Download Econ 2012: Macroeconomics

Econ 2012: Macroeconomics
Review # 3
Chapter 9
Definitions:
Classical economists
Keynesian economists
Aggregate Demand
Short-run Aggregate Supply Long-run Aggregate Supply equilibrium income
potential income
inflationary gap
recessionary gap
Fiscal Policy
Be Able To:
1. Explain what a classical economist would say is the correct policy if the economy is
temporarily experiencing unemployment.
2. Discuss why classical economics was not favored during the depression and why Keynesian
economics gained popularity.
3. Draw an Aggregate Demand Curve. Discuss what will cause the AD curve to shift. (i.e.
Remember AD = C + I + G + (X - M).
4. Explain why the Short-run Aggregate Supply (SAS) curve is shaped as it is and what will
cause it to shift.
5. Explain why the Long-run Aggregate Supply (LAS) curve is shaped as it is and what will
cause it to shift.
Chapter 10
Definitions:
Autonomous Expenditures
Marginal Propensity to Expend
Recessionary Gap
Contractionary Fiscal Policy
Automatic Stabilizer
Induced Expenditures Expenditure Function
Spending Multiplier
Inflationary Gap
Expansionary Fiscal Policy
Discretionary Fiscal Policy
Be Able To:
1. Write out an expenditure function if looking at a graph or a table of numbers. Be able to
identify what that equation would look like graphically.
2. Describe the difference between Autonomous and Induced Expenditures.
3. Explain why there is a "multiplier" process, and be able to calculate the expenditure
multiplier.
4. Determine the equilibrium level of income if given an expenditure function.
5. Show equilibrium graphically using the AE model.
6. Describe situations that will cause the AE curve to shift and result in a new equilibrium.
7. Calculate equilibrium income in the Keynesian multiplier model, and, if potential output is
known, identify if there is a recessionary or inflationary gap.
8. Using the multiplier calculate the appropriate fiscal policy to reach potential output.
9. Explain the effects of contractionary or expansionary fiscal policy on the government’s budget
(i.e. creating a budget surplus or deficit).
10. Explain the difference between discretionary fiscal policy and automatic stabilizers.
Chapter 11
Definitions:
Financial Asset
Financial Liability
Interest rate
Liquidity
Money
M1
M2
L
Medium of Exchange
Unit of Account (value)
Store of Wealth
Federal Reserve Bank
Reserves (Actual Reserves)(AR)
Reserve Ratio (r)
Required reserves(RR)
Excess Reserves (ER)
Simple money multiplier
Approximate Real-world money multiplier
Financial panic
Be able to:
1. Explain what money is by identifying the functions that it should perform.
2. Explain the "fractional reserve" banking system. (i.e. how do private banks create money.)
3. Explain why a fractional reserve system might lead to financial panics. What could the
government do to reduce the probability of panics?
4. Look at a banks T-account sheet and identify AR, RR and ER. Explain what kind of action
they might take.
5. Be able to calculate and explain the simple and approximate real world money multipliers.
Chapter 12
Definitions:
Monetary Policy
Federal Funds Rate
Open Market Operations
Contractionary Monetary Policy
Central Bank
Prime Rate
Discount Rate
Reserve Requirement
Expansionary Monetary Policy
Be able to:
1.
2.
3.
4.
5.
Explain the roles of the Federal Reserve System.
Explain how the federal reserve can control the money supply using its tools.
Explain how banks respond when the federal reserve uses each tool.
Explain how changes in the money supply affect the economy. Refer to AS/AD graphs.
Describe the problems with using monetary policy.