1. Principles of Macroeconomics Econ 231 Spring 2010 William J. Polley Department of Economics College of Business and Technology Western Illinois University

2. Top 10 Things to Know for the Exam 10. GDP: Definition, how to calculate, what it means and what it doesn’t mean, Y=C+I+G+NX (all of chapter 5) 9. Calculating growth rates (p. 73): useful in working with GDP and other statistics 8. Facts about growth: (pages 92-97) Countries vary widely Everyone used to be poor Growth miracles and growth disasters

3. Top 10 Things to Know for the Exam 7. Factors of production: (pages 97-99) Physical capital (machines) Human capital (education, experience, “brains”) Technical knowledge (technology) 6. The importance of incentives and institutions for growth (pages 99-106) 5. Catching up vs. Cutting edge (Chapter 7) Growth experiences of China vs. U.S. Solow model: Investment and depreciation Diminishing returns to capital

4. Top 10 Things to Know for the Exam 4. Ideas are what drive growth in the long run. (last part of chapter 7) 3. Supply and demand for loans People want to smooth consumption. This means borrowing and lending. Interest rate is the price of a loan. What causes shifts in supply or demand? (pages 154-157) Bond prices and interest rates (yields) move in opposite directions.

5. Top 10 Things to Know for the Exam 2. Efficient markets hypothesis Prices of traded assets reflect all publicly available information. Risk vs. return tradeoff 1. Material from chapters 1-4 (Exam 1) will make up a small but important part of the exam. (about 1/3 of the points, more or less)