ECO 202: Working Draft
Principles of Macroeconomics
Spring 2014
Instructor:
Stuart Allen
Email: sdallen@uncg.edu
Office: 444 Bryan
Sections: .03 (W) and .04 (TR)
Office Hours: 9:30-10:45 TR or by appointment
REQUIRED: Textbook: Foundations of Macroeconomics, 6th edition by Bade and Parkin.
ISBN-10: 0132831007 and ISBN-13: 9780132831000
PURPOSE:
This course uses market analysis (supply and demand at the aggregated national level) to develop an
understanding of the working of the macroeconomic system. The economy is modeled by studying
various markets: output market, labor market, financial (credit or loanable funds) markets, foreign
exchange markets, the money market, and the bank reserves market. Understanding how these
individual aggregated markets are interrelated will enable you to analyze the effects of policy changes
and unforeseen shocks to the national and international economies.
The implementation of fiscal and monetary policy and their effectiveness in offsetting recessionary
and inflationary problems are important learning objectives. Fiscal policy (performed by the Treasury)
refers to federal government expenditure and tax policy (the size of the federal budget deficit/tax
surplus). Monetary policy (the responsibility of the central bank) refers to the changes in interest rates
and the money supply. Both policies will effect output growth (measured by real GDP), interest rates,
and the rate of inflation and changes in a country’s exchange rate.
CATALOG DESCRIPTION:
Introduction to macroeconomic principles and analysis. Topics include national income, business cycle
and short run fluctuations, the monetary system, inflation, fiscal policy, the national debt, exchange rates,
balance of payments, and economic growth.
PREREQUISITE:
ECO 201 (or ECO 101) Principles of Microeconomics
FACULTY STUDENT GUIDELINES:
Found at http://www.uncg.edu/bae/faculty_student_guidelines.pdf
HONOR POLICY:
Students are expected to comply with the UNCG Honor Policy. You may receive help on homework
assignments from other students, but you cannot copy answers from other students.
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REQUIREMENTS:
Attend class and bring a non-programmable calculator, the textbook and any supplemental manuscript
materials. Take good notes. If you miss a class, borrow two sets of notes and rewrite them. Cell
phones are not allowed in class and cannot be used during quizzes and tests.
COURSE OBJECTIVES:
1. Define and have some insight into the measurement of macroeconomic data such as: nominal and
2.
3.
4.
5.
6.
7.
8.
real GDP; price indices such as the CPI, the GDP price deflator and the personal compensation
expenditure deflator; the potential and actual rate of economic growth; inflation and deflation; and
the unemployment and employment rate.
Explain the role of the Treasury in a situation where the federal budget is either in a deficit or a tax
surplus and describe how each affects the national debt.
Graph and describe the effect of various macroeconomic factors that shift the aggregate demand
(AD) schedule and analyze the effect using the output market.
Describe the role of savings and investment in terms of the rate of long-term economic growth,
especially for developing countries.
Illustrate the economy in a state of recession or inflation using the output market diagram and
explain how policy variables can correct the recession or inflationary period.
Understand the role of the Treasury in fiscal policy and the crowding out effect on the economy.
Analyze the role of the Federal Reserve in the implementation of monetary policy and the effects
on interest rates and the rate of inflation.
Define the federal funds rate, the discount rate and the prime rate, and the role of fractional reserve
banking in the creation of money.
STUDENT SUCCESS CENTER:
As a student in this course, you have the opportunity to participate in the Student Study Program
(SSP), which is one of the four programs housed in the Student Success Center located in the McIver
Building. SSP is designed to offer additional academic support for students enrolled in historically
challenging classes that have high drop, failure, and/or withdrawal rates.
The purpose of SSP is to offer students the opportunity to form collaborative study groups of up to 4
of their peers. Students will be matched by the program coordinator with other students in the same
course and section. To sign up or to learn more about SSP, go to http://success.uncg.edu/ssp/. If you
have further questions, you may also contact the Coordinator of the Student Study Program, Laura
Huhn, at ssp@uncg.edu.
GRADING POLICY:
Homework assignments (HW) and quizzes (QZ) are graded on a ten point scale and account for 20%
of the final grade. Late HW and missed QZ will not be accepted.
Two mid-terms (February 27th and early April) will count 25% each. The final exam will count 30%.
A doctor’s note is required to miss a midterm. Missing a mid-term means that the weight of the final
is (55%). If you miss a test due to severe weather, then be prepared to take the test prior to the next class
or within two days. The Final Exam is scheduled for Wednesday May 7 at 7 pm for the evening class
and on Thursday May 1 at noon for the day section. Exams are comprehensive.
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There will not be an excused absence from Any HW or QZ. Instead there will be special assignments
that will provide the opportunity to earn extra points that can be added to the QZ and HW score.
Some of these assignments will be linked to the content of the next period class. Other assignments
will utilize the curriculum aides (videos, lessons and content) on the St. Louis Federal Reserve Bank
web site. For example, suppose your score on 5 HW and QZ are 9, 8, 7, 4, 0 for a total of 28 points
out of 50. You also have earned 8 points on three special assignments. Add the 8 points to the 28
from HW and QZ and you will have earned 36 points out of a possible 50. You cannot earn more
than 10 points per assignment. You would be able to do other special assignments and add 14 more
points to your QZ and HW grade.
GRADING SCALE:
Your final grade will be based on the following scale:
90% and above
80% but less than 90%
70% but less than 80%
60% but less than 70%
Below 60%
A
B
C
D
F
ECO 202: SPECIFIC LEARNING OBJECTIVES
Students should be able to:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Define and explain the difference between macroeconomic data such as: nominal and real GDP,
the CPI and the GDP price deflator, the rate of economic growth and the rate of inflation and
deflation; the unemployment and employment rate; the federal budget deficit and the national debt,
and the budget deficit and the trade (net export) deficit.
Explain and graph actual real GDP (the business cycle) and potential real GDP (long-term
economic growth) and explain why there may be a change in the underlying rate of growth of
potential real GDP and in the output gap.
Clearly articulate and understand the role of the Treasury and the Federal Reserve as it is related to
fiscal and monetary policy.
Define current and capital accounts (the balance of payments) and explain why the U.S. is a debtor
nation.
Explain the sources of long-term economic growth especially for developing countries and the role
of savings and investments in the growth process.
Explain the effect of changes from various economic and policy variables using the output market
(aggregate demand and aggregate supply) to explain movements in the price level and real GDP.
Using an output market diagram show and explain the policy options that exists to correct either a
recession or an inflation.
Explain the workings of the Federal Reserve and the banking system in the creation of money.
Explain how the Federal Reserve conducts monetary policy by targeting federal funds rate.
Explain the effect of inflationary expectations on nominal interest rates through the credit market
diagram and distinguish between nominal and real interest rates.
Explain the cause of 1970s inflation, Volcker's policy shift to fight inflation in October 1979, and
the subsequent effect on the U.S. economy from 1980 to 1982.
Analyze the effect of budget deficit spending on private sector investment and the trade sector and
provide historical examples of two different types of “crowding out”.
Explain Taylor’s Rule and use it to analyze the recent shifts in monetary policy since 2001.
Explain the reason and the consequences of why the Chinese usually maintain a fixed or pegged
change rate with the dollar that is considered to be below the true equilibrium value.
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Economics 202: Course Outline
Week 1 – January 14
Chapter 1: Getting Started
Week 1 (Review on your own.)
Course Overview – January 16
SA0 due: Day 2
Week 2 – January 21
SA2: 4 single shifts, 4 double shifts: due Day 3
Chapter 4: Demand and Supply
SA3 due Day 4 Labor Market – January 23
4.1
Demand
4.2
Supply
4.3
Market Equilibrium
SA1 due Day 2
p. 99 “Price: A Market’s Automatic Regulator”
4.4
p. 106 “All Possible Changes in Demand and Supply”
p. 107 “Chapter Summary: (all three key points)
Insert CH 8.12 pp. 193-197. Aggregated Labor Market
Chapter 2: The U.S. and the Global Economy:
SA4 due Day 5 January 29
2.1
Three Basic Economic Questions
2.2
The Global Economy
2.3
Circular Flow Model: Add Gov’t and Int. Trade Sector
Week 3
SA5 due Day 6 January 30
Chapter 5: Measuring Total Production and Income
5.1
GDP, Income and Expenditures
5.2
Measuring GDP (Levels vs. Rate of Change)
SA5 becomes HW1: GDP Calculations Due Feb 5
5.3
Uses and Limitations of Real GDP
HW2
Potential Real GDP and the Business Cycle and 5.31 and 5.32
Insert reading:
6.34
U & Real GDP and Output Gap and Potential Real GDP The Outcome
8.1
Potential Real GDP (6.35) Natural Rate of U
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Chapter 7: The CPI and the Cost of Living
CA #2: CPI Inflation Week 4
7.1
The CPI
7.2
The CPI and Other Price Level Measures
7.3
Nominal and Real Values
Chapter 6: Jobs and Unemployment
6.1
Week 5
Labor Market Equilibrium
Why Scarce Resources are Sometimes Unemployed PageOne Eco
6.2
Trends and Fluctuations
6.3
Unemployment and Employment
Chapter 8: Potential GDP and the Natural Unemployment Rate Week 6
8.1
Potential GDP
8.2
The Natural Unemployment Rate
Insert: Chapter 13: Aggregate Demand & Aggregate Supply: Sections 13.1 and 13.2: Week 4: February 11
TEST 1: February 26 evening or 27 day Week 7
Chapter 9: Economic Growth
Week 6 What are the Ingredients for Economic Growth?
9.1
The Basics of Economic Growth: the Rule of 70
9.2
Labor Productivity Growth: Economic Growth Theories.
9.3
Economic Growth Theories
Chapter 11: The Monetary System
11.1
What is Money?
11.2
The Banking System
11.3
The Federal Reserve System
11.4
The Quantity Theory of Money
Week 8
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Chapter 10: Finance, Savings, and Investment
10.1
Financial Institutions and Markets
10.2
The Loanable Funds Market
10.3
Government in Loanable Funds Market
Week 8
Chapter 12: Money, Interest and Inflation
12.1
Money and the Interest Rate
12.2
Money, the Price Level and Inflation
12.3
The Cost of Inflation
Week 9
PgONE The Great Inflation: Historical Overview…*
Chapter 13.3: Aggregate Demand and Aggregate Supply (pp. 334-337)
Week 10
Chapter 14.3 The Expenditure Multiplier
Chapter 16.1 The Federal Budget
16.1
Federal Budget: Deficits and the Time Bomb
16.2
Fiscal Stimulus
16.3
The Supply Side Potential GDP and Growth
Chapter 17: Monetary Policy
17.1
How the Fed Conducts Monetary Policy: Feducation #2, Traditional and non-traditional M Policy
17.2
Monetary Policy Transmission
17.21 The Fed Fights Recession (pp.434-435)
Quantitative Easing Explained
17.22 The Fed Fights Inflation (pp.436-437):
The Great Inflation listed as a course
17.23 Loose Links and Long and Variable Lags
17.3
Alternative Monetary Policy Strategies:
Chapter 19: International Finance
19.2 The Exchange Rate
19.29 Monetary Policy and the Exchange Rate
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