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Macro Finals Study Guide

by: Caroline meacham

Macro Finals Study Guide Econ 1010

Caroline meacham

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Hey guys! Here is a study guide I made from notes I took during class which include anything Professor Barnes said that day or that I thought was relevant! Hope it helps and good luck! This also in...
Principles of Economics: Macroeconomics
John Barnes
Study Guide
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This 7 page Study Guide was uploaded by Caroline meacham on Thursday December 3, 2015. The Study Guide belongs to Econ 1010 at University of Tennessee - Chattanooga taught by John Barnes in Summer 2015. Since its upload, it has received 48 views. For similar materials see Principles of Economics: Macroeconomics in Economcs at University of Tennessee - Chattanooga.


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Date Created: 12/03/15
Macroeconomics Final Exam Study Guide As a disclaimer, this is not meant to provide you with the exact material or ideas that will be on the test. Old tests, notes and the textbook should also be reviewed. Ideally there will be 5 questions from each old test and 5 from the new material. Exam 1 Review Why do governments fail?(6) size and scope • • paperwork • accountability • mangament • bureaucracy • aggregation of information is not self limiting or correcting • -Positive externality situation: • This generates benefit for those who get them (which was intended) and those who do not get them (the free riders). People are not getting sick as a result of the people who got shots (the downstream benefit). Can be corrected by subsidies to consumer/producers -Negative externality situation: • The gas emits pollution that harms our environment (downstream cost). By the price not reflecting the detriments to society the consumers are ultimately benefiting monetary wise (free-riders). Can be corrected by taxing producers RESULTS of externalities: create free riders, results in market failures, requires government intervention -How are public/private goods classified? private- rival and excludable • (the candy bar you ate last night) • public- non-rival and non-excludable (national defense) What are the goals of a capitalistic market based system? (6) economic growth • • full employment • price stability • economic security • reasonable trade belts • economic efficiency • ceilings create shortages- demand is greater than supply leads to decline in product quality and 2nd hand/blackmarkets • floors create surpluses- the supply exceeds the demand What are the characteristics of a capitalistic market based system? (9) • develop private property • freedom of enterprise and choice • market competition use of money • • use of a market system • active but limited government • specialization • decisions made in self interest • technology and capital formation Exam 2 Review What are the characteristics of demand pull inflation? fixed supply curve • • prices increase • quantity increases • employment increases • demand curve shifts right What are the characteristics of cost push inflation? decrease in employment • • quantity demanded decreases • supply curve shifts left • increases wages/resource prices What are the gross investments of a business? • inventory • new construction research & development • • creation of art (film/ads) • machinery CPI: if the index rises from 200 to 222 during year, the rate of inflation is: 222-200= 22 22/200 * 100 = 11% Okun’s Law for every 1% point that the actual unemployment rate exceeds the natural rate, a 2% point negative GDP gap occurs. What is the slope of the consumption function? • marginal propensity to consume • positive, direct relationship to GDP What is the slope of the savings function? marginal propensity to save • • positive, direct relationship to GDP • money multiplier: 1/reserve ratio or 1/MPS Exam 3 Review What are the problems with monetary policy? operational lag can be in opposition to fiscal policy cyclical asymmetry In a recessionary period, what policy takes the lead? fiscal policy because monetary is unpredictable due to cyclical asymmetry In an inflationary period, what policy leads? monetary policy • Transaction demand + asset demand = demand for money • expansionary policy = “easy money” Investments, net exports, and government purchases are independent of the level on GDP. Who holds the majority of the US public debt? the US public then China, Japan, and the OPEC countries M1 includes coins, paper currency, and checkable deposits How did paper currency develop? the depositing of precious metals to goldsmith for a paper receipt led to the exchange of receipts instead of withdrawing and trading gold In a recession, what actions do the Federal Reserve take? reduce interest rates increase Ig, consumption, and GDP buy bonds decrease the reserve ratio, discount rate, and interest on reserves In a recovery period what actions do the Federal Reserve take? increase interest rates sell bonds decrease Ig, consumption, and GDP increase the reserve ratio, discount rate, and interest on reserves New material When in interest goes up on a bond, the value of it decreases FOREX the more imports bought, the weaker the power of the $ gets if foreign income spent in the US increase, the $ appreciates non price determinants for FOREX changes in: preferences, income, interest rates, prices, expected rate of return, expectations, speculation to find the quantity and terms of trade find the midpoint between the two slopes in the trade market Balance of payments the current account and the capital investment account must offset each other current account- US exports (+) ; foreign imports (-) capital investment account- US invests in foreign accounts (-) ; foreigners invest in US (+) Security Market Line characteristics: time preference and risk premium Why does trade occur? because there are gains from trade on both sides gains: lower price, increased global output Why are there gains? unequal distribution of: resources, technology, and capital Government intervention in trade • revenue tariffs • protective tariffs • quotas • non tariff & non quota barriers • voluntary export restriction export subsidies • Arguments against free/unrestrained trade • military • infant industry protection diversification stabilization • • employment • cheap labor Development of a country • establish private property/ rule of law development of capital base • • allows workers access to money • more capital stimulates productivity • drives wages developing countries • Brazil, Russia, India, China • expanse of the middle class, and per capita income increases poor • Niger, Burundi, Liberia, CAR under 10% of GDP of the European Union measurement • Adam Smith Article points Book 2 Chapter 4 “Lent & Interest” • Only some reach “productive labor” stage, although everyone is technically destined • employments of capital: getting produce for society’s use manufacturing transporting division into portions each section is interconnected without each condition fulfilled, society is not fully functional each group’s growth propels one another • “Spontaneous production adds no wealth to society” allowing someone to employ capital and make purchases daily leads to more efficient • Farmers have the greatest productive labor • When all purpose of capital rent fulfilled, more is devoted to agriculture • wealth originates in strong areas of agriculture (Egypt and China) Book 1 Chapter 4 “Origin of Money” • What a single man can produce only satisfies a small part of what he wants, thus constant exchange happens among men. • Trade happens if value is seen on both sides • Metals were used in trade because they weren't perishable, were divisible, and combinable • Before use of metals people over bought due to achieve equality among products traded (ex: lots of salt for and entire cow) • Metal inconveniences : weighing and assessing began to affix stamp to ensure quality, which led to the idea of coins value first given according to weight • Value in use and value of exchange have little sue in context of each other: water= value in use; diamonds= value in exchange • relative/exchangeable value of goods: utility of the object and the power of purchasing other goods • regulations of exchange value of commodities: actual price of all commodities different parts that compose the real price instances that raise/lower the market price compared to the real price


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