PRIN OF MACROECON
PRIN OF MACROECON ECON 2105
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This 85 page Class Notes was uploaded by Eloise Smitham on Saturday September 12, 2015. The Class Notes belongs to ECON 2105 at University of Georgia taught by McClain in Fall. Since its upload, it has received 51 views. For similar materials see /class/202498/econ-2105-university-of-georgia in Economcs at University of Georgia.
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Date Created: 09/12/15
REVIEW FOR FINAL ECON 2105 MACROECONOMICS ENEL HNFTHN 70 multiple choice questions Each question is worth 15 points Bring a picture ID Bring a calculator Once the first person has left the exam no one else will be permitted to start the fina Wednesday May 4 1200 pm N PJ Auditorium Friday May 6 800 am 300 Fine Arts Office Hours Finals Week Monday 230 330 Wednesday 10 1130 Thursday 12 3 Friday 11 1 Tutoring Zone Monday May 2 5 pm Classic Center 20 HTE NE 1 Scarcity affects all people institutions countries Economic questions What how for whom Selfinterest vs Social pursuing one generally results in the other Opportunity costs the value of highest forgone alternative Concept of margin MR MC make decisions at the margin Transparency HPTE TW 7 Factors of production land labor capital and entrepreneurship PPF shape opportunity cost attainable points inefficient points UE of resources Efficiency MC MB efficient allocation when MRMC Law of diminishing MB Growth and the PPF shifting out of curve CALCULATING comparative advantage between two individuals Trade and PPF where to produce where to consume Markets goods factor households supply factors firms supply goods HTE THEE 15 Law of demand P and Qdemanded are inversely related 16 Complements substitutes effect on demand changes in their prices shift demand curve 17 Demand vs Qdemand supply vs quppued movement along vs shift of 18 Demand shifters supply shifters 19 Equilibrium P and Q shortagesurplus drive P towards equilibrium HTER FU 20 Definition of GDP 3 production income expenditure GDP Y AE 21 What is and is not in GDP 22 Nominal vs real current year s prices vs constant year s prices 23 Real nominal potential GDP potential is at full employment 24 Business cycle HTER FIVE 25 26 27 28 29 30 31 Define working age population labor force How toCALCULATE UE rate Definitions of cyclical structural frictional UE Natural rate of UE full employment CPI basket CALCULATING inflation rate from CPI CPI bias ltHTE H 32 33 34 35 36 Definition of econ growth Labor growth vs labor productivity growth Production function axes movement along shift of Factors influencing labor productivity Potential GDP and growth in potential GDP HTE SEVEN 37 38 39 40 41 42 43 44 Definitions of liquidity and solvency Relationship between demand for loanable funds and interest rate Source of supply of loanable funds Equilibrium in loanable funds market interest rate will adjust Crowding out govt deficit crowds out private investment Global loanable funds mkt running a trade deficit means we are borrowing from ROW Maturity transformation Shadow banks HPTE EHHT 45 46 47 48 49 50 51 52 Define M1 specifically what is included and what is not Money what is money and what is not checks credit cards Commercial bank reserves refers to required reserves cash kept on hand Role of depository institutions Mogetary policy and the Fed conducted only by Fe Policy tools of fed discount rate buysell bills bonds reserve requirements interest on reserves How banks create money make loans Money market equilibrium interest rate is the price of money will change to achieve equilibrium HTE NHNE 53 54 55 56 57 58 59 60 Foreign exchange market Exchange rate changes and changes in relative price of goods Foreign currency appreciation vs depreciation and impact on X and M Exchange rate regimes floating vs pegged LR FX equilibrium purchasing power parity SR FX equilibrium interest rate parity Current financial capital accounts Current account financial account capital account HTE TEN 61 62 63 64 65 66 67 68 Classical Keynesian and Monetarist schools of thought SRAS and LRAS axis AD ASAD equilibrium Shifters and movers of LRAS SRAS AD Showing business cycle with ASAD Showing growth and inflation with ASAD Status of UE in SR macro equilibrium HTE ELEVEN 69 70 71 72 73 74 75 Aggregate expenditure curve axis Induced vs autonomous expenditure C and M are a function of Y MPC MPS Equilibrium and unplanned changes in inventory Expenditure multiplier equation size why is it that size taxes imports LR expenditure multiplier 0 Why HTE ELWE 76 77 78 79 80 81 Demand pull inflation things that start it Cost push inflation things that start it Stagflation SR trade off between UE and inflation SR Phillips curve Role of inflation expectations HTE THHTEEN 82 83 84 85 86 87 Discretionary vs mandatory spending Budget process continuing resolutions Players in fiscal policy Congress President OMB CBO Debt vs deficit debt is accumulated deficits Sources of govt revenue largest to smallest Govt outlays largest to smallest HTER FHFTEEN 88 89 90 91 92 Imports vs exports Finding importsexports on a 5D graph Comparative advantage world vs domestic prices Trade protection tariff vs quota tariff graph Major arguments for trade protection and economists response Single Resource Countries a m w w 0 B Saudi Arabia Single Resource Countries 7 Comparative Advantage in a Single Resource 0 Natural resources are a source of comparative advantage in many countries 0 We would expect countries with a significant endowment of a valuable resource would benefit greatly from this endowment 0 Do they H at Others Have Sand 0 Poor countries dream of finding oil like poor people fantasize about winning the lottery But the dream often turns into a nightmare as new oil exporters realize that their treasure brings more trouble than help 0 Juan Pablo P rez Alfonso one time Venezuelan oil minister likened oil to the devil s excrement 0 Sheikh Ahmed Yamani his Saudi Arabian counterpart reportedly said I wish we had found water 0 We are in part to blame but this is the curse of being born with a copper spoon in our mouths Kenneth Kaunda President of Zambia erd Rankings World Ranking by Income Per Capita GDP Saudi Arabia 37 23429 Chile 54 14331 Botswana 61 13076 Nigeria 138 2150 Endowment of a single valuable resource does not guarantee prosperity The Case of Oil 0 Arguably the most important geopolitical resource today 0 International trade in crude oil exceeds the volume and value of any other good or service except currency trading 0 In 2008 855 million barrels were traded at an average price of 98 per barrel or more than 8375 million per day 0 This is less than 1 of daily trading in the world s currency markets r 39 7 73 quot r 7 V a quot577 ar 39 wquot How Are the 10 Largest Oil Producers Doing Ten Largest Oil Reserves Ten Richest Countries 3112 1251sz Saudi Arab 2642 882 23429 37 Luxembourg 83978 Iran 1384 873 11575 68 Macao 58262 Iraq 1150 100 3553 118 UAE 57821 Kuwait 1015 964 46079 7 Singapore 50701 UAE 978 604 57821 2 Brunei 48995 Venezuela 870 921 12341 66 United States 46436 Russia 794 725 18945 45 Kuwait 46079 Libya 41 5 97 9 16 526 48 Switzerland 44717 Kazakhstan 398 828 11526 69 Ireland 41282 Nigeria 362 971 2150 138 Netherlands 40715 Billions of barrels Exports of fuels and mining products divided by total exports x 100 World Bank What Goes Wrong 0 Labor and capital become concentrated in that activity alone 0 It s dif cult to develop a diversi ed and highly educated labor force 0 National income can fluctuate quickly if commodity price changes abruptly 0 Can lead to severe macroeconomic instability 0 Can be a significant source of political instability and corruption Is the Curse Inevitable 0 No Not every country suffers from the curse 0 To avoid the curse have 0 Strong institutions to guard against corruption Commitment to education and skills to develop human capital and diversify 0 Savings to prepare for price fluctuations or depletion Determining Market Prices and Quantities 0 In a decentralized market based economy prices of goods and services and the quantity produced and consumed are determined in a market Determining Market Prices and Quantities a 1 Market i May or may not be a physical place Walmart vs eBay We will focus on a competitive market 0 So many buyers and sellers that no single buyer or seller can in uence price quotI 7 3 saki 7v H x r 7quot Pymmxxkx H For example street b r vendors in developing R countries J Money Price vs Relative Price 0 Money price the number of dollars that must be given up for a good 0 Relative price the ratio of one money price to another An opportunity cost 39 The theory of demand and supply determines relative prices The Demand Schedule 0 A table which represents your demand for a product over a price range ceteris paribus per ban 050 00 50 100 150 QUANTHY Millions pen week 22 5 10 7 r 4 777739 39 r r W 7 7 MDemand vs Quantity Demanded The entire relation between price and quantity The entire curve A single specific point on the demand curve The specific amount a consumer is willing to buy at a particular price Demand 0 Demand a relation showing the various amounts of a commodity that buyers are willing and able to purchase at alternative prices during a given time period all else remaining the same ceteris paribus 0 Quantity demanded amount consumers plan to buy at a particular price The Law of Demand 0 Other things remaining the same the higher the price of a good the smaller is the quantity demanded and the lower the price of a good the greater is the quantity demanded 13 gt QD W gt QD 47 Woes the Law of Demand Hold t When the P of a product falls you may buy more of it because it becomes a better bargain relative to other goods l Income you 39 When the price of a good falls you can afford to buy more of it if your income tastes and the prices of other goods stay the same You feel richer Diminishing Marginal Benefit The more you have of something the less the last unit benefits you and the less you are willing to pay The Demand Schedule 0 A table which represents your demand for a product over a price range ceteris paribus per ban 050 00 50 100 150 QUANTHY Millions pen week 22 5 10 A hange in Demand 0results from changes in all elsequot 0When some in uence on buying plans other than the price of the good changes there is a change in demand for that good 0The quantity of the good that people plan to buy changes at each and every price so there is a new demand curve quotAll Else 1 Price of Related Goods 0A complement is a good that is used in conjunction with another good PPEANUT BUTTER39gt w2DPEANUT BUTTEREgt w DIELLY A Complement Marketf d Initial PB Price 400 Initial Jelly Price 300 Initial PB QD 6 oz Initial Jelly QD i 7 OZ H130 moo 0 DEMAND Eu 3 E arr EL J a g o E E E 4 an 300 DEMAND 23 2 an n a no 7 on a on zlcn n s39cm m39un 39 n on Alan 3 a who QUANHTY PB OUAN J H PEANUT BUTFER MARKET JELLY MARKEI New QD 3 oz PRICE PEI PRICE Jelly A Complement Market PBampJ Price of PB 700 Initial Jelly Price 300 New Jelly QD 5 oz 060 DEMAND At any Pjelly we want less jelly P w New DE ND curve lt um 3D GD 5 03 700 mu 5 a sh m on QUANTlTY Jelly JELLY MARKET A Complement MarketiFgng A movement along the demand curve of PB because of a change in price 109 PRICE PB 1 c l S 31 600 MVEMENT ALONG lhePB demand curve DEMAND 0 DD zluu OLIRI lTlTY PE PEANUT BUTTER MARKET l I Still IDDE A shift in the entire demand curve because of a change in the demand for the complement The P of jelly did not change ll 00 0 DEMAND At any Pjelly we want less jelly E cc New DE ND curve E 5 A shi ofthe entire demand cuwe n L ao 3DO 2 007 a 5 00 700 39 o no 7 an an m oe a nn 0 GUANle Jelly JELLY MARKET quotAll Else 1 Price of Related Goods 0A substitute is a good that can be used in place of another good PRED BULL Egt wQIDREDBULL Egt DMTDEW quotAll Else 2 Expected Future Prices 0 If the price of a good is expected to rise in the future current demand for the good increases and the demand curve shifts rightward quotAll Else 3 Income OWhen income increases consumers buy more of most goods and the demand curve shifts rightward 0A normal good is one for which demand increases as income increases OAn inferior good is a good for which demand decreases as income increases Ramen Net iX potatoes A II Else 4 Expected Future Income and Credit 0 When income is expected to increase in the future or when credit is easy to obtain the demand might increase now quotAll Else 5 Population 0 The larger the relevant population the greater is the demand for all goods quotAll Else 6 Preferences People with the same income have different demands if they have different preferences AD versus AQD H I Movement along curve Supply 01f a firm supplies a good or service then the firm 01 Has the resources and the technology to produce it 02 Can pro t from producing it and 03 Has made a de nite plan to produce and sell it 39Resources and technology determine what it is possible to produce Supply reflects a decision about which technologically feasible items to produce The Law of Supply 00ther things remaining the same the higher the price of a good the greater is the quantity supplied and the lower the price of a good the smaller is the quantity supplied 39t PEM QS Pgt QS Why Does It Hold 0The law of supply results from the general tendency for the marginal cost of producing a good or service to increase as the quantity produced increases remember the bowed out PPF 39Producers are willing to supply a good only if they can at least cover their marginal cost of production Supply vs Quantity Supplied 0 The quantity supplied the amount that producers plan to sell during a given time period at a particular price 0The term supply the entire relationship between the quantity supplied and the price of a good 0 The supply curve shows the relationship between the quantity supplied of a good and its price when all other influences on producers planned sales remain the same A Change in Supply oWhen some in uence on selling plans other than the price of the good changes there is a change in supply of that good oThe quantity of the good that producers plan to sell changes at each and every price so there is a new supply curve quotAll Else 1 Prices of Factors of Production 01f the price of a factor of production used to produce a good rises the minimum price that a supplier is willing to accept for producing each quantity of that good rises 080 a rise in the price of a factor of production decreases supply and shifts the supply curve leftward 9 2 Prices of Related Goods Produced 0A substitute in productionfor a good is another good that can be produced using the same resources 0The supply of a good falls if the price of a substitute in production increases lCOIEIgt QSCOKEEgt w SDIET COKE OGoods are complements in productionif they must be produced together 0The supply of a good increases if the price of a complement in production rises 1MILKIgt QSMILK Egt SCREAM 3 Expected Future Prices 0 If the price of a good is expected to rise in the future supply of the good today decreases and the supply curve shifts leftward 4 The Number of Suppliers 0The larger the number of suppliers of a good the greater is the supply of the good An increase in the number of suppliers shifts the supply curve rightward 5 Technology OAdvances in technology create new products and lower the cost of producing existing products 080 advances in technology increase supply and shift the supply curve rightward 6 The State of Nature 0The state of nature includes all the natural forces that influence production for example the weather 0A natural disaster decreases supply and shifts the supply curve leftward AS versus AQS P Factm s of Production Movement N umber 0 f along curve Suppl ie rs Equilibrium 0 An equilibrium is achieved when the price a buyer is willing to pay for a certain quantity of a good equals the price at which a seller is willing to sell that quantity 0 Equilibrium price quantity a price quantity the economy has no tendency to move away from unless one of the factors underlying the supply or demand curve changes Price Too High PRICE 300 2 00 39I 50 1 00 050 emand 1 QUANTITY I 300 1000 1300 I 2000 2500 PRICE 300 250 050 nn uu 000 I 5110 qSu ppiy Demand 1900 1500 2001 2500 QUANTITY PRICE 3101 Suppty Demand 9 ULOD I a I I I I I DD 1000 1530 2000 2500 QUANTITY PRICE EIIU39D 258 Supply 1 50 1 Im Demand l 508 IU TOI OUANTI I 5 1500 TY I I 20 00 2500 PRICE 300 250 Supply N c c 1 50 101 050 Demand Dc 11d 10 l 00 CIUAN I 351500 2000 2500 TITY Surplus PRICE 3 00 REF Supply SURPLUS 4 200 150 L00 Demand 050 I a I l I 000 500 10 31500 2000 2300 DD QUAN TITY Downward Pressure on Price PRICE 300 2 0 Supply SURPLUS 231 I 0 downward pressure quot on price 100 Demand 050 u39no I l 000 500 3 1000 351500 2000 2500 QUAI JTITY Price Too Low 300 Eg3upply 2 00 PRICE 3 CR 391 VI D De mand 9 I I101 50 U 1030 PRICE 811 250 PPW 200 150 Pn ca 100 100 Wu 0050 000 53900 15500 20300 25100 10E00 0U PRICE 3 0 0 2 W Supply 200 150 Price 51000 133 Demand 051 l I l l 000 50005 1000 1500 2000 2500 QUANTITY PRICE 300 2 W Supply 200 150 Price 100 1110 Demand 050 D nn 3939 I Q l I l 000 500 5 1000 1500 2000 25000 QUANTITY Shortage PRICE 300 2 Supply 200 150 Price 100 133 SHORTAGE w 053 U CB 1 1 l I l 000 511003 391 000 1500 2UUU 2500 QUANTITY Upward Pressure on Price PRICE 300 cu Supply 200 Upward pressure on price 150 T 10 ip SHORTAGE W 050 m 0d 000 50005 1000 100 2000 2500 QUANTITY Equilibrium PE and QE PRICE 300 2 qu Supply 200 150 EQUILIBRIUM 100 Demand 050 000 a I 000 400 500 2000 2500 10068 1 QUANTITY Comparative Statics 0 Used to discover the effects of shifts in the supply and demand curves on the equilibrium price and quantity
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