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ECON 2105 EXAM #2 STUDY GUIDE
The test will be over these chapters: 6, 7, 9, 10, 11, 13, and 14
Random opening comments:
Arguments against trade – really straight forward – know ‘em.
Integrates stuff together – might look new, but really isn’t. Watch out for tricky wording.
Don’t overthink the problem or freak out. Write shit out as you read it—makes the
question a lot easier to understand (e.g. HW #12).
Savings and investments
GDP calculations are really straight forward – he made the math easy – you won’t need a
calculator for this part.
Bring a calculator anyway for the present value, future value, and console bond crap.
That’s math that takes more than ten fingers and toes.
There will be questions about side stuff we talked about in class.
Ex: If GDP for a nation rises, does that mean expenditures rise or income rises?
Answer: Both rise.
Fisher equation:
Nominal Interest Rate (N) = Real IR (R) + Expected Inflation (Π) + Default Premium (P)
Indexed government bond (“indexed” meaning it adjusts for inflation)
Observed interest rate is the nominal interest rate
Part of the Nominal IR is the Real IR
For Indexed Government Bonds: Nominal IR is always equal to Real IR
Ex: If N = 5%, then Real = 5%
Nonindexed Government Bond: N = R + Π + 0 (“0” meaning no risk for default)
Ex: If N = 7%, then Real IR = 5% and Π = 2%
Corporate Bond: N = R + Π + P
If N = 15%, Real IR = 5%, and Π = 2%, then DP = 8%
Just do the algebra for that crap.
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 Spring '08
 Rudbeck
 Macroeconomics

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