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ECON 232/300
Review Topics |
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Chapter 14 Money and Banking
1. List and
explain the three functions of money.
2. Define the
monetary base MB.
3. Define the
money supply: M1, M2, M3, and MZM.
4. State three reasons
why currency and checkable deposits are money and why they have value.
5. Explain the
relationship between the purchasing power of money and the amount of money in
circulation.
6. Describe the
structure of the U.S. banking system.
7. Explain why
Federal Reserve Banks are central, quasi‑public,
and bankers’ banks.
8. Describe seven
functions of the Federal Reserve System and point out which role is the most
important.
9. Summarize and
evaluate the arguments for and against the Federal Reserve System remaining an
independent institution.
10. Describe the
conditions that have caused the loss of market share of banks and thrifts to
pension funds, insurance companies, mutual funds, and securities-related
firms.
11. Identify three
major changes continuing to occur in the financial services industry.
12. Describe and
explain the significance of electronic payments.
13. Define and
identify terms and concepts listed at the end of the chapter. Chapter 15 Money Creation
1. Recount the
story of how fractional reserves began with goldsmiths.
2. Explain the
effects of a currency deposit in a checking account on the composition and
size of the money supply.
3. Explain the
effects of a bank loan on the composition and size of the money supply.
4. Understand and
interpret the regression theorem explaining how fiat money evolved from
commodity monies.
5. Explain how the
emergence of money in a barter economy is an example of spontaneous order.
6. Compute a
bank’s required and excess reserves when you are given its balance‑sheet figures.
7. Explain why a
commercial bank is required to maintain a reserve and why it isn’t sufficient
to cover deposits.
8. Describe what
happens to the money supply when a commercial bank makes a loan or buys
securities.
9. Describe what
happens to the money supply when a loan is repaid or a bank sells its
securities.
10. Explain what
happens to a commercial bank’s reserves and checkable deposits after it has
made a loan.
11. Describe how a
check drawn on one commercial bank and deposited in another will affect the
reserves and excess reserves in each bank after the check clears.
12. Describe what
would happen to a single bank’s reserves if it made loans that exceeded its
excess reserves.
13. Explain how it
is possible for the banking system to create an amount of money that is a
multiple of its excess reserves when no single bank ever creates money
greater than its excess reserves.
14. Compute the
size of the money multiplier and the money‑creating
potential of the banking system when provided with appropriate data.
15. Explain that
the money multiplier process can also lead to multiple destruction of money.
16. Distinguish
among and interpret the simple money multiplier (deposit expansion
multiplier) and the M1, M2, M3, and MZM multipliers.
17. Define and
identify the terms and concepts at the end of the chapter (Test 1: 30 multiple
choice + 2 extra credit) Chapter 16 Interest Rates & Monetary Policy
1. Identify the
goals of monetary policy.
2. Identify the
two types of demand for money and the main determinant of each.
3. Describe the
relationship between GDP and the interest rate and each type of money demand.
4. Explain what is
meant by equilibrium in the money market and the equilibrium rate of
interest.
5. Explain the
relationship between bond prices and the money market
6. List the
principal assets and liabilities of the Federal Reserve Banks.
7. Explain how
each of the three tools of monetary policy may be used by the Fed to expand
and to contract the money supply.
8. Explain the
relative importance of the monetary policy tools, and why the U.S. is unique
in how it can conduct monetary policy.
9. Describe how
the Fed targets the Federal funds rate as part of its monetary policy
actions.
10. Describe
expansionary and restrictive monetary policies, and explain why and how they
are used.
11. Explain the
Taylor rule and describe how it relates to current Fed policy.
12. Explain the cause‑effect chain between monetary policy and
changes in equilibrium GDP.
13. Demonstrate
graphically the money market and how a change in the money supply will affect
the interest rate.
14. Show the
effects of interest rate changes on investment spending.
15. Describe the
impact of changes in investment on aggregate demand and equilibrium GDP.
16. Contrast the
effects of an expansionary monetary policy with the effects of a restrictive
monetary policy.
17. List two
strengths and three shortcomings of monetary policy.
18. Describe the
arguments for and against “inflation targeting” versus a more discretionary
“artful management” approach to monetary policy.
19. Summarize the
connections between AD-AS, the price level, real output, and stabilization
(fiscal and monetary) policy.
20. Define and
identify terms and concepts at the end of the chapter. Chapter 7
National Income Accounting
1. State the
purposes of national income accounting.
2. List the
components of GDP in the output (expenditures) approach and in the income approach.
3. Compute GDP
using either the expenditure or income approach when given national income
data.
4. Differentiate
between gross and net investment.
5. Explain why
changes in inventories are investments.
6. Discuss the
relationship between net investment and economic growth.
7. Compute NDP,
NI, PI, and DI when given relevant data.
8. Describe the
system represented by the circular flow in this chapter when given a copy of
the diagram.
9. Calculate a GDP
price index using simple hypothetical data.
10. Find real GDP
by adjusting nominal GDP with use of a price index.
11. List seven
shortcomings of GDP as an index of social welfare.
12. Explain what is
meant by the underground economy and state its approximate size in the U.S.
and how that compares to other nations.
13. Define and
identify terms and concepts listed at the end of the chapter. (Test 2: 30
multiple choice + 2 extra credit) Chapter 8 Introduction to Economic Growth and
Instability
1. Define two
measures of economic growth.
2. Explain why
growth is a desirable goal.
3. Identify two
main sources of growth.
4. Explain and
apply the “rule of 70.”
5. Give average
long-term growth rates for U.S. and qualifications of raw data.
6. Explain what is
meant by a business cycle.
7. Describe the
four phases of an idealized business cycle.
8. Identify two types
of non-cyclical fluctuations in business activity.
9. Describe how
innovation and/or random events might cause business cycles.
10. Explain why
business cycles affect capital and consumer durable goods industries more
than non-durable goods and service industries.
11. Describe how
the Bureau of Labor Statistics (BLS) measures unemployment.
12. Evaluate
strengths and limitations of BLS unemployment statistics.
13. State causes of
frictional, cyclical, and structural unemployment.
14. Identify the
full employment or natural rate of unemployment.
15. Identify the
economic costs of unemployment and the groups that bear unusually heavy
unemployment burdens.
16. Define
inflation and list two types of inflation.
17. List three
groups who are hurt and two groups who may benefit from unanticipated
inflation.
18. Present three
possible effects of inflation on output and employment.
19. Compare U.S.
inflation and unemployment rates to one or more industrialized nations.
20. Define and
identify terms and concepts at the end of the chapter. Chapter 10 Basic Macroeconomic Relationships
1. Describe the
income-consumption and income-saving relationships.
2. Recognize,
construct, and explain the consumption and saving schedules.
3. Identify the
determinants of the location of the consumption and saving schedules.
4. Calculate and
differentiate between the average and marginal propensities to consume (and
save).
5. Draw and
interpret the geometric representation of a consumption function and the
corresponding saving function.
6. Explain and interpret
the relationships between the algebraic representation of a consumption
function and the corresponding saving function.
7. Given the
algebraic representation of a consumption or saving
function, write the algebraic representation of the other.
8. Given the
consumption or saving schedule in tabular form, graph the consumption and
saving function (the geometric representation) and write the algebraic
representations.
9. Describe the
relationship between the interest rate, expected rate of return, and investment.
10. Identify the
determinants of investment and construct an investment demand curve.
11. Draw and
interpret an investment demand curve.
12. Identify the
factors that may cause a shift in the investment demand curve.
13. Describe the
reasons for the instability in investment spending.
14. Provide an
intuitive explanation of the multiplier effect.
15. Calculate the
multiplier and changes in real GDP given information about changes in
spending and the marginal propensities.
16. Given any one
of the following: the MPC, the MPS, and the multipler,
calculate and interpret the remaining two.
17. Given any two
of the following: the multiplier, the change in aggregate expenditures, and
the change in equilibrium GDP, calculate and interpret the remaining one.
18. Discuss why the
actual multiplier may differ from the theoretical examples.
19. Define and
identify terms and concepts at the end of the chapter. (Test 3: 30
multiple choice + 2 extra credit) Chapter 11 The Aggregate Expenditures Model
1. Identify the
simplifying assumptions of the Aggregate Expenditures (AE) model.
2. Explain the
relationship between the investment demand curve and the investment schedule.
3. Use the
consumption and investment schedules to determine the equilibrium level of
GDP.
4. Explain
verbally and graphically the equilibrium level of GDP.
5. Explain why
above-equilibrium or below-equilibrium GDP levels will not persist.
6. Explain the
basics of the classical view that the economy would generally provide full
employment levels of output.
7. Trace the changes
in GDP that will occur when there is a discrepancy between saving and planned
investment.
8. Use the
multiplier to find changes in GDP resulting from changes in spending.
9. Define the net
export schedule.
10. Explain the
impact of positive (or negative) net exports on aggregate expenditures and
the equilibrium level of real GDP.
11. Explain the
effect of increases (or decreases) in exports on real GDP.
12. Explain the
effect of increases (or decreases) in imports on real GDP.
13. Describe how
government purchases affect equilibrium GDP.
14. Describe how
personal taxes affect equilibrium GDP.
15. Explain why an
equal amount of government purchases and taxes will have a differential
impact on GDP.
16. Identify a
recessionary expenditure gap and explain how it relates to the U.S. recession
of 2001, and perhaps also to the recession of 2008.
17. Explain how the
U.S. managed full-employment output in 2005 while experiencing large negative
net exports.
18. Identify an
inflationary gap and explain how it relates to the inflationary experience of
the late 1970s.
19. List five
limitations of the aggregate expenditures model.
20. Explain how the
aggregate expenditures model emerged as a critique of classical economics and
in response to the Great Depression.
21. Define and
identify terms and concepts listed at the end of the chapter. Chapter 12 Aggregate Demand and Aggregate Supply
1. Define
aggregate demand and aggregate supply.
2. Give three
reasons why the aggregate demand curve slopes downward.
3. Explain how the
international trade effect and interest rate effect can be considered
substitution effects, even though there is no substitute for GDP.
4. State the
determinants of the aggregate demand curve’s location, and explain how the
curve will shift when one of these determinants changes.
5. Distinguish
between an initial shift in aggregate demand and the full shift after
multiplier effects have been incorporated.
6. Explain the
shape of the long-run aggregate supply curve.
7. Explain the
shape of the short-run aggregate supply curve.
8. Indicate the determinants
of the aggregate supply curve’s location, and explain how the curve will
shift when one of those determinants changes.
9. Find an
economy’s equilibrium price level and real domestic output using AD-AS.
10. Explain how the
multiplier effect is weakened when there is demand-pull inflation.
11. Demonstrate and
explain how a decrease in aggregate demand can cause a recession without a
drop in the price level.
12. Demonstrate and
explain the effects of shifts in aggregates supply on the equilibrium price
level and real domestic output of an economy.
13. Explain how an
economy can maintain full employment and stable prices under conditions of
rising aggregate demand.
14. Explain how the
impact of oil price fluctuations has changed for the U.S. economy over the
past two decades.
15. Define and
identify terms and concepts at the end of the chapter and in the appendix. (Test 4: 30
multiple choice + 2 extra credit) Chapter 13 Fiscal Policy, Deficits, and Debt
1. Define and
explain the role of the CEA.
2. Distinguish
between discretionary and nondiscretionary fiscal policy.
3. Differentiate
between expansionary and contractionary fiscal
policy.
4. Recognize the
conditions for recommending an expansionary or contractionary
fiscal policy.
5. Explain
expansionary fiscal policy and its effects on the economy and Federal budget.
6. Explain contractionary fiscal policy and its effects on the
economy and Federal budget.
7. Give two
examples of how built‑in stabilizers help
eliminate (or just minimize) recession or inflation.
8. Explain the
differential impacts of progressive, proportional, and regressive taxes in
terms of stabilization policy.
9. Explain the
significance of the “standardized budget” concept.
10. Describe recent
U.S. fiscal policy actions and the motivation behind them.
11. List three
timing problems encountered with fiscal policy.
12. State political
problems that limit effective fiscal policy.
13. Identify
actions by households, and by state and local governments that can frustrate
fiscal policy.
14. Differentiate
between government deficits and the public debt.
15. State the
relative size of the debt as a percentage of U.S. GDP and describe how that
has changed in recent years.
16. Describe the
annual interest charges on the debt, who holds the
debt, and the impact of inflation on the debt.
17. Explain why the
debt can also be considered public credit.
18. Identify and
discuss two widely held myths about the public debt.
19. Explain the
real or potential effect of the debt on income distribution, economic
incentives, fiscal policy, and private investment
20. Explain and
recognize graphically how crowding out is a concern caused by a large public
debt.
21. Explain the
purpose and structure of the Leading Economic Indicators.
22. Define and
identify terms and concepts at the end of the chapter. (Test 5: 30 multiple choice + 5 extra credit
& Final Exam 60 multiple choice + 10 extra credit) |