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Study Guide for Exam Four.

Cumulative Material You Want To Know.

Module 27. Aggregate Demand.

1. Know the difference between what can cause shifts in the aggregate demand curve.

2. Know what causes movements along the aggregate demand curve.

Module 28. Aggregate Supply.

1. What factors cause the short run aggregate supply curve to shift?

2. Know what causes movements along the short run aggregate supply curve.

3. Be able to define and explain the long-run aggregate supply curve. Potential output, too.

Module 29. The AD-AS Model.

1. Make sure you know how to label and draw the short-run macroeconomic equilibrium graph.

2. Be able to show graphically the shifts in aggregate demand, short run aggregate supply and label the variables P, Y, and E (equilibrium).

3. Be able to provide examples of demand and supply shocks (positive and negative).

4. Be able to define and draw graphically/label: a recessionary gap, an inflationary gap.

New Material Since Exam Three. This is not a substitute for not reading and studying the modules or rehearsing the slides

or looking over the examples we did in class or what you handed in on the last problem set. But I do think this will help you organize your learning.

Equations in bold.

***Some of these concepts will appear as short answer/essays in addition to multiple choice and problems***

Detail will be important.

Module 30. Fiscal Policy Basics.

1. Be able to define and provide examples of fiscal policy noted in the chapter.

2. Why there may be concern about the effectiveness of fiscal policy.

3. Be able to explain in detail the nature of the lags involved with fiscal policy.

Module 31. Fiscal Policy and the Multiplier.

1. Make sure you can describe how taxes and government transfers impact the multiplier differently than the multiplier effect we saw when we increased investment spending or direct government purchases and services (Module 24).

2. Be able to define the term automatic stabilizer and also to describe in detail some examples.

Think about how these automatic stabilizers relate to the business cycle.

Module 32. Budget Deficits and Public Debt.

1. Budget Balance Equation. How expansionary and contractionary fiscal policies affect it.

2. Understand what is going on in the graphs noted in the slides and in the chapter.

3. Long-run implications of fiscal policy. Deficits versus debt. Problems posed by rising government debt.

4. Implicit liabilities. Why the concern?

Module 33. Defining and Measuring Money.

1. The roles of money.

2. Measuring the money supply. (Similar to Problem Set Four.) The categories.

Module 34. Banking and Money Creation.

1. Bank Reserves.

2. Fractional Reserve Banking System. Reserve ratio, required reserve ratio.

3. Bank regulation components.

4. Money supply and monetary base.

5. The money multiplier

6. How banks create money.

Module 35. The Federal Reserve System.

1. What makes up our system?

2. The structure of the FED.

Module 36. The Federal Reserve and Monetary Policy.

1. Four functions with detail.

2. The three-part mandate.

3. The ways the FED conducts monetary policy with detail.

Module 37. The Money Market.

1. The Money Demand Curve. Its properties. Movements versus shifts.

2. Short-term interest rates. Long-term interest rates. Characteristics.

3. The Liquidity Preference Model of the Interest Rate (equilibrium in the money market).

Module 38. Monetary Policy and the Interest Rate.

1. Expansionary and contractionary monetary policy. What it does to the money supply. What it does to our AD-AS model.

What it does to output, price levels, interest rates, GDP.

2. Yield curves. What they tell us.

3. Be familiar with the Economics in Action from text.

4. Tracking monetary policy using the output gap and inflation.

5. The Zero Lower Bound problem.

6. Advantages and disadvantages of monetary policy.

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