Exam 2 Review Sheet Spring 2020

ECON 222-B & 222-C

Chapter 19: The Macro Perspective

1. GDP: definition
2. The demand-side approach to GDP measurement: 4 components and their basic features
3. The trade balance: the sign of net exports and U.S. historical patterns
4. The treatment of imports in the demand-side approach
5. Who publishes GDP and how frequently?
6. The production-side approach to GDP measurement: 5 components and their basic features
7. The problem of double counting
8. Exclusions from GDP (5)
9. GNP versus GDP
10. Calculating GDP, GNP, NX, and NNP
11. Factors that cause changes in nominal GDP and real GDP
12. Calculating nominal GDP and real GDP given prices and quantities for multiple years
13. Calculating the GDP deflator
14. Calculating real GDP given nominal GDP and the GDP deflator
15. Calculating the growth rates of nominal GDP and real GDP (exact calculations)
16. The trick for estimating the real GDP growth rate
17. The long-term trend of real GDP
18. Recession versus depression
19. The stages of the business cycle
20. Cross-country comparisons of GDP using PPP-equivalent exchange rates
21. GDP per capita: calculation and difference between high-, middle-, and low-income nations
22. Limitations of GDP as a measure of the standard of living

Chapter 21: Unemployment

1. Definitions of employed, unemployed, labor force, and not in the labor force
2. Who publishes the unemployment rate and how frequently?
3. The unemployment rate and the labor force participation rate: calculations
4. Sources of hidden unemployment
5. Historical patterns related to the U.S. unemployment rate (5)
6. Unemployment rates by gender, age, and race: basic facts
7. Explanations for sticky wages (7) and cyclical unemployment
8. Voluntary unemployment, the NRU, frictional unemployment, and structural unemployment
9. The NRU, full employment, and potential GDP
10. U.S. unemployment insurance: basic facts

Chapter 22: Inflation

1. Hyperinflation: Zimbabwe (2008-2009) and Germany (1920s)

2. Calculating the price of a basket of goods given prices, quantities, and a base year
3. Transforming the price of a basket of goods into an index number
4. Who publishes the CPI and how frequently?
5. Substitution bias and the quality/new goods bias
6. The CPI versus the Core Inflation Index
7. Different price indices (e.g., the CPI versus the GDP deflator)

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 Exam 2 Review Sheet Spring 2020
ECON 222-B & 222-C

8. Historical experience with inflation in the U.S. and around the world
9. Public perceptions versus economists’ perceptions of inflation
10. The Land of Funny Money
11. Unintended Redistributions of Purchasing Power: sticky wages, real interest rates, fixed
pensions, retirement plans (defined benefits versus defined contribution), borrowers/lenders
12. Blurred price signals
13. Long-term planning problems
14. Types of inflation: creeping, galloping, hyperinflation
15. Deflation: meaning
16. Indexing in the private sector: COLAs, adjustable rate mortgages, long-term business contracts

Chapter 24: The AD/AS Model

1. The housing bubble and the financial crisis of 2008

2. Say’s Law versus Keynes’s Law
3. Reason for the upward sloping SRAS curve
4. Reasons for the downward sloping AD curve (3)
5. Explaining macroeconomic equilibrium
6. Differences between the supply and demand model and the AD/AS model
7. The SRAS curve versus the LRAS curve
8. Reasons for shifts of the SRAS curve (3 general reasons)
9. Stagflation: meaning
10. Reasons for shifts of the AD curve (2 general reasons)
11. Economists’ perspective on the value of tax cuts
12. Long run economic growth in the AD/AS model
13. Employment and unemployment in the AD/AS model
14. Demand-pull versus cost-push inflation
15. Wage-price inflationary spiral in the AD/AS model
16. Three zones in the AD/AS model: Keynesian, neoclassical, intermediate

Note: This review sheet is only intended as a guide. Any material discussed in class may appear on the
exam.