Study Guide for Third ExamEcon. 2133, Spring 2010

Exam Format: Exam will include 33 multiple choice questions @ 3 points each = 100 points total. Questions will be in the style of the review questions and problems in your study guide.

  • You must bring a “bubble sheet” (opscan form) and 1 or more #2 pencils for recording your answers.
  • You must also have a calculator.

Study Suggestions: Text and class notes (for all chapters). Aplia – The money market and monetary policy I and II (for Chap. 12); Aggregate demand and aggregate supply I and II (for Chap. 13); Inflation and monetary policy Iand II(for Chap. 14).

Subject Emphasis:

Chap. 12 – including appendix (12 quests.) The relationship between what two variables is shown by the money demand curve? What happens to the demand for money if the price level changes? Who/what determines the money supply? What happens if the quantity of money demanded and supplied are not equal? What would the Fed do to change interest rates? How would a change in the money supply affect interest rates, bond prices, and interest-sensitive spending? How would an open market purchase affect the interest rate, aggregate expenditures, and GDP? What determines the demand for money? How will a change in govt. spending affect GDP, aggregate expenditures, money demand, the interest rate, and planned investment spending? How would the Fed keep changes in money demand from affecting equilibrium GDP?

Chap. 13 (12 quests.) In the AD – AS model, how will a change in the price level affect money demand, interest rates, aggregate expenditures, and GDP? What causes AD to increase; to decrease? Why does the (short run) AS curve slope up/right? If GDP increases, what happens to the SRAS curve in the short run; in the long run? What are the short- and long-run effects of supply shocks; of demand shocks (graphic analysis)? What is short run equilibrium in the AD – AS model? Explain how an “overheated” economy would return to a full-employment equilibrium in the long run.

Chap. 14 (pp. 373 – 384 only) (9 quests.) What are the Fed’s two basic monetary policy goals? When the Fed states a goal to “maintain a full-employment output level,” what does this mean? What is the major macroeconomic cost of cyclical unemployment?

How would the Fed keep GDP stable if money demand changes; if AD changes? How might the Fed respond to a change in AD, and what would be the results (graphic analysis)? What will happen if the Fed increases the money supply in response to a negative supply shock? What will happen if the Fed decreases the money supply in response to a positive demand shock? Why are negative supply shocks a “dilemma” for the Fed?