Macroeconomics

MACROECONOMICS OBJECTIVES - (Fall Semester)
The purpose of an AF course in Macroeconomics is to give students a thorough understanding of the principles of economics that apply to the economic system as a whole. It places primary emphasis on the fundamental determinants of national income and price levels, and also includes the study of measures of economic performance, economic growth, and international trade. *This portion of the AF Economics course will be divided into four units.*

UNIT I: INTRODUCTION TO ECONOMICS

The focus of this unit is scarcity. We will examine some methodological questions in economics, and cover such concepts as scarce resources, unlimited wants, and tradeoffs in decision-making. We will analyze the different economic systems--market, command and traditional--that have been used to answer the questions of what to produce, how to produce and for whom to produce. Finally, this unit will introduce the student to the economic way of thinking.

OBJECTIVES

1. Describe and analyze the "economic way of thinking"
2. Describe the methodology used in economics
3. Graph and interpret data
4. Graph and distinguish between inverse, direct and zero relationships
5. Graph and distinguish between constant and variable relationships
6. Identify the conditions that give rise to the economic problem of scarcity
7. Define Opportunity Cost
8. Identify the Opportunity Costs involved in various courses of action
9. Construct a Production Possibilities curve from sets of hypothetical data
10. Apply the concept of Opportunity Cost to a Production Possibilities Curve
11. Analyze the significance of different locations on, above or below a Production Possibilities Curve
12. Define comparative and absolute advantage
13. Analyze the advantages and disadvantages of different economic systems

UNIT II: THE DATA OF MACROECONOMICS

The "nuts and bolts" performance of any national economy is usually measured in terms of Gross National Product, Gross Domestic Product, and the levels of inflation and unemployment. This unit will cover the components of gross income measures and the costs of inflation and unemployment. Students will learn to distinguish between nominal and real values, and how to use price indices to convert nominal magnitudes into real magnitudes. As the course moves from static descriptions to dynamic models, we will discuss the actual levels of inflation, unemployment, GNP and GDP in the United States.
OBJECTIVES

1. Analyze the components of the Circular Flow Diagram and use it to explain how a single purchase can influence all the Macro flows in the country
2. Describe the purpose of National Income Accounting
3. Define Gross National Product, Gross Domestic Product, National Product, National Income, Personal Income, and Disposable Income
4. Explain how we measure GNP and GDP
5. Explain what Goods and Services are counted in GNP and GDP as Consumption, Investment, Government Expenditures, and Net Exports
6. Compute GNP, GDP, Yn, and Yd when given National Income Accounting data
7. Describe the purpose of a Consumer Price Index and how it is calculated.
8. Use a Price Index to calculate the rate of Inflation
9. Explain how Unemployment is measured in the United States
10. Calculate Unemployment and Employment Rates from appropriate data
11. Differentiate between Frictional, Cyclical, Structural and Seasonal Unemployment
12. Describe the phases of the Business Cycle
13. Graph the effects of unemployment and inflation.
14. Describe the difference between Nominal and Real GNP

UNIT III: MACROECONOMY IN THE SHORT AND LONG RUN

This important unit first deals with the understanding of the significance of fluctuations surrounding long-run trends in the economy and from where they derive. The units examines the economic data used to track long term growth of a nation. The unit examines the influence on productivity, noting particularly the labor market and the problem of unemployment. Next, the material in this unit gets to the heart of the Macroeconomics course. Since the material is complex, students will need a theoretical construct to organize the concepts; that construct will be the Aggregate Supply-Aggregate Demand model. Students will build the components of the Classical and Keynesian models, including the consumption function and also learn the components of AD through the circular flow diagram. The Keynesian multiplier and consumption function will be introduced.

OBJECTIVES

1. Learn how long-run growth can be measured by the increase in real GDP per capita.

2. Explain why productivity is the key to long run growth and how it is driven by physical capital, human capital and technological development.

3. Know the factors that explain why growth rates differ so much among countries.
4. Define Aggregate Demand, Aggregate Supply and Equilibrium
5. List and explain the basic causes of shifts in Aggregate Demand and Aggregate Supply
6. Graph Aggregate Demand and Aggregate Supply
7. Describe what determines the amount of goods and services produced and the level of employment in the Classical theory of Aggregate Supply-Aggregate Demand
8. Describe what determines the amount of goods and services produced and the level of employment in the Keynesian theory of Aggregate Supply-Aggregate Demand
9. Explain how Consumption and Saving are related to Disposable Income in the Keynesian model
10. Describe and calculate from given data the Marginal Propensity to Consume and the Marginal Propensity to Save
11. Describe the Multiplier
12. Given values for the marginal Propensity to Consume, calculate the values for the Multiplier
13. Calculate the change in total spending that ocurs from a given change in Business or Government expenditures when MPC is known
14. Describe Keynesian Equilibrium in words and diagrams.

UNIT IV: MACROECONOMIC POLICIES

An important step in analyzing Aggregate Demand is the study of the effect of Fiscal and Monetary Policy. The concepts in this unit include the definition of money, fractional reserve banking, and the Federal Reserve System. Students should learn how multiple deposit expansion affects the money supply and how the money supply affects the economy. From this, we can define the determinants of the demand for money and investigate how equilibrium in the money market determines interest rates, and how the investment demand curve provides the link between changes in the money market and changes in Aggregate Demand. Students will also explore the deep divisions among economists about Macroeconomic policy, and will examine the policy prescriptions of Keynesian, Monetarist, Neo-Classical, Rational Expectations and Supply-Side economic theories.
OBJECTIVES
Fiscal Policy:

1. Explain the Equilibrim levels of Output and Employment in Keynesian analysis when prices are free to vary
2. Explain and show graphically how Fiscal Policy can be used to reduce and Inflationary or Recessionary Gap
3. Describe how Fiscal Policy can be used to stabilize the economy
4. Distinguish between Automatic and Discretionary Stabilizers
5. Distinguish between a Contractionary and and Expansionary Fiscal Policy
6. Evaluate Macroeconomic conditions and determine the Fiscal Policy that can be used to improve those conditions

7. List and explain the complications encountered in employing Fiscal Policy

Monetary Policy:

1. Define and explain the functions of money
2. Explain what determines the value of money
3. Define and contrast the definitions of M1, M2, and M3
4. Define and compare Required Reserves and Excess Reserves
5. Explain how the banking system creates money
6. Calculate the Money Multiplier and money growth possible from a given value of Excess Reserves
7. Describe the organizational structure of the Federal Reserve System
8. Define and explain Open Market Operations
9. Explain how Open Market Operations, the Discount Rate, and the Reserve Requirement are used to expand or contract the money supply
10. Evaluate the effectiveness of the three main tools of Monetary Policy
11. Compare and contrast the Keynesian and Monetarist views
12. Given a series of data, identify the economic problem and prescribe the proper Monetary Policy to correct that problem
13. Identify the economic problems and recommend Monetary and Fiscal policies to improve economic performance when given economic statistics
14. Use Aggregate Demand and Aggregate Supply to analyze the economic problems and proposed solutions to those problems
15. Analyze the tradeoffs involved in various economic policy prescriptions
16. Compare and contrast the effectiveness of Monetary and Fiscal Policy as tools of economic stabilization
17. State the assumptions, values, theoretical support, and applicable time periods underlying recommendations concerning Monetary and Fiscal Policies that are in conflict
18. Discuss the various problems and tradeoffs that policymakers face in the real world