Economics 123 J. Hanson Fall 2008 308 Smullin

Principles of Macroeconomics Introduction For most students this course will be a sequel to our principles of microeconomics course. It shifts the focus to the "big picture" of the national economy as a whole, and thus complements your earlier study of individual markets, the ways in which prices influence individual decision-makers, and the economic way of thinking about choices under conditions of scarcity. In macroeconomics we will examine the aggregate or total level of production in the economy (gross domestic product, or GDP) and how much of this represents things produced for consumers, for private investment, for the spending by government on currently produced goods and services, and for export to other nations. What happens when demand for such production is not sufficient to employ all those who seek jobs? What are the economic and social consequences of the resulting unemployment? What happens when too much demand causes prices in general to rise, and what are the effects of the resulting inflation? After examining these fundamental macroeconomic issues of unemployment and inflation, we will analyze the role of government in managing the macroeconomy. How can fiscal policy, or changes in the level of government spending and taxation, be used to achieve socially preferred levels of unemployment and inflation? How does the Fed use the tools of monetary policy to influence unemployment and inflation? How do the makers of fiscal and monetary policy sometimes operate in cooperation with each other, and at other times in apparent conflict? How important are issues relating to deficit spending and the national debt, and how should these influence the conduct of fiscal and monetary policy? These questions have particular significance at this point in time, as the two presidential candidates, Congress, and the Fed attempt to establish macroeconomic policies that will reverse recent increases in the unemployment rate while also addressing the higher inflation rates that we have been experiencing. In macroeconomics we also will study the global context within which national economies function. How important are trade and foreign investment to the U.S. and to other national economies? How does comparative advantage explain the potential benefits to nations from international trade, and why do policy conflicts often lead nations to impose barriers against international trade and foreign investment? How does the international monetary system operate today, and how does it affect the U.S. economy? How does the United States affect the economies of other industrial nations and developing nations? Finally, how does our involvement in the international economy affect the ability of fiscal and monetary policymakers to achieve domestic goals of price stability and full employment?

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Required Text Baumol, William J. and Blinder, Alan S. Macroeconomics: Principles and Policy. Eleventh edition. Course Format The class format for this course will be varied, with a mixture of lecture, discussion, and oral presentations. I strongly encourage each student to attend regularly, to prepare for each class through prior reading and exercises, and to participate actively in class sessions. We will work throughout the semester to relate our study of macroeconomics to current economic policy developments and issues. To promote this, pairs of students will use newspaper articles and related outside reading to develop and present a brief oral report dealing with current macroeconomic issues. Each student also will write one short position paper on an important macroeconomic policy issues facing the government. Finally, there will be four equally-weighted hour examinations, including a non−cumulative final. Grading Grades for the course will be based on the following point distribution: First Exam 100 Second Exam 100 Third Exam 100 Final Exam 100 Policy Paper 100 Oral Presentation 25

Class Participation 25 Total Possible Points 550 Office Hours Mon., Wed. 10:15 – 11:15 Office: Smullin 308 Wed. 3:00 – 4:00 Phone: 370-6316 Tue., Thu. 2:00 – 3:00 Email: jhanson and by appointment.

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Course Topics and Primary Reading Assignments Part One: Introduction to the Macroeconomy Review of basic economic ideas and questions Chs. 1,2,3,4 (Sep. 3, 5) Introduction to macroeconomics Ch. 5 (Sep. 8, 10) Macro policy goals: unemployment, inflation, growth Ch. 6 (Sep. 12, 15) Economic growth: theory and policy issues Ch. 7 (Sep. 17, 19) Aggregate demand and consumer spending Ch. 8 (Sep. 22, 24) Review (Sep. 26) First Exam (Sep. 29) Part Two: Fiscal Policy and the Macroeconomy

Demand-side equilibrium: unemployment or inflation Ch. 9 (Oct. 1, 3) Supply-side equilibrium: unemployment and inflation Ch. 10 (Oct. 6, 8) Fiscal policy: government spending and taxation Ch. 11 (Oct. 10, 13, 15) Review (Oct. 17) Second Exam (Oct. 20) Part Three: Monetary Policy and the Macroeconomy Money and the banking system Ch. 12 (Oct. 22, 27) Monetary policy and the macroeconomy Ch. 13 (Oct. 29, 31) Monetary and fiscal policy controversies Ch. 14 (Nov. 3, 5) Budget deficits, the national debt, and macro policy Ch. 15 (Nov. 7, 10) The trade-off between inflation and unemployment Ch. 16 (Nov. 12, 14) Review (Nov. 17) Third Exam (Nov. 19) Part Four: Macroeconomic Policy and the Global Context International trade and comparative advantage Ch. 17 (Nov. 21, 24, 26) The international monetary system Ch. 18 (Dec. 1, 3, 5) Exchange rates and the macroeconomy Ch. 19 (Dec. 8, 10, 12) Final Exam Thursday, December 18, 2:00 – 5:00 p.m. or Friday, December 19, 2:00 – 5:00 p.m.

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