macroeconomics econ 2301 fall 2009 marilyn spencer, ph.d. professor of economics introduction to...

MacroeconomicsECON 2301

Fall 2009

Marilyn Spencer, Ph.D.

Professor of Economics

Introduction to course & Chapter 1

Book

Miller, Economics Today, The Macro View, 14th or 15th edition (2006 or 2008).

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

Please fill out and return index card - PRINT LEGIBLY:

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

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

Algebra competency Students need to be comfortable with: Simple linear equationsTables of numbersGraphing

Read Chapter 1, Appendix A to see if you are comfortable with graphing that you’ll be required to use.

Topics: Introduction to course

Chapter 1, Economics:

Foundations and Models

Out-of-Class Quiz #1 By 5 p.m., Thursday, September 3:

1. Create an Islander email account.

2. Email me so that I will have your email address. Include your name and your course & section numbers.

My email address is marilyn.spencer@tamucc.edu.

4 points

Chapter 1: The Nature of Economics

Change of date for 1Change of date for 1stst exam!!! exam!!!

The 1st midterm exam has been rescheduled to Wednesday, September 23.

On this exam, you will be tested on concepts from Ch. 4 that we will have had time to go over in class. The 2nd midterm exam will pick up the rest of Ch. 4.

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

The Power of Economic Analysis

The Power of Economic Analysis (cont'd)

The economic way of thinking gives you the power—the power to reach informed conclusions about what is happening in the world.

Economic analysis helps you make better decisions, and increases your understanding when watching or reading the news on the Web.

The Power of Economic Analysis (cont'd)

Economic analysis is a way of thinking about all decisions:

Your education, career, financing your home, family

Your involvement in the business world, or in politics as a voter

Defining Economics Economics

The study of how people allocate their limited resources to satisfy their unlimited wants

The study of how people make choices

Defining Economics (cont'd)

ResourcesThings used to produce other things to satisfy

people’s wants

WantsWhat people would buy if their incomes were

unlimited

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.

Defining Economics (cont'd)

Individuals, businesses, and nations face alternatives, and choices must be made.

Economics studies how these choices are made.

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

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

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.

The Economic Person:Rational Self-Interest

Economists assume that individuals act as if motivated by self-interest and respond predictably to opportunities for gain.

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

Bounded Rationality

Hypothesis that people are nearly, not fully, rational. This is because we cannot examine every choice available to us. So we use simple “rules of thumb” to sort alternatives

The Economic Person:Rational Self-Interest (cont'd)

Responding to incentives - rewards for engaging in a particular activity

Rationality and the use of incentives

• Positive incentives

• Negative incentives

Making choices

• Balancing cost and benefits

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

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

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?

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.

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”

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.

Empirical evidence: Did You Know That ...

Economics is one of the fastest-growing college majors?

During the past 10 years, the number of students majoring in economics at U.S. colleges has increased by 40%?

Economics majors typically land higher paying jobs than other majors?

Positive v. Normative Economics

Positive EconomicsPurely descriptive statements or scientific

predictions; “If A, then B,” a statement of what is

Normative EconomicsAnalysis involving value judgments; relates to

whether things are good or bad, a statement of what ought to be

1 - 1 When Economists Disagree: A Debate Over Outsourcing

Does outsourcing by U.S. firms raise or lower incomes in the United States?

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.

Assignments to be completed before class September 2:

Having read Chapter 1, be able to answer these end-of-chapter problems:14th edition: 1-1 through 1-7 & 1-11 on pp. 15-1615th edition: 1-1, 1-3, 1-4, 1-5, 1-8, 1-12, 1-13 & 1-14 on

pp. 15-16

Read Chapter 2 & also read these end-of-chapter problems: 14th edition: 2-1 through 2-6, 2-9, 2-10, 2-12 & 2-13 on

pp. 48-4915th edition: 2-1, 2-2, 2-4, 2-5, 2-6, 2-8, 2-9, 2-10, 2-13

& 2-14 on pp. 48-50

Out-of-Class Quiz #1 By 5 p.m., Thursday, September 3, 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 is marilyn.spencer@tamucc.edu.

4 points