Study Guide for Final Exam
Chapter 9
1.
Study all the worksheets in your courespack that pertain to chapter 9. (9A through 9E)
2.
Memorize the list of variables that cause the consumption function to shift (see the end of
9A).
3.
Distinguish between variables that cause consumption and saving to move in opposite direc
tions (that is, those variables you memorized for #2 above) and variables that cause con
sumption and saving to move in the same direction (that is, changes in disposable income,
where disposable income = GDP + transfers – taxes.)
4.
Memorize the definition of the marginal propensity to consume:
And be able to apply that definition to solve for any one of the terms, given the other two.
For example, if I tell you that Consumption rises from 10,000 to 12,000 while Disposable In
come rises from 15,000 to 18,000, you should be able to compute the mpc as
=
Or, if I tell you that the mpc = .5 and income rises by $5,000, you should be able to deter
mine the change in consumption as
Chapter 10
1.
Memorize the equation of the AE curve:
2.
Understand how changes in the equation above are represented in the graph of the AE func
tion. For example, a change in the mpc would change the slope of the AE curve; a change in
any variable inside the {brackets} will cause the AE curve to shift up or down. An increase
in M would shift the AE curve down; a decrease in NT would shift the AE curve up, etc.
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Be able to do problems like question 3 on ‘Second Chance Chapter 10 Problem Set’ on Aplia
(week 10).
4.
Memorize the formula for the spending multiplier (1/(1mpc)
5.
Understand the relationship between the AE curve and the Aggregate Demand curve (Study
10F and 10G)
6.
Be able to determine how a change in any of the parameters of the AE equation affects the
graph of the AE curve and the graph of the AD curve. (10B, 10C, 10D, 10F, and 10G).
7.
Make sure you understand the logic of the multiplier (10E).
Chapter 11
1.
Be able to relate the Production Possibility Frontier diagram to the AD/SRAS/LRAS dia
gram. That is, recognize that if the economy is producing a combination of ‘guns’ and ‘but
ter’ that’s on the boundary of the PPF, then the market value of that set of goods is equal to
potential GDP and the unemployment rate is equal to the natural rate; if the production point
is inside the PPF, then in the AD/SRAS/LRAS diagram, there is a contractionary gap, and the
unemployment rate is greater than the natural rate….
2.
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 Fall '08
 OHLER
 Microeconomics, Fiscal Policy, Monetary Policy, Fed, AE curve

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