Econ 51D: Principles of Macroeconomics
Duke University
Spring 2010
Instructor: Dr. Lori Leachman
Email : Leachman@econ.duke.edu
Phone: 660-6894
Office and office hours: 329F, SS; MW 2-4pm, Tu 2-3pm
Teaching Assistants: Michiru.Sakane@duke.edu
Nujin.Prasertsom@duke.edu
Helpline for general questions at 51help@econ.duke.edu
Text: Economics 8th ed., W. Parkin, Pearson/Addison Wesley.
The Wall Street Journal
Where Does the Money Go? Bittle and Johnson (can be ordered on Amazon.com)
Readings listed below that are drawn from outside sources are available on Blackboard
at http:// courses.duke.edu.
Course Objective: This course provides an introduction to economics concepts and
issues. It will introduce the student to the terminology and methodology of the economist
and use the concepts and tools to explore a variety of topics that are of concern to
economists and policy makers. Specifically, we will be interested in the relationship
between the production function, output and various cost curves, how prices are
determined, the incidence of taxation, how the entire economy operates and the role of
government in fostering an environment in which prices are stable, unemployment is low
and the economy is growing. We will relate these last 3 objectives to the business cycle,
macro-policy initiatives and, where appropriate, to various economic models and biases.
We will also explore the basis of and benefits from trade and the determination of the
exchange rate. The entire course is built around the development and usage of demand
and supply analysis in order to address a variety of issues that are important to
economists, policy makers and the average citizen. Guiding my development of the
course in both structure and content is the over-arching goal of enabling a student who
successfully completes the course to be able to read a newspaper and understand the
basics of the economic debate and dilemma under discussion.
Weekly lunches with members of the class will be held on Wednesday starting Jan.20.
We will be meeting at 12 at the Faculty Commons (above Chick-filet). Students may sign
up through the Black Board course site under the “Course Information”. I have also
scheduled 4 dinners in order to create the opportunity for students that have class during
the regular lunch time to have an informal opportunity to dine with me. Those dates are
Jan. 26 (T), Feb. 15 (M), March 25 (TH) and April 12 (M). Please try to leave those slots
open for students who have legitimate conflicts with the Wed. day and time.
Class meets from 10:20-11:35 on MW and FRIDAY in Griffith Auditorium. Discussion
sections meet in their scheduled places and are used for office hours and extra help with
concepts and problems.
All exams will be returned in the class.
Grading: three regular exams 31% each plus 7% on homework (see below).
Optional Final-if we GRADE the final, we COUNT it! I will drop the lowest
grade and count the final in its place. You have the option of sitting for the final
and not having it graded!
If you miss an exam you automatically must take the final as NO make up exams
will be offered! If you miss more than 1 exam you will take a 0 on the additional
exams missed that exceed 1.
Homework: The homework is comprised of questions and problem sets designed to
illuminate the important concepts being discussed in class and PREPARE YOU FOR
THE EXAM. The homeworks are due on the due date at the START of class. Once the
homework deadline is passed there is NO ability to make up the missed work, so work
ahead if you think you have a conflict. For each assignment we will check the work to
ensure that you have attempted the assignment- however, we will NOT grade them for
correctness. You will earn 100% for 1% of your final grade for each homework that
is turned in completed. This amounts to 7% of your total grade.
If you miss a homework you can make up 2 missed assignments by turning in a 2 page
book report on Where Does the Money Go? directly to Dr. Leachman by April 9th. For
that report you need to cover a number of things outlined below:
1- 1 page (no more) summary of the key information in the book. (this will make up
for 1 missed homework)
2- Outline the current REVISED deficit and debt figures (here you will need to draw
from current news sources- this is a piece of a paragraph) and link these numbers
to a
3- Discussion of one proposal that you support that will help address (not totally
solve) the deficit and debt problem
(2+3 will make up for the 2nd missed assignment)
The graduate TAs will be conducting regular homework help sessions-the schedule can
be found under the “course information” on the Blackboard
Students who are found to be cheating or facilitating cheating are in violation
of the Duke Honor Code and will automatically fail the course.
Course Outline (8th edition)
W. Jan.13- course info and rules
1.) Introduction; Chapter 1 and appendix; F. Jan.15, W. Jan. 20
What is Economics? The issue of scarcity and choice
Economic thinking: efficiency, rationality, opportunity costs, marginal decisions
Macroeconomics vrs microeconomics; relevant components
Information, risk and leverage
Appendix to Ch. 1- graphing
*Alternative Economic Philosophies
*Krugman <http://www.nytimes.com/2009/09/06/magazine/06Economict.html?_r=2&partner=rss&emc=rss&pagewanted=all>?
*Michael Fitzgerald, Chicago Schooled
http://magazine.uchicago.edu/0910/features/chicago_schooled.shtml?msource=MAG200
9&tr=y&auid=5294896
*Rethinking the Role of Fiscal Policy, Martin Feldstein, AER Papers and
Proceedings, May 2009
2.) Chapters 2, 21 & 22; FM Jan 22-25
The production function (PF)
inputs vrs outputs
the production possibilities curve (PPC) and illustrations of opportunity costs
marginal decisions
specialization
efficiency
goals of government, measurement and their relation to the PPC
*GDP Fetishism, Stiglitz the Economist Voice Sept 2009
HW 1 due W Jan 27
3.) Chapters 9 & 10, 17; WF Jan 27-29, M Feb 1
Economic vrs. Accounting profit.
The production function
Total product curve
Marginal product and average product
The Law of Diminishing Returns
Relationship between output and cost
Total cost, marginal cost, average cost
Longrun vrs shortrun cost
Labor Demand (chapter 17, pp 387-394)
4. ) Chapter 11; W Feb.3
Equilibrium in a perfectly competitive setting
Comparisons to other market structures
 “Rising Beer Prices Hint at Oligopoly” NYT 8/27/09
 “Beer Makers Plan More Price Boosts” WSJ 8/26/09
 “Heineken to Raise Prices, Trim Costs” WSJ 8/27/09
HW 2 due F Feb 5
EXAM 1- M Feb 8
5.) Chapters 3, 5(optional but helpful), 6(pp.124-131) F Feb 5, W Feb 10
Demand, law of demand
Supply, law of supply
Equilibrium- adjustment to and changes in
Price ceilings and floors
 “In Hard Times Spam makes a Comeback” TimesDigest 11/15/08
 Priceless- A Survey of Water, the Economist, 7/19/03, pp3-16
 Need for Water Could Double in 50 Years…NYT, Aug 22, 06
 What Price is Right?
6.) Chapter 4; FM Feb 12-15
price elasticity
cross price elasticity
income elasticity
tax incidence
theories of taxation/tax structure
 “You Picked the Price, but who Gained? NYT
 “San Francisco: the Butts Stop Here”
 How Progressive is the U.S. Federal Tax System? A Historical and International
Perspective, J. of Econmomic Perspcetives, Winter 2007
 Tax Revenue? It’s a Roll of the Dice, NTY July 16, 06
first Discussion of Where Does the Money Go?
HW 3 due W Feb 17
7.) Chapter 26; WFMW Feb 17-24
Exchange Rate Theory
Fixed vrs. Floating exchange rate regimes
Purchasing Power Parity
Interest Rate Parity
Unholy Trinity of Exchange Rate Systems
Balance of Payments Crisis
Application to China
8.) Chapter 32; FM Feb 26, Mar 1
Trade Theory- absolute vrs. Comparative advantage
Autarkic prices
Patterns of trade
Range of terms of trade
Importance of being unimportant
 Flying with One Engine- a survey, the Economist, 9/20/03, pp3-32

Resolving the Global Imbalance: The Dollar and the US Saving Rate, Feldstein, J of
Economic Perspectives, Summer 2008
HW 4 due W Mar 3
9.) Chapter 27; WF March 3-5, M Mar 15
AD/AS model- the Classical model
AS – Classical, Keynesian and Intermediate range.
AD – wealth, interest rate and foreign price effects
Equilibrium
Classical vrs Keynesian debate and relationship to AS/AD
Assumptions and implications of each
 Historical US Savings Profile, NYT-
10.) Chapter 29, WF Mar 17-19
The Business cycle
Relationship of BC to AS/AD equilibrium
Economic Goals- full employment, price stability, economic growth, optimal external
balance
EXAM 2- M Mar 22 (many students feel the exchange rate material is the hardest
material in the course).
11.) Chapters 25 & 31; WFMW Mar 24-31
The nature of money
Stocks and bonds
Bond pricing and interest rates
Money creation
The Federal Reserve
Tools of monetary policy and implementation
The loanable funds market (CHAPTER 23, PP 541-545)
HW 5 due F April 2
12.) Chapter 28; FMWF April 2-9
Total spending- the Keynesian framework
The consumption function
Multipliers
Taxation
Keynesian Equilibriums
Crowding In and Crowding Out
Derivation of Aggregate Demand
 Sense and Nonsense about Federal Deficits and Debt, Boskin, The Economist’s
Voice, vol 1 2004




The Budget Outlook: Projections and Implications, Gale and Orszag, The
Economist’s Voice, vol 1 2004
What’s the real Federal Deficit? USA Today Aug 3, 06
The Public’s Deficit Fix…, NYT July 30, 06
Possible Macroeconomic Consequences of Large Future Federal Government
Deficits, Ray Fair, Cowles Foundation DP#1727
Optional Report on “Where does the Money Go? due F April 9.
13.) Chapters 30 & 31; MWF April 12-16
Aggregate supply
Monetary vrs fiscal policy
Classical vrs Keynesian debate
Short run vrs. long run equilbriums
 Economic Ups and Downs…, Tregarthen, The Margin, Feb 1988
 The Long Climb, the Economist, Oct. 3 2009
HW 6 due M April 19
EXAM 3- W April 21
14.) Chapter 24 and lecture; MFM Ap 19-26
Growth and development
The Solow growth model (lecture)
Macro-policy and growth
Trade and growth
 The Dragon and the Eagle (a survey), the Economist, Oct. 2 2004, pp3-26
HW 7 due W Ap 28 (last day of class)
FINAL (optional) at scheduled day and time of