Fall 2017 Final Exam Review Guide
Econ 502 (MastersLevel Macro Theory)
 Latest Course Offering: Fall 2017
 Last Updated: 2 December 2017
 Course Instructor:

Professor Leigh Tesfatsion
 Econ 502 Web Site Home Page Address:

http://www2.econ.iastate.edu/classes/econ502/tesfatsion/
Basic Final Exam Information:
**PLEASE NOTE:**
The Fall 2017 final exam for Econ 502 is scheduled to be held on Monday, December 11, 9:4511:45 a.m., in our regular class meeting room (Heady 272), in accordance with the Fall 2017 final exam schedule for ISU.
As elaborated more carefully below, the final exam will be closedbook and comprehensive, covering all required readings and assignments for the entire course. However, the final exam will emphasize the required readings and assignments for topics covered since the midterm exam.
The final exam will consist of a selection of problems designed to test each student's ability to analyze important macroeconomic issues using basic economic tools and concepts as aids. The final exam problems will stress issues raised in the key inclass discussion questions provided on the Econ 502 syllabus at the beginning of each covered course topic.
The following types of skills will be stressed: (a) The ability to carefully explain key concepts and hypotheses stressed in the required course assignments; (b) the ability to explore the implications of these key concepts and hypotheses in various problem contexts using analytical and/or graphical tools covered in the required course assignments; and (c) the ability to discuss clearly and carefully the economic importance of findings within these problem contexts.
Test booklets will be provided at the exam, hence students do not need to bring paper or blue books to the exam. Also, the use of calculators or any other electronic device will not be needed for the exam and will not be permitted during the exam.
Absence from the final exam will result in a grade of zero for the exam unless the instructor agrees there are verified extenuating circumstances such as a major medical emergency. In the latter case, the course grade will be determined on the basis of other work completed; no makeup exams will be scheduled.
Cheating will not be tolerated and will result in a grade of F for the final exam, at a minimum. Other sanctions may also be applied in accordance with ISU policy.
Required Materials for the Final Exam
Recall that the midterm exam for Econ 502 in Fall 2017 covered all required readings and assignments for Econ 502 syllabus sections I, II, III.A, III.B, and III.C.
The final exam for Econ 502 in Fall 2017 will be closedbook and comprehensive, covering all required readings and assignments for the entire course (Sections IVI). However, the final exam will emphasize the required readings and assignments for topics covered after the midterm exam (i.e., after Section III.C).
The required readings and assignments for the final exam include: (1) all inclass lectures, discussions, and exercises moderated by the instructor; (2) all takehome exercise assignments (i.e., Exercises 19); and (3) all (**)syllabus readings listed under Sections IVI of the latest revised online syllabus for Econ 502.
 Note:
Recall that a single asterisk (*) on any syllabus reading or exercise means this is recommended material of a general contextual nature that might be of some use for answering final exam questions but is not required for answering final exam questions.
See the latest revised version of the
Econ 502 Syllabus
for all (**)syllabus readings and pointers to takehome exercise assignments (i.e., Exercises 19).
Types of Questions That Might Appear on the Final Exam:
The twohour final exam will consist of a mix of long and
shortanswer questions. Long questions will consist of several
closely related parts (e.g., Parts A, B, C) and will generally be designed to be answerable in about an hour (or perhaps in somewhat less time, such as 40 minutes). Shortanswer questions will pose one or more standalone questions that are designed to be answered in about 10 or 15 minutes.
Some examples of the types of final exam problems that
could appear in either shortanswer or longanswer form are as
follows:
 Provide a careful verbal definition for some key
concept covered in the required materials for the final exam (e.g., Walrasian equilibrium, unemployment rate, Phillip's Curve, total factor productivity, Solow growthaccounting equation, goldenrule solution, rational expectations, government policy rule, Lucas critique, First Welfare Theorem, Nash equilibrium, coordination failure, Taylor Rule for monetary policy, and so forth). This might be followed by one or more of the following types of requests: Provide a quantitative and/or graphical illustration of this concept. Explain what role this concept has played in macroeconomic theory. Explain to what extent this concept has implications for the determination of macroeconomic policy.
 Identify and discuss carefully the key economic assumptions
underlying some particular model developed in required readings and/or assignments: for example, the Walrasian general equilibrium (WGE) model, the stickyprice or flexibleprice dynamic ISLM model, the SolowSwan descriptive growth model, the optimal growth model, the pureexchange overlapping generations (OG) model, rational expectations (RE) models, economic game models, dynamic stochastic general equilibrium (DSGE) models, agentbased computational economics (ACE) models, and so forth. This might be followed by one or more of the following types of requests: Discuss to what extent, if any, this presented model captures some stated aspect of empirical reality thought to be important for the understanding of the workings of a macroeconomy. What macroeconomic issues does it help to highlight? What are the strengths and weaknesses of the model from the point of view of theory and/or empirical data?
 Provide an economic interpretation for some key hypothesis or concept discussed in required readings and/or assignments: for example, involuntary unemployment, adaptive expectations, weakform or strongform rational expectations, representative consumer, Discounted Utility as a preference representation, hyperbolic discounting, continuous market clearing, Walrasian equilibrium, Nash equilibrium, Pareto efficiency, coordination failure, (in)credible signaling, and so forth. This might be followed by one or more of the following types of requests: Illustrate the hypothesis/concept using a simple analytic and/or graphical example. Explain what role the hypothesis has played in macroeconomics to date (e.g., its implications for macro policy). Provide a critique of the hypothesis with regard to its consistency with microfoundations and/or empirical data.

Consider the following example of an overlapping generations (OG) model. Give the defining conditions
for a feasible allocation, an efficient allocation, and/or a Pareto efficient allocation for this OG model.
Solve the model under some stated conditions, and discuss the economic implications of the solution. Compare and
contrast the structure of the OG model with the structure of other models studied in Econ 502. What are the advantages or disadvantages of OG modeling for the study of macroeconomic issues?
 Consider the following example of a rational expectations (RE) model. Solve for the RE solution, step by step, carefully justifying each step. Discuss the economic implications of this solution. Compare and contrast the RE solution with the solution
that would instead obtain under adaptive expectations (or some other assumption about expectation formation). What are the advantages and disadvantages of RE models for the study of macroeconomic issues?
 Consider the following model involving strategic
interaction among multiple economic agents. Identify in what
precise ways strategic interaction arises. What are the major
sources of uncertainty in this model from the viewpoint of
each of the participants, and how might this uncertainy lead to
coordination problems? How might the participants attempt to
resolve their uncertainty? Is there a "rational" way for these
participants to proceed to resolve their uncertainty? What are the macroeconomic implications of your findings? What are the advantages and disadvantages of this type of model for the study of macroeconomic issues?