Study Guide for Test #2

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1. Know the conditions that must be examined to determine if a product is a competitor

2. Be able to calculate the N-firm concentration ratio and Herfindahl Index

3. Know what the concentration ratio and Herfindahl Index imply about market structure

4. Be able to use the Herfindahl Index to evaluate mergers

5.  Know the characteristics of each type of market

6. Understand the long-run implications of perfect competition

7. Understand the factors that lead to downward pressure on prices in a competitive market

8. Know the structural barriers to entry that can lead to monopoly power

9. Understand the difference between vertical and horizontal differentiation

10.  Be able to show the impact of product differentiation on the demand curve

11. Understand the implications of economies of scale on the size and number of firms in an industry

12.  Be able to calculate the nominal and real GDP

13.  Be able to calculate the GDP deflator

14.  Know how to calculate various components in the national income accounts

15.  Know how to calculating different price indexes (GDP deflator, Consumer Price Index, Producer Price Index)

16.  Be able to use price indexes to measure inflation

17  Be able to use price indexes to calculate real values

18.  Be able to calculate the unemployment rate, labor force participation rate, and employment-population ratio

19.  Understand the impact of different factors on the components of aggregate expenditures

20.  Know how changes in the exchange rate affects imports and exports

21.  Understand how the multiplier for autonomous expenditures is calculated and used

22.  Know what interest-related expenditures are and how they are affected by the interest rate

23.  Understand the money creation process

24.   Understand how the simple deposit multiplier is calculated and used

25.  Understand how the money multiplier is calculated and used

26.  Know how open market operations can be used to affect the money supply

27.  Know how changing the discount rate and the reserve requirement can be used to affect the money supply

28.  Understand how monetary policy affects the equilibrium in the money market

29.  Understand how changes in different factors affects the aggregate demand curve

30.  Understand how monetary and fiscal policy affects the aggregate demand curve

31.  Understand the factors that affect the short-run aggregate supply curve

32.  Understand the factors that affect the long-run aggregate supply curve

33.  Be able to use aggregate supply-aggregate demand analysis to evaluate the impact of different events

34.  Understand the tradeoff between inflation and unemployment using the Phillips Curve

35.  Understand how monetary policy can be used to deal with either downturns or overheating in an economy

36.  Know the problems with using monetary policy to deal with downturns

37.  Understand how fiscal policy can be used to deal with either downturns or overheating in an economy

38.  Understand how lags affect monetary and fiscal policy

39.  Understand how budget deficits can lead to crowding out and how that can reduce the effectiveness of expansionary fiscal policy

40.  Be able to use aggregate supply-aggregate demand analysis to show the impact of supply-side economics

41.  Be able to use supply and demand analysis to show how inflation would affect the exchange rate

42.  Be able to use supply and demand analysis to show how economic growth would affect the exchange rate

43.  Be able to use supply and demand analysis to show how interest rates would affect the exchange rate

44.  Understand what is involved with different exchange rate systems

45.  Be able to show what is necessary to maintain a fixed exchange rate system

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