Econ 2630                           Study Guides: Ch 19 thru 22                         Dr. Usip
Study Guide for Ch. 19

 1.    Explain why the classical model seemed to be discredited in the 1930s.

 2.    List two reasons why the classical model remains useful today.

 3.    State the classical model’s critical assumption, and use it to explain the classical result that the economy achieves full employment on its own, without government action.

 4.    Use the aggregate production function and the labor market to show how the economy’s potential output is determined.

 5.    State Say’s law, and explain why it is crucial to the classical view of the economy.

 6.    Describe the market for loanable funds and explain its role in the macroeconomy.

 7.    Describe the effects of government budget deficits and surpluses on the loanable funds market.

 8.    Demonstrate that Say’s law holds, even in an economy in which households save and pay taxes.

 9.    Use the classical model to explain why fiscal policy is both ineffective and unnecessary.

10.    Show how increases in government purchases result in complete crowding out of private-sector spending.


Study Guide for Ch 20

 1.    Explain why economic growth is an important determinant of a nation’s standard of living.

 2.    List the factors that determine our potential GDP in any given period.

  3.    Explain why growth in real GDP does not guarantee a rising standard of living

 4.    Explain how changes in labor supply and labor demand lead to increases in total employment.

 5.    List the types of government policies that can increase employment.

  6.    Explain why population growth, growth in average hours, and increases in the labor force participation rate cannot explain growth in living standards over the long run.

 7.    Describe how changes in the capital stock affect living standards.

 8.    Explain how government policies can affect the amount of investment that occurs in an economy, and show how changes in investment lead to changes in the capital stock.

 9.    Explain why some methods of deficit reduction are preferable to others, in terms of economic growth.

10.    Describe the link between growth in human capital and growth in living standards.

   11.   Describe the government policies that affect human capital growth.

12.    Explain the link between technological change and economic growth.

13.    Describe how government policies affect the rate of technological change.

14.    Describe the costs of economic growth.

15.    State the reasons why some countries have very low growth rates and discuss the alternative methods they can employ to break their circle of poverty.


Study Guide for Ch. 21

 1.    Explain the difference between expansions and recessions.

 2.    Explain why shifts in the labor demand curve are a poor explanation for expansions and recessions.

 3.    Explain why shifts in the labor supply curve are a poor explanation for expansions and recessions.

 4.    Summarize why the classical model, with its market-clearing assumption, fails to explain booms and recessions.

 5.    Explain how spending shocks can cause booms and recessions.

Study Guide for Ch 22

 1.    Explain the usefulness of the short-run macro model.

 2.    List the four components of aggregate expenditure included in the simple macro model of this chapter.

 3.    List the determinants of consumption spending and describe their effects on consumption spending.

 4.    Describe a consumption function in terms of autonomous consumption and the marginal propensity to consume.

5.    Show how changes in taxes and in autonomous consumption changes affect the consumption-income line.

 6.    Explain why inventory investment is not included in aggregate expenditure.

 7.    Define government spending.

 8.    Define net exports.

 9.    Explain why investment, government spending, and net exports are assumed to be determined by forces outside the short-run macro model.

10.    Use a 45° translator line, together with the aggregate expenditure line, to show inventory changes and to find the short-run equilibrium output level.

11.    Explain why short-run equilibrium output is not necessarily full-employment output.

12.    Use the multiplier to show how a spending shock affects equilibrium output in an economy.

13.    Give examples of automatic stabilizers and explain how they reduce the impact of spending shocks.

14.    Describe how spending and saving play different roles in the classical model and in the short-run macro model.

15.    Use the short-run macro model of the chapter to explain the causes of the 1990–91 recession.



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Last revised: Tuesday, July 09, 2013.