Review Guide for the Last Exam: Introductory Macroeconomics

I. Be sure you know the meanings of INVESTMENT and SAVINGS in economics

II. Review guide for Exam 3 on line

III. Aggregate demand and aggregate supply

A. Be sure you understand why the curves are drawn as they are and what they tell us

B. Be sure you can explain why the short run AS slopes upward while the long run AS is vertical

C. Shifts in the curves and the adjustment process: short run and long run

IV. Labor Markets and Macroeconomic Policy

A. Labor force statistics: employed, unemployed, not in the labor force, etc.

B. Unemployment, by type: frictional, structural and cyclical

C. the “natural” rate of unemployment

D. the Phillips Curve

1. short run (tie in to AD-AS analysis)

2. long run (tie in to AD-AS analysis)

V. OPEN ECONOMY MACROECONOMICS (the key section)

A. The current account and the financial account (what goes where and why)

B. The balance of payments: why a current account deficit tells us we have a financial account surplus…

C. The Foreign Exchange Market

1. Currency appreciation and depreciation

2. Demand for and supply of a currency: KNOW the basic model

3. Equilibrium in the FEM and the impact of changes in demand and/or supply on the exchange

D. The REAL exchange rate and the theory of purchasing power parity

E. How changes in monetary and /or fiscal policy impact exchange rates and the trade deficit – key section

F. Fixed exchange rates