### First, look at the midterm study guides. All that material is fair game for the exam

• This is a comprehensive final exam
• The exam will probably be about 40% new material, and 30% from each midterm
• The grade will be about 1/3 written and 2/3 multiple choice exam

### Some materials to study

• Review Canvas Quizzes (CQ): Bold indicates you should take another look
• Note: DO NOT submit any remaining attempts these assignments, as it will convert any grade you had previously received to a zero and thus negatively impact your grade.
• CQ1: #1, 7, 11, 13
• CQ2: #8, 10, 20, 24, 27, 28, 29, 30, 31, 32, 33, 34
• CQ3: #5, 10, 11, 15, 17
• CQ4: #8, 11, 13, 14 and closely review #4, 5, 6, 7
• CQ5: #8, #9, #11, #16, #19, #22, #25, #26, #32
• CQ6: #9, #11, #12, #15, #16
• CQ7: #6, #7, #11, #15, #16
• CQ8: #4, ,#5, #8, #9, #14, #17
• CQ9: #9 and #13, but also look at #2, #4, #8, #10
• CQ10: Look over #2, #6, #7, #11-15
• CQ12: Review - #3, #4, #5, #8, #9, #12, #14, #21
• Review FlatWorld Assignments for more help

• Review Midterm take home questions (updated for spring 2022)
• Midterm 1 Numbers: 1, 5, 6, 7, 10, 17, 20, 21, 24, 27, 28, 29, 30
• Midterm 2 Numbers: 1, 2, 6, 7, 8, 9, 15, 18, 19, 20, 23, 26, 27, 28
• All short-answer questions from both midterms are fair game
• Go back through readings & terms for all chapters related to lectures

### New Material (Units 8-12)

• Get a good grasp on the big questions. The exam is not limited to this, but this hits on the major point value questions.
• Understand marginal revenue product and the demand for labor and capital
• How do changes in interest rates impact how much capital you might hire?
• How do changes in wages impact how many workers you might hire?
• Production functions and diminishing marginal product of capital & labor
• Also know how to calculate and interpret productivity functions
• Importance of technology v. additions of capital or labor
• Savings and Investment model (discussed as part of Unit 11) helps us determine “neutral interest rates” or the “natural rate of interest”
• This is also known as $r^*$, the interest rate where $Y=Y^*$
• How things like optimism, increased/decreased government spending, or increased/decreased taxes will impact interest rates
• How interest rates affect exchange rates
• Aggregate Expenditure model
• Understand mpc and the consumption function (“what is disposable income?”)
• Know how to sketch the Keynesian Cross diagram
• How do you identify output gaps? Can these persist at equilibrium?
• Know how to use $PAE = C+I^p+G+NX$ and $C=\bar{C}+mpc(Y-\bar{T})$
• We also assume that $I^p = \bar{I}, G=\bar{G}, NX = \bar{NX}$ such that the “bar” means exogenous
• Exogenous means determined outside of the model
• Find the PAE equation. Typically $PAE = [\bar{C}-mpc(\bar{T})+\bar{I}+bar{G}+\bar{NX}]+mpc(Y)$
• Use the equilibrium condition $Y=PAE$ @ $Y^e$ to solve for equilibrium
• Understand what the fiscal/spending multiplier is, and how to find it
• How could you use government policy (tax or spending) to eliminate any output gaps?
• $\Delta Y = \frac{1}{1-mpc} \Delta G$
• $\Delta Y = \frac{-mpc}{1-mpc} \Delta T$
• How would you change interest rates to put the economy in equilibrium at potential (i.e., $Y=Y^*$)
• The Economic Fluctuations model
• How to sketch out the AD line. What are the axes? Why does the line slope downward?
• What is the IA line? Why will it tend to return to the value it should be at in the long-run?
• What is the Fed’s role in pushing the economy back to this long-run inflation rate?
• How does a change in government spending or taxation impact the AD line in the short-run, and what do we expect in the long-run?
• How does the Fed’s stance on monetary policy impact the AD line in the short-run, and what do we expect in the long-run?

### Earlier Material

• Get a good grasp on the big questions. The exam is not limited to this, but these are the major point value questions.
• Opportunity cost, comparative and absolute advantage
• Cost benefit & decisionmaking
• Factors of production
• Listen to podcast related to motivation for trade
• Watch video “Planet Money Makes a T-Shirt”.
• Rate of change equation: $\%\Delta=\frac{New-Old}{Old}\times 100$
• Same as $\%\Delta=\left(\frac{New}{Old}-1\right)\times 100$
• Compound growth (a.k.a. present value or future value) equation: $PV=\frac{FV}{(1+i)^n}$
• Rule of 70 (or 72) $\frac{70}{g\text{ in percent}} = \text{Approximate time to double}$
• Inequality within & between countries over time
• Fiscal v. Monetary policy
• Labor market statistics: unemployment rate (U-3 or official): $\frac{\text{unemployed}}{\text{unemployed+employed}}$
• Labor market statistics: unemployment rate (U-6): $\frac{\text{unemployed+involuntary part time+discouraged & marginally attached}}{\text{unemployed+employed+discouraged & marginally attached}}$
• Labor market statistics: labor force participation rate: $\frac{\text{unemployed+employed}}{\text{working-age population}}$
• Labor market statistics: employment to population ratio: $\frac{\text{employed}}{\text{working-age population}}$
• Types of unemployment: frictional, structural, & cyclical
• Natural rate of unemployment
• Okun’s Law: $\frac{Y-Y^*}{Y^*}=-2(u-u^*)$
• Price level, inflation, deflation, disinflation, accelerating inflation (and how to calculate given data)
• Fisher equation: $r=i-\pi$
• Money’s functions
• Assets & wealth v. income, net income, & savings: which are stocks & flows?
• Monetary aggregates: $\text{M0}=\text{Reserves}+\text{Currency & coins in circulation}$
• Monetary aggregates: $\text{M1}=\text{Currency & coins in circulation}+\text{Deposits}+\text{Travelers Checks}$
• Monetary aggregates: $\text{M2}=\text{M1}+\text{Savings (MMDA)}+\text{MMMF}+\text{Small-denominated time deposits (CDs)}$
• What happens to M1/M2 if we change Savings (MMDA) to M1?
• Balance sheets: $\text{assets}=\text{liabilities}+\text{net worth}$
• Importance of capital requirements & reserve requirements
• Leverage ratio
• Fed & its structure (who is chair?) and the FOMC structure
• Central bank tools, targets, & goals
• Review and practice problems calculating unemployment rates, inflation rates, interest rates and GDP growth rates
• Firm structure & information issues (principal-agent, asymmetric information)
• Moral hazard & adverse selection
• Gini coefficients & Lorenz curves - can you draw and solve???
• Still to be discussed in class on Tuesday, prepare for:
• Stock pricing and returns,
• $\frac{Div_1}{i-g}$ or
• $P=\frac{\text{Future Price}+\text{Dividends}}{(1+i)}$
• $\text{Div Yield}=100\times \frac{\text{Div}}{\text{Price}}$
• Relationship between interest rates and bond/stock prices
• Rate of change equation $\frac{\text{New}-\text{Old}}{\text{Old}} \times 100 = \frac{\text{New}}{\text{Old}}-1 \times 100 = \%\Delta$
• Bond pricing and returns
• Really just a repeated application of compound growth equation from above
• For an “n” period bond
• $\frac{C_1}{(1+i)^1}+\frac{C_2}{(1+i)^2}+\ldots+\frac{C_n}{(1+i)^n}+\frac{F}{(1+i)^n}$
• Relationship between interest rates and bond/stock prices
• GDP calculation (nominal and real)
• The components of GDP, $Y=C+I+G+NX$
• Definition of net exports $NX = X-M$
• Budget deficit v. Budget surplus v. Balanced budget
• 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, $(S_\text{public}=T-G-TR)$ (similar to budget situation)
• Private savings, $(S_\text{private}=Y+TR-T-C)$
• Economic v. financial investment
• 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) SEE BELOW
• Anticipated v. Unanticipated inflation
• Calculate growth of real prices/wages
• Supply and demand, understanding diagrams manipulating curves and comparative statics
• Surplus v. shortage
• Basic understanding of price floors and ceilings
• Knowing how to solve a system of two equations (supply and demand)
$\text{Nominal wage}_\text{YR1} \times \frac{\text{CPI}_\text{YR2}}{\text{CPI}_\text{YR1}}=\text{Real wage}_\text{YR2}$
• Nominal v. Real equation and how to use it

### Equations (A Summary)

$\%\Delta=\frac{new-old}{old}\times 100$

$PV=\frac{FV}{(1+i)^n}$ with $i$ in decimal form

$\text{approx time to double}=\frac{70}{g}$

$r=i-\pi$ where $\pi$ is the rate of inflation

$Y=C+I+G+NX$

$S_{public}=T-G-TR$, $S_{private}=Y+TR-T-C$, $S_{national}= S_{public}+S_{private}$

$S_{total}=S_{public}+S_{private}+S_{foreign}$

$S_{foreign}=-NX$

$1= C/Y + I/Y + G/Y + NX/Y$

$\frac{NG}{Y^{*}}=1-\frac{G}{Y^{*}}$

$\frac{Y-Y^{*}}{Y^{*}}=-2(u-u^{*})$ with $u \text{ and } u^{*}$ in decimal form OR

$100 \times \frac{Y-Y^{*}}{Y^{*}}=-2(u-u^{*})$ with $u \text{ and } u^{*}$ in percentage form

$PAE=C+I^p+\bar{G}+\bar{NX}$

$Y=PAE \text{ @ } Y^e$

$\frac{1}{1-mpc}$

$\Delta Y = \frac{1}{1-mpc} \Delta G$

$\Delta Y = \frac{-mpc}{1-mpc} \Delta T$

$Y=AK^{0.5}L^{0.5}$

$\frac{Y}{L}=A \left(\frac{K}{L}\right)^{0.5}$

$\frac{Div_1}{i-g}$

$P=\frac{\text{Future Price}+\text{Dividends}}{(1+i)}$

$\text{Div Yield}=100\times \frac{\text{Div}}{\text{Price}}$

$\text{M0}=\text{Reserves}+\text{Currency & coins in circulation}$

$\text{M1}=\text{Currency & coins in circulation}+\text{Deposits}+\text{Travelers Checks}$

$\text{M2}=\text{M1}+\text{Savings (MMDA)}+\text{MMMF}+\text{Small-denominated time deposits (CDs)}$

$r_{\text{ffr}} = r^* + (\pi_t - \pi^T)$

$\text{assets}=\text{liabilities}+\text{net worth}$

$\text{Employment-to-Population Ratio}: \frac{\text{employed}}{\text{working-age population}}$

$\text{U-3 Unemployment}=100 \times\frac{\text{unemployed}}{\text{unemployed+employed}}$

$\text{U-6 Unemployment Rate} = 100 \times \frac{\text{unemployed+involuntary part time+discouraged & marginally attached}}{\text{unemployed+employed+discouraged & marginally attached}}$

$\text{Labor Force Participation}=100 \times\frac{\text{unemployed+employed}}{\text{population}}$

$\text{GDP Deflator}=\frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$

$\text{Nominal wage}_\text{YR1} \times \frac{\text{CPI}_\text{YR2}}{\text{CPI}_\text{YR1}}=\text{Real wage}_\text{YR2}$