAND   Quantity Demanded (QD)     --amount of goods buyers are willing/able to purchase at a particular price     --it is a particular point on the demand curve       Law of Demand: when price (P) of a good rises, quantity demanded (QD) falls, other things  equal    --it is an  inverse relationship  b/w price and quantity demanded  Individual Demand and Market Demand     --market demand is the horizontal sum of quantities demanded by all buyers 

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School: New York University
Department: Engineering
Course: Intro to Macroeconomics
Professor: Gerald McIntyre
Term: Fall 2016
Tags: Macroeconomics, Macro, and Economics
Name: Macroeconomics Midterm 1 Study Guide
Description: These notes are basically a compilation of the past four weeks of notes (a little less extensive though)...Aplia readings are incorporated into these notes. Combining these notes with the practice from both Aplia and non-Aplia problems should put you in good place for the exam. Good Luck!!
Uploaded: 10/04/2016
36 Pages 181 Views 144 Unlocks
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