Macroeconomics Final Exam Study List (Chapters 12, 13, 14 and 17) Chapter 12: Aggregate Demand and

Aggregate Supply Explains short run fluctuations (business cycles) Relation between output and Unemployment When output falls, U rises When output rises, U falls Model of AS-AD Use Graph labels Macroeconomic Assessment Real GDP (output) Unemployment Price level (Inflation) AS and AD Aggregate Demand Definition Slope Sources of AD Reason for slope Wealth Effect Interest rate effect Exchange Rate effect Shifters of AD C, I, G, NX, or Ms Aggregate Supply Long run aggregate supply Vertical at natural rate of output/full employment (natural rate of U) Factors that determine long run abilities to produce Productivity and its factors (see Chapter 7) Shifters of LRAS Technology, labor, capital, human capital, natural resources LRAS shifts right as our long run capabilities improve (2-2.5% per year) Short run Aggregate supply Slopes upward Possible to produce more or less than normal Less, lay off workers and leave equipment idle More, overtime (workers and equipment), hire from the pool normally U Shifters of SRAS LRAS, energy and labor prices (inputs used by ALL firms), expected price level Analysis with AS-AD Start in long run equilibrium Illustrate an event on the economy Analyze short run effect on output, unemployment, and price level Return the economy to the long run Self-Adjustment (Classical Theory) involves shifting SRAS Policy involves shifting AD Fiscal policy (Keynesian oriented) changing G or T

Monetary Policy changing Ms Effects of an Increase in AD Effects of a Decrease in AD Effects of an Adverse shift in SRAS Stagflation Accommodation Misery Index Chapter 13: Money, Banks, and the Federal Reserve System Meaning of Money Functions of Money Liquidity Types of Money Commodity Fiat Measuring Money Currency and Demand Deposits M1 M2 Credit cards ATM cards Banks Reserves T-accounts 100% reserve banking Fractional reserve banking Reserve ratio Position of Banks for lending Excess reserves Fully Lent Short reserves Money Creation of banks through lending Money multiplier Change in money supply from new reserves Change in money supply from additional lending of excess reserves Interest rates fed funds rate Discount rate The Federal Reserve Central bank (Purpose) Organization Board of Governors (number, terms) Regional banks (number) FOMC Purpose Members Tools of Monetary Control Open Market Operations

Buying and selling U.S. govt bonds Changes fed funds rate Most frequently used Ms Fed makes an open market purchase (buys bonds) Ms Fed makes an open market sale (sells bonds) Explain how it works to change money supply and rates Discount rate Fed lends money to banks Ms Fed lowers discount rate Ms Fed raises discount rate Explain how it works to change money supply Reserve Requirements Regulation on minimum reserves Ms Fed lowers reserve requirements Ms Fed raises reserve requirements Explain how it works to change money supply How reserve requirements affect money multiplier Problems Controlling Ms Quantity Theory Velocity Quantity Equation How it explains Inflation Monetarism Chapter 14: Monetary Policy Goals Money Supply and Demand Liquidity Preference Shifts to Md or Ms Expansionary v. Contractionary Policy Targeting: Interest rates Money Supply Inflation Independence of Fed Chapter 17: Macroeconomics in an Open Economy Open Economy Balance of Payments Balance of Trade Financial Account Balance of Payments = 0 NX=NFI Saving in Open Economy = I + NFI (for US since NFI is negative I = S + NFI) Exchange Rates Nominal Exchange Rate Market for Foreign Exchange Supply and Demand

Shifters of S and D Currency Appreciation and Depreciation Real Exchange Rate Real Rate = nominal exch. Rate * (domestic P/foreign P) Comprehensive Portion: The comprehensive part of the test will have questions on the following topics/chapters: Chapter 7 on GDP Chapter 8 on Inflation and Unemployment Chapter 9 on Saving and Investment These questions are basic questions regarding main concepts and key elements from the Chapters only.