Econ Review Things to not study Ch 3 review of micro Historic things o Do study 4 trends of unemployment from ch 6 Ch 4 value added Ch 5 slides 27 34 Ch 6 slides 35 39 Ch 7 slides 32 36 Ch 8 thrifts and spends Ch 12 great depression fed control over stock market Ch 15 fixed exchange rates 8 questions from chapter 15 4 or 5 from each chapter about 60 questions All multiple choice 25 problem questions Things to study Ch 15 Exchange Rates International Trade and Capital Flows Nominal exchange rate o Rate that 2 currencies are exchanged for each other Determinants of supply and demand of dollars on foreign exchange market o Supply determinants Preference of foreign goods U S GDP Interest rate o Demand determinants Preference of US goods Real GDP in foreign country Real exchange rate Interest rate o Price of the average good compared to a foreign good Law of one price o P e P f Capital flows Inflation depreciation of exchange rate o Trade balance and net capital inflows NX KI 0 Ch 4 Spending Income and GDP GDP o Market value of final goods and services in a country o Higher GDP correlates to lower mortality rates better overall economy Expenditure method measures GDP o Y C I G NX Ch 5 Inflation and Price Level CPI Current year cost base year cost Basic tool for measuring inflation o How to move from real to nominal Nominal CPI o Base year prices o 2 biases Quality bias Substitution bias Ch 6 Wages and Unemployment 4 trends of unemployment o Industrial countries have had more real wage growth in 20th century o Rate of real wage growth has slowed since 70 s o Increasing wage difference between skilled unskilled workers o Increasing employment in US in recent decades Demand of labor o What causes a shift Supply of labor o What makes them shift Costs of unemployment o Economic Any factor effecting the value of marginal product Change in number of workers willing to work at each wage Nation is not maximizing its output if unemployment is high Depression loss of self esteem suicidal behavior stress etc o Psychological o Social Increase in crime drug use violence more police officers must be hired Types of unemployment o Frictional unemployment Short term unemployment due to matchmaking between workers and companies o Structural unemployment Long term unemployment because the worker does not have the necessary skills o Cyclical unemployment Unemployment due to business cycles people laid off during recessions Average labor productivity output per employed worker Ch 7 Economic Growth Real GDP per person o Y POP o Y N o N POP Share of population employed Real GDP per person o Y POP Y N N POP Y output N number of people employed POP total population 6 determinants of labor productivity o Human capital o Physical capital Skills work ethic training etc an employee possesses Physical assets such as machinery and buildings o Land other natural resources o Technology o Entrepreneurship and management o Political and legal environment Costs of economic growth consumer goods o High investment of capital goods takes away from investment in Each economy must find right balance between growing the economy producing capital goods and consumption producing consumer goods o Cost Benefit principle is used to determine if growing the economy is worth it in the present and the future Ch 8 Saving Capital formation and financial markets National savings o Y C G o Sum of private and public saving Private saving individual firms and people Public saving government of the people Y T C T G Larry and the lawn mower sect 8 4 Ch 9 Money Prices and the Financial System Growth rate formula M1 o Money that is ready to be spent checking accounts dollars o M1 o Money that cannot be taken out savings accounts CD s M2 MS formula o Currency held by public bank deposits Bank deposits Bank reserves Reserve deposit ratio Velocity o V P x Y M P CPI Y GDP M Money stock M1 M2 Ch 10 Short Term Economic Fluctuations Okuns Law o For each percentage point increase of cyclical employment potential output decreases 2 Output gap 2 U U U U is cyclical unemployment C mpc Y T