EconUSA Telecourse

Study Guide - Exam 1

 

This first exam is along exam, approximately 80 multiple choice questions plus a few short answer essay questions. The multiple choice questions are taken entirely from the text-book. The short answer essay questions are taken from the articles in the reading packet. The multiple choice questions are pretty evenly divided over all 5 chapters covered.

CHAPTER 1

For multiple choice questions, know the following definitions & the concepts:

• The definition of economics, including the concepts of resources, scarcity, and choice.
• The factors of production: land, labor and capital
• The concept of opportunity cost and applications
• Model building in economics
• The Production Possibility Curve - what it represents and how to interpret it
• Negative and positive slopes of graphs
• Direct and inverse relationships
• The shifting of a line versus the movement or sliding of a point along a line

CHAPTER 2

For multiple choice questions, know the following definitions & the concepts :

• The law of demand and the law of supply
• The difference between demand and quantity demanded
• The factors that influence demand
• How the market demand curve is drawn and what it represents
• The difference between supply and quantity supplied
• The factors that influence supply
• How the market supply curve is drawn and what it represents
• The meaning of the equilibrium price
• How the price system determines the four basic functions: what is produced, how it is produced, for whom it is produced and how the economy grows
• Limitations to the price system: public goods, externalities (external diseconomies); inequitable distribution of income
• What causes demand and supply curves to shift
• The effects of demand and supply curves shifting

CHAPTER 3

For multiple choice questions, know the following definitions & the concepts :

• What the GDP is, what it measures and its importance
• Final goods and services, intermediate goods, value added
• What the GDP excludes
• Problems or limitations of the GDP (both text and articles)
• Price indexing and how it is used
• Two ways of calculating GDP: expenditures approach and income approach
• Read the articles carefully, including how the GDP was developed

CHAPTER 4

For multiple choice questions, know the following definitions & the concepts :

• The phases of the business cycle (the 4 phases of business fluctuations)
• Recession, depression, glut (they're all the same thing)
• What the aggregate demand and aggregate demand curves represent
• The types of unemployment and the costs that they impose on society
• The classical view of unemployment; the definition of full employment
• Marx's view of unemployment
• Keynes' view of unemployment

   

CHAPTER 5

• For multiple choice questions, know the following definitions & the concepts :
• The nature of the consumption function; the relationship between disposable income and consumption spending; how is it graphically represented?
• What is the "marginal propensity to consume" (MPC)? How is it calculated? How is it represented graphically? What is the slope of the consumption function?
• What is the "average propensity to consume" (APC)? How is it different from the MPC?
• What is the "marginal propensity to save" (MPS)? What is the relationship between the MPC and the MPS?
• What factors determine the level of gross investment? What is the price of (borrowing) money?
• What is "equilibrium GDP"? How is equilibrium GDP represented on a graph?
• Why does equilibrium GDP equal spending? Why does equilibrium GDP equal income? Why does spending equal disposable income?
• What is disposable income?
• How is the income-expenditure graph related to the aggregate demand-aggregate supply graph?
• How does GDP change? Why is investment "volatile"?
• What is the "multiplier"? How is it calculated? What does it represent?
• Why does an economy's GDP fall more rapidly than its Investment? (See Case Study 2.2 p.127) Why does an economy's GDP grow more rapidly than its level of spending?
• What other factors influence consumption spending? What are the causes and effects of shifts in the consumption function?
• What causes the graph of the consumption function to shift?
• What are Keynes' criticisms of the classical view? According to Keynes are prices and wages flexible enough to full adjust? Why or Why not? According to Keynes how can their be unemployment even though the economy is at equilibrium?