GM545 Final Exam Study Guide

The final exam will be an online open-book, open-notes, open-computer

exam with a time limit of 3-1/2 hours. It will be worth 30% of the course

grade.

Your final course grades must come from Keller (not me).

The final exam will consist of 9 essay questions (6@ 30 points each; 3 @40

points each), each having multiple parts. There are calculations to be

performed, but they are straight forward arithmetic operations for which a

calculator should not be needed. As with the quizzes, I believe that the final

exam should focus on basic economic principles and models, and I have

structured the exam in that way. Also, I have made sure to ask questions that

reinforce all of the GM545 TCOs.

A good way to prepare is to review the assigned chapters from the text, the

Key Questions that were assigned from the text, and the two quizzes.

There is quite a bit of material to cover. So, in the interest of helping you

focus your study somewhat, why don’t I tell you what is the subject matter

of each of the nine questions?

1. Demand and Supply (TCO A)

Know what the law of supply and demand is all about and be able to predict

the impact on equilibrium price and/or quantity when supply and/or demand

factors change. The interpretation of some basic graphs will be required.

2. Elasticity and Marginal Revenue (TCO B)

The label on this question suggests what you need to know. You need to be

able to calculate price elasticity of demand and/or supply and be able to

interpret it. Also, given demand, you need to be able to calculate marginal

revenue when the price level changes. Remember that MR = Change in

TR / Change in Quantity.

3. Labor Productivity (TCO C)

Be able to calculate Marginal Product (MP), Marginal Revenue Product

(MRP), Marginal Cost (MC), and determine the proper number of workers

to hire using Marginal Analysis (just like we did in our week 2 TDA

discussions).

4. Calculating Profit or Loss (TCO C)

Given a product price, as well as fixed and variable costs at different

production levels, be able to determine whether the firm earns an economic

profit, breaks even, or incurs an economic loss at the best possible

production level. Also be able to determine how much the profit or loss will

be (similar to a question you had on Quiz 1).

5. Marginal Analysis (TCO D)

A key issue covered in several TCOs involves how firms in different market

types make production decisions. Know how marginal analysis is used in

imperfect markets (monopoly, monopolistic competition, and oligopoly) to

make those choices when given info on fixed costs, variable costs, quantity

and price. That is, what should the production level be at different price

levels or different cost levels using marginal analysis?

6. GDP and Unemployment (TCO E)

Be able to calculate percentage changes in nominal and real GDP using the

formula for the GDP deflator. Also, be able to calculate the size of the labor

force and the unemployment rate using appropriate formulas.

7. Fiscal Policy (TCO G and H)

Fiscal and/or monetary policy will have an impact on aggregate expenditures

(AE) in the economy and, then, ultimately, on GDP. Know what is the role

of the multiplier in achieving GDP outcomes, and be able to calculate the

value of a simple multiplier, given appropriate data. Then, be able to use that

multiplier in forecasting the change in GDP that would be associated with a

given change in aggregate expenditure (AE). Also, know the views of

Keynesian and Monetarist schools of economic thought regarding the use of

fiscal policy.

8. Money Creation and Monetary Policy (TCO G)

Certainly, you would have expected a question on money creation through

the deposit expansion process. Know why and how an injection of excess

reserves into the banking system leads to an increase in the nation’s money

supply. The role of the monetary multiplier is key, so be sure to know what

it is and how to derive it from appropriate data. Then, be able to use that

monetary multiplier in forecasting the amount of new money that could be

created as the result of a given injection of reserves into the banking system.

Also, know what is the difference among the prime rate, discount rate and

federal funds rate in terms of what they are and what they mean to the

banking system and the economy in general.

9. International Economics (TCOs F and I)

You’ll be asked to solve a problem asking you to (1) determine the effect on

demand for a particular country’s currency based on a change in

INFLATION or INTEREST RATES in that country, (2) whether the

currency discussed above has appreciated or depreciated against a trading

partners currency, and (3) determine the effect on the price of imports and

exports based on the change in the exchange rate.

End of Study Guide for Final Exam.