Edmonds Community College Macroeconomic Principles ECON 202C - Winter 2011 Online Course Instructor: Andy Williams

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1 Edmonds Community College Macroeconomic Principles ECON 202C - Winter 2011 Online Course Instructor: Andy Williams Textbooks: Economics: Principles, Problems and Policies, 18th Edition, by McConnell, Brue, Flynn is required. The textbook authors have made additional materials available at their Online Learning Center at Equipment and software: A calculator, paper and pencils will prove to be handy, as will skills with word processing, spreadsheets and the internet. Students must have reliable access to the internet throughout the course. This is an online course and we will use Blackboard to communicate, for testing and for submitting assignments. Students are expected to access Blackboard via the internet daily and to participate actively in course discussions throughout the course. You can find additional information at the EdCC Blackboard site at Availability: The best way to reach me is via at You can also reach me by phone at If you want to meet in person, you can find me in my office in SNO #235. My office hours are Monday - Thursday: 10:30 11:30 a.m. You can also find additional information on my web page at Prerequisites: Successful completion of Math 90, Intermediate Algebra, is a prerequisite for this course. Successful completion of English 105 is also a prerequisite for this course. This is a class that is delivered using the tools of the internet, as well as standard business software, such as spreadsheets and word processors. You should be familiar with these tools before taking this course. We will be using the Blackboard software for our virtual classroom. Blackboard creates a complete online classroom on a Web site. Students need access to the internet and a Web browser; no other online software is required. Complete instructions for logging into Blackboard are located at the EdCC Online website. Also at that site are links to various resources, plug-ins, and tips and tricks that you may find useful! Accessibility: Students who require accommodation for special circumstances should contact Services for Student Disabilities at Course Objectives Edmonds Community College has identified four abilities in which graduates must demonstrate their proficiency. The following college-wide abilities and specific learning outcomes are applied in ECON 202: Critical Thinking Outcomes Observe, analyze, synthesize, apply and evaluate business information.

2 Identify arguments, evaluate claims, and form conclusions based on standard business practices. Identify and analyze problems and options, then select and implement appropriate solutions, and evaluate outcomes appropriate to course content. Examine and evaluate personal thinking as well as the thought process and perspectives of others. Communication Outcomes Prepare and present clear, concise, well-developed written communications in standard English with correct punctuation and spelling, using business-appropriate word processing formats and styles. Write clear organized short informational and argumentative reports using correct format and report writing principles. Use listening skills that positively enhance relationships in a business environment. Quantitative Skills Outcomes Use mathematics to solve quantitative economics issues and problems. Calculate and explain the costs and benefits of economic choices encountered in business and society. Use personal computers and other tools most commonly used by business to obtain, store, organize and communicate quantitative business information. Specific Course Outcomes for ECON 202 Define economics and describe elements of economic perspectives. Identify economic policies and goals as accepted by society, and describe their interrelationships. Identify the economics problem, productive efficiency, allocative efficiency, and the production possibilities curve. Describe basic economic systems and the allocation of resources and products. Describe the role of households, business and government in the United States economy. Identify the basic components of federal finance, including expenditures and revenues. Describe the basic components of world trade, and identify current trends in the global economy. Identify the tools that governments have available to manage imports and exports. Define national income accounting and gross domestic product. Calculate gross domestic product based on the spending and income approach. Describe the relationship between gross domestic product and economic well-being. Define economic growth, inflation and unemployment. Identify their costs and causes. Explain how a market economy moves to equilibrium price and output level. Define and describe fiscal policies and their effects on the economy. Describe the structure of the U.S. banking system. Describe the functions of the Federal Reserve System and point out which role is the most important. Define and describe monetary policies and their effects on the economy. Describe the factors contributing to economic growth and how they relate to production

3 possibilities analysis and long-run aggregate supply. Describe the obstacles to economic development, and their impact on income gaps and poverty. Week One: 1/3 1/11 Limits, Alternatives and Choices : Course Schedule Define economics and describe elements of economic perspectives. Define theoretical economics and empirical economics, and describe their purposes. Define material wants, utility, the concept of scarcity and the factors of production. Identify the economics problem, productive efficiency, allocative efficiency, and the production possibilities curve. Define opportunity cost, and describe the law of increasing opportunity costs Define marginal cost, marginal benefit, and describe conditions at the optimal point on the production possibilities curve. Apply the concept of the production possibilities curve to current social issues. Describe the relationship between dependent and independent variables in a graph, define direct and inverse relationships as depicted in a graph, and determine the slope of a line on a graph. The Market System and the Circular Flow : Define the basic components of a competitive market system Identify and describe the characteristics of modern economies, including the differences between command and market systems. Describe how the market system determines production goals, production methods and allocates resources. Describe the role of competition in a capitalistic economic system. Describe how a market system adjusts to changes. Week Two: 1/12 1/18 Demand, Supply and Market Equilibrium : Define a market, and describe various types of market locations and participants. Define demand, describe the law of demand, and describe how various forces may shift the market demand curve. Define supply, describe the law of supply, and describe how various forces may shift the market supply curve. Define market equilibrium and the rationing function of prices. Describe the effects of changes in supply, demand and equilibrium prices and quantities. Describe the impacts of externally imposed prices and how they can result in product surpluses and shortages.

4 The U.S Economy: Private and Public Sectors Define, explain, and give relative importance of the five shares in the functional distribution of income. Define and explain the personal distribution of income, and state the relative shares going to the top 20 percent compared to the bottom 20 percent (or one fifth). Explain the terms, durable goods, nondurable goods, and services. Explain the difference between a plant, a firm, and an industry. Describe the different business combinations and legal forms of business. Describe the role of households, business and government in the U. S. economy. Identify the basic components of federal finance, including expenditures and revenues. Week Three: 1/19 1/25 The United States in the Global Economy Describe the basic components of world trade, and identify current trends in the global economy. Describe the pattern of U.S exports and imports of goods and services since 1975 both in terms of percentage of GDP and absolute dollars. Define specialization and comparative advantage, and their effects on the global economy. Describe the characteristics and dynamics of the currency exchange markets. Identify the tools that governments have available to manage imports and exports. Describe the purposes of the GATT and the WTO and explain the criticisms of the WTO. Explain what a trade bloc or a free-trade zone means and identify regional trade blocs. Exam #1 Week Four: 1/26 2/1 An Introduction to Macroeconomics Understand the basic statistical tools and measures that economists use to analyze the economy. Differentiate between nominal GDP and Real GDP (Gross Domestic Product). Understand the basic concept of unemployment. Understand the basic measure of inflation. Explain modern economic growth. Understand, and define, the basic concepts of savings and investment. Differentiate between financial investment and economic investment. Understand the role of expectations and uncertainty in economic activity. Explain how unanticipated shocks to supply and demand affect the economy under fixed and flexible prices. Explain the role of inventories in the economy. Explain the difference between sticky prices and flexible prices and understand the basic evidence supporting the two concepts.

5 Measuring Domestic Output and National Income State the purposes of national income accounting. List the components of GDP in the output (expenditures) approach and in the income approach. Compute GDP using either the expenditure or income approach when given national income data. Differentiate between gross and net investment. Explain why changes in inventories are investments. Discuss the relationship between net investment and economic growth. Compute NDP, NI, PI, and DI when given relevant data. Describe the system represented by the circular flow in this chapter when given a copy of the diagram. Calculate a GDP price index using simple hypothetical data. Find real GDP by adjusting nominal GDP with use of a price index. List seven shortcomings of GDP as an index of social welfare. Explain what is meant by the underground economy and state its approximate size in the U.S. and how that compares to other nations. Give an estimate of actual 2007 (or later) U.S. GDP in trillions of dollars and be able to rank U.S. relative to a few other countries. Week Five: 2/2-2/8 Economic Growth Define two measures of economic growth. Explain why growth is a desirable goal. Identify two main sources of growth. Explain and apply the rule of 70. Give average long-term growth rates for U.S. and qualifications of raw data. Show economic growth using production possibilities analysis and aggregate demand-aggregate supply analysis. Describe the growth record of the U.S. economy since 1950, including two measures of its long-term growth rates. Identify six major factors that contributed to U.S. economic growth according to empirical studies. List three primary reasons for productivity acceleration in the United States since List five reasons for increasing returns during the period of productivity acceleration. Evaluate the potential for the productivity acceleration to be a permanent phenomenon. Identify and explain the arguments for and against economic growth. Business Cycles, Unemployment and Inflation Explain what is meant by a business cycle. Describe the four phases of an idealized business cycle. Identify two types of non-cyclical fluctuations in business activity.

6 Describe how innovation and/or random events might cause business cycles. Explain why business cycles affect capital and consumer durable goods industries more than non-durable goods and service industries. Describe how the Bureau of Labor Statistics (BLS) measures unemployment. Evaluate strengths and limitations of BLS unemployment statistics. State causes of frictional, cyclical, and structural unemployment. Identify the full employment or natural rate of unemployment. Identify the economic costs of unemployment and the groups that bear unusually heavy unemployment burdens. Define inflation and list two types of inflation. List three groups who are hurt and two groups who may benefit from unanticipated inflation. Present three possible effects of inflation on output and employment. Compare U.S. inflation and unemployment rates to one or more industrialized nations. Week Six: 2/9 2/15 Basic Macroeconomic Relationships Describe the income-consumption and income-saving relationships. Recognize, construct, and explain the consumption and saving schedules. Identify the determinants of the location of the consumption and saving schedules. Calculate and differentiate between the average and marginal propensities to consume (and save). Describe the relationship between the interest rate, expected rate of return, and investment. Identify the determinants of investment and construct an investment demand curve. Identify the factors that may cause a shift in the investment-demand curve. Describe the reasons for the instability in investment spending. Provide an intuitive explanation of the multiplier effect. Calculate the multiplier and changes in real GDP given information about changes in spending and the marginal propensities. Discuss why the actual multiplier may differ from the theoretical examples. Week Seven 2/16 2/22 Aggregate Demand and Aggregate Supply Define aggregate demand and aggregate supply. Give three reasons why the aggregate demand curve slopes downward. State the determinants of the aggregate demand curve s location, and explain how the curve will shift when one of these determinants changes. Distinguish between an initial shift in aggregate demand and the full shift after multiplier effects have been incorporated. Explain the shape of the long-run aggregate supply curve. Explain the shape of the short-run aggregate supply curve. Indicate the determinants of the aggregate supply curve s location, and explain how the curve will shift when one of those determinants changes. Find an economy s equilibrium price level and real domestic output using AD-AS. Explain how the multiplier effect is weakened when there is demand-pull inflation. Demonstrate and explain how a decrease in aggregate demand can cause a recession

7 without a drop in the price level. Demonstrate and explain the effects of shifts in aggregates supply on the equilibrium price level and real domestic output of an economy. Explain how an economy can maintain full employment and stable prices under conditions of rising aggregate demand. Explain how the impact of oil price fluctuations has changed for the U.S. economy over the past couple decades. Week Eight: 2/23 3/1 Fiscal Policy Define and explain the role of the CEA. Distinguish between discretionary and nondiscretionary fiscal policy. Differentiate between expansionary and contractionary fiscal policy. Recognize the conditions for recommending an expansionary or contractionary fiscal policy. Explain expansionary fiscal policy and its effects on the economy and Federal budget. Explain contractionary fiscal policy and its effects on the economy and Federal budget. Give two examples of how built-in stabilizers help eliminate recession or inflation. Explain the differential impacts of progressive, proportional, and regressive taxes in terms of stabilization policy. Explain the significance of the standardized budget concept. Describe recent U.S. fiscal policy actions and the motivation behind them. List three timing problems encountered with fiscal policy. State political problems that limit effective fiscal policy. Identify actions by households, and by state and local governments that can frustrate fiscal policy. Differentiate between deficit and debt. State the relative size of the debt as a percentage of GDP and describe how that has changed in recent years. Describe the annual interest charges on the debt, who holds the debt, and the impact of inflation on the debt. Explain why the debt can also be considered public credit. Identify and discuss two widely held myths about the public debt. Explain the real or potential effect of the debt on income distribution, economic incentives, fiscal policy, and private investment Explain and recognize graphically how crowding out is a concern caused by a large public debt. Explain the purpose and structure of the Leading Economic Indicators. Exam #2 Week Nine: 3/2 3/8 Money and Banking List and explain the three functions of money. Define the money supply, M1 and near monies, M2, and M3. State three reasons why currency and checkable deposits are money and why they have value.

8 Describe the relationship between GDP and the interest rate and each type of money demand. Explain what is meant by equilibrium in the money market and the equilibrium rate of interest. Explain the relationship between bond prices and the money market. Describe the structure of the U.S. banking system. Describe the functions of the Federal Reserve System and point out which role is the most important. Identify the current trends in the financial services industry. Money Creation Explain the effects of a currency deposit in a checking account on the composition and size of the money supply. Describe a bank s required and excess reserves. Explain why a commercial bank is required to maintain a reserve and why it isn t sufficient to cover deposits. Describe what the effects on the money supply when a commercial bank makes a loan, when a loan is repaid or when securities are purchased or sold. Explain what happens to a commercial bank reserves and checkable deposits after it has made a loan. Describe how a check drawn on one commercial bank and deposited in another will affect the reserves and excess reserves in each bank after the check clears. Explain how it is possible for the banking system to create an amount of money that is a multiple of its excess reserves when no single bank ever creates money greater than its excess reserves. State the two leakages that reduce the money creating potential of the banking system. Week Ten: 3/9 3/15 Interest Rates and Monetary Policy Explain how the equilibrium interest rate is determined in the market for money. Identify the goals and tools of monetary policy. Identify the federal funds rate, its importance for monetary policy and how the Fed controls it. Describe the mechanisms by which monetary policy affects GDP and the price level. Describe the effectiveness of monetary policy and its shortcomings. Describe the factors contributing to economic growth and how they relate to production possibilities analysis and long-run aggregate supply. Define 'growth accounting' and identify the specific sources of U.S. economic growth. Explain why U.S. productivity growth has accelerated since the 1990s. Discuss the differing perspectives on whether growth is desirable and sustainable. Describe the obstacles to economic development, and their impact on income gaps and poverty. Final Exam Due March 16 Assessment of Student Achievement Please read my policy on Academic Integrity

9 Student achievement of the course objectives will be assessed by a variety of instruments, including objective testing, completion of written homework problems and discussion questions, participation in class discussions and written analysis of cases. Exam and Homework Policy: NO EXAM MAKEUPS WILL BE ALLOWED unless instructor receives sufficient notice and adequate reasons prior to scheduled exam. Specific homework problems and other assignments will be assigned periodically throughout the course, usually at the beginning of each unit. The assigned homework is the minimum that you should prepare to successfully complete this course. Homework assignment due dates will be listed in the Assignments section for each week. NO LATE HOMEWORK ASSIGNMENTS WILL BE ACCEPTED for any reason without prior approval from the instructor. If you know that you will need more time on an assignment, please contact me BEFORE THE ASSIGNMENT IS DUE so we can discuss the situation. Homework assignments will be graded on the bases of quality of presentation, completeness, and accuracy. Classroom Discussions and Participation: Classroom discussions and your active participation in class activities and exercises are integral parts of the learning process. Your questions, and your responses to the questions of others, reveal the quality of your efforts and the depth of your understanding. Accordingly, grade points will be earned based on your consistent and quality participation in those discussions. At a minimum, you should be actively participating at least three times weekly, and should be checking in with the class on a daily basis. Grades: Points will be earned as follows: Exams 1 & Final Exam 150 Weekly Quizzes 100 Participation 100 Total Possible 550 Percentage of points earned will be converted to a decimal grade using the following Decimal Grading Scale: Percentage of Total Points Decimal Grade Letter Grade Equivalent % 4.0 A A A A A A B+

10 B B B B B B B B B C C C C C C C C C C D D D D D D D D- Score < 60% 0.0 No Credit

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