econ (ratna final exam review session
TRANSCRIPT
ECON102(RATNA)FINALEXAMREVIEWSESSION
BYPHUONGVU
TABLEOFCONTENT
I. Chapter19&20II. Chapter21&22III. Chapter23,24&25.IV. Chapter26V. Chapter27,28&29.VI. Chapter27,28&29(cont.)VII. Chapter30VIII. Chapter34IX. PracticeProblems:IntroductionX. PracticeProblem1XI. PracticeProblem2XII. PracticeProblem3XIII. PracticeProblem4XIV. PracticeProblem5
Introduction:
• ThankyouforcomingtoCommerceMentorshipProgram’sReviewSessionforECON102–customizedforProfessorRatnaK.Shrestha’ssession.ThesematerialswerepreparedbyCMP’ssecond-yearAcademicConsultantPhuongVu,basedonProfessorShrestha’scurriculumandRaganMacroeconomicstextbook.
• ThisfinalexamisCUMULATIVE,coverschapters19-30and34.ThetermreviewandpracticequestionsareheretohelpyoutosolidifyyourunderstandingaboutECON102.Formatontheactualexamsmightinclude:True/False,MultipleChoiceandLongAnswersquestions(bothquantitativeandqualitative).
• Besidestoday’ssession,I’llholdofficehoursonTuesday,April25th,from1-3PMatHA194.ComefindmewithanyquestionsyouhaveandI’llbeveryhappytohelpout!
CHAPTER19&20:IntroductiontoMacroeconomicsandtheMeasurementofNationalIncome
1. OutputGap=
2. Thereistwowaystomeasurechangesinpricelevel:
RateofInflation=
GDPDeflator=
3. Unemploymentratemeasures_________________________________________________________________________.
Unemploymentrate=____________________________________
4. (*)Interestrateis____________________________________,couldbemeasuredby_____________________________________.
5. Tomeasurethecontributionofafirmtoitstotaloutput,wecanusetheconceptofValueAdded.
ValueAdded=____________________________________
6. GDPmeasures_______________________________________________________________________________________________.
GDP(Expenditure)=____________________________________PleasenotethatonlypurchasesactivitiesareincludedinGDPExpenditure,becauseGDPExpenditureisanestimationofthevalueofgoodsandservicesproducedintheeconomy.Forthatreason,____________________________________isnotincludedinGDPExpenditure.GDP(Income)=_______________________________________________
=____________________________________________________________________________________________________________________________________________________________________
CHAPTER21&22:Short-runMacroModel
1. ConsumptionFunction:ConsumptionFunctiondeterminestherelationshipbetween____________________________,______________________,______________________,______________________,______________________.
2. AggregateExpenditureformula:WithoutGovernmentandTradez=
Simplemultiplier=
AE=
WithGovernmentandTradez=
Simplemultiplier=
AE=Notes:cstandsfor_______________________.mstandsfor______________________________.tstandsfor_______________________________.
3. TheEquilibriumNationalIncomeconditionoccurredwhere________________________,andisoccurredattheintersectionof___________________________andthe____________________________.
Chapter23&24:
AggregateDemand&Supply
TheAD/ASmodelexplains________________________and_______________________throughtherelationshipofADandAS.
AggregateDemand
AggregateSupply
ExpansionaryADShock:
Example:NegativeASshock.
ContradictionaryADShock:
CHAPTER25:GDPAccounting
Given:F=_________________________________________________.
Fe=_________________________________________________.
TheGDPAccountingEquationcanbewrittenas:
GDP=_______*_______*_______
1. Short-runChangeinGDP 2. Long-runChangeinGDP-Factorutilizationrate:
-Supplyoffactors:-Factorproductivity:
CHAPTER26:Long-runEconomicGrowth
EconomicGrowth:_________________________________________increasesinthelevelof________GDP.
TheoriesofInvestment,SavingsandGrowth.
Inlong-runanalysis:RealGDP=______,and_______________________variestodetermineequilibrium.
Inthelongrun,savingequalsinvestment.(S=I).
NationalSavings=____________________________+______________________________
=____________________________+______________________________
=____________________________________________________________
-Ifnationalsavingssupplyincreases:-Ifinvestmentdemandincreases:
Econom
icGrowth LabourForce
HumanCapital
PhysicalCapitalTechnologyImprovement
Interest
rate(%
)
Qtyof.I&S
NS=Y*-C-G
I
I*=NS*
Neoclassicaltheoryofgrowth:
Neoclassicaltheoryofgrowthisbasedontheideathat4forcesofeconomicgrowthcanbeconnectedbyTheAggregateProductionfunction.
GDP=FT(L,K,H)Where:FT=_________________________________________L=________________________________________K=________________________________________H=________________________________________
Thisfunctionsuggests:
1. Diminishingmarginalreturns.
2. Constantreturnstoscale
Newergrowththeories:
1. Newknowledgeis__________________________________________________________________________________.2. Embodyingnewtechnology_______________________________________________________________________.3. Endogenoustechnologychanges__________________________________________________________________.
CHAPTER27,28&29:Money,InterestandEconomicActivity.
Expansionofmoneyfromasinglenewdeposit:
Supposethatthebankhasatargetreserveratioofv(%),whichmeansthattheywanttokeepv%fromalldepositsonthebank’sreserveandloantherest:
Dindeposit=_________________________
Inthecaseofcashdrain,ifpeoplewanttomaintainc(%)ofthecashtheydepositedintotheaccount,andthebankstillhasatargetreserveratioofv(%):
Dindeposit=_________________________
Functionsof
Money
MediumofExchange
Store ofValue
UnitofAccount
PresentValueandInterestRate:
CottontheCatisbuyingaGovernmentBond.
• FaceValue=1000• Term=1year• Couponrate=8%• Marketrate=9%
PV=________________=
Whatifthetermis2years?
PV=________________=
Mr.GrumpyisalsobuyingGovernmentBond.• FaceValue=1000• Term=1year• Couponrate=8%• Marketrate=9%
PV=________________=
Whatifthetermis2years?
PV=________________=
-Ifmarketrate>couponratethen____________________________and__________________________________.
-Ifmarketrate<couponratethen____________________________and__________________________________.
MoneyMarket:
• Expansionarymonetarypolicies:
• Contractionarymonetarypolicies:
FactorsthatinfluenceMd:
Md=Md(i-;Y+;P+)Themonetarytransmissionmechanism:1.∆Interestrate:2.∆DesiredInvestmentandConsumption:3.ChangeinAggregatedemand:
Ms
Md
InterestRate
InterestRate
QuantityofMoney
MoneyEquilibrium
CHAPTER30:Inflation&Disinflation
Overallinflationeffectsonwages:
ChangeinNominalWages=___________________________+____________________________
ActualInflation=__________________________+____________________________+__________________________
Wheninflationistoohigh,thereisDisinflation.Disinflationistheprocessof_______________________________________________.
DisinflationPhase1:Removingmonetaryvalidation.
DisinflationPhase2:Stagflation.
ThecostofDisinflationisthelossofoutputthatwasgeneratedintheprocessandismeasuredbysacrificeratio.
Sacrificeratio=________________________________
CHAPTER34:
ExchangeRatesandBalanceofPayments
TheBalanceofPayments:
ExchangeRates:
• WhenCanadiandollarsappreciate,exchangerate_____________________.Soittakes__________unitsofdomesticcurrencytopurchaseforeigncurrency.
• WhenCanadiandollarsdepreciate,exchangerate_____________________.Soittakes__________unitsofdomesticcurrencytopurchaseforeigncurrency.
TheForeign-ExchangeMarket
Shiftsintheforeign-exchangemarket:
• WhentheworldpricesofaCanadianexportincreases,itis_______________tobuyfromCanada,hence________________________________________willshifttothe____________________,andeventually,Canadiandollars_______________________.
• Whentheforeignpriceofimportsdecreases,itis_______________tobuyfromCanada,hence________________________________________willshifttothe____________________,andeventually,Canadiandollars_______________________.
CurrentAccountDeficit:_____________________________fromtherestiftheworldor________________________capitalassetstotherestoftheworld.
InChapter34,welearntthefollowingequation:
CA=(S-I)+(T-G)
Meaningthatchangesin_________________________________,_______________________________andgovernmentbudgetdeficitcouldcauseAccountDeficit.
However,currentaccountdeficitisnotundesirableatalltimes.
PRACTICEPROBLEMSNotes:
Theproblemsbelowareaimedtopreparestudentsforlonganswers/calculationquestioninECON102exam.Inthesecondhalfoftoday’ssessionwillgooversomesampleMultipleChoicequestionsonagame-basedplatformnamedKahoot!,andgooverthepracticeproblemsafterthat.
Kahootcanbeaccessedthroughhttps://kahoot.it/#/,andtheGamePINwillbeprovidedduringthesession.
1. MeasurementofNationalIncomeandPriceLevel.
Thevastmajority(99.9%)ofCountryofManyPenguin’spopulationarePenguinsStudents,sothecountryconsumes4goods:Candy,CoffeeandBagels.Detailsaboutthegoodisenclosedinthefollowingtable:
2012 2013 2014 Qty Price Qty Price Qty PriceCandy 10 1 12 2 7 2.5Coffee 7 2 19 2 15 2Bagels 19 1 21 2 17 2
Requirements:
A. Ifweuse2012asthebaseyear,what’stheCPIin2014?Howaboutweset2013asthebaseyear?ComparethetwoCPIsandinterpretthedifferenceinthetwofigures.
B. Using2013asthebaseyear,calculatethe2014GDPdeflatorandinterpretthemeaningofthiscalculation.
C. Continuetouse2013asthebaseyear,calculatetheinflationratefortheyear2014andinterpretthisanswer.Howdoesinflationrate(obtainedfromCPI)differfromGDPDeflator?
2. Expansionofmoneyfromdeposit.Recently,theBOP(BankofPenguins)havereleasedtheseinformation:
ASSETS LIABILITIESLoans $220000 Deposits $270000Reserve $50000
Requirements:A. IftheBankofPenguinshaslentoutallthemoneythatitcan,whatisitsreserve
ratio?
B. Iftheminimumreserveratiois4%,howmuchinexcessreservedoestheBankofPenguinsnowhold?Ifthebankdoesthenotholdanyexcessreserve,howwillitsassetsandliabilitieschanges?
C. Outofthe$270000deposited,nowpeoplewanttoholdontoanother$15000incash,andholdanother$20000inexcessreserve.Theminimumreserveratiois4%.Whatisthechangeindepositinthissituation?
3. Bonds&PresentValue.
LindaisconsideringbuyingabondissuedbyGovernmentofCanada.Theinformationincludes:(1) Facevalue=$3500(2) Couponrate=7%(3) Marketrate=10%(4) Term=2years
Requirements:
A. Calculatethecurrentpriceofthebond.ComparethePresentValueofthebondtoitsfacevalue.UsingwhatyoulearntfromECON102,explainwhyisthatthecase?
B. Calculatetheyieldonthisbond.Whydobondyieldandmarketinterestnormallygoonthesamedirection?
C. Lindadecidedtogoandpurchasethebondsyesterday.Thismorning,whilereadingthenews,Lindafoundoutthatcurrentmarketratejumpedto6%,andshebecameconfused.HelpLindatocalculatethecurrentpriceofasimilarbond,andexplaintoherwhetherifsheshouldbeupset.
4. Moneydemandandsupply:
Thediagrambelowshowsthedemandformoneyandthesupplyofmoney.
A. IsitpossiblefortheeconomytooperateatpointAandB?Explain.B. Describetheprocesstobringaneconomywithexcessmoneysupplybackto
equilibrium.Whatabouttheprocessforexcessmoneydemand?
5. InflationandDisinflation.PartA-ConsiderthefollowingAD/ASgraph.Recently,acontractionaryASShockoccursinCountryofManyPenguins,shiftingaggregatedemandtoAS1,
A. ExplaintheinitialeffectofthiscontractionaryASshocktotheeconomy.Illustrateyouransweronthediagramabove.
B. WhatkindofactionscantheBankofPenguinstaketomaintaintheeconomy’sDesiredOutput?Explaininwordsandillustrateitonthediagramabove.
C. 1yearaftertheASshock,PresidentofBankofPenguinsannouncedaplantoendthesustaininflation.Whatisthemeasureofthecostofthisprocessandhowisitcalculated,giventhatthePresidentofBoPwantstoreduceinflationby12%withanOutputLossof$120m,andpotentialoutputof$720m?