Principles of Macroeconomics
Eco 200- 800 & 810
Section 800: MWF 10:20-11:15, in Mahar 220
Section 810: MWF 11:30-12:25, in Mahar 220

Ranjit S. Dighe 
Mahar 425; 341-3480
Fall 1999

Office hours: Tuesdays and Thursdays 10-12, and by appointment

This course is an introduction to macroeconomics, the study of economic aggregates such as national output, productivity, unemployment, and inflation and their importance to society. (Microeconomics, the other main branch of economics, deals with the behavior of individual agents such as consumers, households, and firms.) The course will focus on policy as well as theoretical issues, and it will provide some historical background on both. Among the issues covered will be business cycles, budget and trade deficits, productivity and economic growth, international trade and development, and the distribution of income.

Required text

Campbell R. McConnell and Stanley L. Brue, Macroeconomics: Principles, Problems, and Policies, 14th edition, 1999.

Optional text

The New York Times. Weekly quizzes will typically include one or two questions taken from The New York Times; the articles containing the answers to those questions will be posted on my door each week. Thus one could ace the quizzes without subscribing, but regularly reading the Times is not a bad idea for people with an interest in economics and the world around them in general. Subscriptions are available at the student rate of $26 (if interested, see me or Ms. Bennett, the department secretary, in Mahar 431).

Course web site

This site, which is also accessible through my home page, is worth checking periodically. It will include any future updates to this syllabus, a complete list of course materials on reserve at the library, and links to related sites. It may include copies of my lecture notes (but that's a hope, not a promise).

Assignments and grading

Your grade in this course will be a weighted average of your scores on three in-class exams, a comprehensive final exam, weekly problem sets, and quizzes. The in-class exams will be a mix of multiple-choice questions (40%), short-answer questions (40-60%), and computational questions (0-20%). The final exam will be all multiple-choice. Students who have a valid excuse for missing an exam and notify me in advance of the scheduled exam date can take a make-up exam, which will be in essay format. Students who miss an exam and do not notify me of it until afterward should expect to receive a grade of zero on the exam.

The grading of the problem sets will be decidedly crude: each problem set will receive a score of (full credit), - (half credit), or 0 (no credit), based on the apparent thoroughness of your work on it. For full credit, problem sets should also be stapled and neatly written (or typed). Collaboration on problem sets is fine; copying other students' written answers is cheating, however, and will be harshly penalized (see below). The important thing is that you do them and check your answers against those on the solution sheets that I will hand out with the graded problem sets.

Each quiz will have five quick questions. Quizzes will be given every Friday, starting in the second week of class. In addition, I will give a handful of pop quizzes, especially on days when the class attendance is particular thin. The quizzes will cover recent material covered in class, recent economic and financial news in The New York Times, and very basic material from earlier in this course. The weighting of the different components is as follows:

First exam  20%
Second exam  20%
Third exam  20%
Final exam  10%
Problem sets  20%
Quizzes  10%

Draconian policy on cheating

Students who are caught cheating on any of the exams will automatically fail this course and, possibly, be subject to further punishment by the college authorities. Students who are caught cheating on the quizzes or problem sets will receive a zero for the item in question and will moreover be hit with "treble damages": for example, if you cheat on a problem set -- say, by copying another student's answers verbatim, letting someone copy your answers, or copying answers from an old solution sheet -- you will receive a grade of zero not just for that problem set but for three problem sets.

Course outline and schedule
Week  Dates  Topics
Aug. 30- 
Sept. 3
Introduction and Overview

What is economics? * What is the economy? * The macro-micro distinction * The economic way of thinking * Review of microeconomics (begin)

What to read: 
-- Chapter 1 The Nature and Method of Economics ( + Appendix: Graphs and Their Meaning) 
-- Chapter 2 The Economizing Problem 

2 Sept. 6-10 Review of Microeconomics; Critical Thinking in Economics

Optimization * Supply and demand * Shifts of a curve versus movements along a curve * Market equilibrium * Surpluses and shortages * Critical thinking in economics

-- Chapter 3 Understanding Individual Markets: Demand and Supply 

3 Sept. 13-17 Economic Systems and Institutions

What is capitalism? * Free markets and competition * The "invisible hand" * Households, firms, and governments * Specialization and comparative advantage * Foreign trade 

-- Chapter 4 Pure Capitalism and the Market System 
-- Chapter 5 The Mixed Economy: Private and Public Sectors 
-- Chapter 6 The United States in the Global Economy 

4 Sept. 22-24 National Income Accounting; Business Cycles and Unemployment

Adding it up: Gross domestic product (GDP) * GDP and economic well-being * The consumer price index * The business cycle * Types of unemployment * Why is the unemployment rate so high at "full employment"? 

-- Chapter 7 Measuring Domestic Output, National Income, and the Price Level 
-- Chapter 8 Macroeconomic Instability: Unemployment and Inflation 


5 Sept. 27-
Oct. 1 

Inflation = an increase in the price level * Causes and costs of inflation * The Phillips Curve 


6 Oct. 4-6  Aggregate Demand and the Multiplier

The Great Depression and the birth of macroeconomics * Consumption and saving * Investment * Disequilibrium * The multiplier effect 

-- Chapter 9 Building the Aggregate Expenditures Model 
-- Chapter 10 Aggregate Expenditures: The Multiplier, Net Exports, and the Government 


7 Oct. 11-15 The Aggregate Demand-Aggregate Supply (AD-AS) Model

The government's impact on aggregate demand and output * The tax multiplier * The balanced-budget multiplier * Sticky prices * The AS curve meets the Phillips Curve * Fiscal policy 

-- Chapter 11 Aggregate Demand and Aggregate Supply 
-- Chapter 12 Fiscal Policy 

8 Oct. 20-22  Money and Its Creation

Money income, GDP * Functions of money * The money supply * Money demand * The money market * The Federal Reserve System * Multiple deposit creation 

-- Chapter 13 Money and Banking 
-- Chapter 14 How Banks Create Money 


9 Oct. 25-29 Monetary Policy

The money multiplier * Banking panics * The Fed's goals and tools * How monetary policy works * Easy versus tight money policies * The federal funds rate 

-- Chapter 15 Monetary Policy 

10 Nov. 1-5 Long-Run Versus Short-Run Macroeconomics

Economic growth * Why aggregate supply matters most in the long run * Short-run tradeoffs between unemployment and inflation, and between economic growth and price stability * Back to the Phillips Curve * Supply-side economics 

-- Chapter 16 Extending the Analysis of Aggregate Supply 


Nov. 8-12 Economic Growth, Productivity, and the Distribution of Income

Determinants of economic growth: Capital, labor, and improved efficiency * Sources of productivity growth * The productivity slowdown * Changes in the distribution of income 

-- Chapter 18 Economic Growth 
-- Handout: Paul Krugman, "Income Distribution," Chapter 2 of The Age of Diminished Expectations. Cambridge, MA: MIT Press, 1997. 

Nov. 15-19  Deficits and Debt; Trade and Comparative Advantage 

The national debt * Deficit = an increase in debt * Cyclical and structural deficits * Economic implications * Do we really have a surplus now? * Comparative advantage and gains from trade 

-- Chapter 19 Budget Deficits and the Public Debt 
-- Chapter 20 International Trade 

Nov. 22 International Trade

Exports and imports * Who gains and who loses from free trade? * Protectionism * Trade policy 


Nov. 29- 
Dec. 3
International Finance and Development

International capital flows * The balance of payments * Fixed and flexible exchange rates * Less developed countries * Why don't more of the poor countries catch up? * Development strategies 

-- Chapter 21 Exchange Rates, the Balance of Payments, and Trade Deficits 
-- Chapter 22 The Economics of Developing Countries 


Dec. 6-10  Economic Prospects

The state of things today * The "new paradigm" economy? * American economic prospects * World economic prospects * Transition economies 

-- Chapter 23 Transition Economies: Russia and China 
-- Handouts: TBA 

Last revised on 6-September-1999