Midterm 2 will be held in our regular classroom at the regular time

• Bring a pencil
• Bring a calculator
• You are not allowed outside paper

Some materials to study

• Go back through readings & terms for all chapters related to lectures 4, 5, 6, 7 and 8, as well as what was covered in lecture 9
• Review CQ4, CQ5, CQ6, CQ7, and CQ8 paying close attention to the problems you did poorly on as a group. These numbers are listed below:
  • CQ4: #1, #8, #9, #13, & #14
  • CQ5: #8, #9, #11, #16, #19, #22, #25, #26, #32
    • Please note the answer to the second part of #32 should be 40%/5 years = 8%. The correct answer is not there.
  • CQ6: #9, #11, #12, #15, #16
  • CQ7: #6, #7, #11, #15, #16
  • CQ8: #4, #9, #14, #17
• Review FW4, FW5, FW6, FW7, FW8 and FW9 for more help
• Get a good grasp on the big questions. The exam is not limited to this, but these are the major point value questions.
  • Firm structure & information issues (principal-agent, asymmetric information)
  • Moral hazard & adverse selection
  • Stock pricing and returns,
    • $\frac{Div_1}{i-g}$ or
    • $P=\frac{\text{Future Price}+\text{Dividends}}{(1+i)}$
  • $\text{Div Yield}=100\times \frac{\text{Div}}{\text{Price}}$
  • Bond pricing and returns
    • $\frac{C_1}{(1+i)^1}+\frac{C_2}{(1+i)^2}+\ldots+\frac{C_n}{(1+i)^n}+\frac{F}{(1+i)^n}$
  • Relationship between interest rates and bond/stock prices
  • GDP calculation (nominal and real)
  • Growth rates of real GDP (finding annual averages)
  • Calculating inflation with GDP deflators and CPIs, $\text{GDP Deflator}=\frac{NGDP}{RGDP}\times 100$
  • Calculating CPIs
  • Adjusting prices/wages to compare “real” values at various points in time (forwards and back) \(\text{Nominal wage}_\text{YR1} \times \frac{CPI_\text{YR2}}{CPI_\text{YR1}}=\text{Real wage}_\text{YR2}\)
  • Anticipated v. Unanticipated inflation
  • Calculate growth of real prices/wages
  • Supply and demand, manipulating curves and comparative statics
  • Surplus v. shortage
  • Basic understanding of price floors and ceilings
  • Understanding of market failure and externalities
  • Total savings, $(S_\text{total}=Y-C-G-NX)$
    • OR $(S_\text{total}=S_\text{public}+S_\text{private}+S_\text{foreign}=I)$
  • Components of savings
    • National savings, $(S_\text{national}=Y-C-G)$
    • Foreign savings, $(S_\text{foreign}=-NX)$
    • Public savings, $(S_\text{public}=T-G-TR)$
    • Private savings, $(S_\text{private}=Y+TR-T-C)$
  • The components of GDP, $Y=C+I+G+NX$
  • Economic v. financial investment
  • Trade deficit v. Trade surplus v. Balanced Trade
  • Fisher equation, $r=i-\pi$
  • Market failure - rival/non-rival, excludable/non-excludable
  • Public goods, externalities, and missing markets
  • Foreign trade, tariffs and quotas
• Watch videos listed underneath Lectures 4-8
  • Excel Spreadsheet: Present Value Worksheet: Microsoft Excel.
  • Google Doc: Present Value Worksheet: Google Doc, (Login to Google to “Save a copy” or Download to Excel)
  • Educreations: Bond Pricing and Returns. (Must be logged in as a JMU student)
  • Lensoo: NEW: Bond Pricing and Returns
  • Lensoo: ANOTHER EXAMPLE: Bond Pricing and Returns
  • Educreations: Real GDP, Nominal GDP, and Inflation (CPI).
  • Google Docs: Real GDP, Nominal GDP, Inflation (CPI), Unemployment, Indexing, and Adjustment. (Login to Google to “Save a copy” or Download to Excel)
  • Educreations: Inflation indexing.
  • Table of data from class
  • Nominal v. Real practice from class
  • The link for Canvas questions (associated slides) (link for answers)
  • Educreations: Price Floors and Ceilings (Must be logged in as a JMU student)