Study Tips for Final Approximately 1/3 of questions from Ch Ch. 18 & supplemental readings will account for approximately 1/5 of questions. Complete Myeconlab and supplemental problems for chapter 18. Review old midterm exams and quizzes. – review related material, not just the particulars of a question.

Important Topics GDP –Real versus nominal –Deflator –Shortcomings as measure of standard of living –Expenditure and income side –Components of expenditure side

Important Topics CPI –Calculating –Interpretation –biases Real versus nominal variables –e.g. real vs. nominal wages; Calculating growth rates

Important Topics Labor force statistics –Unemployment rate, labor force participation –Interpretation & calculation The long run model of the economy. –The labor market –The production function –Interpreting effects of “shocks” on Real wages, employment, real GDP, productivity

Important Topics Labor force statistics –Unemployment rate, labor force participation –Interpretation & calculation The long run model of the economy. –The labor market –The production function –Interpreting effects of “shocks” on Real wages, employment, real GDP, productivity

Important Topics Determinants of interest rates –Investment demand (loan demand) –Savings (loan supply) –Effects of “shocks” on interest rates, savings, investment. Gross vs. net investment (depreciation) Nominal versus real interest rates

Important Topics Factors shifting LRAS Supply side economics & policies The AD/AS model –Factors shifting AD –SR & LR effect of “shocks” on economic variables (real & nominal wages, employment, prices, real & nominal GDP, unemployment) –Unemployment vs natural rate of unemployment –Determining direction of wage pressure in economy.

Important Topics Federal Reserve –Tools for controlling money supply –Money supply definitions (M1, M2, monetary base, reserves, –Using balance sheets to calculate effect of shocks or Fed actions on money supply –Effect of Fed actions on interest rates & AD Bonds –Calculating yields –Indexed vs. non-indexed –Prices & yields move in opposite directions

Important Topics Yield curve –Interpretation –Sources of changes –“inverted” yield curve Phillips curve –SR vs LR –Source of trade-off between inflation & unemployment –Source of shifts in SRPC (inflation expectations)

Important Topics Laffer Curve Effect of government deficits on economy –Crowding out –Current account deficit –Ricardo-Barro effects Structural, cyclical and actual government budget Automatic stabilizers

Important Topics Balance of Payments –Current account & capital account –Borrower or lender? –Creditor or debtor? Determinants of exchange rates –Supply & demand for $ Using exchange rates to estimate cost of a commodity in a different currency

Important Topics Purchasing power parity Big Mac currencies Valuation of Chinese currency Readings for chapter 18 Interest rate parity. Central Bank intervention to control exchange rates.