Econ 311 The Science of Macroeconomics Can assumptions that do not hold true still be useful What is the difference between an endogenous variable and an exogenous variable The Data of Macroeconomics What two things does Gross Domestic Product (GDP) measure How can it measure both of them Why does GDP measure sales of final goods rather than all goods What are the different parts of the National Income Accounts Identity What counts and does not count as part of GDP accounting What is the difference between GDP and GNP How do CPI and PCE Deflator differ from the GDP deflator How is unemployment calculated What is the difference between unemployment and labor force participation Memorize the formulas What does Robert Higgs argue about macroeconomic statistics during WWII National Income (Closed Economy) What are the characteristics of the Cobb Douglass Production Function What has constant returns to scale What has diminishing returns to scale What do the exponents on K or L represent What are the factors of production What will their prices be in a perfectly competitive market What are MPK and MPL equivalent to What is one theory that can use the Cobb Douglass Production Function to explain the early growth of the West What are some theories for the increased capital share of income How to calculate national income (Think Y C I G) What is the interest rate What role does it play in this model How do changes in G or T affect the market for loanable funds Open Economy What does it mean to have an open economy (Think international trade vs no international trade) What parts of the national income identity change as a result of international trade What represents a trade deficit, trade surplus, or balanced trade What do trade deficits mean What is the difference between small and large open economy What are the effects of fiscal policy on savings and investment What are the effects of changes in world interest rate on whether a country has a trade surplus, deficit, or balanced trade What is the difference between real and nominal exchange rates Understand this formulaically What does the exchange rate say about the relative prices of foreign goods How are net exports affected by changes in real exchange rate What is the effect of fiscal policy on real exchange rate and net exports What is the effect of protectionist policy on the real exchange rate and net exports Economic Growth What is the Solow growth model Which variables does it treat as exogenous and which as endogenous What is the steady state level of capital How does a change in the saving rate influence the steady state level of capital The steady state level of income According to the Solow model, which variable can cause sustained long run growth in income per person In other words, which variable influences the steady state rate of growth in income per person What are institutions How do they effect growth Why are institutions important Why are property rights important (related to the 3 Ps 3Is) The Monetary System What are the three functions of money Does money require state involvement to emerge What is the difference between commodity currency vs fiat currency What is the difference between 100 reserve banking and fractional reserve banking How do you calculate the effect of an initial deposit on the total money supply Understand the meaning of Monetary base (B), reserve deposit ratio (rr), and currency deposit ratio (cr), and how they make up the money supply model How does the Federal Reserve affect the B How does the Federal Reserve affect the rr Can the Federal Reserve influence cr What can influence cr Inflation What is the definition of inflation How do we measure the inflation rate What is hyperinflation What is the quantity theory of money How do we use it to predict percent change in money supply, price, and economic output What is seignorage and how is inflation a hidden tax What are Cantillon effects Is inflation a progressive or regressive tax What are some costs of inflation Business Cycles What explains the multitude of business cycle theories (Robert Lucas 1977 quote) What is Okun's Law What are leading, lagging, and coincident variables in relation to business cycles What are pro cyclical, counter cyclical, and acyclical variables What is the aggregate demand curve What is the relationship between price stickiness and short run and long run aggregate supply curves Aggregate Demand Understand the difference between IS and LM curves (what each represents) Understand the equilibration process in the Keynesian Cross How do changes in planned expenditure effect inventory accumulation and income How do you calculate the multiplier effect of government expenditure (formulaically) In the ideal circumstance, how does an increase in government expenditure affect inventories and income How do you calculate the multiplier effect of tax cuts (formulaically) How does fiscal policy effect What two variables are explained (in the X and Y axis) in the IS and LM curves How do shifts in the money supply affect the LM curve How do government purchases (G), taxes (T), the money supply (M), shift the IS LM model Mundell Fleming Model Understand the difference between Mundell Fleming and IS LM models What is the difference between floating and fixed exchange rates How do government purchases (G), taxes (T), the money supply (M), and import restrictions shift the curves in the Mundell Fleming model What is the impossible trinity in the context of the Mundell Fleming model Real Business Cycle (RBC) How flexible are prices in Real Business Cycle Theory (RBCT) model What does that entail about the relevance of the conventional short run and long run distinction in business fluctuations Does RBCT focus on aggregate supply or aggregate demand to explain fluctuations What role do technological shocks play in RBCT What is the difference between impulse and propagation mechanisms in RBCT What is an example of a real business cycle (technological shock reducing productivity) in the past half century Austrian Business Cycle Theory (ABCT) What does heterogeneity of capital imply about capital Do we need to accept heterogeneity of capital to introduce the structure of production across time In ABCT, what is the price signal that equilibrates investment across different stages of production What is the difference between sustainable and unsustainable growth When people choose to save, what signal do they send to the market What are the derived demand effect and the time discount effects When are these effects complementary, and when are they conflicting How does increasing the money supply to reduce interest rates confuse the signals to the market and pit the derived demand effect against the time discount effect How does increasing the reduction of the interest rate lead to malinvestment (investment in unprofitable capital goods) Stabilization Policy Why is there a continuing debate regarding the merits of active vs passive economic policy What is the Lucas Critique What is time inconsistency and how does it relate to discretionary policy What are some dangers of discretionary economic decision making

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Econ 311 The Science of Macroeconomics Can assumptions that do not hold true still be useful? What is the difference between an endogenous variable and

Econ 311

The Science of Macroeconomics

Can assumptions that do not hold true still be useful?
What is the difference between an endogenous variable and an exogenous variable?

The Data of Macroeconomics

What two things does Gross Domestic Product (GDP) measure? How can it measure both of them?
Why does GDP measure sales of final goods rather than all goods?
What are the different parts of the National Income Accounts Identity?
What counts and does not count as part of GDP accounting?
What is the difference between GDP and GNP?
How do CPI and PCE Deflator differ from the GDP deflator?
How is unemployment calculated? What is the difference between unemployment and labor force participation?
- Memorize the formulas
What does Robert Higgs argue about macroeconomic statistics during WWII?

National Income (Closed Economy)

What are the characteristics of the Cobb-Douglass Production Function?
- What has constant returns to scale?
- What has diminishing returns to scale?
- What do the exponents on K or L represent?
What are the factors of production? What will their prices be in a perfectly competitive market?
- What are MPK and MPL equivalent to?
What is one theory that can use the Cobb-Douglass Production Function to explain the early growth of the West?
What are some theories for the increased capital share of income?
How to calculate national income? (Think Y = C + I + G).
What is the interest rate? What role does it play in this model?
How do changes in G or T affect the market for loanable funds?

Open Economy

What does it mean to have an open economy? (Think international trade vs. no international trade).
What parts of the national income identity change as a result of international trade?
What represents a trade deficit, trade surplus, or balanced trade?
What do trade deficits mean?
What is the difference between small and large open economy?
What are the effects of fiscal policy on savings and investment?
What are the effects of changes in world interest rate on whether a country has a trade surplus, deficit, or balanced trade?
What is the difference between real and nominal exchange rates?
- Understand this formulaically.
What does the exchange rate say about the relative prices of foreign goods?
- How are net exports affected by changes in real exchange rate?
What is the effect of fiscal policy on real exchange rate and net exports?
What is the effect of protectionist policy on the real exchange rate and net exports?

Economic Growth

What is the Solow growth model?
Which variables does it treat as exogenous and which as endogenous?
What is the steady-state level of capital?
How does a change in the saving rate influence the steady-state level of capital? The steady-state level of income?
According to the Solow model, which variable can cause sustained long-run growth in income per person? In other words, which variable influences the steady-state rate of growth in income per person?
What are institutions? How do they effect growth?
- Why are institutions important?
Why are property rights important? (related to the 3 Ps 3Is).

The Monetary System
- What are the three functions of money?
- Does money require state involvement to emerge?
- What is the difference between commodity currency vs. fiat currency?
- What is the difference between 100%-reserve banking and fractional reserve banking?
- How do you calculate the effect of an initial deposit on the total money supply?
- Understand the meaning of Monetary base (B), reserve-deposit ratio (rr), and currency-deposit ratio (cr), and how they make up the money supply model.
- How does the Federal Reserve affect the B?
- How does the Federal Reserve affect the rr?
- Can the Federal Reserve influence cr? What can influence cr?
Inflation
- What is the definition of inflation
- How do we measure the inflation rate?
- What is hyperinflation?
- What is the quantity theory of money? How do we use it to predict percent change in money supply, price, and economic output?
- What is seignorage and how is inflation a hidden tax?
- What are Cantillon effects? Is inflation a progressive or regressive tax?
- What are some costs of inflation?
Business Cycles
- What explains the multitude of business cycle theories (Robert Lucas 1977 quote)?
- What is Okun's Law?
- What are leading, lagging, and coincident variables in relation to business cycles?
- What are pro-cyclical, counter-cyclical, and acyclical variables?
- What is the aggregate demand curve?
- What is the relationship between price stickiness and short-run and long-run aggregate supply curves?
Aggregate Demand
- Understand the difference between IS and LM curves (what each represents).
- Understand the equilibration process in the Keynesian Cross. How do changes in planned expenditure effect inventory accumulation and income?
- How do you calculate the multiplier effect of government expenditure (formulaically)? In the ideal circumstance, how does an increase in government expenditure affect inventories and income?
- How do you calculate the multiplier effect of tax cuts (formulaically)?
- How does fiscal policy effect
- What two variables are explained (in the X and Y axis) in the IS and LM curves?
- How do shifts in the money supply affect the LM curve?
- How do government purchases (G), taxes (T), the money supply (M), shift the IS-LM model?
Mundell-Fleming Model
- Understand the difference between Mundell-Fleming and IS-LM models.
- What is the difference between floating and fixed exchange rates?
- How do government purchases (G), taxes (T), the money supply (M), and import restrictions shift the curves in the Mundell-Fleming model?
- What is the impossible trinity in the context of the Mundell-Fleming model?
Real Business Cycle (RBC)
- How flexible are prices in Real Business Cycle Theory (RBCT) model? What does that entail about the relevance of the conventional short-run and long-run distinction in business fluctuations?
- Does RBCT focus on aggregate supply or aggregate demand to explain fluctuations?
- What role do technological shocks play in RBCT?
- What is the difference between impulse and propagation mechanisms in RBCT?
- What is an example of a real business cycle (technological shock reducing productivity) in the past half-century?
Austrian Business Cycle Theory (ABCT)
- What does heterogeneity of capital imply about capital?
- Do we need to accept heterogeneity of capital to introduce the structure of production across time?
- In ABCT, what is the price signal that equilibrates investment across different stages of production?
- What is the difference between sustainable and unsustainable growth?
- When people choose to save, what signal do they send to the market?
- What are the derived demand effect and the time-discount effects? When are these effects complementary, and when are they conflicting?
- How does increasing the money supply to reduce interest rates confuse the signals to the market and pit the derived demand effect against the time-discount effect?
- How does increasing the reduction of the interest rate lead to malinvestment (investment in unprofitable capital goods)?
Stabilization Policy
- Why is there a continuing debate regarding the merits of active vs. passive economic policy?
- What is the Lucas Critique?
- What is time inconsistency and how does it relate to discretionary policy?
- What are some dangers of discretionary economic decision-making?