ABF507 Final Exam Review (Weeks 8–13) + High-Frequency Predictions

📚 Exam Info

Format: 5 essay/short-answer questions
Coverage: Weeks 8–13
Core Topics: GDP, utility, oligopoly, supply & demand, fiscal/monetary policy, trade, inequality, elasticity, regression interpretation

🔥 High-Frequency Topics (Prioritize)

1) GDP Calculation (very likely)

Definition: GDP is the market value of all final goods and services produced within a country in a given period.

Three approaches:

Production (Value Added): Sum value added at each stage
Income: Wages + Profit + Rent + Interest + (Taxes – Subsidies)
Expenditure: $$GDP = C + I + G + (X - M)$$

Common pitfalls:

Avoid double counting (use value added)
Use final goods only
Count within the country (not nationality)

2) Elasticity (very likely, includes midpoint)

Price Elasticity of Demand (PED): $$PED = \frac{%\Delta Q_d}{%\Delta P}$$

Midpoint method (required): $$PED = \frac{\Delta Q / \bar{Q}}{\Delta P / \bar{P}}$$

Interpretation:

$|PED| > 1$: elastic
$|PED| < 1$: inelastic
$|PED| = 1$: unit elastic

Remember: demand elasticity is typically negative; report magnitude if asked.

3) Supply & Demand Shifts

Demand shifts:

Income, tastes, prices of substitutes/complements, expectations, population

Supply shifts:

Input costs, technology, taxes/subsidies, expectations, number of sellers

Price ceiling:

Set below equilibrium → shortage

Price floor:

Set above equilibrium → surplus

4) Fiscal vs Monetary Policy

Fiscal Policy:

Government spending, taxation
Implemented by government/treasury

Monetary Policy:

Interest rates, money supply
Implemented by central bank

Expansionary vs Contractionary:

Expansionary → boosts AD, reduces unemployment
Contractionary → reduces inflation

5) Regression Interpretation (likely short question)

If $Y = a + bX$:

Intercept (a): expected Y when X = 0
Slope (b): change in Y for 1-unit increase in X

t-stat: significance of coefficient

📌 Exam-Style Short Answers

Q: What is GDP and why value added?

A: GDP is the market value of final goods and services produced within a country in a period. Value added avoids double counting of intermediate goods.

Q: How does a subsidy affect supply?

A: Subsidy reduces production cost → supply increases (shift right).

Q: What happens if demand increases with fixed supply?

A: Equilibrium price rises and quantity rises.

Q: Difference between nominal and real GDP?

A: Nominal uses current prices; real adjusts for inflation.

🧮 Calculation Checklist

Always use midpoint for elasticity
For GDP problems, check if values are final goods
For diagrams, label curves and show shifts clearly
For policy questions, state direction and outcome

✅ Final Tips

Keep answers structured: definition → key points → conclusion
Use formulas with clear substitution
Draw clean graphs with labels
If unsure, explain intuition (marker awards partial credit)