Macroeconomics ECON 2301 Spring 2009

1. MacroeconomicsECON 2301Spring 2009 Marilyn Spencer, Ph.D. Professor of Economics Introduction to course & Chapter 1

2. Book • Miller, Economics Today, The Macro View, 14th edition (2006).

3. Course Description • An overview of how the economy of the United States is organized and functions in a market system. • Market processes are used to show how resources and incomes are allocated by households and businesses. • Determination of national income, employment, prices, interest rates, and growth are the focus of simple analytical techniques. • Monetary and fiscal policies are examined including their international dimensions. • Satisfies the economics component of the University core curriculum. (6 core skills) • Learning Objectives

4. Topics: • Introduction to course • Chapter 1, Economics: Foundations and Models

5. 1. Your name 2. year in college (1st, 2nd, etc.) 3. major - or “deciding” 4. ECON course in high school - “yes” or “no” 5. If you’re working this semester, whether as volunteer or for pay, approx. # of hours/week, - or “N/A” 6. Last math class successfully completed in college - or “N/A” 7. Usual source of local & national news 8. Any particular topic you’d like us to consider as part of this course Please fill out and return index card - PRINT LEGIBLY:

6. Syllabus: http://faculty.tamucc.edu/mspencer/ • Contact information • Text • Course description • Role of course in you undergraduate curriculum • Course methodology • Course content • Grades • Course outline

7. Algebra competency • Students need to be comfortable with: • Simple linear equations • Tables of numbers • Graphing • Read Chapter 1, Appendix A to see if you are comfortable with graphing that you’ll be required to use.

8. Out-of-Class Quiz #1 Before class on Tuesday, Jan. 27: • Create an Islander email account. • Email me so that I will have your email address. Include your name and your course & section numbers. My email address ismarilyn.spencer@tamucc.edu. 4 points

9. Out-of-Class Quiz #2 • Watch - live or taped, or read a transcript of, President Obama’s inaugural address. • In the body of your email to Dr. Spencer, write a 50-100 word summary of his remarks about the economy – using YOUR OWN WORDS. • Send this email to me at marilyn.spencer@tamucc.edu, before class starts, January 27. 4 points possible

10. Chapter 1: The Nature of Economics

11. The Power of Economic Analysis (cont'd) • The economic way of thinking is a framework to analyze solutions to economic problems. • How much time to study • Choosing which courses to take • Whether troops should be sent abroad

12. Defining Economics • Economics • The study of how people allocate their limited resources to satisfy their unlimited wants • The study of how people make choices

13. Defining Economics (cont'd) • Resources • Things used to produce other things to satisfy people’s wants • Wants • What people would buy if their incomes were unlimited

14. Defining Economics (cont'd) • With limited income (resources), people must make choices to satisfy their wants. • We never have enough of everything, including time, to satisfy our every desire.

15. Defining Economics (cont'd) • Individuals, businesses, and nations face alternatives, and choices must be made. • Economics studies how these choices are made.

16. Microeconomicsversus Macroeconomics • Microeconomics • The study of decision making undertaken by individuals (or households) and by firms • Like looking though a microscope to focus on the smaller parts of the economy • Decision of a worker to work overtime or not • A family’s choice of having a baby • An individual firm advertising

17. Microeconomicsversus Macroeconomics (cont'd) • Macroeconomics • The study of the behavior of the economy as a whole • Deals with economy-wide phenomena • The national unemployment rate • The rate of growth in the money supply • The national government’s budget deficit

18. Microeconomics v. Macroeconomics (cont'd) • Macroeconomics deals with aggregates, or totals—such as total output in an economy. • Modern economic theory blends micro and macro concepts.

19. The Economic Person:Rational Self-Interest • Economists assume that individuals act as if motivated by self-interest and respond predictably to opportunities for gain.

20. The Economic Person:Rational Self-Interest (cont'd) • Rationality Assumption • The assumption that people do not intentionally make decisions that would leave them worse off

21. The Economic Person:Rational Self-Interest (cont'd) • Responding to incentives • Rationality and the use of incentives • Positive incentives • Negative incentives • Making choices • Balancing cost and benefits

22. The Economic Person:Rational Self-Interest (cont'd) • Some examples of incentives • Responding to positive incentives • Schoolchildren getting gold stars, working to have a “better life” for yourself • Responding to negative incentives • Penalties, punishments, using credit cards to avoid check overdrafts

23. The Economic Person:Rational Self-Interest (cont'd) • Defining self-interest • The pursuit of one’s goals, does not always mean increasing one’s wealth • Prestige • Friendship • Love

24. Economics as a Science • Models or Theories • Simplified representations of the real world used as the basis for predictions or explanations • A map is the quintessential model • Other models you’ve worked with?

25. Economics as a Science (cont'd) • Assumptions • The set of circumstances in which a model is applicable • Every model, or theory, must be based on a set of assumptions.

26. Economics as a Science (cont'd) • Ceteris Paribus Assumption[KAY-ter-us PEAR-uh-bus] • Nothing changes except the factor or factors being studied. • “Other things constant” • “Other things equal”

27. Economics as a Science (cont'd) • Economics is an empirical science. • Real-world data is used to evaluate the usefulness of a model. • Models are useful if they predict economic phenomena. • Economic models predict how people react, not how they think.

28. Economics: Foundations and Models • In this textbook, economics is used to answer questions such as the following: • “How are the prices of goods and services determined?” • “How does pollution affect the economy, and how should government policy deal with these effects?” • “Why do firms engage in international trade, and how do government policies affect international trade?” • “Why does government control the prices of some goods and services, and what are the effects of those controls?”

29. Positive v. Normative Economics • Positive Economics • Purely descriptive statements or scientific predictions; “If A, then B,” a statement of what is • Normative Economics • Analysis involving value judgments; relates to whether things are good or bad, a statement of what ought to be

30. When Economists Disagree: A Debate Over Outsourcing 1 - 1 Does outsourcing by U.S. firms raise or lower incomes in the United States?

31. What type of statement would “A minimum wage actually reduces employment” be considered? • a. A positive statement. • b. A marginal statement. • c. A normative statement. • d. An irrational conclusion.

32. Assignments to be completed before class January 20: • Having read Chapter 1, be able to answer Problems 1-1 through 1-7 & 1-11 on pp. 15-16. • Read Chapter 2 & also read Problems 2-1 through 2-6, 2-9, 2-10, 2-12 & 2-13 on pp. 48-49.

33. Out-of-Class Quiz #1 Before class on Tues., Jan. 27, email me from your Islander account, so that I will have your email address. Include your name and your course & section numbers. My email address ismarilyn.spencer@tamucc.edu. 4 points