EC202 F15 W0 D1.ppt

Economics 201Economics 201

Dr. McLaren

Office Hours: T: 2:00 – 5:00

Office: 1 – 334

[email protected]

Dr. McLaren

Office Hours: T: 2:00 – 5:00

Office: 1 – 334

[email protected]

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?


•POLITICS!!

• (Policy)

•POLITICS!!

• (Policy)

• …to promote the general welfare…• …to promote the general welfare…

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”


“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)


“strong”


“strong”

• http://www.cbsnews.com/video/watch/?id=5145435n&tag=related;photovideo

• 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


• How do we get it done?• Is it possible to do it?• What might go wrong?


• Positive Economics


Is the government able to fix the economy?


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

http://www.cc.com/video-clips/47gj4n/the-daily-show-with-jon-stewart-broke-bank-mounting---america-s-dystopian-future







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?


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?







• 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”


Self Interest”


Self Interest”


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

Economics Economics

MICRO economics

MACRO economics



accumulation

• Macroeconomic Measurement• Defining measures of GDP, unemployment, inflation


accumulation


Economics Economics

MICRO economics

MACRO economics



accumulation


• Economic Growth• Why are some countries rich and others poor?• Policies that foster (or inhibit) growth


accumulation



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)


• Assumptions and economic model building• Basics of Supply and Demand, production, capital accumulation



• 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



• 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)

INFLATIONINFLATION

One Million German MarksOne Million German Marks

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/

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

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

GO HOME!!!!!GO HOME!!!!!



• 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

EC202 F15 W0 D1.ppt

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