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
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
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
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.
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