EC 202 Study Guide - Midterm Guide: Real Interest Rate, Interest Rate, Demand Curve
31 May 2018
School
Department
Course
Professor
!
Spring 2018
1!
REVIEW – MIDTERM I
Spring 2018 – Ayesha Khalid
Disclaimer: the following topics are meant to give you an idea of which topics I consider
to be the most important of those we have studied. They do not necessarily reflect every
single topic that will be on the exam. As a result, you will need to know more than the
brief notes I’ve provided about each topic in this review. You should use this review
sheet as a starting point to help you study. You should also review lecture notes, and the
weekly practice questions.
Midterm Information
- will cover all the material up until the end of Thursday’s (April 19th ) class (Introduction
lecture, chapters 6,7,8, and everything before/including equilibrium in the supply and
demand market in chapter 9)
- 35 multiple choice questions and 2 short questions
- bring your own Scantron! (and pencils, non-programming calculator, erasers, etc.)
- bring student ID
- there will be a seating chart - show up early
Introduction
Business cycles: short-run fluctuations in GDP
§ expansion -> peak -> recession -> trough
§ expansion: phase of persistent increase in GDP
§ recession: phase of persistent decrease in GDP
Chapter 6 – GDP
GDP: market value of all final goods and services produced in a country during a specific
time period.
§ greater production -> greater income -> higher standard of living
§ GDP is our best measure of welfare
There are four parts to the GDP definition:
1. market value - allows you add up very different goods/services in a meaningful way
2. final goods and services - if it also included intermediate goods, they would be double-
counted
3. produced within a country - we care about domestic production
4. during a specific time period - don't want to count a good two different times
GDP can be broken up into four components:
!
Spring 2018
2!
GDP = C + I + G + X – M
where
C: consumption - spending on goods/services by households (largest component of GDP)
I: investment - private spending on things used to make future goods/services (e.g.
machines, office buildings, etc.)
G: government spending - consumption and investment spending by the government
X-M: net exports - market value of exports - market value of imports
Different measures of GDP:
§ nominal GDP - can increase if either production or prices increase
§ real GDP: !"#$!%& !"#
!"# !"#$%&'(
∗100 - only increases if production increases
§ GDP per capita: !"#
!"!#$%&'"(
§ GDP growth: !"!
!!!"#
!!!
!"#
!!!
∗100
Real GDP per capita is arguably the best measure of welfare.
Problems with GDP:
§ doesn't account for nonmarket/unreported economic activity (e.g. homeschooling
your kids, selling drugs, etc.)
§ doesn't account for non-economic things like environmental quality, political
freedom, and leisure time
Chapter 7 – Unemployment
Unemployment rate: percentage of the labor force that is unemployed.
§ unemployment rate = !"#$%&'(#)
!"#$% !"#$%
∗100
§ unemployed: don't have a job but have looked for one within the past four weeks
§ labor force: sum of employed and unemployed people
High unemployment means lower GDP now and in the future.
The unemployment rate does not account for:
§ discouraged workers - want a job but haven't looked within the past 4 weeks
- unemployment rate will increase if discouraged workers re-enter the labor
force
§ involuntary part-time workers - have a part-time job but want to work full-time
Document Summary
Disclaimer: the following topics are meant to give you an idea of which topics i consider to be the most important of those we have studied. They do not necessarily reflect every single topic that will be on the exam. As a result, you will need to know more than the brief notes i"ve provided about each topic in this review. You should use this review sheet as a starting point to help you study. You should also review lecture notes, and the weekly practice questions. Will cover all the material up until the end of thursday"s (april 19th ) class (introduction lecture, chapters 6,7,8, and everything before/including equilibrium in the supply and demand market in chapter 9) 35 multiple choice questions and 2 short questions. Bring your own scantron! (and pencils, non-programming calculator, erasers, etc. ) There will be a seating chart - show up early. Expansion -> peak -> recession -> trough.
