Topics for Exam 1
Principles of Macroeconomics
Wednesday April 18, 2001
Baumol and Blinder textbook: Chapters 1-7
I. Introduction to Macroeconomics
A. Review of market economics
1. Specialization, self-interest, global interdependence, resources
2. Measuring economic performance-- per capita GDP
3. Circular flow of income
a. income = spending
b. GDP = C + I + G + Net exports
4. Demand and Supply
B. The U.S. in the World Economy
1. National Income
2. orientation
3. trends
D. Macroeconomic relations
1. consumption and income (Consumption function)
2. inflation and unemployment (Phillips curve)
E. Growth
1. shifting production possibilities frontier
2. increasing resources (factors of production)
a. investment
b. education, immigration,
health
c. conservation, resource
enhancement, exploration
d. technological change
3. calculating compound growth
II. Financial Markets
A. Present value
1. meaning
2. calculation
a. time
b. impact of interest rate
B. Bond Markets
1. debt : maturity, face value and coupon
2. calculate present value
3. secondary market value inversely related to interest rates
4. risk premium
a. US Treasury securities
b. corporate bonds
c. bond ratings
C. Credit Markets
1. supply, demand, and interest rates
2. investment and interest rates
3. savings and investment
D. Stock Markets
1. equity or ownership
2. value
a. market value of assets
b. stream of future earnings (PE ratio)
c. future price
3. expectations
a. myopic
b. adaptive
c. rational
4. financial bubble
5. efficient markets
a. assumptions
b. implications
6. financial instruments
a. mutual funds
b. index funds
c. options
d. futures
e. short selling
f. margin
D. Foreign Exchange Markets
1. imports, exports and supply and demand of currency
2. appreciation and depreciation
3. exchange rates and imports and exports
III. Macroeconomics
A. Measuring National Income
1. Gross Domestic Product, per capita GDP
a. expenditures
b. incomes
2. Net Domestic Product (depreciation)
3. Gross National Product (multinational earnings)
4. Disposable Personal Income (after taxes, transfers, etc)
5. Measurement issues:
a. household production; underground economy
b. Real GDP
B. Aggregate Demand and Aggregate Supply
1. total spending and total
production
2. shifting AD
3. shifting AS
4. equilibrium
B. Measuring the Price Level
1. Consumer Price Index
2. calculating inflation rates
3. calculating real prices
4. calculating real interest rates
5. Measurement issues: quality changes, market basket changes
C. Unemployment
1. employed, unemployed, not in the labor force
2. frictional, structural, cyclical unemployment
3. Costs of unemployment
4. Classical economists, Marx, Keynes
_ a. flexible vs. sticky wages
_ b. the natural rate of unemployment
IV. Policy
A. Contractionary policy
1. anti-inflation
2. fiscal policy: decrease spending, increase taxes
3. monetary policy: decrease money supply, increase interest rates
B. Expansionary policy
1. anti-unemployment
2. fiscal policy: increase spending, decrease taxes
3. monetary policy: increase money supply, decrease interest rates
C. Other policies
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