Study Guide for Exam 2 Principles of Macroeconomics ECO 204 Section 3 Spring 2022 The exam will consist of 35 multiple choice questions covering definitions concepts and analysis using graphs and tables You will need a pencil for this exam You may use a non graphing calculator The exam is scheduled for Thursday March 24 during our regular class time in our regular classroom In order to do well on the exam you should be able to Chapter 12 1 Define what economists mean by productivity 2 Explain the relationship between productivity and its effect on the standard of living 3 Define each of the determinants of productivity a Physical capital and physical capital per worker b Human capital and human capital per worker c Natural resources and natural resources per worker d Technological Knowledge 4 Describe how a production function of the form Y AF L K H N the assumption of constant returns to scale allows us to write out a measure of productivity per worker Y L AF 1 K L H L N L 5 Discuss public policies and their effects on economic growth particularly saving and investment investment from abroad education health and nutrition property rights and political stability free trade and research and development 6 Discuss the role of diminishing returns to capital and the catch up effect Chapter 13 bonds account 1 Define what is meant by the term financial system 2 Describe financial markets and the differences between stocks and 3 Describe the role of financial intermediaries 4 Define how saving and investment factor into the national income 5 Describe how the assumption of a closed economy impacts the GDP identity and what this implies for saving and investment 6 Define national saving and how it relates to investment in a closed economy 7 Define private saving and public saving 8 Define budget surplus and budget deficit 9 Use public saving to determine whether the government runs a budget surplus or a budget deficit 10 Calculate private saving public saving national savings and net taxes given numeric values 11 Describe the market for loanable funds and explain from where the supply and demand for loanable funds are derived 12 Explain both in words and graphically how the interest rate adjusts to balance the supply and demand for loanable funds 13 Explain both in words and graphically how savings incentives investment incentives and budget surplus deficits affect the supply and or demand of loanable funds and equilibrium interest rates Chapter 14 1 Define finance 2 Define present value future value and compounding 3 Calculate the future value of a given amount of money using the prevailing interest rate prevailing interest rate 4 Calculate the present value of a future amount of money using the 5 Define risk aversion and the diminishing marginal utility of wealth and discuss how we use insurance to manage risk 6 Discuss the differences between firm specific risk and market specific risk and how diversification helps reduce risk 7 Describe the trade off between risk and return 8 Define fundamental analysis and the efficient markets hypothesis with respect to asset valuation 9 Define informational efficiency and random walk 10 Discuss market irrationality Chapter 15 participation rate numeric data 1 Define unemployment the labor force and the labor force 2 Calculate unemployment rate labor force participation rate given 3 Define the natural rate of unemployment cyclical unemployment structural unemployment and frictional unemployment 4 Show graphically and explain in words how minimum wage laws may result in structural unemployment 5 Define unions and describe their role in collective bargaining Discuss both the benefits and criticisms of unions commonly put forth by economists 6 Define efficiency wages and discuss why firms are sometimes willing to offer above market wages with particular emphasis on worker health worker turnover worker quality and worker effort Chapter 16 Time Permitting 1 Describe why the use of money makes trade easier define the double coincidence of wants and why it makes bartering difficult 2 Define the three functions of money and the importance of each role 3 Define fiat currency and commodity currency and explain the distinction between the two