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

2. Book 4 Miller, Economics Today, The Macro View, 14 th edition (2006).

3. Course Description 4 An overview of how the economy of the United States is organized and functions in a market system. 4 Market processes are used to show how resources and incomes are allocated by households and businesses. 4 Determination of national income, employment, prices, interest rates, and growth are the focus of simple analytical techniques. 4 Monetary and fiscal policies are examined including their international dimensions. 4 Satisfies the economics component of the University core curriculum. (6 core skills) 4 Learning Objectives

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

5. 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

6. Syllabus: http://faculty.tamucc.edu/mspencer/ http://faculty.tamucc.edu/mspencer/ 4 Contact information 4 Text 4 Course description 4 Role of course in you undergraduate curriculum 4 Course methodology 4 Course content 4 Grades 4 Course outline

7. Algebra competency 4 Students need to be comfortable with: ÜSimple linear equations ÜTables of numbers ÜGraphing 4 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: 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. marilyn.spencer@tamucc.edu 4 points

9. Out-of-Class Quiz #2 4 Watch - live or taped, or read a transcript of, President Obama’s inaugural address. 4 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. 4 Send this email to me at marilyn.spencer@tamucc.edu, before class starts, January 27.marilyn.spencer@tamucc.edu 4 points possible

10. Chapter 1: The Nature of Economics

11. 4 The economic way of thinking is a framework to analyze solutions to economic problems. ÜHow much time to study ÜChoosing which courses to take ÜWhether troops should be sent abroad The Power of Economic Analysis (cont'd)

12. Defining Economics 4 Economics ÜThe study of how people allocate their limited resources to satisfy their unlimited wants ÜThe study of how people make choices

13. Defining Economics (cont'd) 4 Resources ÜThings used to produce other things to satisfy people’s wants 4 Wants ÜWhat people would buy if their incomes were unlimited

14. Defining Economics (cont'd) 4 With limited income (resources), people must make choices to satisfy their wants. 4 We never have enough of everything, including time, to satisfy our every desire.

15. Defining Economics (cont'd) 4 Individuals, businesses, and nations face alternatives, and choices must be made. 4 Economics studies how these choices are made.

16. Microeconomics versus Macroeconomics 4 Microeconomics ÜThe study of decision making undertaken by individuals (or households) and by firms ÜLike 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. Microeconomics versus Macroeconomics (cont'd) 4 Macroeconomics ÜThe study of the behavior of the economy as a whole ÜDeals 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) 4 Macroeconomics deals with aggregates, or totals—such as total output in an economy. 4 Modern economic theory blends micro and macro concepts.

19. The Economic Person: Rational Self-Interest 4 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) 4 Rationality Assumption ÜThe assumption that people do not intentionally make decisions that would leave them worse off

21. The Economic Person: Rational Self-Interest (cont'd) 4 Responding to incentives ÜRationality and the use of incentives Positive incentives Negative incentives ÜMaking choices Balancing cost and benefits

22. The Economic Person: Rational Self-Interest (cont'd) 4 Some examples of incentives ÜResponding to positive incentives Schoolchildren getting gold stars, working to have a “better life” for yourself ÜResponding to negative incentives Penalties, punishments, using credit cards to avoid check overdrafts

23. The Economic Person: Rational Self-Interest (cont'd) 4 Defining self-interest ÜThe pursuit of one’s goals, does not always mean increasing one’s wealth Prestige Friendship Love

24. Economics as a Science 4 Models or Theories ÜSimplified 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) 4 Assumptions ÜThe set of circumstances in which a model is applicable ÜEvery model, or theory, must be based on a set of assumptions.

26. Economics as a Science (cont'd) 4 Ceteris Paribus Assumption [KAY-ter-us PEAR-uh-bus] ÜNothing changes except the factor or factors being studied. Ü“Other things constant” Ü“Other things equal”

27. Economics as a Science (cont'd) 4 Economics is an empirical science. ÜReal-world data is used to evaluate the usefulness of a model. ÜModels are useful if they predict economic phenomena. ÜEconomic models predict how people react, not how they think.

28. Economics: Foundations and Models 4 In this textbook, economics is used to answer questions such as the following: Ü“How are the prices of goods and services determined?” Ü“How does pollution affect the economy, and how should government policy deal with these effects?” Ü“Why do firms engage in international trade, and how do government policies affect international trade?” Ü“Why does government control the prices of some goods and services, and what are the effects of those controls?”

29. Positive v. Normative Economics 4 Positive Economics ÜPurely descriptive statements or scientific predictions; “If A, then B,” a statement of what is 4 Normative Economics ÜAnalysis involving value judgments; relates to whether things are good or bad, a statement of what ought to be

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

31. 4 What type of statement would “A minimum wage actually reduces employment” be considered? Üa.A positive statement. Üb.A marginal statement. Üc.A normative statement. Üd.An irrational conclusion.

32. Assignments to be completed before class January 20: 4 Having read Chapter 1, be able to answer Problems 1-1 through 1-7 & 1-11 on pp. 15-16. 4 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 is marilyn.spencer@tamucc.edu. marilyn.spencer@tamucc.edu 4 points