You will need a calculator for this exam.
I. Measuring National Income
A Measures
1. Gross Domestic Product, per capita GDP
a. expenditures
b. incomes
2. Net Domestic Product (adjust for depreciation)
3. Gross National Product (adjust for multinational earnings)
4. Disposable Personal Income (adjust for taxes, transfers, etc)
5. Measurement issues:
a. household production; underground economy
b. Real GDP
B Approaches
1. Expenditures approach
a. GDP= C+I+G+(X-Im)
b. final goods and services
i) not intermediate goods
ii) not used goods
iii) not financial transactions
2. Incomes approach
C. Changes in the Price level
1. Nominal
GDP
2. Real GDP
II. Price level and Inflation
A. Measuring the Price Level
1.
Consumer Price Index
2. calculating inflation rates
3. calculating real prices
4. calculating real interest rates
5. Measurement issues
a. quality changes
b. market
basket changes
B. Inflation Costs
C. Policy
1. contractionary
policy
a. fiscal
policy
i. decrease spending
ii. increase taxes
iii. decrease transfers
b. monetary
policy
i. decrease money supply
ii. increase interest rates
2. other
responses
a. indexing
b. Fisher
effect
c. adjustable interest rates
3. extreme
measures
a. price controls
b. new currency
c. exchange rate anchors
III. Unemployment
A. Measurement and classification
1. employed,
2. unemployed,
3. not in the labor force
4. measurement issues
a. discouraged workers
b. underemployment
c. underground economy
B. Causes of unemployment
1. frictional unemployment
2. structural unemployment
3.cyclical unemployment
C. Costs of unemployment
1. lost production (Okun’s Law)
2. social costs
3. unequal burden
D. Theories
1.Classical economists
2. Marx
3. Keynes
a. flexible vs. sticky wages
i.
unions, contracts
ii. efficiency wages
b. the natural rate of unemployment
E. Policy
1.expansionary policy
a. fiscal policy
i.
increase spending
ii. decrease
taxes
iii. increase
transfers
b. monetary policy:
i.
increase money supply
ii. decrease
interest rates
2. retraining
3. unemployment compensation
IV. Money
A. Functions of Money
1. medium
of exchange
2. unit of
account
3. store of
value
B. Types of Money
1. liquidity
2. M1
3. M2
4. fiat
vs. commodity money
A. Structure
1. Board of
Governors
2. Federal
Open Market Committee
3. Twelve Regional Banks
B. Functions
1. Control
monetary policy
2. Act as bank for banks
3. Bank regulation
A. Financial
intermediaries
1. assets--
reserves & loans
2. liabilities--
deposits
B. Fractional Reserve Banking
1. required
reserves
2. excess
reserves
3. deposits--
loans
4. risk of
failure
a. bank runs
b. deposit
insurance
C. Money creation
1. Fed increases reserves through
open market purchase
2. banks
lend excess reserves
3. money
expansion process
a. loans
b. spending
c. deposits
d. more
loans . . .
4. deposit
expansion factor = 1/reserve requirement
A. policy
tools
1. open market operations
a. buy
bonds-- increase money supply
b. sell
bonds -- decrease money supply
2. reserve
requirements
3. discount
rate
B. Policy effects--
short-term
1. interest
rates
2. exchange
rates
3. business
and financial markets
C. Policy effects--
long-term
1. monetary
neutrality
2. price
level