Quiz:
The quiz will be a short in-class multiple choice exam.  It is closed book so you will not be allowed to use your notes, the book, the course-pack etc. The quiz questions will be drawn primarily from the notes we previously overed in class, course-pack readings, and weekly current event summaries. The primary goal of the quiz is to make sure you are keeping up with the material and not to test a deep understanding of the material (that's why it is short and only 10% of your grade).
Last year's quiz: Quiz-2007

Final Exam:
The final exam will be comprehensive and, unlike the quiz, designed to test your deep understanding of the course material. During the exam you will be allowed to reference any published material, notes, calculator, computer, websites, etc.  However, you are not allowed to have assistance from any other living human (except grief counseling, with my approval). The exam will have some questions similar to the problems we have done in class and the study questions below. It will also have some questions you have never seen before. The final exam will be directed toward evaluating your understanding of concepts and economic relations (instead of the purely factual material). 
Last year's final exam:  Final-2007

Below are review questions that you should be able to answer before you take the final exam.

Suggested end-of-chapter problems (solutions are in the course-pack):
   Chapter 12: 1, 2, 6, 8, 10
   Chapter 13: 1, 2, 3, 6, 7, 12, 14
   Chapter 14: 2, 4, 5, 6, 12
   Chapter 15: 1, 2, 4, 13
   Chapter 16: 1, 2 (temporary shift only), 3, 6, 8

Study and review questions:

Part 1
What are the components of GDP?  In the US, what is the approximate percent contribution of each component to total GDP? How has the composition of US GDP changed in the last 50 years?

Why does GDP only include "final" sales of goods and services?

What has happened to the volatility of US GDP growth in the last 20 years? What might account for this change?

How does US GDP compare with other industrialized (OECD) countries?  How about on a per capita basis? How does the GDP of OECD countries compare to that of the rest of the world? Why might this calculation overstate the difference?

What are some problems with the way GDP is calculated? Why don't (can't) we fix these problems?

GDP is often equated with national income (Y), why can we do this?

What are the components of national income?  What are their relative contributions to the total?

GDP is usually measured in "real" terms. What does this mean? Why do we look at real GDP as opposed to nominal GDP?

What are the most common measures of inflation?  What does each measure?

How does inflation in the US now compare to 20 years ago? 40 years ago?

What is the unemployment rate? What is the most popular measure of employment in the US?  Which provides a better measure of short-term trends in the labor market?

What is the current account?

How does the current account relate to foreign indebtedness (net foreign wealth)?

Part 2
What are the primary reasons we use money? What would the economy be like without money?

How does the Federal Reserve change the Federal Funds rate?

Intuitively what is the "potential GDP growth rate"? What two factors do we add together to get an estimate of the potential growth rate?  What happens if the economy grows above (or below) the potential growth rate for a long time?

What is NAIRU? Explain the concept of an "equilibrium employment level."

Economic indicators:
What do each of the following economic indicators measure? Why might an economic policy maker care about each one? What has been the general trend lately for each
  Industrial production and capacity utilization
  Housing Starts
  Personal Income and Personal Consumption Expenditures (PCE)
  ISM Surveys
  Employment Situation: nonfarm payrolls and the unemployment rate
  Consumer Confidence
  Trade Deficit
  Consumer Price Index
  Producer Price Index
  Index of Leading Indicators
  Durable Goods Orders / Factory Orders
  GDP
  Productivity and Costs
  Inventories
  Retail Sales

It is sometimes said that  fractional reserve banking leads to the creation of money. Explain.

Describe each of the following interest rates (e.g., who is borrowing from whom, the approximate term of the loan, and the general level of risk):
  Federal Funds Rate
  Discount Rate
  Prime Rate
  LIBOR
  Commercial Paper Rate
  T-bill and T-note Yields
  Corporate Bond Yields

What is the term spread? Why do people care about it?

What is the credit spread? What determines the size of the credit spread?

What is a "real" interest rate?  How is the the real interest rate calculated (approximately, assuming low inflation)?

We define money demand as M^D = P * L(R,Y).   Explain the relationship between money demand and P, R, and Y.

If the real money supply (M^S/P) is set by the monetary authorities, show graphically, how the equilibrium interest rate is determined.

What happens in the short-run to interest rates when there is an increase/decrease in the real money supply? An increase/decrease in output (Y)?

Part 3
What is a foreign currency exchange rate?  What is the difference between a direct and an indirect exchange rate?

If a Sony Play Station 2 that is manufactured in Japan costs $150 at a current exchange rate of 120Yen/USD, how much will it cost if the exchange rate changes to 105Yen/USD?

If the USD/Euro exchange rate changes from 1.15 USD/Euro to 1.25 USD/Euro, has the dollar appreciated or depreciated against the Euro?

If you worked for IBM and wanted to purchase 10 million Euro with USD, how would you make this transaction?

What is a forward exchange rate? How does it differ from a spot exchange rate? Why might a company use a forward contract?

Are most foreign exchange transactions spot or derivative transactions?

Intuitively, what is the "interest parity condition"?  Why does "equilibrium" in the foreign exchange market imply R_LC - R_FC - (E^e - E₀)/E₀ = 0?

Assume the interest parity condition holds and your expectation of the future USD/Euro exchange rate is fixed, what does the interest parity condition say will happen to the spot exchange rate if
  1. USD interest rates increase
  2. Euro interest rates increase
Intuitively why do these changes occur?

We combined our analysis of the foreign exchange market and the money market to create an integrated model.  Assume exchange rate expectations are fixed, explain what happens in the short-run when,
   a. the domestic real money supply increases
   b. the foreign real money supply increases
   c. domestic output (Y) increases
   d. there is a decrease in the demand for currency due to the use of debit cards

What is the law of one price?  Give an example.

What are absolute and relative purchasing power parity (PPP)?  Why doesn't either PPP usually hold in practice? 

Part 4
Explain how the DD schedule is derived.  Explain how the AA schedule is derived.

Using the DD-AA model, how and why would the following affect the nominal exchange rate (E) in the short-term
   a.  a temporary increase in the domestic money supply
   b.  a temporary increase in government spending
   c.  a temporary decline in fixed investment (I)
   d. a temporary increase in foreign interest rates

Using the DD-AA model, describe two ways the US could keep short-run domestic output from declining if there is a temporary decline in world demand for US products.

What are all of the variables that can shift the DD curve? AA curve?

What are "economic risk" and "financial risk"? Why do non-financial firms care about economic and financial risks?  What can they do about them?