Transcript Principles of Economics Third Edition by Fred Gottheil

Review Midterm 1
Outline
• Frequency of Chapter from which questions
asked in the previous exams.
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Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
1
2
5
2
1
3
10
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Outline
• Note that Chapter 10, 11 is not
covered by the previous exams
• But will be covered this year
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Ch2
• What is production possibility
(frontier)?
• Absolute advantage and comparative
advantage.
• Vicious circle of poverty (Midterm
2011 Fall)
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Ch3
• Difference in Change in demand and
Change in quantity demanded.
• Excess demand and Excess supply .
• What can cause the change in demand
and change in supply?
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Ch3
• Draw a graph depicting a shoe market in
equilibrium. Explain what happens if price
were not at equilibrium. In other words, what
forces come into play when price is either
above or below its equilibrium level? (Q6,
Midterm 2010 Spring)
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Ch3
• Consider the market for hot dogs. Suppose the
equilibrium price fell from $2 to $1 per
package. Explain, in as many ways as you can,
what could have caused that fall. (Midterm
2011 Fall)
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Ch4
• (a) Show the relationship between real and
nominal GDP. (Q1, Midterm 2010 Spring)
• Look at p90, Ch4.
• Using the AD/AS model, (i) explain what could
shift the aggregate demand outward and (ii)
explain how demand-pull inflation can
occur.(Q4, Midterm 2010 Spring)
• Look at p96 and p100, Ch4.
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Ch4
• What are Business cycles? (Midterm 2011 Fall)
• Look at p85, Ch4.
• Business Cycle: Alternating periods of growth
and decline in an economy’s GDP.
• Write short notes (a paragraph or two) on each
of the following: (b) why and how economists
use the GDP deflator (Midterm 2011 Fall)
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Ch4
• Using either the AD/ AS model or the C+I=C+S
model of real GDP or national income
determination, show an economy can end up
in equilibrium at less than full employment.
Explain why the curves you use are shaped the
way they are. Describe (or define) the key
terms in your answer as precisely as you can.
• (Midterm 2011 Fall)
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Ch5
List the component parts of national
income. Using the expenditure approach,
list the component parts of GDP. (Q12,
Midterm 2010 Spring)
Look at p112 (Ch5) for national income
definition. Look at p116 for expenditure
approach.
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Ch5
• Write short notes (a paragraph or two) on
each of the following: (a) the expenditure
approach to GDP accounting. (Midterm
2011 Fall)
• In one or two sentences, explain the
following key terms: (b) the underground
economy (Midterm 2011 Fall)
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Ch6
• In one or two sentences, explain the
following key terms: (a) autonomous
consumption, (c) Keynes's absolute income
hypothesis, (Midterm 2011 Fall)
• All income hypotheses are important, and you
also need to know the consumption equation
and concept of MPC in this Chapter.
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Ch7
• Explain why is saving always equal to actual
investment? (Q2, Midterm 2010 Spring)
• C+S=C+I model
• Write short notes (a paragraph or two) on
each of the following: The paradox of thrift.
(Midterm 2011 Fall)
• Look at p174, Ch7.
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Ch7
• Using either the AD/ AS model or the C+I=C+S
model of real GDP or national income
determination, show an economy can end up
in equilibrium at less than full employment.
Explain why the curves you use are shaped the
way they are. Describe (or define) the key
terms in your answer as precisely as you can.
• (Midterm 2011 Fall)
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Ch8
• The idea of unemployment is more complex than
simply "people out of work." Explain how
economists identify unemployment by cause, and
explain why some unemployment is described as
natural and perhaps even desirable, while other
people who may or may not be working do not end
up in the BLS's classification of unemployment
(Midterm 2011 Fall)
• Look at Discouraged workers at p184, Ch8;
look at Natural rate of employment at p187.
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Ch8
• Define and explain: structural
unemployment, underemployment.
• p183, Ch8
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Ch8
• How does the government close a recessionary
gap? (Q3, Midterm 2010 Spring)
• Make sure you understand what recessionary and
inflationary gaps are!
• Explain the difference between an income
multiplier and a tax multiplier. (Q4, Midterm
2010 Spring)
• Connect to the potential money multiplier too.
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Ch8
• Suppose equilibrium Y = $1.0 trillion, fullemployment Y = $1.4 trillion, and MPC = 0.8. If
you want to achieve a full employment level of Y
and don’t worry about running deficit budgets,
what would you do and why. If you want to keep
the budget balanced and still get to full
employment Y, what must you do and why. (Q5,
Midterm 2010 Spring)
• Use the concept of tax multiplier and balanced
budget multiplier. (p198, Ch8)
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Ch8
• Look at the C+S=C+I model of income determination,
from question 2. Suppose there is a $400 billion
recessionary gap that President Obama wants to close
and looks to you for advice. What kind of fiscal policy
would you suggest? What kinds of information would
you need to get the economy moving toward full
employment without inflation? Is there only one
budget option open to you? Explain. [hint: make sure
you answer every part of this question]
• (Midterm 2011 Fall)
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Ch8
• Look at the AS/ AD model of real GDP determination,
from question 2. Suppose there is a $400 billion
inflationary gap that President Obama wants to close
and looks to you for advice. What kind of fiscal policy
would you suggest? What kinds of information would
you need to get the economy moving toward full
employment without inflation? Is there only one
budget option open to you? Explain. [hint: make sure
you answer every part of this question].
• (Midterm 2011 Fall)
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Ch8
• What is the accelerator and what role does
it play in explaining business cycles? (Q9,
Midterm 2010 Spring)
• p204, Ch8
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Ch8
• what arguments do real cycle theorists offer to
explain why “business cycles” are not really
cycles at all. (Q1, Midterm 2010 Spring)
• What are Business cycles? Differentiate
between cycles induced externally from those
induced internally. Why do some economists
believe that the "cycles" we look at are not
really cycles at all. (Midterm 2011)
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Ch10 and Ch11
• You should read everything based on the
pattern of previous exam questions.
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