Macro Econ study guide. I know this is long study guide and a lot of questions,
ID: 1211094 • Letter: M
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Macro Econ study guide. I know this is long study guide and a lot of questions, but if anyone has anything similar it would be appreciated.
Chapter 1
What is scarcity, economics?
What is efficiency and equality? Why there is a trade-off between those two?
Why people face trade-off?
What is an opportunity cost?
What is marginal change? Rational people make decisions based on comparing ____ and __________.
What is an incentive? Why incentives are important?
Why markets are usually good way to organize economics activity?
When does a government improve market outcome?
What are property right, market failure, externality, market power?
Why is there a correlation between a country’s living standard and its ability to produce goods and services?
Why do prices rise when the government prints too much money? What is inflation?
What is business cycle? Why is there a a short-term trade-off between inflation and unemployment?
Chapter 2.
What are economists’ two roles? How do they differ?
What are models? How do economists use them?
What are the elements of the Circular-Flow Diagram? What concepts does the diagram illustrate?
How is the Production Possibilities Frontier related to opportunity cost? What other concepts does it illustrate?
What is the difference between microeconomics and macroeconomics? Between positive and normative?
Chapter 10.
What is Gross Domestic Product (GDP)?
How is GDP related to a nation’s total income and spending?
What are the components of GDP? What transactions are counted in GDP, what is not counted?
How is GDP corrected for inflation?
Limitations of GDP as measure of standard of living.
Chapter 11.
What is the Consumer Price Index (CPI)? How is it calculated? What’s it used for?
What are the problems with the CPI? (substitution, new goods, quality). How serious are they?
How does the CPI differ from the GDP deflator?
How can we use the CPI to compare dollar amounts from different years? Why would we want to do this?
How can we correct interest rates for inflation?
Chapter 12.
What are the facts about living standards and growth rates around the world?
Mathematics of growth rates: rate of growth of real GDP per capita, Rule of 70.
Why does productivity matter for living standards?
What determines productivity and its growth rate?
How can public policy affect growth and living standards?
Chapter 15
Definitions of employed, unemployed, labor force according to BLS (p. 298-299):
Employed (paid employees, self-employed, unpaid workers in family business, full- and part-timers);
Unemployed (people who are without jobs AND want to work AND were looking for a job in the previous 4 weeks; people who are waiting to be recalled to a job from which they had been laid off);
Not in the labor force (everybody else, i.e. full-time students, homemakers, retirees, unemployed who want to work, but had not been looking for a job in the previous 4 weeks).
Unemployment, labor-force participation rates.
What is natural rate of unemployment, cyclical, frictional, structural unemployment?
Using labor supply and demand curves explain how minimum wage laws, union bargaining, and efficiency wages create unemployment.
What is union/collective bargaining? Who are better off and who are worse off from the unions?
What is the efficiency wage? What are the four explanations why firms may want to pay high wages?
Chapter 13
What is ….financial system, financial market, debt finance, equity finance.
What is bond, bond characteristics: maturity, principal, term, perpetuity, credit risk (takes into account default risk and asset recovery in case of default), credit rating, junk bond, municipal bond, difference in tax treatment between municipal and corporate bonds.
What is stock, dividends, price-earnings ratio, how stock price is determined (value, supply, and demand),
What is stock index, how they are calculated
What is financial intermediary, what’s the difference between mutual fund and index fund (one is managed actively, another passively)
Define national savings, private and public savings, how they are related? Know all corresponding equations and identities (page 267).
What is budget deficit/surplus.
Why savings may not be equal to investment for an individual, but equal nationwide for a closed economy?
What is market for loanable funds?
Graph supply and demand for loanable funds, how each is related to interest rate?
What are the effect of different government policies on the equilibrium interest rate and amount of investment? Savings and investment incentives, budget deficit/surplus.
What is crowd-out effect?
Chapter 14
What is present/future value?
What is compounding/discounting?
Know how to find a present value of a future amount given an interest rate.
Know how to find a future value of a present amount given an interest rate.
What is risk aversion?
How does a utility function look like for a risk averse person? For a risk loving person?
What is diminishing marginal utility?
What are the two problems pertaining to market of insurance?
Define adverse selection and moral hazard problem. Make sure you can distinguish between the two.
What is diversification and why it is important to have a diversified portfolio.
What type of risk can be eliminated with a diversification? What cannot?
What are the firm-specific and market risks?
Explain the trade off between risk and return.
What does the fundamental analysis refer to?
When the asset is over/under valued?
How do we compute the value of a stock or a bond? (Hint: discounting expected future cash flows: coupon or dividends).
What is the efficient markets hypothesis about?
What is random walk?
How index funds are related to efficient markets hypothesis?
What is a speculative bubble?
Chapter 16.
functions of money (medium of exchange, unit of account, store of value)
what is liquidity, what assets are more/less liquid
kinds of money (commodity, fiat)
2 measures of money (M1, M2), know specifically the components of M1 and M2, what is the main difference M1 from M2 (liquidity)
what is monetary policy
what is Federal reserve, how it is organized
what are the main purposes of federal reserve (the main jobs it does)
what is T-account, what is bank’s assets and liabilities
reserve ratio, reserve requirement, excess reserves
what is money multiplier and how it is used to compute the amount generated in the banking system
what is bank capital, leverage (how it works to amplify bank’s losses and profits), why central bank imposes capital requirement
when bank is considered insolvent
what is credit crunch
Federal reserve’s tools of monetary policy: a) tools that influence the quantity of reserves (OMO, discount rate); b) tools that influence the reserve ratio and, hence, money multiplier (reserve requirement, interest on reserves). How each tool can be used to increase or decrease money supply.
Federal funds rate: how it is related to money supply, how it is different from discount rate.
Chapter 17.
What is value of money
How level of prices influences the value of money
What is quantity theory of money
What is money supply and money demand, who determines supply and who demand, and how money demand and supply depend on the level of prices
Explain equilibrium in money market and adjustment process after money supply change.
What variables are real and nominal?
What is monetary neutrality (difference between short run and long run effects of monetary policy change), implication of monetary neutrality – the fisher effect (nominal interest rate is adjusted one-for-one to the inflation rate).
Velocity of money: definition, be ready to compute velocity given money supply, output and price level.
What is inflation tax (revenue from printing money)
Real and nominal interest rate, the fisher effect (does it work in long run or short run?).
Costs of inflation: shoeleather, menu, relative-price variability, confusion and inconvenience, tax distortions.
Redistribution of wealth between borrowers and lenders for inflation and deflation.
Chapter 20
What is a business cycle? Recession/depression
What are the key facts about the business cycles?
What model explains long-run economic growth, which – short-run fluctuations?
What is aggregate supply/aggregate demand? How do they depend on prices? Graphical representation.
Why AD slopes down: wealth effect, interest rate effect, exchange rate effect.
Why and when AD might shift?
Differentiate between factors that cause movement along the AD curve and the ones that cause shifts of the AD curve. Shifts due to consumption, investment, government purchase, net exports (Table 1, p. 431).
Difference between long-run and short-run aggregate supply curve? Why they are different? What is long-run, what is short-run?
Why LRAS is vertical?
Why and when LRAS might shift? Changes in labor, capital, nat.resources, human capital, tech.knowledge.
Why SRAS slopes up: sticky wages, sticky prices, misperceptions.
Why SRAS might shift?
How can you explain long-run inflation and economic growth using LRAS, SRAS and AD curves.
What is stagflation? How can you explain it using LRAS, SRAS and AD framework?
Chapter 21.
What is the theory of liquidity preference (studies money supply and demand and how they are brought into the balance by the adjusting interest rate)? Which interest rate it’s trying to explain?
Money supply (who determines, how Fed can change it through open market operations, discount rate etc)
Money demand (demand for most liquid asset).
How interest rate adjusts to bring money demand and supply into an equilibrium
How equilibrium interest rate affects aggregate demand (interest rate effect). How monetary policy can impact aggregate demand by targeting the equilibrium interest rate (i.e., how Fed can change aggregate quantity of goods and services demanded by changing money supply). The role of federal funds rate (p. 465-466). Make sure you understand dynamics from Figures 2 and 3, pages 463 and 464.
Arguments in favor and against active monetary stabilization policy, automatic stabilizers (p. 476-477).
Fiscal policy: multiplier effect, spending multiplier, crowding-out, changes in taxes.
Chapter 23.
Arguments in favor of active stabilization policies (too much economic fluctuation, wasted resources if no monetary or fiscal intervention) and against (policy lags, shocks and their duration are difficult to predict).
Arguments in favor of discretionary monetary policy (flexibility, political business cycles may not be as bad as predicted, difficulty to come up with good set of rules) and against it (prevent possible harm due to incompetent policymakers, possibility of power abuse, time inconsistency)
Arguments in favor of zero inflation target (avoid costs of inflation, permanently better unemployment/inflation trade-off if zero-inflation policy is credible) and against (too large costs, it’s easier for markets to achieve equilibrium prices/wages with moderate inflation).
Arguments in favor of fighting recessions with spending (Each $ of G adds directly to AD, but only part of each $ of a tax cut does; federal spending given to states prevents states from laying off public workers) and arguments in favor of fighting recessions with tax cuts (provides proper incentives for investment and for production; reduces probability of “bridges to nowhere”).
Arguments in favor of balancing the gov’t budget (Govt debt places a burden on future generations; budget deficits crowd out investment; debt unjustified during peacetime) and against (the burden of the govt’s debt is exaggerated; cutting the deficit could do more harm than good; focusing on the deficit diverts attention from other programs that redistribute income across generations).
Arguments in favor of the tax reform to encourage savings and against it (such tax reform is likely to benefit the wealthy, who need tax relief the least).
Chapter 18.
Net exports, net capital outflow, definitions, how they are related
Trade surplus/deficit/balanced trade
Factors that impact NX and NCO
Savings, Investment, and their relationship to the international flows
What nominal exchange rate? When does the currency appreciates/depreciates?
What is real exchange rate? How it is calculates?
Explanation / Answer
Ans. There are too many questions. As per chegg policy, we cannot answer all of them. I am answering only 4 questions.
Ans1. Scarcity - It means less availability. When the demand is more than supply.
Economics- It is a social science which studies how society make choices with its resources in the presence of scarcity.
Ans 3. People trade off because of scarcity. Resources are limited. The society cannot produce just everything. It has to tradeoff some amount of one commodity to produce another commodity.
Ans 4. Opportunity cost is the cost of next best alternative activity.
Ans 5. Marginal change is very small change or due to change in one unit.
Rational people make decisions based on comparing Cost and Benefit.
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