Week 16 · Study guide

Final Exam Study Guide · Weeks 1–15 (Objectives 1–8)

Principles of Macroeconomics · ECON 2 Fall 2026 · Prof. Ashford Fictional sample

Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
This is a student-facing review page. Read it, work the fresh practice, re-derive every number, and follow the dated plan. Then run the paired Exam-Prep Tutorial and take the Practice Final for active recall. (This guide points to those two — it does not repeat them.)

Integrity note for students. Every practice item and worked number on this page is a fresh variant — new scenarios and wording — with a vetted, pre-computed answer. None of these are the live Final questions. Working them builds the skill the Final tests, the honest way.

What the Final Covers (read this first)


Exam	Final — cumulative, Weeks 1–15, all 8 Objectives
Format	25 items, 100 points (4 each). Mix of multiple-choice, multiple-answer, matching, and true/false — all described in words, auto-gradable. Several items are quantitative (GDP via C+I+G+NX, the GDP deflator, the CPI and inflation rate, the unemployment rate and LFPR, growth rates and the rule of 70, AD–AS comparative statics, output gaps, the spending multiplier, deficits vs. debt, the money multiplier, the money market, the transmission mechanism, MV = PQ, comparative-advantage opportunity-cost ratios, exchange-rate conversions).
Coverage	Obj 1 = 2 items · Obj 2 = 2 · Obj 3 = 2 · Obj 4 = 1 · Obj 5 = 3 · Obj 6 = 3 · Obj 7 = 6 · Obj 8 = 5 · schools synthesis (Obj 1/Wk 15) = 1. The back half — Objectives 7–8 — is 11 of 25, so budget the most review time there (the midterm already covered Objectives 1–6).
Weight	25% of your course grade — the single biggest assessment.
Window	Opens Mon Dec 14; due Sun Dec 20 (six days later). The Study Guide and Exam-Prep Tutorial post before it so you can prepare. No quiz, discussion, assignment, or workshop in Week 16. AI is not permitted on the Final.
What to bring	Yourself, rested, scratch paper for the calculations, and the one-page concept sheet you build from this guide.

How to use this guide. Each objective has four parts: (A) the key ideas in plain language, (B) the definitions / formulas / worked numbers, (C) the predictable mistakes and their cures, and (D) where to review in the module. After all eight objectives come the key-formulas table, the graph-logic canon table, fresh worked examples + self-check questions (with answers), a dated study plan, and how it's graded + test strategy.

Objective 1 — The Macro Perspective, the PPF & Positive vs. Normative (Week 1) · 2 items

(A) Key ideas, plain language

Macroeconomics zooms out to the whole economy (growth, inflation, unemployment, policy); microeconomics zooms in on individual choosers. Scarcity forces trade-offs at any scale. The PPF models an entire economy's trade-offs; an interior point is not "impossible" — it's idle resources, the macro preview of unemployment. Positive economics states testable facts; normative economics states value judgments.

(B) Definitions, formulas, worked numbers

Opportunity cost = value of the next-best alternative given up.
PPF: points on = efficient; inside = attainable but inefficient (idle resources); outside = unattainable. Slope of the PPF = the opportunity cost of the horizontal-axis good.
Bowed-out (concave) PPF = increasing opportunity cost (resources are specialized); a straight-line PPF = constant opportunity cost.
Positive = testable claim about what is. Normative = value judgment about what ought to be. Tell-tale words: should, ought, fair, deserve = normative.
Verified course numbers (Week 1 anchor): Isla Verde, 24 million labor-hours; consumer goods take 3 hrs, capital goods take 6 hrs → PPF endpoints (8, 0) and (0, 4); OC of 1 capital good = 2 consumer goods.

(C) Predictable mistakes → cures

❌ "A point inside the PPF is unattainable." → ✅ It's attainable but inefficient (idle resources). Unattainable points are outside the frontier.
❌ "'Growth was 3% last quarter' and 'growth should be faster' are both positive." → ✅ The first is positive (a testable fact); the second is normative ("should").
❌ "The bowed-out PPF shows decreasing opportunity cost." → ✅ It shows increasing opportunity cost — resources are specialized, so each extra unit of one good costs more of the other.

(D) Review in the module

Week 1 → Lecture Outline, Slides (Deck 1), Lecture Tutorial 1, Workshop 1.

Objective 2 — Measuring Output: GDP, Real vs. Nominal & the Deflator (Week 2) · 2 items

(A) Key ideas, plain language

GDP totals a period's final output using the expenditure approach. Transfer payments, used-good resales, and purely intermediate/financial trades are excluded — only newly produced final goods and services count. Real GDP strips out price changes so we can compare output across time; the deflator measures how much prices have moved.

(B) Definitions, formulas, worked numbers

GDP = C + I + G + NX, where NX = exports − imports (can be negative — a trade deficit — and still gets added into GDP as a negative number).
Excluded from GDP: transfer payments (Social Security, unemployment insurance — no new production), used-good sales (already counted when new), purely intermediate goods (counted once, in the final good), purely financial trades (stock/bond purchases).
GDP deflator = nominal GDP ÷ real GDP × 100. A deflator above 100 means prices rose relative to the base year.
Verified course numbers (Week 2 anchor): Meadowland C=500, I=200, G=150, X=100, M=50 → NX=50, GDP=900. Nominal 900 / real 750 → deflator = 120.

(C) Predictable mistakes → cures

❌ "The GDP deflator = real ÷ nominal × 100." → ✅ Flipped. It's nominal ÷ real × 100 — the single most common formula error in this unit.
❌ "A Social Security check counts in GDP as government spending." → ✅ Transfer payments are excluded — the government isn't buying anything in return for the payment.
❌ "NX is always positive." → ✅ NX can be negative (a trade deficit) — it's still added into the GDP formula as a negative number, which lowers GDP relative to a balanced-trade scenario.

(D) Review in the module

Week 2 → Lecture Outline, Deck 2, Workshop 2.

Objective 3 — Measuring Inflation & Unemployment (Week 3) · 2 items

(A) Key ideas, plain language

The CPI prices a fixed basket of goods each period; the inflation rate is the percentage change in the CPI, never the index number itself. The unemployment rate and LFPR both use the labor force (employed + actively-searching unemployed) — discouraged workers who've stopped searching drop out of the labor force entirely.

(B) Definitions, formulas, worked numbers

CPI = (current basket cost ÷ base-year basket cost) × 100. Inflation rate = (CPI₂ − CPI₁) ÷ CPI₁ × 100.
Labor force = employed + unemployed (only those actively searching count as unemployed). Unemployment rate = unemployed ÷ labor force × 100. LFPR = labor force ÷ adult population × 100.
Discouraged workers (stopped searching) are not in the labor force at all — not counted as unemployed, and this can make the official rate understate true joblessness.
Types: frictional (normal search churn), structural (skills/location mismatch), cyclical (tracks the business cycle).
Verified course numbers (Week 3 anchor): CPI basket $200 base year → $216 (CPI = 108, inflation = 8%); labor market 200M adult pop, 114M employed, 6M unemployed (searching) → labor force 120M, u-rate = 5%, LFPR = 60%.

(C) Predictable mistakes → cures

❌ "A CPI of 108 means 108% inflation." → ✅ The inflation rate is the percentage CHANGE between two CPI readings, not the index number. CPI 108 (base = 100) means 8% inflation.
❌ "The unemployment rate's denominator is the adult population." → ✅ It's the labor force (employed + unemployed), not the whole adult population — that error inflates or deflates the rate.
❌ "A discouraged worker counts as unemployed." → ✅ A discouraged worker has stopped searching and drops out of the labor force entirely — counted as neither employed nor unemployed.

(D) Review in the module

Week 3 → Lecture Outline, Deck 3, Workshop 3.

Objective 4 — Growth & Productivity (Week 4) · 1 item (proportionally lighter — one clean move)

(A) Key ideas, plain language

Growth is measured as percentage change in real GDP. The rule of 70 gives a quick estimate of years to double — always divide 70 by the rate, never multiply.

(B) Definitions, formulas, worked numbers

Growth rate = (new − old) ÷ old × 100.
Rule of 70: years to double ≈ 70 ÷ growth rate.
Per-capita growth ≈ total growth − population growth (an approximation).
Sources of long-run growth: physical capital, human capital, technology (the Solow growth model named factually as the workhorse framework, not derived).
Verified course numbers (Week 4 anchor): real GDP 800 → 840 = 5% growth. Rule of 70: 2% → 35 years; 5% → 14 years; 7% → 10 years; 10% → 7 years.

(C) Predictable mistakes → cures

❌ "Rule of 70: multiply the rate by 70." → ✅ Divide 70 by the rate. Multiplying gives a nonsensical, wildly wrong answer.
❌ "Per-capita growth = total growth." → ✅ Per-capita growth subtracts population growth from total growth — a fast-growing but fast-populating economy can have slow per-capita gains.

(D) Review in the module

Week 4 → Lecture Outline, Deck 4, Workshop 4.

Objective 5 — The AD–AS Model, Comparative Statics & Output Gaps (Weeks 5–6) · 3 items

(A) Key ideas, plain language

AD slopes down (via wealth, interest-rate, and exchange-rate effects); a price-level change is a movement ALONG AD, never a shift. AD, SRAS, and LRAS each shift for different reasons and each shift has a signature P/Y outcome. Potential output gives the benchmark for diagnosing recessionary vs. inflationary gaps.

(B) Definitions, formulas, worked numbers

AD shifts right (C↑, I↑, G↑, NX↑, expansionary policy) ⇒ P↑, Y↑. AD left ⇒ P↓, Y↓.
SRAS shifts left (input/oil-price ↑, expected inflation ↑) ⇒ P↑, Y↓ (stagflation). SRAS right ⇒ P↓, Y↑.
LRAS shifts right only with more resources/capital/technology — a long-run growth event.
A change in the price level itself = a movement ALONG AD, not a shift — the single most tested trap in this unit.
Recessionary gap = actual output below potential. Inflationary gap = actual output above potential.
Verified course numbers (Week 5–6 anchor): AD: P=20−Y/100, SRAS: P=4+Y/100 → Y*=800, P*=12. G↑ → AD: P=22−Y/100 → new Y*=900, P*=13. Potential Y*=1000; actual 950 → recessionary gap 50 (5%); actual 1040 → inflationary gap 40 (4%).

(C) Predictable mistakes → cures

❌ "A price-level change shifts AD." → ✅ It's a movement along the existing curve — only a change in a determinant of AD shifts the whole curve.
❌ "An oil-price shock shifts AD left." → ✅ It's a supply-side event — SRAS shifts left, producing stagflation (P↑, Y↓ together), not an AD shift.
❌ "Actual output above potential is a recessionary gap." → ✅ Above potential = inflationary gap; below potential = recessionary gap.

(D) Review in the module

Week 5 → Lecture Outline, Deck 5, Workshop 5. Week 6 → Lecture Outline, Deck 6, Workshop 6.

Objective 6 — Fiscal Policy, the Multiplier & Deficits vs. Debt (Week 7) · 3 items

(A) Key ideas, plain language

Fiscal policy (Congress's spending & tax tools) can be expansionary or contractionary. The spending multiplier tells us how much a change in spending ripples through the whole economy. The deficit and the debt are related but different — one is a yearly flow, the other a running total.

(B) Definitions, formulas, worked numbers

Spending multiplier = 1 ÷ (1 − MPC). ΔY = ΔG × multiplier. (NOT 1/MPC — a classic confusion.)
Automatic stabilizers (unemployment insurance, progressive taxes) act without new legislation.
Deficit = spending − revenue (a flow, this year only). Debt = the cumulative running total (a stock) — new debt = prior debt + this year's deficit. A deficit ADDS to the debt; only a surplus reduces it.
Verified course numbers (Week 7 anchor): MPC 0.8 → multiplier 5; ΔG=+20 → ΔY=+100. Revenue 400, spending 450 → deficit 50; debt 1,000 → 1,050.

(C) Predictable mistakes → cures

❌ "The multiplier is 1/MPC." → ✅ It's 1/(1−MPC). Using 1/MPC directly (or multiplying by MPC) gives the wrong number.
❌ "A deficit reduces the debt." → ✅ A deficit adds to the debt. Only a surplus reduces it.
❌ "Fiscal policy is the Fed's job." → ✅ Fiscal policy is Congress's job (spending & taxes); the Fed wields monetary policy (money supply & interest rates) — different institutions, different tools.

(D) Review in the module

Week 7 → Lecture Outline, Deck 7, Workshop 7.

Objective 7 — Money, Banking, the Fed & Monetary Policy (Weeks 9–11) · 6 items (back half — heaviest weight)

(A) Key ideas, plain language

Money serves three functions. Fractional-reserve banking lets a single deposit expand the money supply through successive loans, bounded by the money multiplier. The Fed's tools all work by moving the money supply, which moves the interest rate through the money market; that rate change then transmits to investment, AD, and finally to the price level and real output.

(B) Definitions, formulas, worked numbers

Functions of money: medium of exchange, store of value, unit of account. M1 = narrowest (currency + checkable deposits); M2 = broader (adds savings and other near-money assets).
Money multiplier = 1/RR. A new deposit: required reserves = deposit × RR; first loan = deposit − required reserves; maximum total expansion = deposit × (1/RR) — an upper bound (banks may hold excess reserves; the modern Fed operates with ample reserves).
Fed's structure: the Board, 12 regional banks, the FOMC; dual mandate (stable prices, maximum employment).
Fed's tools: open-market operations (buy bonds → MS↑ → r↓; sell → MS↓ → r↑), the discount rate, the reserve requirement (RR), interest on reserves (IOR) — raising the latter three tends to lower MS (r↑).
Money market: money demand slopes down against r; money supply is vertical (Fed-controlled). An interest-rate change moves ALONG money demand — it does NOT shift it.
Transmission mechanism: MS↑ → r↓ → I↑ → AD shifts right → P↑, Y↑. Contractionary = every arrow reversed.
Verified course numbers (Weeks 9–11 anchor): RR 10% → money multiplier 10; new $1,000 deposit → required reserves $100, first loan $900, max expansion $10,000. Money demand r=12−M/100; Ms vertical at 600 → r=6%; Fed buys → Ms=700 → r=5%; sells → Ms=500 → r=7%. Transmission: Ms 600→700 ⇒ r 6%→5% ⇒ ΔI=+20 ⇒ ×5 multiplier ⇒ ΔY=+100; AD right; P↑, Y↑.

(C) Predictable mistakes → cures

❌ "An interest-rate change shifts money demand." → ✅ It's a movement along the curve. Only income, price-level, or expectation changes shift money demand itself.
❌ "Fiscal and monetary policy are interchangeable." → ✅ Fiscal = Congress (spending & taxes); monetary = the Fed (money supply & rates) — mixing them up is one of the term's most consequential errors.
❌ "The spending multiplier and the money multiplier are the same formula." → ✅ Spending multiplier = 1/(1−MPC); money multiplier = 1/RR — different formulas, different mechanisms (fiscal ripple vs. bank-deposit expansion).
❌ "Selling bonds raises the money supply." → ✅ Selling bonds withdraws money from circulation (MS↓, r↑); buying bonds injects it (MS↑, r↓).

(D) Review in the module

Week 9 → Lecture Outline, Deck 9, Workshop 9. Week 10 → Lecture Outline, Deck 10, Workshop 10. Week 11 → Lecture Outline, Deck 11, Workshop 11.

Objective 8 — The Phillips Curve, the Quantity Theory & the Open Economy (Weeks 12–14) · 5 items (back half — heavy)

(A) Key ideas, plain language

In the short run, unemployment and inflation trade off; in the long run, that tradeoff disappears. The quantity theory links money, velocity, prices, and output. Comparative advantage — not absolute advantage — determines who should specialize in what. Exchange-rate moves change the relative price of a country's exports and imports.

(B) Definitions, formulas, worked numbers

Short-run Phillips curve (SRPC) slopes down (u↓ ↔ π↑). Long-run Phillips curve (LRPC) is vertical at the natural rate — no permanent tradeoff. A rise in expected inflation shifts the SRPC up/right.
MV = PQ (quantity theory). Long-run neutrality: with V and Q fixed, a % change in M produces the same % change in P.
Comparative advantage: compute each producer's opportunity-cost ratio for a good; the lower ratio wins the comparative advantage (never the higher raw output — that's absolute advantage). A mutually beneficial terms of trade lies between the two opportunity-cost ratios.
Exchange rates: if $1 buys more foreign currency than before, the dollar has appreciated (U.S. exports pricier abroad, imports cheaper at home → NX falls); if $1 buys less, the dollar has depreciated (NX rises). Balance of payments: the current account and financial account mirror each other.
Verified course numbers (Weeks 12–14 anchor): M=500, V=4 → PQ=2000, Q=1000 → P=2; M+10% → P=2.2. SRPC through (u=4%,π=6%) and (u=6%,π=2%); LRPC vertical at u*=5%. Northland 4 wheat or 2 cloth; Southport 6 wheat or 2 cloth → Northland has CA in cloth (OC 2 wheat < Southport's 3 wheat). $1=¥100 → $1=¥120 = dollar appreciated; $25,000 car: ¥2.5M → ¥3.0M (pricier abroad).

(C) Predictable mistakes → cures

❌ "The inflation–unemployment tradeoff holds forever." → ✅ It's short-run only. The long-run Phillips curve is vertical — there's no permanent menu to choose from.
❌ "Comparative advantage goes to whoever produces more of the good." → ✅ That's absolute advantage. Comparative advantage goes to whoever has the lower opportunity cost.
❌ "A dollar buying MORE foreign currency means the dollar depreciated." → ✅ Buying MORE = appreciation. Buying LESS = depreciation. Always check the direction of the exchange-rate move before naming it.

(D) Review in the module

Week 12 → Lecture Outline, Deck 12, Workshop 12. Week 13 → Lecture Outline, Deck 13, Workshop 13. Week 14 → Lecture Outline, Deck 14, Workshop 14.

Synthesis — Schools of Thought & Policy Debates (Week 15) · 1 item, tagged to Objective 1

(A) Key ideas, plain language

The Keynesian and classical/monetarist schools genuinely disagree about how quickly the economy self-corrects and what policy should do while waiting. Items on this material test what each school claims, never which one is "right."

(B) Definitions, formulas, worked numbers

Keynesian: wages/prices sticky in the short run; economies can sit in a recessionary gap; active fiscal/monetary stabilization can help.
Classical/monetarist: prices adjust given time; policy operates with long and variable lags (Friedman's critique, named factually); rules (steady money growth, inflation targeting) beat discretion; crowding-out worries.
Agreed ground (not both-sided): the long-run Phillips curve is vertical; sustained high inflation is, in the long run, a monetary phenomenon; the short-run/long-run distinction itself.

(C) Predictable mistakes → cures

❌ "One school is correct and the other is wrong." → ✅ This is a genuinely contested normative/empirical debate — present both sides' strongest case, never a verdict.
❌ "Schools-of-thought items test which side is correct." → ✅ They test what each school claims — a matching or classification exercise, not a right/wrong judgment.

(D) Review in the module

Week 15 → Lecture Outline, Deck 15, Workshop 15.

Key Formulas Table (all objectives, one page)

Concept	Formula
Opportunity cost of good X (from a PPF)	(max of the OTHER good) ÷ (max of good X)
GDP (expenditure approach)	C + I + G + NX, where NX = exports − imports
GDP deflator	nominal GDP ÷ real GDP × 100
CPI	(current basket cost ÷ base-year basket cost) × 100
Inflation rate	(CPI₂ − CPI₁) ÷ CPI₁ × 100
Unemployment rate	unemployed ÷ labor force × 100
Labor-force participation rate (LFPR)	labor force ÷ adult population × 100
Growth rate	(new − old) ÷ old × 100
Rule of 70	years to double ≈ 70 ÷ growth rate
Spending multiplier	1 ÷ (1 − MPC)
Tax multiplier (nod only)	−MPC ÷ (1 − MPC)
Deficit	spending − revenue (a flow)
Debt (this year)	prior debt + this year's deficit (a stock)
Money multiplier	1 ÷ RR
Quantity theory	M × V = P × Q

Graph-Logic Canon Table (every curve-shift claim, one page)

Model / curve	Shift	Direction	Resulting P & Y (or r)
AD	C↑, I↑, G↑, NX↑, expansionary fiscal/monetary policy	Shifts right	P↑, Y↑
AD	C↓, I↓, G↓, NX↓, contractionary policy	Shifts left	P↓, Y↓
SRAS	Input/oil price↑, expected inflation↑	Shifts left	P↑, Y↓ (stagflation)
SRAS	Input/oil price↓	Shifts right	P↓, Y↑
LRAS/potential	More resources, capital, or technology	Shifts right	Long-run growth (no short-run P/Y read)
Price level itself	Own-axis change (not a determinant)	Movement ALONG AD, not a shift	Traces the existing curve
Money supply (MS)	Fed BUYS bonds	Shifts right	r↓
Money supply (MS)	Fed SELLS bonds; discount rate↑; RR↑; IOR↑	Shifts left	r↑
Money demand (Md)	An interest-rate change	Movement ALONG Md, not a shift	Traces the existing curve
Transmission chain	MS↑ → r↓ → I↑	AD shifts right	P↑, Y↑ (contractionary = every arrow reversed)
Short-run Phillips curve (SRPC)	(built-in slope)	Downward-sloping	u↓ ↔ π↑ (short-run only)
Long-run Phillips curve (LRPC)	Expected inflation does NOT shift this curve	Vertical at u*	No permanent tradeoff
SRPC (as a whole curve)	Expected inflation↑	Shifts up/right	Higher π at any given u
Exchange rate	$1 buys MORE foreign currency	Appreciation	U.S. exports pricier abroad, imports cheaper; NX↓
Exchange rate	$1 buys LESS foreign currency	Depreciation	U.S. exports cheaper abroad, imports pricier; NX↑

Fresh Practice: Worked Examples + Self-Check Questions

These are fresh variants — new numbers and contexts. None are live Final questions. All answers are pre-computed and vetted.

Practice 1 — GDP & the Deflator (Obj 2)

A fictional economy reports (in billions): C = 480, I = 210, G = 160, X = 105, M = 125. Nominal GDP is that total; real GDP is $760B.
- (a) Compute NX and GDP.
- (b) Compute the GDP deflator.

Answers (pre-verified):
(a) NX = 105 − 125 = −20. GDP = 480 + 210 + 160 + (−20) = $830 billion.
(b) Deflator = 830 ÷ 760 × 100 ≈ 109.2 (rounded).

Practice 2 — CPI & Unemployment (Obj 3)

A fixed basket costs $150 in the base year and $166.50 in year 2. The labor market: adult population 180M, employed 126M, unemployed 9M.
- (a) Compute the CPI and the inflation rate.
- (b) Compute the unemployment rate and the LFPR.

Answers (pre-verified):
(a) CPI = 166.50 ÷ 150 × 100 = 111. Inflation = (111−100)/100×100 = 11%.
(b) Labor force = 126 + 9 = 135M. U-rate = 9/135×100 ≈ 6.67%. LFPR = 135/180×100 = 75%.

Practice 3 — Growth & the Rule of 70 (Obj 4)

Real GDP rises from $650B to $702B.
- (a) Compute the growth rate.
- (b) Apply the rule of 70 at that rate.

Answers (pre-verified):
(a) Growth = (702−650)/650×100 = 8%.
(b) Rule of 70: 70/8 = 8.75 years.

Practice 4 — AD–AS Comparative Statics (Obj 5)

AD: P = 26 − Y/160. SRAS: P = 10 + Y/160. A drop in consumer confidence shifts AD left to P = 23 − Y/160.
- (a) Find the initial equilibrium.
- (b) Find the new equilibrium and describe the P/Y outcome.

Answers (pre-verified):
(a) 26 − Y/160 = 10 + Y/160 → 16 = 2Y/160 → Y* = 1,280, P* = 18.
(b) 23 − Y/160 = 10 + Y/160 → 13 = 2Y/160 → Y* = 1,040, P* = 16.5. AD left → P↓, Y↓ (both fall).

Practice 5 — Spending Multiplier & Deficit/Debt (Obj 6)

MPC = 0.6; government spending rises $50B. Revenue = $700B, spending = $760B, prior debt = $2,000B.
- (a) Compute the multiplier and ΔY.
- (b) Compute the deficit and the new debt.

Answers (pre-verified):
(a) Multiplier = 1/(1−0.6) = 2.5. ΔY = 50×2.5 = $125 billion.
(b) Deficit = 760−700 = $60 billion. New debt = 2,000+60 = $2,060 billion.

Practice 6 — Money Multiplier & the Money Market (Obj 7)

RR = 5%. A new deposit of $3,000 arrives. Money demand: r = 11 − M/200. Money supply vertical at M = 1,000; the Fed then sells bonds, lowering MS to 900.
- (a) Compute required reserves, first loan, and maximum expansion.
- (b) Compute r before and after the Fed's sale.

Answers (pre-verified):
(a) Required reserves = 3,000×0.05 = $150. First loan = 3,000−150 = $2,850. Money multiplier = 1/0.05 = 20. Max expansion = 3,000×20 = $60,000.
(b) Before: r = 11 − 1,000/200 = 6%. After: r = 11 − 900/200 = 6.5% (r rises — selling bonds shrinks MS).

Practice 7 — MV = PQ & Comparative Advantage (Obj 8)

M = 450, V = 6, Q = 900. Two countries: Fairhaven produces 12 grain or 4 textiles/day; Millbrook produces 15 grain or 3 textiles/day.
- (a) Compute P.
- (b) Determine which country has the comparative advantage in textiles.

Answers (pre-verified):
(a) PQ = 450×6 = 2,700. P = 2,700/900 = 3.
(b) Fairhaven's OC of 1 textile = 12/4 = 3 grain. Millbrook's OC of 1 textile = 15/3 = 5 grain. Fairhaven's cost (3) < Millbrook's (5) → Fairhaven has the comparative advantage in textiles.

Dated Study Plan (finals week)

When	What to do
Sun Dec 13 (tonight)	Read this Study Guide all the way through. Work Practices 1–3 by hand (GDP/deflator, CPI/unemployment, growth/rule of 70). Build a one-page concept sheet: one line per objective.
Mon Dec 14 (Final opens; in-class review)	Come to the final review session. Bring your questions — especially the moves that still feel fuzzy. Work Practices 4–5 (AD–AS, multiplier/deficit-debt) by hand on scratch paper.
Tue Dec 15	Work Practices 6–7 (money multiplier/money market, MV=PQ/comparative advantage) by hand. Re-read the misconception cures for Objectives 7–8 — the heaviest-weighted material.
Wed Dec 16	Run the Exam-Prep Tutorial with your approved chatbot (90–150 min — the final is cumulative). Answer the diagnostic honestly. Submit your share link + completion summary.
Thu–Fri Dec 17–18	Sit the Practice Final timed (same conditions as the real exam). Review every miss against this Study Guide. Identify any remaining weak spot.
Sat Dec 19 or before	Sit the Final. Rest first. Scratch paper ready. AI not permitted.

The window closes Sun Dec 20 (six days after Mon Dec 14). Do not leave it to the last hour.

How It's Graded + Test Strategy

25 items, 4 points each = 100 points. No partial credit on MC or T/F — one wrong selection costs 4 points.
The multiple-answer item: you must select exactly the right set for full credit. Missing one or adding a wrong one costs points.
Matching items (three total): all rows must be matched correctly.
Test strategy:
1. Read the stem, find the move. Before looking at answers, name what macro skill the item is testing.
2. Do the math on scratch paper first. For quantitative items, derive the answer before reading the choices.
3. Eliminate with the misconception cures. For each distractor, ask: is this the classic error (flipping the deflator, shifting the wrong curve, using 1/MPC instead of 1/(1−MPC), confusing fiscal with monetary tools)?
4. Positive vs. normative quick-sort. If an answer choice contains "should," "ought," or a value judgment — it's normative, not positive. For schools-of-thought items, remember they test what a school claims, never which one is right.
5. Budget time. 25 items in one sitting — about 3 minutes per item. Don't spend 10 minutes on one calculation; flag it, move on, return.

Quality Gate (self-checked)

Quantitative gate: PASS. Every worked number on this Study Guide (the Objective anchors and the seven fresh Practice problems) is pre-computed and independently re-verified in Python (_build/logs/week-16-numbers.txt). None of the Practice-problem numbers above duplicate the Final's or Practice Final's engineered values.
Graph-logic check: PASS. Every curve-shift claim in the Key Formulas / Graph-Logic Canon table above is checked against the NUMBERS_PACK canon: AD right/left, SRAS left/right, LRAS right, price-level movement-along, MS right/left via Fed tools, Md movement-along, the full transmission chain, SRPC downward slope, LRPC vertical, expected-inflation SRPC shift, and appreciation/depreciation NX effects.

~ Prof. Ashford's edition · Fall 2026 · built with thecoursemaker.com