ECO 2251 PRINCIPLES OF MACROECONOMICS I Section: TEWA Fall Semester 2010 Instructor: Course Prerequisites: Office Hours: Phillip Mixon Assistant Professor of Economics Center for International Business and Economic Development None 8:30-10:00 M-Th Appointments available via email pamixon@troy.edu Office Location: 339 Wallace Hall Office Telephone: 334-670-3140 334-670-3636 FAX Email: Time of Class: pamixon@troy.edu 12:00 pm to 1:00 pm M W F Class Location: GAB 103 Description Macroeconomic theory of the national economy with emphasis on income, employment, banking, and public policy. Student learning outcomes - On completion of the course, the student should be able to: 1. Contrast the market system with alternative methods. 2. Explain how the price system allocates economic resources. 3. Identify the different sectors in the economy and explain their respective roles. 4. Use national income accounting to measure the overall performance of the economy. 5. Outline the relationships among spending, output, employment, and inflation. 6. Explain changes in the equilibrium price level, output level, and level of employment using the aggregate demand (AD) and aggregate supply (AS) framework. 7. Assess the impact of fiscal policy on an economy. 8. Explain money creation and control of the money creation process by the Federal Reserve System. 9. Assess the impact of monetary policy on an economy.
2 10. Explain and assess the macroeconomic impact of international activity on an open economy. Purpose To provide familiarity with the fundamental concepts and theories of economics as they apply to everyday life. These include the concepts of price determination, national income accounting, governmental fiscal and monetary policy, and economic growth. Prerequisite for admission into all upper-level business courses. A choice of ECO 2251 or ECO 2252 is required for the ASB Business Administration minor. Required Book McConnell, Brue, and Flynn. Macroeconomics, 2010, McGraw-Hill Learning Solutions, ISBN 978-007-795-3263 (custom text package including Connect homework manager and an embedded ebook) Supplements As deemed appropriate. Other Requirements All students who take this course must take a timed, proctored, comprehensive, closedbook/closed notes formative exam which will be taken in Blackboard during the final examination period. The exam must be worth 25% of the points of the course and the exam results may not be scaled. This exam will be administered online in Blackboard. All students, regardless of course format (online, lecture, or hybrid) will be registered in a separate course in Blackboard where this exam is accessed. Instructors will not have access to this course, nor will they be allowed to preview the questions. The exam will cover all of the learning objectives listed in this master syllabus. See the last two pages for a detailed list of subtopics included. These topics must be covered by all instructors at the minimum in their courses.
3 Topics covered on formative final examination: The test consists of questions selected at random from pools on each of the learning objectives listed on page 1. Areas included are as follows: 1. Contrast the market system with alternative methods. understand the nature of the economizing problem, as well as how scarcity and how opportunity cost influences our choices distinguish positive from normative analysis understand the differences between a market and command system, as well as the shortcomings of each know the fundamental questions that the market system answers 2. Explain how the price system allocates economic resources. define the concept of the invisible hand be able to show a growing economy using a production possibilities frontier (PPF) understand attainability and efficiency of resource use with regard to a PPF diagram understand how market equilibrium is determined and the rationing function of prices know the determinants of demand and supply and how changes in non-price determinants shift the curves and change equilibrium price and quantity 3. Identify the different sectors in the economy and explain their respective roles. understand the circular flow model identify the major sectors of the economy understand the economic functions of government know the major categories of federal, state, and local expenditures, as well as how these expenditures are financed 4. Use national income accounting to measure the overall performance of the economy. define nominal GDP and real GDP, and be able to calculate real GDP using a price index know what is counted in GDP and what is not counted, as well as the shortcomings of this measure compare the expenditure and income approaches for measuring GDP be able to determine GDP using the expenditure or income approach understand the basic components of GDP 5. Outline the relationships among spending, output, employment, and inflation. understand how economic growth is measured and the major causes of growth define a business cycle and be able to identify the stages know how the unemployment rate is measured as well as the types of unemployment and its consequences know how inflation is measured as well as its causes and impact on the economy understand the difference between cost-push and demand -pull inflation, and how government policymakers can correct for each
4 understand the relationship between inflation and unemployment using a Phillips curve approach 6. Explain changes in the equilibrium price level, output level, and level of employment using the aggregate demand (AD) and aggregate supply (AS) framework. understand the determinants of consumption and investment spending and how each impacts the level of spending know why the AD curve slopes downward understand the determinants of AD and AS curves, as well as shift and change factors understand how equilibrium is determined in an AD/AS framework and what changes in each curve represent in the macroeconomic sense know what the multiplier effect is and how it impacts aggregate demand 7. Assess the impact of fiscal policy on an economy. differentiate between expansionary and contraction policy, as well as when policy is appropriate to use in the business cycle understand how fiscal policy impacts the economy using an AD/AS framework know what is meant by automatic stabilizers and how they impact tax revenues understand the problems associated with implementing fiscal policy, as well as what the crowding-out effect is know the difference between the federal budget deficit and the debt understand the difference between cyclical and structural budget deficits or surpluses understand the major concerns about high levels of government debt 8. Explain money creation and control of the money creation process by the Federal Reserve System. understand the functions of money in an economy know the primary components of the money supply, including M1 and M2 understand what influences the value of money know the basic functions the Federal Reserve system provides in the US economy, as well as characteristics such independence know what fractional reserve banking is and how money is created or destroyed explain how multiple deposit expansion works be able to calculate and use the simple money multiplier 9. Assess the impact of monetary policy on an economy. know the components of the demand for money understand the three basic tools of monetary policy and how they impact the money supply know what the Federal Funds rate is and how the Federal Reserve influences it understand the difference between expansionary and contraction monetary policy and when each would be used know how monetary policy influences the level of real GDP and the price level in an AD- AS framework
5 understand the problems associated with using monetary policy, such as lags and cyclical asymmetry 10. Explain and assess the macroeconomic impact of international activity on an open economy. understand how exchange rates are determined know the basic components of the balance of payments know the difference between fixed and flexible exchange rates Chapters included in the Required Custom Textbook 1) Troy Chapter Number 2) ebook or Economics (18th ed.) Chapter Number Chapter Title 1 Limits, Alternatives, Choices 1 2 The Market System and the Circular Flow 2 3 Demand, Supply, and Market Equilibrium 3 4 The US Economy: Private and Public Sectors 4 5 An Introduction to Macroeconomics 23 Exam 1 6 Measuring Domestic Output & National Income 24 7 Economic Growth 25 8 Business Cycles, Unemployment, & Inflation 26 9 Basic Macroeconomic Relationships 27 10 The Aggregate Expenditures Model 28 Exam 2 11 Aggregate Demand and Aggregate Supply 29 12 Fiscal Policy, Deficits, and Debt 30 13 Money and Banking 31 14 Money Creation 32 15 Interest Rates and Monetary Policy 33 Exam 3 16 Extending the Analysis of Aggregate Supply 35 17 The Balance of Payments, Exchange Rates, and Trade Deficits 38
6 Other Materials: A scan-tron answer form will be necessary for each exam. Grading Methods: 3 regular tests and a final exam, each with a value of 100 points, will be given. Also, an undetermined number of popquizzes/homework assignments will be given for a total of 100 points the equivalency of 1 exam. A total of 500 points are available. Exams and assignments will then be averaged with the final course grade falling into the following distribution: A 90-100% B 80-89% C 70-79% D 60-69% F 0-59% TEST POLICY: Class Procedures and Requirements: If a test is missed for any reason, a comprehensive make-up test will be taken at the end of the semester and count as two exam grades.. Note that verbal (not email) approval to miss an exam for any reason must be obtained from your instructor in advance of the exam. If verbal approval is not obtained in advance of the exam, then a score of zero will be awarded for all no shows for any exam. The approach used will be classroom lecture based on the material in your text. Class participation and discussion is strongly encouraged. The student will be expected to attend scheduled class meetings, complete reading assignments prior to class.