Transcript Introduction & Chapter 1 - Faculty Personal Web Page

Macroeconomics
ECON 2301
Spring 2011
Marilyn Spencer, Ph.D.
Professor of Economics
Introduction to course & Chapter 1
Book
 Miller, Economics Today, The Macro
View, (14th or) 15th edition (2006 or 2008).
Course Description
 An overview of how the economy of the United States is
organized and functions in a market system.
 Market processes are used to show how resources and
incomes are allocated by households and businesses.
 Determination of national income, employment, prices,
interest rates, and growth are the focus of simple analytical
techniques.
 Monetary and fiscal policies are examined including their
international dimensions.
 Satisfies the economics component of the University core
curriculum. (6 core skills)
 Learning Objectives
Please fill out and return index card PRINT LEGIBLY:
1. Your name
6. Last math class
successfully
2. year in college (1st, 2nd,
completed in college etc.)
or “N/A”
3. major - or “deciding”
7. Usual source of local
4. ECON course in high
&
national
news
school - “yes” or “no”
8.
Any
particular
topic
5. If you’re working this
you’d like us to
semester, whether as
consider
as
part
of
volunteer or for pay,
this course
approx. # of hours/week,
- or “N/A”
Syllabus: start with
http://faculty.tamucc.edu/mspencer/
 Contact information
 Text
 Course description
 Role of course in you undergraduate
curriculum
 Course methodology
 Course content
 Grades
 Course outline
Algebra competency
 Students need to be comfortable with:
Simple linear equations
Tables of numbers
Graphing
 Read Chapter 1, Appendix A to see if you
are comfortable with graphing that you’ll
be required to use.
Topics:
Introduction to course
Chapter 1, Economics:
Foundations and Models
Out-of-Class Quiz #1
By the start of class, Monday, January 24:
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
[email protected].
4 points
Chapter 1: The Nature of Economics
The Power of Economic Analysis
 The economic way of thinking is a
framework to analyze solutions to economic
problems.
How much time to study
Choosing which courses to take
Whether troops should be sent abroad
The Power of Economic
Analysis (cont'd)
 The economic way of thinking gives you the
power—the power to reach informed
conclusions about what is happening in the
world.
 Economic analysis helps you make better
decisions, and increases your understanding
when watching or reading the news on the
Web.
The Power of Economic
Analysis (cont'd)
 Economic analysis is a way of thinking
about all decisions:
Your education, career, financing your home,
family
Your involvement in the business world, or in
politics as a voter
Defining Economics
 Economics
The study of how people allocate
their limited resources to satisfy their unlimited
wants
The study of how people make choices
Defining Economics (cont'd)
 Resources
Things used to produce other things to satisfy
people’s wants
 Wants
What people would buy if their incomes were
unlimited
Defining Economics (cont'd)
 With limited income (resources),
people must make choices to satisfy their
wants.
 We never have enough of everything,
including time, to satisfy our every desire.
Defining Economics (cont'd)
 Individuals, businesses, and nations face
alternatives, and choices must
be made.
 Economics studies how these choices are
made.
Microeconomics
versus Macroeconomics
 Microeconomics
The study of decision making undertaken by
individuals (or households) and by firms
Like 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
Microeconomics
versus Macroeconomics (cont'd)
 Macroeconomics
The study of the behavior of the economy as a
whole
Deals with economy-wide phenomena
• The national unemployment rate
• The rate of growth in the money supply
• The national government’s budget deficit
Microeconomics v.
Macroeconomics (cont'd)
 Macroeconomics deals with aggregates, or
totals—such as total output in an economy.
 Modern economic theory blends micro and
macro concepts.
The Economic Person:
Rational Self-Interest
 Economists assume that individuals
act as if motivated by self-interest and
respond predictably to opportunities
for gain.
The Economic Person:
Rational Self-Interest (cont'd)
 Rationality Assumption
The assumption that people do not intentionally
make decisions that would leave them worse
off
 Bounded Rationality
Hypothesis that people are nearly, not fully,
rational. This is because we cannot examine
every choice available to us. So we use simple
“rules of thumb” to sort alternatives
The Economic Person:
Rational Self-Interest (cont'd)
 Responding to incentives - rewards for
engaging in a particular activity
Rationality and the use of incentives
• Positive incentives
• Negative incentives
Making choices
• Balancing cost and benefits
The Economic Person:
Rational Self-Interest (cont'd)
 Some examples of incentives
Responding to positive incentives
• Schoolchildren getting gold stars, working to have a
“better life” for yourself
Responding to negative incentives
• Penalties, punishments, using credit cards to avoid
check overdrafts
The Economic Person:
Rational Self-Interest (cont'd)
 Defining self-interest
The pursuit of one’s goals, does not always
mean increasing one’s wealth
• Prestige
• Friendship
• Love
Economics as a Science
 Models or Theories
Simplified 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?
Economics as a Science (cont'd)
 Assumptions
The set of circumstances in which a model is
applicable
Every model, or theory, must be based on a set
of assumptions.
Economics as a Science (cont'd)
 Ceteris Paribus Assumption
[KAY-ter-us PEAR-uh-bus]
Nothing changes except the factor or factors
being studied.
“Other things constant”
“Other things equal”
Economics as a Science (cont'd)
 Economics is an empirical science.
Real-world data is used to evaluate the
usefulness of a model.
Models are useful if they predict economic
phenomena.
Economic models predict how people react, not
how they think.
Empirical evidence: Did You
Know That ...
 Economics is one of the fastest-growing
college majors?
 During the past 10 years, the number of
students majoring in economics at U.S.
colleges has increased by 40%?
 Economics majors typically land higher
paying jobs than other majors?
Positive v. Normative Economics
 Positive Economics
Purely descriptive statements or scientific
predictions; “If A, then B,” a statement
of what is
 Normative Economics
Analysis involving value judgments; relates to
whether things are good or bad, a statement of
what ought to be
1-1
When Economists Disagree:
A Debate Over Outsourcing
Does outsourcing by U.S.
firms raise or lower
incomes in the United
States?
 What type of statement would “A minimum wage
actually reduces employment” be considered?




a.
b.
c.
d.
A positive statement.
A marginal statement.
A normative statement.
An irrational conclusion.
Assignments to be completed
before class May 17:
 Having read Chapter 1, be able to answer these end-of-
chapter problems:
14th edition: 1-1 through 1-7 & 1-11 on pp. 15-16
15th edition: 1-1, 1-3, 1-4, 1-5, 1-8, 1-12, 1-13 & 1-14 on
pp. 15-16
 As you pre-read Chapter 2, also read these end-of-chapter
problems:
 14th edition: 2-1 through 2-6, 2-9, 2-10, 2-12 & 2-13 on
pp. 48-49
15th edition: 2-1, 2-2, 2-4, 2-5, 2-6, 2-8, 2-9, 2-10, 2-13
& 2-14 on pp. 48-50
Out-of-Class Quiz #1
By the start of class, Monday, January 24, 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
[email protected].
4 points