ECONOMICS 232
INTRODUCTORY
MACROECONOMIC THEORYAND SOCIAL ISSUES
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Fall 2009 "Practical men, who believe themselves exempt
from any intellectual influences, are usually the slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling their frenzy
from some academic scribbler of a few years back.” - John Maynard Keynes |
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Office hours - MTWThF
1:00 - 3:00 PM, or by appointment. I am always happy to talk to students
outside my scheduled hours. Feel free to drop in without an
appointment, but if you are coming from off campus, call first to make sure I
will be available. I will not be available Mondays or Tuesdays before an
exam. Office – Forsyth 224A, Phone - (828) 227-3329. Department of Accountancy, Finance, Information Systems, & Economics – Forsyth 121, Phone - (828) 227-3383. |
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1. Text - Macroeconomics, McConnell and Brue, 17th edition. |
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2. Course Objectives "The world consists of facts, not of things." - Ludwig Wittgenstein
Economics is a behavioral science like psychology, and one of the social
sciences. Understanding how consumer and producer behavior are influenced by
certain events (changes in interest rates, changes in prices, new government
regulations, etc.) is emphasized. While a certain amount of technical
training is standard in economics programs at most colleges, the overall
emphasis has always been on understanding behavioral implications of economic
phenomena. ECON 232 Macroeconomics Course Objectives Chapter 12
Money and Banking
1. List and explain the three functions of money.
2. Define the monetary base MB.
3. Define the money supply: M1, M2, M3, and MZM.
4. State three reasons why currency and checkable
deposits are money and why they have value.
5. Explain the relationship between the purchasing
power of money and the amount of money in circulation.
6. Describe the structure of the U.S. banking system.
7. Explain why Federal Reserve Banks are central, quasi‑public,
and bankers’ banks.
8. Describe seven functions of the Federal Reserve
System and point out which role is the most important.
9. Summarize and evaluate the arguments for and against
the Federal Reserve System remaining an independent institution.
10. Describe the conditions that have caused the loss of
market share of banks and thrifts to pension funds, insurance companies,
mutual funds, and securities-related firms.
11. Identify three major changes continuing to occur in
the financial services industry.
12. Describe and explain the significance of electronic
payments.
13. Define and identify terms and concepts listed at the
end of the chapter. Chapter 13
Money Creation
1. Recount the story of how fractional reserves began
with goldsmiths.
2. Explain the effects of a currency deposit in a
checking account on the composition and size of the money supply.
3. Explain the effects of a bank loan on the
composition and size of the money supply.
4. Understand and interpret the regression theorem
explaining how fiat money evolved from commodity monies.
5. Explain how the emergence of money in a barter
economy is an example of spontaneous order.
6. Compute a bank’s required and excess reserves when
you are given its balance‑sheet figures.
7. Explain why a commercial bank is required to
maintain a reserve and why it isn’t sufficient to cover deposits.
8. Describe what happens to the money supply when a
commercial bank makes a loan or buys securities.
9. Describe what happens to the money supply when a
loan is repaid or a bank sells its securities.
10. Explain what happens to a commercial bank’s reserves
and checkable deposits after it has made a loan.
11. 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.
12. Describe what would happen to a single bank’s
reserves if it made loans that exceeded its excess reserves.
13. 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.
14. Compute the size of the money multiplier and the
money‑creating potential of the banking system when provided with
appropriate data.
15. Explain that the money multiplier process can also
lead to multiple destruction of
money.
16. Distinguish among and interpret the simple money
multiplier (deposit expansion multiplier) and the M1, M2, M3, and MZM
multipliers.
17. Define and identify the terms and concepts at the
end of the chapter (Test 1) Chapter 14
Interest Rates & Monetary Policy
1. Identify the goals of monetary policy.
2. Identify the two types of demand for money and the
main determinant of each.
3. Describe the relationship between GDP and the
interest rate and each type of money demand.
4. Explain what is meant by equilibrium in the money
market and the equilibrium rate of interest.
5. Explain the relationship between bond prices and the
money market
6. List the principal assets and liabilities of the
Federal Reserve Banks.
7. Explain how each of the three tools of monetary
policy may be used by the Fed to expand and to contract the money supply.
8. Explain the relative importance of the monetary
policy tools, and why the U.S. is unique in how it can conduct monetary
policy.
9. Describe how the Fed targets the Federal funds rate
as part of its monetary policy actions.
10. Describe expansionary and restrictive monetary
policies, and explain why and how they are used.
11. Explain the Taylor rule and describe how it relates
to current Fed policy.
12. Explain the cause‑effect chain between
monetary policy and changes in equilibrium GDP.
13. Demonstrate graphically the money market and how a
change in the money supply will affect the interest rate.
14. Show the effects of interest rate changes on
investment spending.
15. Describe the impact of changes in investment on aggregate
demand and equilibrium GDP.
16. Contrast the effects of an expansionary monetary
policy with the effects of a restrictive monetary policy.
17. List two strengths and three shortcomings of
monetary policy.
18. Describe the arguments for and against “inflation targeting”
versus a more discretionary “artful management” approach to monetary policy.
19. Summarize the connections between AD-AS, the price
level, real output, and stabilization (fiscal and monetary) policy.
20. Define and identify terms and concepts at the end of
the chapter. Chapter 6 National Income Accounting
1. State the purposes of national income accounting.
2. List the components of GDP in the output
(expenditures) approach and in the income approach.
3. Compute GDP using either the expenditure or income approach
when given national income data.
4. Differentiate between gross and net investment.
5. Explain why changes in inventories are investments.
6. Discuss the relationship between net investment and
economic growth.
7. Compute NDP, NI, PI, and DI when given relevant
data.
8. Describe the system represented by the circular flow
in this chapter when given a copy of the diagram.
9. Calculate a GDP price index using simple
hypothetical data.
10. Find real GDP by adjusting nominal GDP with use of a
price index.
11. List seven shortcomings of GDP as an index of social
welfare.
12. Explain what is meant by the underground economy and
state its approximate size in the U.S. and how that compares to other
nations.
13. Define and identify terms and concepts listed at the
end of the chapter. (Test 2) Chapter 7
Introduction to Economic Growth and Instability
1. Define two measures of economic growth.
2. Explain why growth is a desirable goal.
3. Identify two main sources of growth.
4. Explain and apply the “rule of 70.”
5. Give average long-term growth rates for U.S. and
qualifications of raw data.
6. Explain what is meant by a business cycle.
7. Describe the four phases of an idealized business
cycle.
8. Identify two types of non-cyclical fluctuations in
business activity.
9. Describe how innovation and/or random events might cause
business cycles.
10. Explain why business cycles affect capital and
consumer durable goods industries more than non-durable goods and service
industries.
11. Describe how the Bureau of Labor Statistics (BLS)
measures unemployment.
12. Evaluate strengths and limitations of BLS
unemployment statistics.
13. State causes of frictional, cyclical, and structural
unemployment.
14. Identify the full employment or natural rate of
unemployment.
15. Identify the economic costs of unemployment and the
groups that bear unusually heavy unemployment burdens.
16. Define inflation and list two types of inflation.
17. List three groups who are hurt and two groups who
may benefit from unanticipated inflation.
18. Present three possible effects of inflation on
output and employment.
19. Compare U.S. inflation and unemployment rates to one
or more industrialized nations.
20. Define and identify terms and concepts at the end of
the chapter. Chapter 8
Basic Macroeconomic Relationships
1. Describe the income-consumption and income-saving
relationships.
2. Recognize, construct, and explain the consumption
and saving schedules.
3. Identify the determinants of the location of the
consumption and saving schedules.
4. Calculate and differentiate between the average and
marginal propensities to consume (and save).
5. Draw and interpret the geometric representation of a
consumption function and the corresponding saving function.
6. Explain and interpret the relationships between the
algebraic representation of a consumption function and the corresponding
saving function.
7. Given the algebraic representation of a consumption
or saving function, write the algebraic representation of the other.
8. Given the consumption or saving schedule in tabular
form, graph the consumption and saving function (the geometric
representation) and write the algebraic representations.
9. Describe the relationship between the interest rate,
expected rate of return, and investment.
10. Identify the determinants of investment and
construct an investment demand curve.
11. Draw and interpret an investment demand curve.
12. Identify the factors that may cause a shift in the
investment demand curve.
13. Describe the reasons for the instability in
investment spending.
14. Provide an intuitive explanation of the multiplier
effect.
15. Calculate the multiplier and changes in real GDP
given information about changes in spending and the marginal propensities.
16. Given any one of the following: the MPC, the MPS,
and the multipler, calculate and interpret the remaining two.
17. Given any two of the following: the multiplier, the
change in aggregate expenditures, and the change in equilibrium GDP,
calculate and interpret the remaining one.
18. Discuss why the actual multiplier may differ from
the theoretical examples.
19. Define and identify terms and concepts at the end of
the chapter. (Test 3) Chapter 9 The
Aggregate Expenditures Model
1. Identify the simplifying assumptions of the
Aggregate Expenditures (AE) model.
2. Explain the relationship between the investment
demand curve and the investment schedule.
3. Use the consumption and investment schedules to
determine the equilibrium level of GDP.
4. Explain verbally and graphically the equilibrium
level of GDP.
5. Explain why above-equilibrium or below-equilibrium
GDP levels will not persist.
6. Explain the basics of the classical view that the
economy would generally provide full employment levels of output.
7. Trace the changes in GDP that will occur when there
is a discrepancy between saving and planned investment.
8. Use the multiplier to find changes in GDP resulting
from changes in spending.
9. Define the net export schedule.
10. Explain the impact of positive (or negative) net
exports on aggregate expenditures and the equilibrium level of real GDP.
11. Explain the effect of increases (or decreases) in
exports on real GDP.
12. Explain the effect of increases (or decreases) in
imports on real GDP.
13. Describe how government purchases affect equilibrium
GDP.
14. Describe how personal taxes affect equilibrium GDP.
15. Explain why an equal amount of government purchases
and taxes will have a differential impact on GDP.
16. Identify a recessionary expenditure gap and explain
how it relates to the U.S. recession of 2001, and perhaps also to the
recession of 2008.
17. Explain how the U.S. managed full-employment output
in 2005 while experiencing large negative net exports.
18. Identify an inflationary gap and explain how it relates
to the inflationary experience of the late 1970s.
19. List five limitations of the aggregate expenditures
model.
20. Explain how the aggregate expenditures model emerged
as a critique of classical economics and in response to the Great Depression.
21. Define and identify terms and concepts listed at the
end of the chapter. Chapter 10
Aggregate Demand and Aggregate Supply
1. Define aggregate demand and aggregate supply.
2. Give three reasons why the aggregate demand curve
slopes downward.
3. Explain how the international trade effect and
interest rate effect can be considered substitution effects, even though
there is no substitute for GDP.
4. State the determinants of the aggregate demand
curve’s location, and explain how the curve will shift when one of these
determinants changes.
5. Distinguish between an initial shift in aggregate
demand and the full shift after multiplier effects have been incorporated.
6. Explain the shape of the long-run aggregate supply
curve.
7. Explain the shape of the short-run aggregate supply
curve.
8. Indicate the determinants of the aggregate supply
curve’s location, and explain how the curve will shift when one of those
determinants changes.
9. Find an economy’s equilibrium price level and real
domestic output using AD-AS.
10. Explain how the multiplier effect is weakened when
there is demand-pull inflation.
11. Demonstrate and explain how a decrease in aggregate
demand can cause a recession without a drop in the price level.
12. Demonstrate and explain the effects of shifts in aggregates
supply on the equilibrium price level and real domestic output of an economy.
13. Explain how an economy can maintain full employment
and stable prices under conditions of rising aggregate demand.
14. Explain how the impact of oil price fluctuations has
changed for the U.S. economy over the past two decades.
15. Define and identify terms and concepts at the end of
the chapter and in the appendix. (Test 4) Chapter 11
Fiscal Policy, Deficits, and Debt
1. Define and explain the role of the CEA.
2. Distinguish between discretionary and
nondiscretionary fiscal policy.
3. Differentiate between expansionary and
contractionary fiscal policy.
4. Recognize the conditions for recommending an
expansionary or contractionary fiscal policy.
5. Explain expansionary fiscal policy and its effects
on the economy and Federal budget.
6. Explain contractionary fiscal policy and its effects
on the economy and Federal budget.
7. Give two examples of how built‑in stabilizers
help eliminate (or just minimize) recession or inflation.
8. Explain the differential impacts of progressive,
proportional, and regressive taxes in terms of stabilization policy.
9. Explain the significance of the “standardized
budget” concept.
10. Describe recent U.S. fiscal policy actions and the
motivation behind them.
11. List three timing problems encountered with fiscal
policy.
12. State political problems that limit effective fiscal
policy.
13. Identify actions by households, and by state and
local governments that can frustrate fiscal policy.
14. Differentiate between government deficits and the
public debt.
15. State the relative size of the debt as a percentage
of U.S. GDP and describe how that has changed in recent years.
16. Describe the annual interest charges on the debt,
who holds the debt, and the impact of inflation on the debt.
17. Explain why the debt can also be considered public
credit.
18. Identify and discuss two widely held myths about the
public debt.
19. Explain the real or potential effect of the debt on
income distribution, economic incentives, fiscal policy, and private
investment
20. Explain and recognize graphically how crowding out
is a concern caused by a large public debt.
21. Explain the purpose and structure of the Leading
Economic Indicators.
22. Define and identify terms and concepts at the end of
the chapter. (Test 5 &
Final Exam) |
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3. Suggested Study Strategy Spend no less than fifteen-twenty minutes each weeknight reviewing, recopying, and reorganizing your notes, in addition to reading the assigned chapters of McConnell and Brue. This adds up to about 5-8 hours of study time each month. Be committed to spending enough time each day to cover the material you need to, and to fully reviewing your notes and identifying areas requiring further work and things you need to ask me about. Spread out this way, your study time will be much more productive than an equivalent amount of cramming before tests. In addition to taking lecture notes in class, read, outline, and make notes on each text chapter. Take the chapter quizzes posted on the course website to test your understanding and identify problem areas which need further work. Some students find it helpful to attempt these quizzes before reading the chapter or before covering the material in class. Take all the applicable chapter quizzes to prepare for exams. The more time you have spent on the course, the easier it will be to spend additional time studying, and the more productive additional study time will be for you. Start this strategy the first day of class, because the sooner you start, the easier it will be to continue. |
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4. Tutoring The CAT Center provides free academic assistance to all students enrolled in ECON 231, 232, and QA 235. If you enjoy collaborative learning (talking through course material with other students), or if you are concerned about your performance in this class, simply stop by the CAT Center or call 227-2273 or 227-2274. The CAT Center also offers a series of interactive workshops that are designed to make you a more successful student in any course. For a complete list of workshops and other information visit http://www.wcu.edu/catcenter/. Students should go to the CAT Center website (www.wcu.edu/catcenter) to schedule tutoring appointments. Appointments must be made 48 hours in advance using the on-line system, or students can call the CAT Center to schedule appointments 24 hours in advance. |
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5. Course Policies & Organization "Eighty percent of success is just showing up." - Woody Allen |
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a. Absence policy: Class attendance is essential. Attendance is
important because: |
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"Be content with fruit, with flowers, with
weeds, with thorns even, but gather them in the one garden you may call your
own." |
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b. Grades: Out of a total of 1600 possible
points:
you will receive the following letter grade:
Cheating will not be tolerated and will result in an automatic grade of F for the course. |
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"Champions keep playing until they get it
right." - Billie Jean King |
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c. Examination Policies: 1. No make ups. 8. Test 5 consists of 35
questions. |
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d. Withdrawal Policy: 1. Students considering
withdrawal prior to the withdrawal deadline should make an appointment to
discuss withdrawal with the instructor. This is to give me the opportunity to
advise you of your options and standing in the class. I do not attempt to
stop students from withdrawing. 3. Every semester a number of students receive Fs because they stop attending class and taking exams, but do not formally withdraw through the registrar. Don't let this happen to you. |
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6. Writing Assignment: Your graded writing assignment is to create a resume-like homepage on the professional networking website LinkedIn (http://www.linkedin.com). Register for a free, non-premium account. At a minimum, list Western Carolina University as your school, from the year you enrolled, to the future year you expect to graduate. Any other information is optional, but everything you include in your personal profile must be (a.) honest and factually correct, and (b.) must be presented in a mature, professional manner. You may wish to include information on past and/or current employment, extra-curricular activities, etc. If you post a picture, it must present a professional appearance. When you are done and ready for your profile to be graded, invite me to add you as a contact. My email address is mulligan@wcu.edu. This assignment is due on Friday, September 25, but you are welcome to complete it earlier. |
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7. Accommodations for Students with
Disabilities: Western Carolina University is committed to providing equal
educational opportunities for students with documented disabilities. Students who require disability services or
reasonable accommodations must identify themselves as having a disability and
provide current diagnostic documentation to Disability Services. All information is confidential. Please contact Disability Services for more
information at (828) 227-2716 or 144 Killian Annex. |
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8. Course calendar: Read assigned chapters before the day they will be discussed in class. |