2. Gross Domestic Product, including both real and nominal GDP.

3. How to calculate nominal and real GDP when given data on output in various industries and prices in those industries.

4. How to calculate the growth rate of GDP.

9. Final vs. intermediate good and why GDP excludes intermediate goods.

10. Why goods and services must be traded on markets to be included in GDP and why this causes GDP to understate the
economy’s output of goods and services.

12. The concept of value-added and how to estimate GDP as the sum of value-added.

13. How to estimate GDP as the sum of incomes.

14. The five components of GDP as sum of expenditures and how to use this sum to estimate GDP.

15. Government budget deficits and surpluses, and their relationship to government borrowing.

16. GNP and the formula linking GNP to GDP and international factor payments.

18. The definition of net exports.

19. The circular flow diagram presented in class, the mathematical relationships among the variables on it, and the
definitions of the variables.

20. The net capital inflow or outflow and how to calculate it when given numbers for various categories of expenditure or
GDP.

21. The sources of supply of finance and the sources of demand for finance.

24. The open economy saving-investment identity.

25. National saving.

23. What a price index is and how to calculate one when given data on quantities of goods and services and their prices in
various years.

24. The Consumer Price Index, the GDP Deflator (or Implicit Deflator), and how the GDP Deflator is related to nominal
and real GDP.

24. The formula linking the percent changes in nominal GDP, in real GDP and in the GDP Deflator and how to use the
formula.

26. How to use a price index to calculate the inflation rate.

1. The nominal wage, the real wage and how to calculate the real wage when given numbers for the nominal wage and the
CPI.

2. The formula linking the percent change in the real wage to the percent change in the nominal wage and the inflation
rate.

3. Nominal and real interest rates, and how to use the equation relating the two interest rates to the inflation rate.

4. Who gains and who loses from an unexpected increase or decrease in inflation and why.

6. Official definitions of unemployed, employed and the labor force.

7. How to calculate the official unemployment rate.

9. The three types of unemployment and how the actual unemployment rate is the sum of the percentages of the three
types.

10. The “natural” rate of unemployment.

11. What happens to inflation when the unemployment rate drops below the natural rate and why.

12. The labor force participation rate.

13. What the political and institutional factors bolstering workers’ bargaining power over the nominal wage are.

14. The mathematical relationship between the nominal wage, the overall price level, the unemployment rate and
institutional factors boosting workers’ bargaining power.

15. The mathematical relationship between the real wage, the unemployment rate and institutional factors boosting
workers’ bargaining power.

16. The graph of the wage-setting relationship and shifts of the relationship.

17. The mathematical relationship between the average nominal wage in the economy, the average markup above
marginal cost and the overall price level.

18. How changes in overall competitive conditions in industries impact the markup.

19. The mathematical relationship between the average real wage in the economy and the average markup.

20. The price-setting relationship and what causes it to shift.

21. The determination of the natural rate of unemployment using the wage-setting and price-setting relationships.

22. The analysis of the impact on the natural rate of unemployment caused by a factor that shifts the wage-setting or price
setting relationships.
1. The simple consumption function and what non-income influences on consumption are held constant when the simple
consumption function is graphed.

2. How to use the formula for the MPC.

3. How to use the formula for the simple consumption function.

4. The life cycle (LC) and permanent income hypotheses (LC-PIH) and how to apply them to scenarios involving
transitory and/or permanent income.

5. The MPC out of permanent vs. transitory income, according to the LC-PIH.

6. The consumption function in the case of permanent income.

7. The simple saving function.

8. How to use the formula for the MPS.

9. How to use the formula for the simple saving function.

10. The MPS out of permanent vs. transitory income, according to the PIH.

12. Why an increase in interest rates has an ambiguous impact on consumption and saving.

13. The concept of Ricardian equivalence.

15. The concepts and formulas for present value and for future value.

16. The concept of net present value and how to apply it to a firm’s decision about a capital expenditure.

17. Why the concept of net present value implies that investment spending is negatively related to interest rates.

18. The concept of the marginal efficiency of capital and why it implies that investment spending is negatively related to
interest rates.
 Study Guide for the Third Quiz

1. The concept of the marginal efficiency of capital and why it implies that investment spending is negatively related to
interest rates.
5. The three forms of money demand.
6. What a zero coupon bond is and how to determine the amount of interest it yields.
7. The formula relating the market price of a bond to its coupon payment, face value, interest rate, and number of years
until maturity. Also, how to use this formula to show that bond prices and interest rates on bonds are negatively related.
8. Which type of bond (longer or shorter term to maturity) a bondholder faces a greater interest rate risk on (i.e., risk that
interest rates will rise after the bond is purchased) and why.
9. Why it may be rational for a financial wealth-holder to store wealth in the form of money instead of an interest-bearing
financial asset.
10. Why the speculative demand for money is negatively related to interest rates.
11. The speculative demand for money function and what causes it to shift.
12. What money illusion is.
13. What real balances are and why the demand for money is a demand for real balances.
14. Why the transactions and precautionary demands for money are positively related to real GDP and Y and negatively
related to interest rates.
15. The demand for real balances function.
16. The velocity of money, the quantity equation and the classical equation of exchange.
17. M1 and M2 definitions of the money supply.
19. Bank reserves, the required reserve ratio, required reserves and excess reserves.
20. The multiplied expansion of the money supply and bank lending when reserves are injected into the banking system,
including what happens on banks’ balance sheets.
21. The monetary base.
23. The multiplied expansion or contraction of the money supply and bank lending when reserves are injected into or
withdrawn from the banking system, including what happens on banks’ balance sheets.
24. What happens to interest rates because of a multiplied expansion or contraction of the money supply and bank lending.
25. How to calculate the eventual change in the money supply when given information pertaining to the required reserve
ratio and the change in bank’s reserves.
27. The impact of an open market operation on the balance sheets of the Federal Reserve and/or a bank and/or a securities
brokerage. Also, all the ramifications of a particular open market operation, including its impact on bank lending,
checking account balances and the money supply.
 Study Guide for the Fourth Quiz

2. The factors that will shift the money demand curve and the direction they will shift it in.
3. The liquidity preference theory of interest rates, including all adjustments that take place and why if the market for real
balances is initially not in equilibrium.
4. How to analyze monetary policy on the liquidity preference graph.
5. How to analyze a change in money demand on the liquidity preference graph.
9. What the production function is, what its graph looks like, how to interpret its slope, what causes it to shift and in which
direction.
10. The concept of diminishing marginal returns and how it is reflected in the production function.
18. The market demand curve for labor and the economic reason why it slopes down.
19. The factors that will shift the labor demand curve and the direction they will shift it in.
20. The market supply curve for labor and the economic reason why it slopes up.
21. The factors that will shift the supply curve for labor and the direction they will shift it in.
22. How to analyze unemployment on the labor supply – labor demand graph. Also, the adjustment that will cause
unemployment to disappear.
23. How to analyze a change in the price level on the labor market graph.
24. The relationship between the equilibrium outcome in the labor market and the outcome on the production function.
26. The economic reason why saving is positively related to interest rates.
27. The factors that will shift the saving graph on the classical S-i graph and the direction they will shift it.
29. The classical argument in support of Say’s Law of markets, including full analysis on the saving and investment graph
when the interest rate is initially above equilibrium.
 Study Guide for the Second Exam

1. The classical analysis of a change in people’s preferences toward saving.

2. The classical analysis of a change in the money supply.
3. The classical aggregate supply function and the reason why it is vertical.
4. The classical aggregate demand curve, the formula for it and the economic reason why it slopes down.
5. The classical analysis of a change in the money supply or in the velocity of money.
6. The complete classical macroeconomic model and how to use it to analyze a change that impacts the production
function and/or the labor market, and/or aggregate supply and aggregate demand, and/or the supply and demand for credit
(S and IP).
 Study Guide for the Fifth Quiz

1. The Keynesian critique of the neoclassical view of the labor market.

3. The Keynesian analysis of a change in people’s preferences toward thrift and the paradox of thrift.
4. The economic reason why AD rises as Y rises.
5. What happens to Y when it is above or below Ye on the AD-Y graph and why.
6. The Keynesian Saving-Investment graph in the context of a closed economy with a negligible government sector and
how to use it to analyze a change in saving or in investment, including the Keynesian analysis of thrift.
10. How to use the formula for the spending multiplier.
11. How to use the formula for the transfer multiplier.
12. How to use the formula for the tax multiplier.
13. The Keynesian underemployment equilibrium in all of its aspects.
13. The Keynesian aggregate supply function.
*14. The equation for the budget surplus and how to use it.
*15. The full employment budget surplus.
 Study Guide for the Third Exam

1. The IS curve and how it is derived by analyzing the impact of a change in interest rates on the goods market.
2. The economic reason why the IS curve slopes down.
3. The relationship between the degree of interest-elasticity of investment spending and the slope of the IS curve.
4. What will shift the IS curve and the direction it will shift in.
5. The factors that affect the steepness or shallowness of the IS curve.
6. The LM curve and how it is derived by analyzing the impact of a change in real output on the money market.
7. The economic reason why the LM curve slopes up.
8. What will shift the LM curve and the direction it will shift in.
9. The IS-LM model of general equilibrium and how equilibrium in the IS-LM model corresponds to equilibrium in the
goods and money markets.
10. How to use the IS-LM model to analyze an event that affects either the goods market or the money market.
13. The equation for the IS curve and how to interpret it.
14. The equation for the LM curve and how to interpret it.
15. What the aggregate demand curve is and how to use the IS-LM model to show that there exists a negative relationship
between the overall price level and real output.
16. The Keynesian and classical AS curves.
17. Why the Keynesian AS curve represents the short run AS curve.
18. The definitions of the short-run, medium-run and long-run in the context of aggregate supply.
19. How to analyze a demand-side shock in the short-run, the medium-run and the long-run, including the reasons why
prices and real output adjust in the manner that they do over each time frame.
21. The policy implications of short-run vs. long-run aggregate supply.