Chapter 8:

What does the circular flow represent? Explain the relationship between business and households. Who is on the supply and the demand sides. Based on that you recognize that total income should be equal to total output.

Define GDP. Distinguish between final and intermediate goods. Using intermediate goods calculations show how you could calculate the value of the final good.

List and briefly explain what is not included in the GDP.

What are the two methods you could calculate GDP. Pay close attention to figure 8-3 because it explains clearly and in detail the two ways of calculating the GDP. Note that adding all the incomes will not match the value of GDP measured by the expenditure approach. You should be able to do those calculations.

You should be able to calculate DI from the figures of GDP (table 8-2)

Distinguish between Nominal and Real GPD (look up the information on the “Our National Income Accounts”). If you have the nominal GDP how do you calculate real GDP?

What is per capital real GDP? The GDP of China is the second largest globally but in per capita it ranks #87. How come? Analyze table 8-4.

Chapter 9:

Define economic growth. How would you express economic growth on a graph? Analyze figure 9-2 and look at the reasons why economic growth improved and what triggered a decline in economic performance. What are the reasons why economic growth for China is so much stronger than the US and other developed countries?

Discuss the benefits of economic growth. What positive consequences would you add beyond points made on table 9-2? Do the same for costs of economic growth. You should listen to the videotaped lecture on economic growth (go to chapter resources- click on chapter 9 and scroll down to “Giuili lecture”)

What is the rule of 70?

What are the sources of economic growth? (again listen to the video lecture mentioned above)

Define productivity. List and briefly discuss about 10 elements which will increase productivity.

What is the relationship between savings and economic growth?

How does immigration impact economic growth? Discuss looking at both short run and long run.

Discuss the 3 stages of economic development (primary=agriculture; secondary=industry; tertiary= services)

What is “Eurosclerisis”? What are the reasons for this situation? How is it changing today?

Chapter 10

What is the AS? Distinguish between short run and long run AS curves. How does it differ from the PPC? Look at what is measured on either axis? How would you express economic growth using either of the curves?

Define AD. What is measured on each axis? What changes need to take place for you to move along the AD curve? What happens to the economy when the price level changes?

What changes are necessary for AD to move to the right? Analyze table 10-1 and explain the consequences of each change. You could add more reasons why AD would increase. Do the same for a movement to the left of the AD curve.

What does the long run equilibrium represent? What happens to the price level if the LRAS increases? Why?

There are 2 types or reasons for inflation. Explain and give examples of each. Why do they contribute to an increase in the price level?

Chapter 11:

What are the assumptions for a classical economic model? Explain Say’s Law.

What is the relationship between savings and investments? How are interest rates determined in the market? Using the demand and supply curves for labor show unemployment on the graph.

How does the classical model explain that in the long run, the economy will be at full employment (figure 11-5)

Explain the assumptions of Keynesian economics. Does this approach focus on the AD or AS?

What changes will lead to an outward shift of the AS curve? Explain why.

Analyze table 11-2. Explain how those events will increase or decrease the AS curve. You may add more reasons. Those changes are similar to the changes in what growth covered in previous chapters?

Assuming that you are at equilibrium using the AD and short run AS curves ( the AS curve will have 3 segments = 1- horizontal (Keynesian), 2-upward sloping as we get close to full employment, 3- vertical as in LRAS curve). If the AD increases in the Keynesian segment then what happens to the price level and employment?. If the AD increases in the upward sloping AS curve, what happens to the price level and the employment level? How about if you are on the LRAS and the AD curve increases then what happens to price level and employment? Which one of those is the best move? Which would you discourage?

What is an inflationary gap? Graph and explain how this occurs and give examples of reasons why this could take place. The same for a recessionary gap.

What is meant by a stronger dollar on international markets? How is that value determined? (see Giuili video for this chapter). How will this affect the AD in the US?

Chapter 12:

According to the Keynesian model, what is the relationship between income, consumption and savings? Distinguish between APC and MPC, APS and MPS. You should be able to calculate each. Graph the consumption function (listen to the Giuili videos for this chapter). On figure 12-1 at what level of Real Disposable Income (Y) is the economy in equilibrium? At what level of Y are savings=0. At what point will the economy be dissaving? What will contribute to an upward shift of the consumption function?

What is the relationship between savings and investments? Will the economy expand or contract when investments are smaller than savings? Why?

Explain how the multiplier works. How come the increase on GDP is larger than the initial injection into the economy (like an increase in investment or government…)? If the MPC increases will the multiplier increase or decrease? Why?

How does the C+I+G+NetX curve differ from the AD curve?

Chapter 13

Define discretionary fiscal policy. What is the goal of fiscal policy? How will fiscal policy be implemented in case of a recessionary gap? How about in case of an inflationary gap?

How will a change in taxation impact the AD curve? Explain and graph.

What is crowding out?

What does the Laffer curve show? What are the reasons why tax revenue increases and beyond a certain tax rate, decrease?

Explain how Supply Side economics work?

Discuss the different lags that fiscal policy could be faced with.

What are automatic stabilizers? Give examples and show they work in case the economy is in a recession or in a situation of inflation.

In the appendix you should be able to calculate problems using the balanced budget multiplier.

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