The final exam will be comprehensive. You will want to review the Topics for Exam 2: and Topics for Exam 1). You will need a calculator for this exam.
 

The following topics have been covered since the second exam

I. A Keynesian Model of Income Determination

A. Total Spending
1. Consumption

a. autonomous consumption
b. marginal propensity to consume
c. shifting the consumption function
    i. wealth effects
    ii. inflation and real balances
    iii. permanent income hypothesis

B. Equilibrium
1. Y = C + I +G + X -Im
2. C = a + bY
3. Yeq = (1/1-b)[a + I + G + X-Im]

C. Changes in Spending and Changes in Income
1. the multiplier
2. volatility
3. policy leverage

D. Savings
1. MPS= 1-MPC
2. paradox of thrift

E. Taxes
1. C = a + b (Y-T)
2. tax multiplier (negative)

F. Fiscal Policy
1. adjust government spending and/or taxes to reach target level of national income
2. budget deficit is expansionary
3. budget surplus is contractionary

III. Policy and Aggregate Demand and Aggregate Supply
    1. expansionary policy (AD increases)
    2. contractionary policy (AD decreases)
    3. short-run policy trade-off between inflation and unemployment
        (Phillips Curve)
    4. stagflation
        a. high inflation and high unemployment
        b. supply shocks
    3. long-run policy
        a. increase Aggregate Supply
        b. Long run AS is vertical
        c. stimulating AD is not effective in the long run
 
 

II. Development

A. Poverty
    1. basic human needs
    2. resources
    3. inefficiency

B. Growth and Investment
    1. internal financing
        a. limited savings
        b. capital flight

    2. external financing
        a. direct foreign investment
        b. loans and finance
        c. foreign aid

C. Development Strategies
 
 

III. Policy Issues

A. National Debt
    1. growth in recent decades
        a. tax cuts
        b. spending increases
    2. impact of the Debt
        a. myths
        b. real effects
            i) crowding out
            ii) redistribution
            iii) impact on resource use
            iv) inflation

B. Balancing the Federal Budget
    1. balanced budget requirement?
        a. limits fiscal policy
        b. de-stabilizing
    2. full-employment balanced budget
    3. current budget surplus
        a. strong economy increased tax revenues
        b. projections for the future?

C. Fiscal Policy or Monetary Policy
    1. advantages and disadvantages of fiscal policy
    2. advantages and disadvantages of monetary policy
    3. policy complications

IV. The Phillips Curve

A. Inflation/Unemployment Trade-off
1. inverse relation
    a. empirical observations
    b. policy choices
2. short-run

B. The Long-run
1. economy is at full employment
2. vertical Phillips curve

C. Inflationary Expectations
1. expected inflation changes trade-off
2. policy choices more painful

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