Exam #2 Study GuideProblem-Solving ThemesECON 104-BWith Patrick Dolenc Exam #2 Study GuideThe second exam will be from 7:00 – 9:00 p.m. on Wednesday, April 3rd in Bartlett 65 and will include short answer questions and problem solving. The short answer questionswill be drawn from the list provided below. The problem-solving component will follow the themes identified below. Bring a photo ID and a calculator to the exam but do not bring your cell phone. Cell phone use during the exam will not be allowed. You will be expected to show picture identification when you hand in your exam.Don’t neglect the reading: McEachern chapters 5, 6, 7, 9, & 10.Short Answer Topics- Nominal GDP vs Real GDP (Chapter 5, March 4th Lecture)-GDP (Gross Domestic Policy): Total dollar value of the final output of goods and services produced within a nation's borders in a given time period-Nominal GDP: Value of final output produced in a given period, measured in the prices of that period (current dollars)-Real GDP: Value of final output produced in a given period, adjusted for changing prices (constant dollars)- Limitations of GDP: What isn't included in GDP (March 8th Discussion)-Illegal Drugs-Underground Economy: Black Market, Getting paid "under the table"-Household Services: Childcare, doing your own laundry-Trade/Barter: Goods made overseas are not factored into GDP-Environmental and Social Costs: Costs of overfishing-Intermediate Goods: Cost of tires is not included in GDP when purchasing a new car-Quality of goods available- Types of Unemployment (Chapter 7, March 11th Lecture)-Frictional Unemployment: The brief periods of unemployment experienced by people moving between jobs or into the labor market. This is caused because Job seekers and Employers need time to find each other.-Seasonal Unemployment: Unemployment caused by seasonal changes in the demand for certain kinds of labor (I.E: Landscapers, farmers, construction workers)-Structural Unemployment: Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of availablejobs. The skills demanded by the employer do not match those who are unemployed or those who are unemployed do not live where the jobs are. -Cyclical Unemployment: Unemployment caused by macroeconomic conditions (I.E: The business cycle: INCREASES during contractions, but DECREASES during expansions).-Unemployment Rate = Number of Unemployed / Number of people in the labor force-Labor Force: Noninstitutionalized, civilian, adult population-Unemployed: People who want a job, have no paid work at all, AND are actively looking for work-Discouraged Workers: People who have dropped out of the labor force because they can't find work (NOT counted as unemployed)- Sources of Inflation (Chapter 7, March 13th Lecture)-Inflation: An increase in the general (average) price level of goods and services,not a change in any specific price.-Demand-pull Inflation: Inflation caused by an increase of aggregate demand (Shifts the aggregate demand curve (AD) to the right, causing the price level to increase)-Cost-push Inflation: Inflation caused by a decrease of aggregate supply (Shifts the aggregate supply cure (AS) to the left, causing the price level to increase)- Redistributive Consequences of Inflation (March 13th Lecture)-Price Effect: ("What do you buy?") People who prefer goods and services that are increasing in price the fastest end up with fewer goods and services.I.E: Higher Education, Health Care-Income Effect: ("Where does your income come from?") People whose nominalincome rise more slowly than inflation end up with fewer goods and services.I.E: Drug Companies vs. Minimum Wage-Wealth Effect: ("What do you owe and/or own?") People who own of assets thatare declining in real value end up with less real wealth.I.E: Stocks, Debt, Houses (Maybe)- The Consumption Function (the function, factors that shift it)-Total Consumption = Autonomous consumption + Induced Consumption- C = a + bYD* a = Autonomous Spending* b = Marginal Property to Consume (MPC)* YD = Disposable Income-Factors that shift it:-Disposable Income-Net Wealth-Price Level-Interest Rate-Expectations (What you think about the future)- Determinants of Investment Demand-Market Interest Rates-Business Expectations- The Simple Spending Multiplier (See "Working with the Simple Spending Multiplier Below)Problem-Solving Themes- Working with national income accounting data-GDP Deflator = (Nominal GDP / Real GDP) * 100-Inflation Rate = (New GDP deflator - Old GDP Deflator) / 100- Working with the Keynesian Cross Model (March 25th Lecture)-Remember: C = YD - Working with the Simple Spending Multiplier-Multiplier = Δ Equilibrium Income / Δ Autonomous Spending-KKC = 1 / (1 -