Principles of Macroeconomics

Northern Arizona University
Flagstaff, Arizona

Instructor: Leachman, Lori
Subject area: Economics
Department: Economics
Course number: ECON 285
Year taught: 1996

Instructor's Email:

Please note that the copyright for this syllabus is retained by the instructor.

Text: Macroeconomics 3rd Ed., Michael Parken

Objective: The objective of Macroeconomic principles is to acquaint the student with the basic concepts, tools and terminology of economics. In particular we will be interested in applying the concepts and tools to real world problems and situations. We will analyze the impacts of various changes in the market conditions on good prices. We will then discuss how government affects these market outcomes. Next, we will discuss the role of government at the highest level - i.e. the institutions which facilitate, intentions of, and outcomes of discretionary macroeconomic policy. This will be the primary focus of the course.

However, I also expect to incorporate environmental issues into this course whenever possible. Certainly one role of government has been to correct externalities (depletion of the ozone produces a negative eternality while biodiversity generates positive externalities). In addition, government is the agent charged with defining and enforcing property rights. Environmental degradation in many instances involves a breakdown in the property right system. Finally, recent proposals in congress and the Senate would require complete cost-benefit analysis of any new Federal Regulations, many of which involve environmental issues.

To get the most out of the lecture and class discussion I strongly encourage you to stay abreast of current economic events. This can be accomplished by reading a daily/weekly news journal.

Grading: 3 regular multiple choice exams (20% each), a final (20%) and one 5 page, typed paper on a current topic (20% each). The paper is due Tuesday, Dec. 3. Exams will be announced at least 2 weeks prior to the scheduled date. Reviews will be held prior to each exam.

Course Outline:

Section I: Markets and Price Determination

Chapter 1 - Introduction
The Endangered Species Act, etc. relate to economic concepts and decision making.
Is Pregnancy a Rational Choice?

Chapter 2 - Graphing (optional)
Economic Systems

Chapter 20
"Toward a Theory of Property Rights"
"Nature, Nurture and Property Rights
"Theories of the Firm"

Chapter 3
- Opportunity Costs
- Production Possibilities and Trade Frontier
- "Allocation, Distribution and Scale"
- "Different Roads to Development"
- Comparative Advantage
1. North/South trade
Environmental degradation
Reading - "North-South Trade and the Global Environment" - intro and conclusions.

Chapter 4
Demand and Supply Analysis

Section II: Role/Objectives of Government

Chapter 5
- Goals of Government
- Tragedy of the Commons, "Ultrasound Effects"
- Business Cycles - Ch. 32
- Role of government (outside of countercyclical discretionary policy)
- Income redistribution - taxes and budgeting - Ch. 27
- Provision of public goods
- Correcting externalities
1. Pollution - "The Positive Relationship Between Jobs, Environment and the Economy: An Empirical Analysis and Review"
Energy Transition "Environmental Regulation and Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?"
2. Biodiversity

Chapter 6
Measuring the economy GNP accounting

Chapter 10
Aggregate Demand and Supply

Chapter 16
The Business Cycle

Chapter 7

Chapter 15

Section III: Monetary Policy and Institution

Chapter 14
The Federal Reserve

Chapter 13
Money - the banking system
Money creation
Money inflation

Foundations of the Classical and Keynesian debate
(Ch. 23 p. 544-546 debate)

Section IV
Chapter 11 & 8, lecture notes
The Keynesian Model

Fiscal Policy
1. Tax multiplier
2. Spending multiplier Fiscal Policy

Chapter 17
Discretionary Policy
1. Transmission of monetary policy
2. Crowding out

Chapter 1 - Intro
1.What is economics?
--c. resources

2. Economics Assumptions
--a. rationality
--b. efficiency
--c. nothing is free

3. Microeconomics
--a. markets
--b. households and firms

4. Macroeconomics
--a. economic sectors
--b. goals of government
--c. discretionary policy

Chapter 20 - Economic Systems
1. Capitalism vs. Socialism
--a. allocation/distribution mechanisms
--b. role/types of property rights.

Chapter 3 - PPC
1. PPC
--a. opportunity costs
--b. nonhomogeneity of resources
--c. increasing marginal costs
--d. unemployment
--e. efficiency
--f. growth
--g. trade

2. Problems with growth

3. History of Trade
--a. feudalism, mercantilism, capitalism

4. Basis for Trade
--a. absolute vs. comparative advantage
----1. property rights

Chapter 4 - Demand and Supply
1. Demand
--a. Law of
----1. income effect
----2. substitution effect
--b. Movement along - D Price - point on curve changes
--c. Shifts in - curve changes
----1.D taste
----2.D expectations
----3.D income - normal vs. inferior goods
----4.D price of another good - complements/substitutes

2. Supply
--a. Law of
----1. opp costs
----2. profitability
--b. Move along - D Price - point on curve changes
--c. Shifts in - curve changes
----1.D expectations
----2.D price of inputs
----3.D technology
----4.D price of production substitute

3. Equilibrium
--a. adjustment to
----1. impact of price ceilings and floors
--b. change in (due to shifts in demand and supply)

End Section I - Exam

Chapters 5 & 6
1. History of government involvement

2. Evolution of the goals of government

3. General functions performed by government which facilitate the functioning of the economy

4. Role of government
--a. Provider of public goods
--b. Redistribution of income
----1. taxes - progressive, proportional, regressive
----2. transfer payments
--c. Corrector of externalities
----1. positive externalities = subsidy
----2. negative externalities = taxation
--d. Enactor/Implementor of discretionary policy to compensate for business cycle fluctuations and economic problems

5. Tax revenues / Government expenditures
--a. Revenues
--b. Expenditures
--c. GNP accounting
----1. omission problems

Chapters 7, 15 & 16
1. The Business Cycle
--a. What is it?
--b. How to measure it

2. Unemployment (Ch. 7)
--a. Costs, measurement
--b. types

3. Inflation (Ch. 15)
--a. Costs, measurement
--b. Types

4. Discretionary Policies
--a. expansionary contractionary

Chapter 10
1. Aggregate Demand
--a. Components
--b. Wealth effect
--c. Interest rate effect
--d. Impact of discretionary policy

2. Aggregate Supply
--a. Long run AS
--b. Short run AS
--c. Shifts

3. Equilibrium
--a. Where in business cycle
--b. Appropriate policy

Exam II

Chapter 13
1. Functions of Money
--a. Medium of exchange
--b. Store of value
--c. Standard of value

2. Monetary Systems
--a. Commodity money
--b. Fiat money
--c. Commodity-backed money

3. Measures of Money

Chapter 14
1. The Federal Reserve
--a. Structure
----1. policy making/implementing authorities
----2. regional federal reserve banks
----3. member banks
--b. Functions of the Fed
----1. control MS, exchange rate
----2. fiscal agent of Fed government
----3. police banks
----4. bankers bank

2. Fractional Reserve Banking
--a. legal reserves
--b. secondary reserves

Chapter 13
1. Deregulation and Monetary Control Act of 1980
--a. History
--b. What it did
----1. uniform reserve requirements
----2. eliminate reg Q
----3. put all thrifts under federal reserve supervision
----4. allow for the beginning of interstate banking
----5. make banks and thrifts more alike
----6. raise deposit insurance to $100,000/account
--c. Implications for monetary policy

2. Money Creation
--a. Money multiplier, monetary base
--b. Principles of
----1. no one bank creates money - simply recirculates - entire system creates
----2. only occurs based on excess reserves
----3. banks holding excess reserves inhibits the process
----4. public holding cash inhibits the process
----5. banks investing in securities inhibits the process
----6. process is dependent on lending
--c. re-depositing

Chapter 14
1. Tools of the Fed
--a. discount rate
--b. reserve requirement
--c. open market operations
--d. moral suation
--e. margin requirements
2. How they work

Keynesian/Classical Debate
1. Classical Theory
--a. Foundations
----1. interest rate flexibility
----2. wage flexibility
----3. price flexibility
--b. Says Law
--c. Implication for discretionary policy
--d. Qty theory (Ch.13)

2. Keynesian Theory
--a. Foundations
----1. savers/investors differ
----2. wages/prices not flexible downward
----3. downward spirals possible
--b. Implications for discretionary policy

3. Preferences for fiscal vs. monetary policy

Exam III

The Keynesian Model (Ch. 11, 18) - Packet from Support Services, Rm. 111

Chapter 17 - Macroeconomic Policy
1. Fiscal Policy
--a. graphs
----1. Keynesian
----2. AD-AS

2. Monetary Policy
--a. graphs
----1. Keynesian - transmission mechanism
----2. AD-AS

3. Crowding Out

4. Accommodating Monetary Policy

5. Supply Side Policies/Programs