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reviewsheet3fall2004

reviewsheet3fall2004 - ECON 102 FALL 2004 REVIEW SHEET FOR...

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E CON 102 F ALL 2004 R EVIEW S HEET FOR M ATERIAL AFTER M IDTERM 2 This is not meant to be a complete list, but is instead a guideline of many of the topics covered in the last part of the course. Professor Kelly reserves the right to ask questions about material that is not listed here, or that is found in your text but was not covered in the lectures. Please review your notes carefully, work the practice questions, and take care of yourself physically and mentally in preparation for the exam. If you need additional questions remember to check the website for help: www.ssc.wisc.edu/~ekelly/econ102 In addition, remember that the Final Exam is comprehensive and includes all the topics covered during the semester. Therefore, you should make sure you know the material in the review sheets 1 & 2. S HORT R UN K EYNESIAN M ODEL Equilibrium GDP in the Short Run Keynesian model : the level of output at which output and aggregate expenditure are equal. Graphically, the equilibrium GDP is the point at which the aggregate expenditure line crosses the 45° line. Indeed, at this point, we have Y=AE. Adjustments toward the equilibrium: If the aggregate expenditure is less than GDP, then inventories are going to increase and firms will slow their production in the future. Output will then decline. If the aggregate expenditure is greater than GDP, then inventories are going to decrease and firms are going to increase their production in the future. Output will then rise. Remark : Unplanned change in inventories = Output – Aggregate Expenditure Expenditure multiplier : any change in a. autonomous consumption spending b. investment spending c. government purchases d. net exports will shift the aggregate expenditure line (upward or downward, depending on the direction of the change in the variable). This will change the equilibrium GDP. The change in the equilibrium GDP is equal to the initial change in any of the variables in the list above, multiplied by the expenditure multiplier.

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reviewsheet3fall2004 - ECON 102 FALL 2004 REVIEW SHEET FOR...

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