Principles of MacroeconomicsEcon 231 Spring 2010

William J. PolleyDepartment of Economics

College of Business and TechnologyWestern Illinois University

Top 10 Things to Know for the Exam 10. GDP: Definition, how to calculate, what it

means and what it doesn’t mean, Y=C+I+G+NX (all of chapter 5)

9. Calculating growth rates (p. 73): useful in working with GDP and other statistics

8. Facts about growth: (pages 92-97) Countries vary widely Everyone used to be poor Growth miracles and growth disasters

Top 10 Things to Know for the Exam 7. Factors of production: (pages 97-99)

Physical capital (machines) Human capital (education, experience, “brains”) Technical knowledge (technology)

6. The importance of incentives and institutions for growth (pages 99-106)

5. Catching up vs. Cutting edge (Chapter 7) Growth experiences of China vs. U.S. Solow model: Investment and depreciation Diminishing returns to capital

Top 10 Things to Know for the Exam 4. Ideas are what drive growth in the long

run. (last part of chapter 7) 3. Supply and demand for loans

People want to smooth consumption. This means borrowing and lending.

Interest rate is the price of a loan. What causes shifts in supply or demand?

(pages 154-157) Bond prices and interest rates (yields) move in

opposite directions.

Top 10 Things to Know for the Exam 2. Efficient markets hypothesis

Prices of traded assets reflect all publicly available information.

Risk vs. return tradeoff 1. Material from chapters 1-4 (Exam 1) will

make up a small but important part of the exam. (about 1/3 of the points, more or less)