THE UNIVERSITY OF THE WEST INDIES, MONA
ECON1002: Introduction to Macroeconomics
Semester I & II, 2012-13
Pre-requisites: CXC Math (Grade II) OR O’level Math (Grade C) OR ECON0001
Anti-requisites: ECON1001, ECON1011, ECON1012
Lecturer: Colin Bullock
Description
This course introduces you to the measurement and analysis of output, changes in output
(economic growth), the general price level and the rate of unemployment in a country’s
economy as a whole. In the traditional approach to economics this course is taken with
Introduction to Microeconomics (ECON 1001). Microeconomics treats with the production,
consumption and pricing of individual commodities. Prior exposure to economics is not
required but CSEC Mathematics at Grade II as a pre-requisite is essential to success. The
background in Mathematics is necessary to facilitate your use of graphs and elementary
manipulation of equations through factoring, transposition, cross-multiplication and
percentages. Discussions during the course will seek to enhance your understanding of
factors that influence output, prices and employment/unemployment in an economy.
Learning Outcomes
Upon successful completion of the course, the student should be able to:
 Identify the nature of economics as related to making choices regarding the use of scarce
resources.
 Understand the scientific method of economics regarding abstraction, positive vs.
normative analysis, economic theories and economic models.
 Explain the basic concepts in economics including, opportunity cost, comparative
advantage, efficiency and equilibrium.
 Distinguish between microeconomics and macroeconomics.
 Use co-ordinate geometry (graphs) in the analysis of the relationship between economic
variables.
 Measure the level of economic activity and the changes in the level of economic activity
through national income accounting.
 Identify limitations of national income accounting in measuring economic well-being and
identify alternative means of assessing economic well-being.
 Measure the general price level through price indices and the rate of change in the
general price level (the rate of inflation).
 Define the labour force and the population and measure the rate of unemployment and
the labour force participation rate.
 Show how long run growth in output per capita depends on the productivity of labour
and the labour force participation rate.
 Explain and illustrate how equilibrium output is determined in the short run by the level
of planned aggregate expenditure.
 Explain and compute how a change in aggregate expenditure (including investment and
government spending) results in a multiplied expansion in the level of economic activity.
 Distinguish between Aggregate Demand and Aggregate Supply and identify inflationary
and deflationary output gaps.
 Define money, explain the process of money creation by the banking system and the role
of the central bank in managing this process.
 Distinguish between the money market and the market for goods and services and the
interaction between these markets in determining interest rates, prices, output and
employment.
 Identify the role of fiscal and monetary policy in closing output gaps.
 Discuss why countries trade with each other and explain the role of comparative
advantage and exchange rates in influencing the direction and incidence of trade.
 Analyze the accounting for the international economic transactions of an economy.
Modes of Delivery
Two lecture hours and one tutorial hour per week. Problem sets (not for grading) will be
provided for practice at problem solving.
Assessment
A mid-semester examination accounting for 40% and a comprehensive final examination
accounting for 60%
Syllabus
Basic Economic Tools and Concepts
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Scarcity and choice.
Cost-benefit as incentive for human behavior
Comparative advantage
Opportunity Cost
Economic efficiency and equilibrium
Abstraction as scientific method in economics
Positive vs. normative economics
Economic theories and models
The use of co-ordinate geometry.
Macroeconomics vs. Microeconomics and the Central Macroeconomic
Questions
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Differentiating between the study of individual units and products and the study of
the economy as a whole.
The subject matter of macroeconomics: aggregate output and growth, the average
price level and unemployment.
The co-ordination tasks of an economy: what is produced, how it is produced and
who benefits.
Alternative economic systems: command economy, free market and mixed.
The basic decision making units.
Key markets, products, and income types.
The circular flow of income, withdrawals and injections.
The production possibilities frontier and economic growth.
The Measurement of Output (National Income Accounting)
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Definition of Gross Domestic Product, National Income and other national income
aggregates.
Expenditure, output and income methods of measuring economic activity.
Consumption of durable and non-durable consumer goods and services.
Fixed vs. Inventory Investment.
The GDP Deflator and Nominal vs. Real GDP
Limitations of GDP and per capita income as measures of economic well-being.
Alternative means of measuring economic well-being.
The Measurement of Prices, Price Changes (Inflation) and Economic Growth
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Concept and the need to measure inflation.
The use of price indices to measure inflation
Measuring changes in real GDP
The causes of inflation
Real interest rates and the market for loanable funds
The impact of inflation
Anticipated vs. unanticipated inflation.
Employment and Long Run Growth
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Definition of labour force, population and unemployment.
Measurement of unemployment rate and labour force participation rate.
Problems with unemployment figures.
Sources/types of unemployment.
Definition of full employment
Output per head related to labour productivity and the labour force participation
rate.
Influences on labour productivity and the labour force participation rate.
Planned Aggregate Expenditure and the Multiplier
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Components of planned aggregate expenditure, withdrawals and injections.
The role of unplanned inventory investment.
Balance between output and planned expenditure and between withdrawals and
injections.
The impact of changes in planned aggregate expenditure on income through the
multiplier.
The paradox of thrift.
Government expenditure, taxes, and .disposable income
The government, tax and balanced budget multiplier
Fiscal policy and aggregate demand.
The Interaction of Aggregate Demand and Aggregate Supply
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Derivation of Aggregate Demand curve from changes in price levels
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Derivation of aggregate supply curve from deviations of actual prices from expected
prices.
Determination of equilibrium income, price level and unemployment.
Factors causing shifts in Aggregate Demand and Aggregate Supply curves.
The impact of shifts in Aggregate Demand and Supply curves on equilibrium, prices,
output and unemployment
Definition of inflationary and deflationary output gaps.
Introduction to the use of fiscal and monetary policy to close output gaps.
Money, Money Creation and Monetary Policy
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Definition of money
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The functions and characteristics of money
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Fractional reserve banking, money creation and the money multiplier
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Central banking and the tools of monetary policy
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Money supply, money demand and money market equilibrium
Interaction between the money market and the market for goods and services
(including the crowding out effect) and the impact on prices, interest rates, output and
employment.
International Economics
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Planned aggregate expenditure, output and the multiplier in an open economy
The reasons for international trade.
Absolute and comparative advantage in international trade.
Restrictions on international trade and why they are implemented.
The foreign exchange market and exchange rate determination
The impact of exchange rate changes on international trade.
Balance of payments accounting
Resources
Prescribed
 William J. Baumol and Alan S. Blinder, Economics Principles and Policy (International
Student Edition), Thomson South-Western, United States.
Recommended
 Karl E. Case, Ray C. Fair and Sharon M. Oster, Principles of Economics (9th ED) Pearson
International Edition (2009)