ECO 2040. Principles of Economics-Macro
Exam #3 Study Guide
Key Terms*:
- Chapter 33: aggregate demand curve,
wealth effect, interest-rate effect, exchange-rate effect, changes in
consumption, changes in investment, changes in net exports, classical
dichotomy, long run
aggregate supply curve, short run aggregate supply curve, sticky wage
theory, sticky price theory, misperceptions theory, long run equilibrium,
natural rate of output, short run equilibrium,
recession, economic growth, inflation, deflation, stagflation
- Chapter 34: monetary policy,
theory of liquidity preference,
money market, money supply, money demand , fiscal policy, government
purchases, tax rates, multiplier, crowding out, automatic stabilizers
- Chapter 25: labor productivity,
shifts in long run aggregate supply, changes in capital, changes in natural
resources, changes in technology, changes in human capital
- Chapter 36: active macroeconomic
policy, rules vs discretionary monetary policy, zero inflation target,
balanced budget, tax incentives for saving
*Note: some of these are simple definitions, others are broad categories of
key terms. Consult your notes and the chapter outline links for the coverage of
each and additional key terms.
Practice Test (this is not a comprehensive
practice test ...)
Answer Key:
Page 59
#3
- Pat's opportunity costs are 2 pizzas for each gallon and .5 gallons for
each pizza. Kris' opportunity costs are 1.5 pizzas for each gallon and .66
gallons for each pizza. Pat has an absolute advantage in pizza and root
beer. Pat has a comparative advantage in pizza (Kris has a comparative
advantage in root beer).
- Pat will trade away pizza and Kris will trade away root beer.
Pages 85-86
#1
- supply falls
- demand falls
- demand rises (due to the expected future price increase), the used Caddy
gets poor gas mileage so its demand falls
#3
- tastes change (or number of buyers increases), demand increases, P and Q
both
increase
- production costs rise, supply decreases, P
increases
and Q
decreases
- technology improves, supply increases, P
decreases and Q
increases
- the price of a substitute rises, demand increases, P and Q both increase
#7
- supply decreases,
P
increases
and Q
decreases
- demand decreases (if leather jackets and sweatshirts are substitutes), P
and Q both decrease
- demand increases, P and Q both increase
- supply increases, P decreases and Q increases