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Not really in the form of a top 10 list this time, but here are some thoughts on the things you should definitely know for the third exam.

• Employment and unemployment
• Know the types of unemployment (frictional, structural, cyclical).
• Know how to calculate labor market statistics (in class exercise).
• Understand the differences between US and European labor markets that cause differences in unemployment rates.

• Inflation
• Basic definition (page 218):  Inflation is the percentage increase in the price level (deflation is a decrease).  Though individual prices may be rising and falling, inflation refers to the average.
• Difference between price indexes (CPI, PPI, GDP deflator)
• Hyperinflation:  Extremely high inflation.  No precise definition but you know it when you see it.
• Notable hyperinflations:  Germany 1919-1923 (assisted Hitler's rise to power), Hungary 1945-1946 (highest monthly inflation on record), Zimbabwe 2001-2008 (most recent example and almost broke Hungary's record)
• Quantity theory:  MV=PY  (know what it each variable represents)
• Quantity theory is also written %change in M + %change in V = %change in P + %change in Y
• "Inflation is always and everywhere a monetary phenomenon" and "In the long run, money is neutral":  Know what is meant by these statements.
• What is the relationship between inflation and real and nominal interest rates?
• What are the costs of inflation?  Why is it hard to stop?

• Business cycle model and transmission mechanisms
• Understand the graph of the model (see pages 255-258 for examples)
• Solow growth curve is like a supply curve, it describes productive capacity.
• Aggregate demand curve is determined by spending and the money supply.
• Know the difference between Real Business Cycle theory and New Keynesian Theory
• Real business cycle theory does not have the short run aggregate supply curve; New Keynesian theory does.
• New Keynesian theory relies on sticky wages or sticky prices to generate a short run aggregate supply curve that is upward sloping.
• Review pages 255-258 closely to see how output and inflation respond to different shocks (i.e. changes in AD or shifts in the Solow growth curve).
• Intertemporal substitution, irreversible investment, and time bunching are examples of transmission mechanisms that can affect the business cycle.
  

I am out of town with a student group.  I will answer any e-mails you may have with questions about the exam when I return in the evening (around 9:30).

It is more important to be able to apply the big ideas (chapter 1) than to be able to list them.  In other words, you should be able to look at a situation and see why the incentives matter, what the trade-offs are, and what the opportunity cost of an action is.  If you can do this (and the problems at the end of each chapter are good for testing yourself), then you should do well.  There are several questions where you will need to think about the incentives--even if that is not what is asked for directly.  Don't make the questions too hard!  Remember ceteris paribus (all other things being equal) and don't bring in all kinds of other assumptions.

Pay special attention to the things that shift demand and supply.

Demand shifters:

• Income
• Population (# of buyers)
• Price of substitutes and complements (know which is which!)
• Expectations
• Tastes (preferences)

The good's own price does not affect demand.  The good's own price affects the quantity demanded.

Supply shifters:

• Technological innovation
• Taxes and subsidies
• Expectations
• Entry and exit of producers (# of producers)
• Changes in opportunity cost (see homework problem on corn and soybeans)

The good's own price does not affect supply.  The good's own price affects the quantity supplied.

Know what happens to price and quantity when supply or demand shift.  (See figure 3.8 page 43 and be able to apply it.)

econ231_1.ppt

This class has been moved to Stipes 215, a larger room to accommodate students adding the class due to an emergency schedule change for two other sections.

This is a permanent change.

Here is a link to the syllabus for Econ 231.  Keep watching this web site for important announcements, homework, extra credit, and other useful information.  Refer to the syllabus first if you have any questions.  If the syllabus doesn't answer your question, then drop me an e-mail.  Have a great semester!


syll_ec231_s10.pdf