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6 the financial system direct and indirect finance

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Unformatted text preview: are relatively similar (at least in topic and type of question) to the questions that you’ll see in the exam. Work on MCPQ in advance.Class concepts that should be very clear 1. Labor market variables: unemployment, labor force, participation rate. 2. Types of unemployment: cyclical unemployment, the natural rate of unemployment (NRU), structural and frictional unemployment. 3. Job search, structural shifts, efficiency wages. 4. Productivity, physical capital, human capital, technological knowledge and the difference between human capital and technological knowledge. 5. Catching- up effect (or absolute convergence), relative convergence, returns to scale, diminishing returns and inequality. 6. The financial system, direct and indirect finance, bonds and stock markets, financial intermediaries. 7. Dividends, price earnings ratio, dividend yields. 8. Savings and investment (recall that investment refers to the purchase of capital, not buying stocks/bonds), private savings, public savings and national savings. 9. Budget deficit/surplus, crowding out, the loanable funds market and what determines the supply and demands for loanable funds. 10. Money, the functions of money, M1/M2, liquidity. 11. Reserves, reserve requirements, excess reserves, fractional banking system. 12. Open market operations, discount rate, reserve requirements, federal funds rate, quantitative easing, operation twist. Topics to emphasize (this is not an exhaustive list of material, but one that emphasizes the most important topics). Chapter 15 1. You definitely want to understand the important concepts in the labor market specified above. Make sure you know that, to be considered unemployed, you need to be looking for a job. 2. Discouraged workers are not unemployed. They leave the labor force. This is one of the caveats of the unemployment rate as a measure of economic conditions. But recall that it doesn’t distinguish between full- time and part- time workers either, or whether you’re employed at a low or high- quality job. 3. Distinction between cyclical unemployment and the natural rate of unemployment. 4. Job search, sectoral shifts and taking time to find a suitable job create frictional unemployment. 5. Structural unemployment is generated by situations in which there is an excess...
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