ECON 102: Interactive Exam Trainer
Eight mechanisms you can operate. Companion to the Master Visual Reference, same notation, same slide numbers.
How to use this in the last hour
- Predict before you drag. Say the direction out loud, then move the slider. A wrong prediction is worth more than a correct read.
- Module 4 is the exam. Every comparative-static question is one of those five shocks. Step each one twice.
- Read the red card in every module. Those are the errors that actually cost marks.
- Finish on the final drill, cold, out loud, no notes.
Reference part 2.1 · slides 67–75
Production function and MPN
MPN is the slope of the curve, not the height of it. And the MPN curve is labour demand.
TakeawayThe firm hires until MPN = w. So the right-hand curve is not a separate object, labour demand simply is the MPN curve with the real wage read off the vertical axis.
PitfallReading MPN off the vertical axis of the left panel. That axis is Y. MPN is steepness, not level. Second trap: changing N moves you along the curve; changing A or K shifts it.
Why it works this wayCapital K is fixed in the short run. Each extra worker shares the same machines, so each adds less than the last. That is diminishing returns, and it is why the curve bends over and MPN falls.
Hook“Slope, not height.” And A multiplies, so a productivity shock steepens the curve at every N, it never tilts just one end. That is exactly why N ᴰ shifts rather than pivots.
Reference part 2.2 · slides 88, 106–109
Labour market: market clearing vs sticky wage
Unemployment is the horizontal gap at the prevailing wage. Under market clearing that gap is zero by construction, so pick your framework before you draw.
TakeawaySame shock, two frameworks, two different answers. Under clearing the wage absorbs it and U = 0 always. Under stickiness the wage refuses to fall and the shock lands on employment instead.
PitfallPlotting N ᴰ = 120 − 4w as written. Price sits on the vertical axis, so you graph the inverse: w = 30 − N/4. Second trap: wages stick only above w*, push demand right and the wage rises normally. Try it.
Why it works this wayA free wage arbitrages any gap away instantly. Unemployment therefore needs something that stops the wage falling: contracts, minimum wages, or efficiency wages paid deliberately above clearing to cut turnover and raise effort.
Hook“Gap equals unemployment.” If the question contains the word unemployment at all, the market-clearing model cannot answer it, that is a whole-question decision, not a partial-credit one.
Reference part 4 · slides 174–180
The money multiplier
Three actors, three dials: mm = (cu+1)/(cu+res). The central bank controls only one of them.
TakeawayM = BASE × mm. Two of the three dials, cu and res, sit outside the central bank entirely, which is why the money supply is only partly a policy variable.
PitfallUsing 1/res. That is the special case cu = 0. Watch the bottom line of the readout: at the Q40 values the shortcut gives 3.33 against a true 1.724. Nearly double.
Why it works this wayCash in wallets has leaked out of the banking system and cannot be re-lent. Higher cu means more leakage per round, so the deposit-creation chain dies sooner and the multiplier shrinks.
HookName the actor, not the letter: public · banks · central bank. Two shifts can look identical on the asset-market graph, you earn the marks by naming which actor moved.
Reference part 5 · slides 212–220 · the analytical core
The three-market engine
Every comparative static in this course is one of these five shocks. Step it through and watch the scorecard fill in, that scorecard is the answer format.
TakeawayOne real interest rate must hold economy-wide. When a market gives you an ambiguous r, you do not guess, you take the sign from whichever market pins it unambiguously, and the ambiguous market is forced to agree.
PitfallCalling the labour-market move under G↑ a shift. It is a movement along N ᴰ: the nominal wage never moved, only P did, so the real wage slid down an unchanged curve. Also: “temporary” kills the MPK ᶠ channel, so I ᴰ does not shift for that reason.
Why it works this wayUnder rigidity the price level does the job the nominal wage refuses to do. That single sentence is why money and fiscal policy have real effects here and none at all under market clearing.
HookTwo general rules, not five memorised rows. Clearing: P moves opposite to output. Rigidity + demand shock: P and Y move together. Same direction ⇒ determinate; opposite ⇒ ambiguous.
| Shock | Framework | N | wage | Y | r* | P |
|---|---|---|---|---|---|---|
| A ↑ positive supply | clearing | ↑ | w* ↑ | ↑ | ↓ | ↓ |
| A ↓ negative supply | clearing | ↓ | w* ↓ | ↓ | ↑ | ↑ |
| G ↑ | sticky wage | ↑ | W/P ↓ | ↑ | ↑ | ↑ |
| G ↓ | sticky wage | ↓ | W/P ↑ | ↓ | ↓ | ↓ |
| M ↑ | sticky wage | ↑ | W/P ↓ | ↑ | ↓ | ↑ |
Note on the A↑ row. A rightward N ᴰ shift along an upward-sloping N ˢ must raise w*, that is what the geometry gives and what the graph in the solutions shows. The Q47 answer text says it falls. Flag it if it comes up; do not memorise the contradiction.
Reference part 9.1 · slides 99, 317
Shift or pivot?
A variable in the intercept shifts the line. A variable in the slope pivots it. Taxes scale the wage, so taxes always pivot.
TakeawayLook at where the new variable sits in the algebra, not at what it is called. Added to the equation ⇒ the intercept moves ⇒ parallel shift. Multiplied through ⇒ the slope changes ⇒ pivot about the anchor.
PitfallDrawing an income tax as a parallel shift. N ˢ = (1−t)w multiplies the wage, so it rotates about the origin, which never moves. The payroll tax MPN = (1+τ)w rotates labour demand about its N-intercept, set w = 0 and N stays at 120 for any τ.
Why it works this wayA payroll tax raises the firm's cost of an hour of labour without touching what that hour produces. It hits marginal cost, not MPN, which is exactly why the curve rotates instead of shifting bodily.
Hook“Add ⇒ slide. Multiply ⇒ rotate.” Then find the anchor: the point where the tax term does nothing. For workers that is w = 0 at the origin; for firms it is where w = 0 on the demand curve.
Reference part 7.1 · slide 255
The Taylor rule and why 1.5 matters
The number that does the work is ∂i/∂π = 1.5 > 1. Drag it below 1 and watch the rule start feeding the inflation it was built to fight.
TakeawayOnly the real rate changes anyone's behaviour. Raising i one-for-one with π leaves r exactly where it was, the central bank would have moved the lever and done nothing at all.
PitfallAnswering “it raises rates when inflation is high.” Every rule does that. The examinable property is that it raises them by more than one-for-one. Set the third slider to 0.9 and read the real rate: policy is now loosening into a boom.
Why it works this wayInflation erodes the real burden of a fixed nominal rate. To lean against a boom the bank must out-run that erosion, so the nominal rate has to climb faster than prices are climbing.
Hook“More than one-for-one.” Anchor check you can do in your head: π = 2, y = 0 ⇒ i = 4, so r = 2. If your arithmetic does not land there, you dropped a term.
Reference part 8.2 · slides 280–285
Exchange rates: the direction trap
e_nom = units of foreign currency per one CAD. Up means the CAD strengthens. Most outside material quotes the reciprocal, one inversion flips every FX answer you write.
TakeawayA nominal depreciation is not a real depreciation. Real competitiveness is e = e_nom × P/P_for, if the depreciating country's inflation outruns its currency fall, its goods get relatively dearer.
PitfallImporting the US convention. Write the definition at the top of your page before you touch an FX question. Second trap: one instrument cannot hit two targets, the Bank of Canada cannot push the exchange rate and inflation independently. Both answers are “no”.
Why it works this wayWhat a buyer actually compares is two price tags converted into one currency. The exchange rate is only the converter; the price levels are the tags. Move the tags fast enough and the converter stops mattering.
Hook“Up means the dollar buys more.” For PPP: implied rate = foreign price ÷ domestic price. A Big Mac at 5,200 won and USD 5.58 implies 932 won; the market charges 1,274, so the won is undervalued by about 27%.
Reference part 6.3 · slides 238–243
Lorenz curve and the Gini
Gini = A/(A+B), the sag below the 45° line as a share of the whole triangle. Zero is perfect equality. Compute it with trapezoids; it always comes out clean.
TakeawayThe method, not the number: cumulate the shares, take strips of width 20, each strip is (height₁+height₂)/2 × 20, sum them, then Gini = (5000 − sum)/5000.
PitfallTreating the Gini as the whole story. Press Distribution A then B, different distributions, identical Gini of 0.380. The companion trap: if the already-poor get poorer, the poverty rate does not move at all, because a headcount is blind to depth.
Why it works this wayThe 45° line is what the curve would be if every fifth of the population held exactly a fifth of the income. The further the curve sags away from it, the more income has pooled at the top, so the sag is the inequality.
Hook“Lower Gini, more equal.” The denominator is always 5,000 in these units, so the only thing you actually have to compute is the trapezoid sum.
Last twenty minutes
Say these out loud, cold
Reading is not revision. If any line below is slow or wrong, go back to that module, the number tells you which one.
| Prompt | Module |
|---|---|
| Is MPN the height of the production function or its slope? | 1 |
| Why can the market-clearing model never answer an unemployment question? | 2 |
| Wages stick above w* or below it? What happens if demand shifts right? | 2 |
| Write the multiplier. Now say which of the three actors sets each term. | 3 |
| Negative supply shock, clearing: give N, w, Y, r*, P in that order. | 4 |
| Under G↑, is the labour-market move a shift or a movement along? Why? | 4 |
| The asset market is ambiguous. What resolves it, and why are you allowed to do that? | 4 |
| A temporary rise in MPK, what happens to I ᴰ? | 4 |
| Income tax on workers: shift or pivot, and about which point? | 5 |
| Why must the inflation coefficient exceed 1? | 6 |
| Nominal depreciation with very high domestic inflation, cheaper in real terms? | 7 |
| The already-poor get poorer. What happens to the poverty rate? | 8 |
Answering techniqueName the mechanism, not the direction. “A ↑ raises MPN at every N, so N ᴰ shifts right” earns the mark; “A ↑ increases demand” does not.
Do not hedgeState the ambiguity, then commit. On a paper offering options, circle exactly one, unless “ambiguous” is itself one of the options, in which case it is the right answer.
Arithmetic checkNo calculators means the numbers are designed to come out clean. An ugly decimal is a signal you slipped, not a signal to round.
The eight mantrasDivide by P · intercept shifts, slope pivots · clearing puts P opposite to Y · one r* economy-wide · same direction determinate, opposite ambiguous · divide by the earlier P · “temporary” never touches MPK ᶠ · cu, res, BASE.