Economics 201Economics 201
Dr. McLaren
Office Hours: T: 2:00 – 5:00
Office: 1 – 334
Dr. McLaren
Office Hours: T: 2:00 – 5:00
Office: 1 – 334
Today’s AgendaToday’s Agenda
• Class Structure (Mechanical Stuff)
• What this Course is About
• Class Structure (Mechanical Stuff)
• What this Course is About
In ClassIn Class
• PowerPoint based Lectures– Handouts posted on ilearn
• Download and print these each day and bring them to class
• Guest Appearances
• PowerPoint based Lectures– Handouts posted on ilearn
• Download and print these each day and bring them to class
• Guest Appearances
Textbook Textbook
• Baumol and Blinder Macroeconomics: Principles and Policy (12th ed)
• Old Editions are OK
• You can rent the Kindle version from Amazon for about $70
• Baumol and Blinder Macroeconomics: Principles and Policy (12th ed)
• Old Editions are OK
• You can rent the Kindle version from Amazon for about $70
Class ParticipationClass Participation
• Please have your clickers registered by the beginning or WEEK 3
• Bring them to class EVERY DAY– Three points for every right answer– One point for every wrong answer– Zero if your is not in class.
• Please have your clickers registered by the beginning or WEEK 3
• Bring them to class EVERY DAY– Three points for every right answer– One point for every wrong answer– Zero if your is not in class.
GradingGradingClass Participation (5%)
Assignments (20%)• Due on Sunday nights at 11:30pm (See class Callendar)• No Late Turn-ins!
• Midterms (2) (25% each)• See class Calendar for dates
• Final (25%)• See class calendar for date and time• NOTE: Class calendar dates may change – check it often!
Class Participation (5%)
Assignments (20%)• Due on Sunday nights at 11:30pm (See class Callendar)• No Late Turn-ins!
• Midterms (2) (25% each)• See class Calendar for dates
• Final (25%)• See class calendar for date and time• NOTE: Class calendar dates may change – check it often!
So, what is Macroeconomics REALLY about?
So, what is Macroeconomics REALLY about?
•POLITICS!!
• (Policy)
•POLITICS!!
• (Policy)
How far does “to promote the general welfare go?
How far does “to promote the general welfare go?
Employment Act of 1946
– "promote maximum employment, production, and purchasing power."
Employment Act of 1946
– "promote maximum employment, production, and purchasing power."
How much should the Government invest in “Public
Goods”?
How much should the Government invest in “Public
Goods”?
Education?
Highways?
Nat. Parks?
Clean air?
Defense?
Education?
Highways?
Nat. Parks?
Clean air?
Defense?
Should the government foster economic growth?
Should the government foster economic growth?
Tax Relief?
Investment subsidy?
(Issue is EXTERNALITIES)
Tax Relief?
Investment subsidy?
(Issue is EXTERNALITIES)
Should the government provide a “social safety net”?
Should the government provide a “social safety net”?
Unemployment insurance?
Social security?
Healthcare?
Welfare?
(Issue is TRANSFER PAYMENTS)
Unemployment insurance?
Social security?
Healthcare?
Welfare?
(Issue is TRANSFER PAYMENTS)
Should the government provide a protect the “weak” from the
“strong”
Should the government provide a protect the “weak” from the
“strong”
Protection from monopolistic (or “unfair”) practices?
(pharmaceuticals)Consumer Protection
Air bags (not professors)
Predatory lending
(Issue is REGULATION)
Protection from monopolistic (or “unfair”) practices?
(pharmaceuticals)Consumer Protection
Air bags (not professors)
Predatory lending
(Issue is REGULATION)
Should the government provide a protect the “weak” from the
“strong”
Should the government provide a protect the “weak” from the
“strong”
• http://www.cbsnews.com/video/watch/?id=5145435n&tag=related;photovideo
• http://www.cbsnews.com/video/watch/?id=5145435n&tag=related;photovideo
Should the government protect people from their own stupidity?Should the government protect
people from their own stupidity?
… or should they flunk the “Darwin Test”?… or should they flunk the “Darwin Test”?
• What if they bet other people’s money on the stock market?– i.e. Bankers?
• What about unscrupulous loan salesmen?– They make money on commissions
• (Issue is REGULATION)
• What if they bet other people’s money on the stock market?– i.e. Bankers?
• What about unscrupulous loan salesmen?– They make money on commissions
• (Issue is REGULATION)
• What “should” we do?• What “should” we do?
• NormativeQuestions
• NormativeQuestions
• How do we get it done?• Is it possible to do it?• What might go wrong?
• How do we get it done?• Is it possible to do it?• What might go wrong?
• Positive Economics
• Positive Economics
Is the government able to fix the economy?
Is the government able to fix the economy?
Can we afford the spending (investment) programs?
Can we afford the spending (investment) programs?
Broke Bank MountingBroke Bank Mounting
• http://www.cc.com/video-clips/47gj4n/the-daily-show-with-jon-stewart-broke-bank-mounting---america-s-dystopian-future
• http://www.cc.com/video-clips/47gj4n/the-daily-show-with-jon-stewart-broke-bank-mounting---america-s-dystopian-future
Is the government able to fix the economy?
Is the government able to fix the economy?
Can we afford the spending (investment) programs?
Will the safety nets lead to abuse and / or dependence?
Can we depend on individuals to make socially beneficial decisions?
Is it possible to effectively regulate markets?
Can we afford the spending (investment) programs?
Will the safety nets lead to abuse and / or dependence?
Can we depend on individuals to make socially beneficial decisions?
Is it possible to effectively regulate markets?
• What “should” we do?• What “should” we do?
• NormativeQuestions
• NormativeQuestions
• How do we get it done?• Is it possible to do it?• What might go wrong?
• How do we get it done?• Is it possible to do it?• What might go wrong?
• Positive Economics
• Positive Economics
• Ego(self interest)
• Ego(self interest)
• Sets the agenda• Sets the agenda • Filters the facts• Filters the facts
Economics: What you have probably
heard
Economics: What you have probably
heard • Modern prosperity
began with the birth of “Capitalism” in 1776
• Its funder Adam Smith was the prophet of– Rational self interest– The free market– Private property
• Modern prosperity began with the birth of “Capitalism” in 1776
• Its funder Adam Smith was the prophet of– Rational self interest– The free market– Private property • ADAM SMITH: • ADAM SMITH:
Proclaimed the “Pope of
Self Interest”
Proclaimed the “Pope of
Self Interest”
– It is not to the butcher
or the baker’s charity that WE appeal for our dinner, but to HIS own SELF INTEREST
– It is not to the butcher
or the baker’s charity that WE appeal for our dinner, but to HIS own SELF INTEREST
What Smith Actually Said What Smith Actually Said
Do to others as you would have them do to youDo to others as you would have them do to you
Self loveSelf lovesympathysympathy
What this class is aboutWhat this class is about
Giving you the positive tools to address the normative questions
With BS removed (hopefully)The full story (hopefully)
Give you opportunities for critical thinkingWill help you to be a good manager / citizen
Giving you the positive tools to address the normative questions
With BS removed (hopefully)The full story (hopefully)
Give you opportunities for critical thinkingWill help you to be a good manager / citizen
Structure of the ClassStructure of the ClassMicroeconomic Tools
• Assumptions and economic model building• Basics of Supply and Demand, production, capital
accumulation
Microeconomic Tools• Assumptions and economic model building• Basics of Supply and Demand, production, capital
accumulation
Structure of the ClassStructure of the ClassMicroeconomic Tools
• Assumptions and economic model building• Basics of Supply and Demand, production, capital
accumulation
• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation
Microeconomic Tools• Assumptions and economic model building• Basics of Supply and Demand, production, capital
accumulation
• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation
Structure of the ClassStructure of the ClassMicroeconomic Tools
• Assumptions and economic model building• Basics of Supply and Demand, production, capital
accumulation
• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation
• Economic Growth• Why are some countries rich and others poor?• Policies that foster (or inhibit) growth
Microeconomic Tools• Assumptions and economic model building• Basics of Supply and Demand, production, capital
accumulation
• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation
• Economic Growth• Why are some countries rich and others poor?• Policies that foster (or inhibit) growth
Economic GrowthEconomic Growth
0
10,000
5,000
20,000
30,000
15,000
25,000
35,000
$40,000
0
2,000
1,000
4,000
6,000
8,000
3,000
5,000
7,000
$9,000
$10,000
$11,000
Year1995 2000
2004
19901985198019751970196519601955
Nominal GDP (right scale)
Do
llars
pe
r Y
ea
r
Billio
ns o
f Do
llars p
er Y
ea
r
Economic GrowthEconomic Growth
0
10,000
5,000
20,000
30,000
15,000
25,000
35,000
$40,000
0
2,000
1,000
4,000
6,000
8,000
3,000
5,000
7,000
$9,000
$10,000
$11,000
Year1995 2000
2004
19901985198019751970196519601955
Do
llars
pe
r Y
ea
r
Billio
ns o
f Do
llars p
er Y
ea
r
Real GDP per capita (left scale)
Nominal GDP (right scale)
Structure of the ClassStructure of the ClassMicroeconomic Tools
• Assumptions and economic model building• Basics of Supply and Demand, production, capital accumulation
• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation
• Economic Growth• Why are some countries rich and others poor?• Policies that foster (or inhibit) growth
• Business Cycles• Recession – Inflation • Debates over policies to control them
Microeconomic Tools• Assumptions and economic model building• Basics of Supply and Demand, production, capital accumulation
• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation
• Economic Growth• Why are some countries rich and others poor?• Policies that foster (or inhibit) growth
• Business Cycles• Recession – Inflation • Debates over policies to control them
Short Run FluctuationsShort Run Fluctuations
Copyright © 2006 South-Western/Thomson Publishing. All rights reserved.
Long Run GDP Growth
Short Run GDP Fluctuations
Ac
tua
l a
nd
P
ote
nti
al
GD
P
A B
C
D
E
Time
A Typical Business CycleA Typical Business Cycle
Copyright © 2006 South-Western/Thomson Publishing. All rights reserved.
Ac
tua
l a
nd
P
ote
nti
al
GD
P
Time
Peak
TroughTrough
Expansion Contraction (recession)
Great DepressionGreat Depression
1/4 of American workers unemployed
Construction virtually halted in most cities
1/4 of American workers unemployed
Construction virtually halted in most cities
Great DepressionGreat Depression
• Oklahoma (dustbowl) farmers migrated to California
• Farm output declined 60%
• Oklahoma (dustbowl) farmers migrated to California
• Farm output declined 60%
Dust Bowl ShantyDust Bowl Shanty
• Well, in 1930 it was that bountiful harvest that was causing our problem. "Too much wheat, too much corn, too much cotton, too much beef, too much production of everything. So we are going through a unique experience. We are the first nation to starve to death in a storehouse that's overfilled with everything we want”
Will Rogers
• Well, in 1930 it was that bountiful harvest that was causing our problem. "Too much wheat, too much corn, too much cotton, too much beef, too much production of everything. So we are going through a unique experience. We are the first nation to starve to death in a storehouse that's overfilled with everything we want”
Will Rogers
Recession (Depression)Recession (Depression)
Firms(produce the
domestic product)
ConsumersHouseholds
Disposable
Income (DI)
Firms
Govt.
Taxes
Gov
ernm
ent P
urch
ases
(G)
Consumption (C
)
Sa
vin
g (S
)
Financial System
Investment (I) Imports (IM) Foreign Markets
Exports
(X)
Questions for Critical Thought
Questions for Critical Thought
• Why is confidence so important?
• What does the rising trend in part time employment say about those who may be getting left behind?
• Why is confidence so important?
• What does the rising trend in part time employment say about those who may be getting left behind?
• http://www.cbsnews.com/8301-18563_162-57595324/lew-confidence-at-core-of-u.s-economic-recovery/
• http://www.cbsnews.com/8301-18563_162-57595324/lew-confidence-at-core-of-u.s-economic-recovery/
Do “Recessions Happen”?
Or are they
Someone’s Fault?
Do “Recessions Happen”?
Or are they
Someone’s Fault?
• http://www.cbsnews.com/sections/i_video/main500251.shtml?id=4264060n
• http://www.cbsnews.com/sections/i_video/main500251.shtml?id=4264060n
Bank Failures 1915 - 1945Bank Failures 1915 - 1945FDIC established
Great Depression begins
1915 1920 1925 1930 19351935 1940 194519450
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
Year
Unemployment 1929 2004Unemployment 1929 2004
5
10
15
20
25
30
01929 1939 1949 1959 1969 1979 1989 1999 2004
GreatDepression
Perc
enta
ge o
f C
ivili
an W
ork
ers
Who a
re U
nem
plo
yed
So, what is Macroeconomics REALLY about?
So, what is Macroeconomics REALLY about?
• Conservative• Conservative
• Liberal• Liberal
Classical EconomicsClassical Economics
Keynesian EconomicsKeynesian Economics
• Lessez Faire (let the economy run itself)• Lessez Faire (let the economy run itself)
• Regulate the economy so as to provide full employment and stable prices
• Regulate the economy so as to provide full employment and stable prices
• Provide “Social Insurance”• Provide “Social Insurance”
• Advocates “personal responsibility”• Advocates “personal responsibility”
• Became dominant after the Great Depression• Became dominant after the Great Depression
• Returned with the Regan Presidency• Returned with the Regan Presidency