Economics 201 - Principles of Macroeconomics

Instructor: D. Vandegrift

Office: Business Building -- Room 218

Office Hours: Tues. 2-4pm, Wed. 11-12pm, or by appointment

Telephone: (609) 771-2294

e-mail: vandedon@tcnj.edu

homepage: www.tcnj.edu/~vandedon

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Text: Gwartney, James D., Stroup, Richard L., and Sobel, Russell L., 2000, Economics: Private and Public Choice, 9th ed. (Dryden Press, New York).

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Course Objective: In microeconomics, we studied the economic decisions of individuals and firms. Here, we will analyze the whole (national) economy or large sectors of it. Just as in microeconomics, the ultimate aim of the course is economic literacy. By the end of the course, most discussions of macroeconomic topics that appear in The Wall Street Journal or The New York Times should be clear to you.

 Economic literacy requires that we describe the measures of performance (economic aggregates) for the national economy and explain the ways in which the measures of performance are related. Finally, we must assess the effects of government policy aimed at improving the performance of the national economy.

I know what you're thinking. It does sound pretty difficult. But you shouldn't be intimidated. You hear about this stuff on the evening news every day. Economic aggregates (e.g., GDP, inflation, unemployment) are the focus of a large amount of news coverage. Implicit in many of the discussions is the way that the aggregates are related. For instance, rising levels of unemployment usually imply slower economic growth (i.e., GDP growth). But the relationships can, at times, be confusing. So to analyze the relationships, we will build economic models of the macroeconomy.

The models are useful beyond simply understanding the relationships between economic aggregates. We can use the economic models to understand what the government can do (if anything) to improve the measures of economic performance. This is critical. Election campaigns and important policy debates center on competing claims about what the government ought to do to stabilize or stimulate the economy. 

Exams and Grading: There will be two midterm exams, a final, and three problem sets. The final is cumulative. Because I distribute the answers on the date that the problem sets are due, I do not accept late problem sets. If you have difficulty completing a problem set, see me before the date on which the assignment is due. Weights for each requirement and the grading scale are as follows:

 

Problem Sets:        10%                          92-100   -    A              80-81    -    B-           67-69    -  D+                            

Midterms:              40%                          90-91    -     A-            77-79    -   C+            62-66    -  D

Paper                      15%                          87-89    -     B+            72-76    -   C               0 -62    -  F

Final:                      35%                          82-86    -     B              70-71    -   C-

                              100%

         

 The Paper: To complete this course, you must read a book related to macroeconomics and write a paper about the book. The paper should be 5 or 6 typed, double-spaced pages (excluding cover page, references, tables, charts, etc) and in the format of a book review. I have attached a list of acceptable titles. If you want to use a book that is not on the list, you must clear it with me in advance. I will not accept papers on unapproved titles. The due date for the paper is Monday,  March  5.

In the paper, you must discuss the thesis of the book and analyze the argument. To analyze the argument, you must consult and cite at least one other source. Your best bet is an article from an economics journal or a newspaper. Consulting other sources will enable you to comment on specific aspects of the book or describe some of the strengths and weaknesses of the book's argument. To find articles, I suggest that you use Lexis-Nexis or Ebsco Host. Lexis-Nexis and Ebsco Host are databases of newspaper and journal articles. They are available on the library's web page.              

For some ideas on how to write a book review, you may want to read a few reviews of non-fiction books. Finding a non-fiction book review isn’t hard. Nearly every journal publishes book reviews (e.g., Business Week, The New Republic, etc.). The New York Times publishes an entire section of book reviews every Sunday. Because you are only interested in the format and style of a book review, the reviews need not consider the book or topic that you have chosen.

Do not cite book reviews of the particular book that you select. Other reviewer’s opinions of the book tend not to add much to the paper. You may use the web to search for articles from journals, magazines and newspapers. But please do not cite anything that was published only on the web. There are too many crackpots with web sites. If you use the web to find articles, cite only the periodical in which it was published. You may follow the example set out below in the Course Organization section. Do not cite web addresses.

Grading papers isn't much fun. So I wouldn't assign a paper unless I thought you would gain something by completing one. In particular, I hope that the paper forces you to think a bit about economic issues beyond the course. Maybe you'll even like the book. The paper also represents a chance to work on your writing skills. Writing clearly about complex issues is an important skill. Because I take writing seriously, I also take plagiarism seriously. Do not claim anyone else’s writing or ideas as your own. Violations of this rule will be prosecuted to the fullest extent of the law.          

In grading your paper, I will pay close attention to the clarity of your writing. The quality of your writing will determine a significant portion of your grade. Be sure that your sentences are coherent and that each paragraph follows from the previous paragraph. A good way to avoid a poorly written paper is to take a look at a manual of style. I recommend either The Writing of Economics by Donald N. McCloskey or The Elements of Style by William Strunk and E. B. White.

 

Suggested Titles

Barro, Robert, 1996, Getting It Right: Markets and Choices in a Free Society (MIT Press, Cambridge).

Bhagwati, Jagdish, 1990, Protectionism (MIT Press, Cambridge).

Bhagwati, Jagdish, 1993, India in Transition: Freeing the Economy (Oxford University Press, New York).

Blinder, Alan, 1994, Hard Heads, Soft Hearts (Addison-Wesley, New York).

Cox, W. Michael and Alm, Richard, 1999, Myths of Rich and Poor: Why We’re Better Off Than We Think (Basic Books, New York).

Eisner, Robert, 1995, The Misunderstood Economy: What Counts and How to Count It (McGraw-Hill, New York).

Friedman, Milton, 1962, Capitalism and Freedom (University of Chicago Press, Chicago).

Krugman, Paul, 1994, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (W.W. Norton and Co., New York).

Krugman, Paul, 1996, Pop Internationalism (MIT Press, Cambridge).

Krugman, Paul, 1997, The Age of Diminished Expectations (MIT Press, Cambridge).

Levy, Frank, 1998, The New Dollars and Dreams: American Incomes and Economic Change (Sage Foundation, New York).

Schiller, Robert, 2000, Irrational Exuberance (Princeton University Press, Princeton).

 

Course Organization

 

I. National Income Accounting and Economic Growth

   a. GDP Characteristics (pp. 168-176)

   b. Real v. Nominal GDP (pp. 177-180)

   c. Problems with GDP (pp. 180-188)

      B. Bartlett, “The High Cost of Turning Green,” The Wall Street Journal, Sept. 14, 1994, p. A18.

      “Other Women’s Movement: Wages for Housework,” The Trenton Times, Jan. 2, 1998, p. A12.

      G. Burkins and S. Lueck, “GDP Posted 4.8% Increase in 3rd Period” The Wall Street Journal, Oct. 29, 1999, p. A2.

      L. Rohter, “Columbia Adjusts Economic Figures to Include Its Drug Crops,” The New York Times, June 27, 1999, p.  3.

      P. Passell, “Every Second Counts Even More,” The New York Times, June 28, 1999, p. 9.

   e. Trends In Income Inequality (pp. 714-723) (not listed)

      J. Schlesinger, “Low Wage Workers Make Strong Gains,” The Wall Street Journal, Feb. 5, 1999, p. A2. 

   f. Productivity and Growth (pp. 683-689) (not listed)

     “A Working Hypothesis,” The Economist, May 11, 1996, p. 74.

     “Work in Progress,” The Economist, July 24, 1999, pp. 21-24.

      L. Uchitelle, “In a Productivity Surge, No Proof of a New Economy,” The New York Times, Oct. 8, 2000, p. 6 (BU).

   g. Net Foreign Investment and International Trade (pp. 236-239)

 

II. Inflation, Unemployment and Business Cycles

   a. Business Cycles (pp. 192-194)

   b. Index of Leading Indicators (pp. 385-386)

      M.Phillips, “Make-Up of Leading Indicators May Shift,” The Wall Street Journal, Aug. 12, 1996, p. A2.

      A. Bodipo-Memba, “New-Home Sales Fell 3.6% in December,” The Wall Street Journal, Feb. 3, 1999, p. A2.              

   c. Unemployment (pp. 194-202 & 204-205)

      C. Duff, “Unemployment Remains at Low Level,” The Wall Street Journal, Jan. 12, 1998, p. A2. 

   d. Full Employment  (pp. 202-203 & 740-750) (pp. 202-203 & 491-501)

      “A Bad Case of Arthritis,” The Economist, Feb. 26, 1994, pp. 70-71.

       H. Cooper and T. Kamm, “Loosening Up: Much of Europe Eases Its Rigid Labor Laws and Temps Proliferate,”                   The Wall Street Journal, June 4, 1998, p. A1.

       E. Andrews, “With German Craft Rules, Its Hard Just to Get Work,” The New York Times, Feb. 7, 1999, p. 16.

       C. Tejada, “Strong Labor Market May Linger,” The Wall Street Journal, Sept. 11, 2000, p. A1.

       R. Barro, “Higher Minimum Wage, Higher Dropout Rate,” The Wall Street Journal, Jan. 11, 1996, p. A14.

   e. Unemployment and International Trade

       M. Prospero, “N.J. Delegates make case for China’s exclusion from WTO,” The Trenton Times, Dec. 9, 1999, p.  D1.  

   f. Inflation (pp. 205-210)

     L. Bird, “Next Christmas, the French Hens Will Be Whining for a Big Raise,” The Wall Street Journal, Nov. 12,  1996,         p. B1. 

     M. Boskin, “Prisoners of Faulty Statistics,” The Wall Street Journal, Dec. 5, 1996, p. A18.

     F. Norris, “Sorry, Wrong Numbers,” The New York Times, Dec. 1, 1996, p. 5.

     C. Duff, “Eyes on the Price: Is the CPI Accurate?,” The Wall Street Journal, Jan. 16, 1997, p. A1.

     A. Bodipo-Memba, “Drop in Inflation Isn’t as Large as It Seems,” The Wall Street Journal, May 11, 1999, p. A2.    

 

III. An Introduction to Macroeconomic Models

a. Aggregate Demand (pp. 216-222)   

   b. Aggregate Supply (pp. 222-225)

     “Economy Presents Early Gift,” The Trenton Times, Dec. 8, 1999, p. A19.

   c. The Phillips Curve (pp. 766-776) (p.518-527)

     “Paradigm Lost,” The Economist, Nov. 3, 1990, pp. 84-85.

   d. Equilibrium in the Goods and Services Market (pp. 225-231)

   e. Loanable Funds (pp. 231-236)

  

IV. Using the AS - AD Model

   a. Shifts in Aggregate Demand (pp. 244-251)

     G. Ip, “The Wealth Effect is Back in Play,” The Wall Street Journal, Aug. 25, 1997, p. A1.

     M. Phillips, “Trade Gap Widened by 15% in September,” The Wall Street Journal, Nov. 22, 2000, p. A2.   

        M. Moffet, “As U.S. Sneezes, Neighbors Fear a Cold,” The Wall Street Journal, Dec. 12, 2000, p. A21.      

   b. Shifts in Aggregate Supply (pp. 251-260)

   c. Macroeconomic Adjustment (pp. 261-266)

   

Problem Set #1 Due (Feb. 19)

Midterm #1 (Feb.  22)

 

V. Fiscal Policy

   a. Keynesian Foundations (pp. 270-272 & 281-289)

   b. Keynesian Fiscal Policy (pp. 294-298)

   c. Crowding Out (pp. 299-301)

   d. New Classical Fiscal Policy (pp  301-303)

     “The Public Purse,” The Economist, Nov. 24, 1990, pp. 77-78.

      B. Spindle, “Japan’s Massive Debt Bomb Ticks Ever Louder” The Wall Street Journal, Dec. 11, 2000, p. A27.

   e. The Timing of Fiscal Policy Changes (pp. 303-307)

      J. Chait, “Cut to the Chase,” The New Republic, Dec. 18, 2000, p.13-14.

   f. Supply Side Effects of Fiscal Policy (pp. 307-310)

      M. Feldstein, “What the '93 Tax Increases Really Did,” The Wall Street Journal, Oct. 26, 1995, p. A12.

  g. Fiscal Policy Evidence (pp. 310-315)

 

VI. Money and the Banking System

   a. The Role of Money (pp. 320-322)

   b. Defining the Money Supply (pp. 322-324 & 341-345)

      R. Lowenstein, “Remember M1? It's Staging a Comeback,” The Wall Street Journal, Jan. 4, 1996, p C1.

   c. The Banking System (pp. 324-330)

   d. The Federal Reserve System (pp. 331-340)

      J. Wilke, “Showing Its Age: Fed’s Huge Empire, Set Up Years Ago, Is Costly and Inefficient,” The Wall Street                    Journal, Sept. 12, 1996, p. A1.

      J. Wilke, “Who Is Predicting the Fed’s Next Move?” The Wall Street Journal, Oct. 22, 1996. p. A1.

   e. Current Problems in Banking (pp. 345-346)

 

VII. Monetary Policy

   a. Money Demand and Money Supply (pp. 352-355)

   b. Monetary Policy in the Short Run (pp. 356-361)

   c. Monetary Policy in the Long Run (pp. 361-371)

      M. Friedman, “The Fed and the Natural Rate,” The Wall Street Journal, Sept. 9, 1996, p. A17.

   d. Evidence (pp. 371-375)

 

Problem Set #2 (Mar. 29)

Midterm #2 (Apr. 2)

 

VIII. Debt and Deficits

   a. Balanced Budgets and the National Debt (pp. 752-755) (pp. 504-507)

   b. The Economic Effect of the Debt (pp. 755-762) (pp. 507-514)

      “The Burdensome National Debt,” The Economist, Feb. 10, 1996, pp. 68-69.

      L. Uchitelle, “Debt Debate Ignores the Country’s Other Options,” The New York Times, Oct. 22, 2000, p. 4 (BU).

   c. Financing Social Security (pp. 780-790) (pp.532-542)

      D. Wessel, “Social Security with Subtitles,” The Wall Street Journal, Dec. 7, 1998, p. A1.

 

IX. International Trade

   a. Gains From Trade (pp. 434-444)

      B. Davis, “Tackling Trade Issue Takes a Lot of Courage,” The Wall Street Journal, Jan. 8, 1996, p. A1.

   b. The Economics of Trade Restrictions (pp. 444-448)

   c. Arguments for Protection (pp. 448-457)

      P. Krugman, “Competitiveness, A Dangerous Obsession, ” The Wall Street Journal, Feb. 28, 1994, p. A14.

      S. Golub, “America-Firsters Have It Backward,” The Wall Street Journal, Jan. 16, 1996, p. A14. 

  

X. International Finance

a. Flexible Exchange Rates and the Foreign Exchange Market  (pp. 462-470)

b. Balance of Payments and Macroeconomic Policy (pp. 470-482)

   c. Fixed Exchange Rates and Balance of Payments (pp. 482-486)

       

Problem Set #3 Due (Apr. 26)

Final Exam

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