The Checklist for Exam 1 

• Know the Statistics on http://people.virginia.edu/~lc7p/econ202home.htm
• Review Weblog
• Ch. 1, 2, 3, 7 and 8 of text
• 4 Factors that Influence Supply
  • Price (this affects Quantity Supplied not the Supply Curve itself)
  • Regulations
  • Resource Price
  • Technology
• Law of Supply and Law of Demand
• Review what can cause a shift in Supply or Demand
• Know why the market tends toward equilibrium
• Shortage
• Surplus
• GDP-know the official definition and what it means
  • It measures 3 Key Conditions: living standards, economic growth and business cycles
  • Final goods vs. Intermediate Goods
  • Goods that do not count toward GDP
    • Intermediate Goods
    • Second-hand goods
    • Financial transactions
  • Domestic production is counted only.
• PPF
  • Note: slope indicates opportunity cost
  • Shifts of the frontier
    • Can be brought about by changes in the resources, technology or institutions
•  Exchange Rate – the price of one’s currency is in terms of other country’s currency
• Dollar Depreciation
• Dollar Appreciation
• Growth Rate of X = (Change in X) / (Starting X)
• Deflating GDP
  • 1) Choose Reference Year
  • 2) Filter out Prices from Data
    • Divide by P
  • 3) Put in Reference Year Prices
    • Multiply by “new P”
• Real GDP vs. Nominal GDP
• Price Level
• Recession
• Expansion
• Contraction
• The Theoretical Business Cycle
  • Cycle, Peak, Trough
• Over the past 50 years what was the growth rate of the real GDP?
• Y = C + I + G + X
• Unemployment rate u = (#unemployed / #labor force) * 100
  • Labor force
    • Non-institutionalized
    • Civilian
    • Aged 16+
  • Not in labor force
    • Students
    • Homemakers
    • Retirees
    • others
  •  Employed
  • Unemployment
• Three types of unemployment
  • Structural
  • Frictional
  • Cyclical
• Unnatural vs. Natural Unemployment
  • Natural Rate of Unemployment
  • Full Employment Rate
• How good an indicator is the unemployment rate:
  • Pluses
    • Reported early and frequently
    • Accurate indicator of conditions
  • Minuses
    • Does not count “discouraged workers” and “underemployment”
    • Includes some “underground workers”
• Inflation
• General Price Level
• i = 100 * (Change in Price) / Original Price
• 2 Price Indexes:
  • GDP Deflator
  • Consumer Price Index
• Know how to compute Real GDP from Nominal GDP
• Inflation is always and everywhere a monetary phenomenon
• Signal Extraction Problems
  • Is an increase in price caused by D or inflation?
• Money Illusion
  • Real Wage vs. Nominal Wage
• What is the price of loanable funds?
• Consumption now is preferred to later and more is preferred to less
• Consumption Smoothing
• Businesses borrow if and only if expected returns on investment > cost of loans
• The Supply and Demand Graph of loanable funds