State exam topics

EK7 – MAJOR FIELD STATE EXAM IN ECONOMICS PROGRAM

This document provides you with more specific information about the Major Field State Exam in Economics program than the syllabus in ISIS.

Structure of the exam and its assessment:

Oral part: The students can acquire up to 50 pts answering a randomly chosen question from the below stated fields. The oral part takes 15-30 minutes. Problems can be discussed within the framework of the history of economic thought. The standard grading applies.

FIELDS:

Macroeconomics

Basic macroeconomic aggregates and their interdependencies

Macroeconomic aggregates, domestic product and its measurement, national savings and national investments.

Theory of consumption

Keynesian consumption function, Fisher model of Inter-temporal Choice, Life-Cycle Hypothesis, Permanent Income Hypothesis, Random walk hypothesis, liquidity constraint.

Theory of investment

Demand for capital, the law of motion of the capital, investment function, inventories, residential investment, Tobin´s q.

Neoclassical model and public finances

Aggregate demand and aggregate supply in neoclassical model, loanable funds market, fiscal policy in neoclassical model and crowding-out effect, Ricardian equivalence.

Open economy

External Balance, balance of payments, neoclassical model of open economy, loanable funds market and net export of capital, real and nominal exchange rate, purchasing power parity theory, net export, fixed exchange rate regime.

Money and inflation

the nature and function of money, money supply, money creation and basic monetary tools of central bank, money demand, money market equilibrium, inflation, nominal interest rate and Fisher’s effect,  Quantitative Theory of Money, neutrality of money; inflation, its measurement, causes and main anti-inflationary policies.

Unemployment

Demand for labor, natural rate of unemployment and its components, job finding         rate, job separation rate, reasons for wage rigidities, efficiency wages.

Economic Growth

Aggregate production function, its assumptions and features, Solow model, accumulation of capital and steady state, golden rule of capital accumulation, population growth, exogenous technological progress, endogenous growth theory, institutions and their impact on economic growth.

Aggregate Demand in closed economy and IS-LM model

the IS curve, product market equilibrium and Keynesian cross, LM curve and money market equilibrium, theory of liquidity preference, IS-LM model, government and its aggregate demand stimulation; multiplication effect and crowding-out effect; monetary stimulation of aggregate demand, real money balances effect, aggregate demand

Aggregate Demand in an Open Economy and Mundell-Fleming Model

Product market equilibrium and IS* curve, money market equilibrium and LM*,  model IS*-LM*, fiscal and monetary stimulation under floating and fixed exchange rate regime, aggregate demand curve in open economy, exchange rate in a short run, interest rate parity, relationship between interest rate parity and purchasing power parity

Aggregate Supply and theory of real business cycle

Potential product and classical aggregate supply, RBC and inter-temporal substitution of labor, explanation of upward-sloping AS, imperfect price information, sticky wages, sticky prices and New Keynesian economics.

AS-AD model, Phillips curve and monetary policy

AS-AD model  -change of aggregate demand and         aggregate supply, monetary cycles. Phillips Curve, Okun´s Law, demand-pull inflation; inflation expectations, inflation inertia, cost-push inflation. Monetary policy: goals and tools, central bank independence, activist monetary policy, rules vs. discretion in monetary policy, rational expectations and policy ineffectiveness, disinflationary policy     and the sacrifice ratio, Golden Rule of money supply, the Taylor rule, inflation targeting.

Microeconomics

The Subject and Method of Economics

The subject of economic science; Gary Becker’s “economic imperialism”; testing of economic theories (testing the assumptions versus testing the predictions); homo economicus; basic economic assumptions; positive and normative economics.

Theory of (Consumer) Choice

Cardinal and ordinal approach to utility; indifference analysis (goods, bads and neutrals; perfect substitutes, perfect complements etc.); budget constraint; utility maximization.

Demand

Demand function; demand curve; Engel curve; normal and inferior goods; substitution and income effect; Giffen paradox and Giffen good; complements and substitutes; individual and market demand; price, cross-price and income elasticity; changes in demand and changes in quantity demanded.

Production

Production function; Short-run production function and the law of diminishing returns; long-run production function and returns to scale; technical substitution.

Costs

Economic and accounting costs; opportunity costs; sunk costs; cost minimization; optimum production technique; long run: returns to scale in context of the cost curves; short run: fixed and variable costs; changes in costs.

Perfect Competition and Firm’s Supply

Aims of a firm; assumptions behind the model of perfect competition; firm’s short-run decision-making in perfect competition; individual firm’s supply curve in the short and long run; individual and market supply; long run equilibrium of an industry.

Market Equilibrium

Market equilibrium and market price; prices and optimum allocation of scarce resources; changes in market equilibrium; arbitrage; law of one price; consumer and producer surplus; subsidies; taxation; price floor and price ceiling.

Monopoly

Barriers to entry; administrative and natural monopoly; price-maker; marginal and average revenue of a monopoly; monopoly profit; inefficiency of a monopoly; regulation of a monopoly; price discrimination.

Imperfect Competition

Strategic behavior; Nash equilibrium; Bertrand oligopoly; Cournot oligopoly; Stackleberg oligopoly; collusion; monopolistic competition.

Labor Market

Demand for labor; supply of labor; transfer payment and economic rent; compensating wage differentials; monopsony; bilateral monopoly.

Capital and Time

Capital and investment; supply of loanable funds; demand for loanable funds; present and future value; intertemporal choice.

Externalities and Public Goods

Positive and negative externality; private and social costs and benefits; property rights; Coase theorem; transaction costs; Pigovian tax; public goods; tragedy of commons.

Asymmetric Information

Principal-agent model; moral hazard; incentives; adverse selection; signaling.