Study Outline for Econ S10b
Midterm Exam Harvard University,
Summer School
Note: The assigned readings are potential sources for exam questions. I will
NOT ask narrow factual questions about these readings, but you should be
able to relate their main arguments to the material we have discussed in
class.
Note: The following outline does NOT cover everything we have studied in
the class. All concepts and applications that we have discussed in class are
possible exam topics.
Good items to study would be the class slides, the class notes, and the
solutions to the problem sets. If something seems unfamiliar, check your
notes, the posted notes, and then, if you still have questions, email me or
stop by TA office hours.
1. Basics economic concepts
a. Cost-benefit analysis, especially when applied to “how much”
decisions
b. Absolute and comparative advantage
c. Supply and demand; Efficiency and surplus
2. Measuring GDP: Definition and methodology
a. “Production” definition: value of final goods and services…
b. Principles for measuring GDP: utilize market prices
i. In a period: value-added method
ii. What is NOT counted?
c. Expenditure on final goods and services
i. Y = C + I + G + NX what are these different components?
d. Equals total income arising from production of goods and
services
i. Income from labor AND income from capital
e. GDP not the same as economic well-being
3. Measuring costs of living prices, price levels, and price changes
a. Calculating a CPI-type of price index
b. What is inflation? Inflation rate?
c. Real vs. nominal values; indexing (i.e. dividing a nominal
amount by the relevant price index)
d. Difficulties of measuring “true” inflation: quality and substitution
biases
e. Why is inflation costly? Hyperinflations?
4. Labor Productivity and Inequality
a. How does economic growth relate to labor productivity
and living standards? through the labor market!!
i. What determines labor productivity growth?
ii. Labor demand-supply model: understand the curves
and what shifts them!
b. How have real wages / labor productivity behaved since 1970s?
i. Why has growth in real wages been slow for some
workers?
, c. What factors help explain the rise in inequality over the last forty
years?
5. Economic Growth: Growth in Real GDP Per Capita
a. Compound growth formula
b. Why do we care about changes in GDP per capita?
c. What are the proximate determinants of economic growth?
i. Specialization and trade
ii. Physical capital accumulation
iii. Natural resource exploitation
iv. More labor or higher quality labor (human capital
accumulation)
v. Entrepreneurship and managerial skills
vi. Technological Change
vii. Culture and institutions
d. Neoclassical (exogenous technological change) vs. “New
Growth Theory (endogenous technological change)
e. What makes knowledge / ideas especially important for
economic growth? Why might governments have a
special role in promoting knowledge development?
f. Fundamental Determinants of Growth influence
incentives for accumulation and innovation
i. Institutions vs. Geography: The work of Acemoglu on
what good institutions do
g. Policies to encourage economic growth
h. Why are some nations stuck in poverty traps? Role of foreign aid?
6. Savings and Investment accumulation of capital (human and
physical) + better technologies in production
a. Savings vs. Wealth
b. Why do people save?
c. How do we define national savings?
i. Closed economy: S = Y – C - G
1. personal + business + public savings
2. (Y – T – C) + (T – G) [assume business savings in
personal]
ii. Government budget deficit public dissavings
1. How is one financed?
d. Market for loanable funds match up savers and [investment
project] borrowers
i. Investment demand comparing the marginal benefits
and costs from investment in capital
1. Benefit – value of the (marginal) product of
capital…or in discrete terms, the value of a
project in terms of revenues
2. A key part of the opportunity costs of the funds
that could be used to finance the investment = r,
the real interest rate in the economy
Midterm Exam Harvard University,
Summer School
Note: The assigned readings are potential sources for exam questions. I will
NOT ask narrow factual questions about these readings, but you should be
able to relate their main arguments to the material we have discussed in
class.
Note: The following outline does NOT cover everything we have studied in
the class. All concepts and applications that we have discussed in class are
possible exam topics.
Good items to study would be the class slides, the class notes, and the
solutions to the problem sets. If something seems unfamiliar, check your
notes, the posted notes, and then, if you still have questions, email me or
stop by TA office hours.
1. Basics economic concepts
a. Cost-benefit analysis, especially when applied to “how much”
decisions
b. Absolute and comparative advantage
c. Supply and demand; Efficiency and surplus
2. Measuring GDP: Definition and methodology
a. “Production” definition: value of final goods and services…
b. Principles for measuring GDP: utilize market prices
i. In a period: value-added method
ii. What is NOT counted?
c. Expenditure on final goods and services
i. Y = C + I + G + NX what are these different components?
d. Equals total income arising from production of goods and
services
i. Income from labor AND income from capital
e. GDP not the same as economic well-being
3. Measuring costs of living prices, price levels, and price changes
a. Calculating a CPI-type of price index
b. What is inflation? Inflation rate?
c. Real vs. nominal values; indexing (i.e. dividing a nominal
amount by the relevant price index)
d. Difficulties of measuring “true” inflation: quality and substitution
biases
e. Why is inflation costly? Hyperinflations?
4. Labor Productivity and Inequality
a. How does economic growth relate to labor productivity
and living standards? through the labor market!!
i. What determines labor productivity growth?
ii. Labor demand-supply model: understand the curves
and what shifts them!
b. How have real wages / labor productivity behaved since 1970s?
i. Why has growth in real wages been slow for some
workers?
, c. What factors help explain the rise in inequality over the last forty
years?
5. Economic Growth: Growth in Real GDP Per Capita
a. Compound growth formula
b. Why do we care about changes in GDP per capita?
c. What are the proximate determinants of economic growth?
i. Specialization and trade
ii. Physical capital accumulation
iii. Natural resource exploitation
iv. More labor or higher quality labor (human capital
accumulation)
v. Entrepreneurship and managerial skills
vi. Technological Change
vii. Culture and institutions
d. Neoclassical (exogenous technological change) vs. “New
Growth Theory (endogenous technological change)
e. What makes knowledge / ideas especially important for
economic growth? Why might governments have a
special role in promoting knowledge development?
f. Fundamental Determinants of Growth influence
incentives for accumulation and innovation
i. Institutions vs. Geography: The work of Acemoglu on
what good institutions do
g. Policies to encourage economic growth
h. Why are some nations stuck in poverty traps? Role of foreign aid?
6. Savings and Investment accumulation of capital (human and
physical) + better technologies in production
a. Savings vs. Wealth
b. Why do people save?
c. How do we define national savings?
i. Closed economy: S = Y – C - G
1. personal + business + public savings
2. (Y – T – C) + (T – G) [assume business savings in
personal]
ii. Government budget deficit public dissavings
1. How is one financed?
d. Market for loanable funds match up savers and [investment
project] borrowers
i. Investment demand comparing the marginal benefits
and costs from investment in capital
1. Benefit – value of the (marginal) product of
capital…or in discrete terms, the value of a
project in terms of revenues
2. A key part of the opportunity costs of the funds
that could be used to finance the investment = r,
the real interest rate in the economy
