REVIEW FOR EXAM #1

PRE-1870 ECONOMICS
    - Who was Adam Smith?
    - What are the three economic "classes" that Smith (and the Classical economists writing until 1870) used in their analyses?
    - How are income shares determined, according to pre-1870 theory?
    - Why did theories based on class analysis imply conflict?
    - How would you define "economics" in pre-1870 times?

POST-1870 ECONOMICS
    - Writers like Jevons, Menger and Walras replaced the economic classes with "factors of production" in their work.  What are the
       "factors of production"?
    - Why was it necessary to make this change?
    - How are income shares determined under this framework?
    - Is there conflict or injustice?  Explain.
    - What is the post-1870 (i.e. current) definition of "economics" ?

BASIC ECONOMIC CONCEPTS
    - How do we define "scarcity"?
    - How is the notion of "choice" dependent on the notion of "scarcity"?
    - What are "opportunity costs"?
    - What is the Production Possibilities Curve (PPC)?
    - How does it capture the notion of scarcity?
    - How does it capture the notion of choice?
    - How are opportunity costs reflected in the PPC?
    - How does the PPC constrain a nation's capacity to produce?
    - Under what circumstances can a country reach a point that lies outside its PPC?
    - Can the PPC ever shift in?  Explain.
    - How can  the PPC be used to justify arguments in favor of free trade?
    - What does it mean to say that a country has a "comparative advantage" in the production of some good?
    - Can two countries benefit from trade even if one country has an absolute advantage in the production of both goods? Explain.
    - What is meant by the term "positive analysis"?
    - How does "normative analysis" differ from "positive analysis"?
    - Can any analysis ever really be "positive"?  Explain.
    - What are the five steps in the scientific method? (Use class lecture, not the book.)
    - What is the fallacy of composition? 
    - What is the difference between "correlation" and "causation"?  Carefully explain.
    - Write down the equation for a straight line without using the letters Y, m, X or b.
    - Identify the independent variable, the dependent variable, the slope term and the (vertical) intercept in your equation.
    - How is the independent variable defined (in words)?
    - How is the dependent variable defined (in words)?
    - How is the slope calculated?
    - What would your equation look like if the value of the vertical intercept is zero?  Write down the new equation?
    -Draw a graph that shows an inverse relationship between the variables C and E.
    - Suppose that B = f(R, I) and that B is positively related to R and inversely related to I.  Graph the relationship between B and I. 
      What  happens (in the graph) when the value of I changes?   What happens (in the graph) when the value of R changes?

THE (NEO)CLASSICAL MODEL
    - According to the Classical Model, how is the level of aggregate employment determined? Explain this very carefully!
    - How is the level of aggregate output determined?  Carefully explain!
    - How is the aggregate price level determined?  Thoroughly discuss! 
    - How is the aggregate level of savings determined?  Aggregate investment? 
    - What determines "the" interest rate?  Explain carefully?
    - What is Say's Law?  Be careful!
    - Does the Classical Model accept or reject Say's Law? Explain.
    - If households decide to spend less (i.e. save more), will this cause output to fall and unemployment to rise?  Explain very carefully.
    - Explain why the Classical Model describes the workings of the economy from a supply-side perspective. 
    - In this framework, what would happen if the monetary authority tried to stimulate production by increasing the money supply? 
       Explain carefully and show graphically.
    - In order for growth (in output) to occur, one of three things must happen.  What are they?

READINGS
    - Did Malthus believe in Say's Law?  Explain his concern.
    - According to J.B. Say, it was possible for the mix of output produced to generate excess supply or excess demand within particular
       industries, but it was impossible for supply to exceed demand on a massive scale (i.e. in the aggregate).  Does your reading from
       the Grapes of Wrath confirm or refute Say's Law?   Explain.
    - How does Veblen's essay On Sabatoge relate to the chapter from the Grapes of Wrath?
    - How did Veblen define "sabatoge"?
    - Did he believe that, as capitalist economies matured, it would no longer be necessary to practice sabatoge?  Explain.
    - Consumption spending is by far the largest component of GDP.   But Johnathan Rowe argues that a growing portion of this
       spending does not indicate a growing acquisition of "goods" and "services".  As a result, he claims that this undermines the
       usefulness of GDP as an organizing principle of "growth" and"well-being".  Familiarize yourself with his arguments.
    - Summarize the WEIGO position on official statistics and the informal workforce.
    - At the height of the 1990s expansion, the official unemployment rate was below 4%.  According to Job Stats, what would the
       unemployment rate have been if discouraged workers and part-timers wanting full-time work had been included?

GROSS DOMESTIC PRODUCT AND THE ECONOMY
    - There are four "sectors" in the economy.  What are they?
    - How do we define a household?
    - How is the labor force defined?
    - How is the unemployment rate measured?
    - Do measured (i.e. offical) unemployment rates probably over-estimate or under-estimate the true extent of the problem?  Why?
    - The business sector can be divided into one of four separate groups.   What are they?
    - Define each type of business organization.
    - The government sector can be divided into two levels of government. What are they?
    - Define gross domesit product (GDP).
    - Define gross national product (GNP).
    - Why is it so important to emphasize the word "final" in these definitions?
    - What is the difference between a "final good" and an "intermediate good"?  Give an example of each.
    - When governments make "transfer payments", they are not counted as government spending.  Why not?
    - Why do we include (X - M) in the GDP equation? 
    - What does (X - M) measure?
    - What does the circular flow diagram show?
    - Does it imply Say's Law?  Explain.
    - Write down an equation for GDP.
    - Which component of GDP is the largest?
    - Is GDP a good way to measure a country's "health" or economic well-being?  What are some of its shortcomings?
    - What is the difference between nominal and real GDP?  Which is a better measure of well-being?  Why?
    - What is the GDP deflator?  Be sure you can use it to convert nominal GDP to real GDP.
    - What does per-capita real GDP tell you?  Is it a better measure of well-being than real GDP?  Why?

BUSINESS CYCLES
    - How do we define a business cycle?
    - What are the four phases of the cycle, and what is "going on" in each phase?
    - What typically happens to profits and employment during a recession?   A recovery?
    - What are business cycle indicators?
    - Give examples of leading, coincident, and lagging indicators.