Study Session # 4
Learning Outcome Statements
(Last revised 12/14/04)

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Preliminary Reading Learning Outcomes
P1. A. “Taking the Nation’s Economic Pulse”

a) explain the two approaches to measuring gross domestic product (GDP), and calculate GDP using each
approach;
b) distinguish between GDP and gross national product (GNP);
c) explain the difference between real and nominal GDP;
d) distinguish between the GDP deflator and the consumer price index;
e) calculate real GDP, given nominal GDP and the GDP deflator;
f) discuss the major limitations of GDP;
g) describe alternative measures of domestic output and income, including GDP, GNP, national income,
personal income, and disposable income.
B. “Working with Our Basic Aggregate Demand/Aggregate Supply Model”
a) discuss the factors that shift aggregate demand and aggregate supply;
b) discuss the short-run and long-run effects on resource prices, employment, inflation, and output of
unanticipated changes in aggregate demand and aggregate supply;
c) discuss three self-correcting mechanisms that may help stabilize a market economy.
C. “Keynesian Foundations of Modern Macroeconomics”
a) distinguish between classical economics and Keynesian economics;
b) explain the major components of the Keynesian model;
c) explain Keynesian macroequilibrium;
d) calculate the marginal propensity to consume and the expenditure multiplier;
e) explain the importance of the expenditure multiplier within the framework of the Keynesian model;
f) discuss the Keynesian view of the business cycle.
Learning Outcomes
1. A. “Economic Fluctuations, Unemployment, and Inflation”
The candidate should be able to
a) explain the phases of the business cycle;
b) describe the key labor market indicators, and discuss the problems in measuring unemployment;
c) describe the three types of unemployment;
d) explain full employment and the natural rate of unemployment;
e) define inflation and calculate the inflation rate;
f) discuss the harmful consequences of inflation.
B. “Fiscal Policy”
a) explain the process by which fiscal policy affects aggregate demand and aggregate supply;
b) explain the importance of the timing of changes in fiscal policy and the difficulties in achieving proper
timing;
c) discuss the impact of expansionary and restrictive fiscal policies based on the basic Keynesian model, the
crowding-out model, the new classical model, and supply side model;
d) explain how and why budget deficits and trade deficits tend to be linked;
e) identify automatic stabilizers and explain how such stabilizers work;
f) discuss the supply-side effects of fiscal policy.
C. “Money and the Banking System”
a) identify and explain the basic functions of money;
b) define the money supply;
c) describe the fractional reserve banking system;

d) explain the relationship among the required reserve ratio, potential deposit expansion multiplier, and actual
deposit expansion multiplier;
e) describe the role of a country’s central bank and the tools that a central bank can use to control the money
supply, and explain how a central bank can use monetary tools to implement monetary policy;
f) discuss potential problems in measuring an economy’s money supply.
D. “Modern Macroeconomics: Monetary Policy”
a) discuss the determinants of the demand for and supply of money;
b) discuss how anticipation of the effects of monetary policy can influence the policy’s effectiveness;
c) identify the components of the equation of exchange, and discuss the implications of the equation for
monetary policy;
d) describe the quantity theory of money, and discuss its implications for the determination of inflation;
e) compare and contrast the impact of monetary policy on the inflation rate, real output, employment, and
interest rates in the short run and long run, when the effects are anticipated or unanticipated.
E. “Stabilization Policy, Output, and Employment”
a) describe the composition and use of the index of leading economic indicators;
b) discuss the time lags that may influence the performance of discretionary monetary and fiscal policy;
c) explain the role expectations play in determining the effectiveness of fiscal and monetary policy;
d) contrast the adaptive expectations hypothesis to the rational expectations hypothesis;
e) distinguish between an activist and a non-activist strategy for stabilization policy.
F. “The Phillips Curve: Is There a Trade-off between Inflation and Unemployment?”
a) describe the Phillips curve;
b) discuss the trade-off between unemployment and inflation in the context of expectations.

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