EC 102, Sections AA

Introductory Macroeconomic Analysis

Boston University
Fall, 2014

Professor: Bruce Watson

bdwatson@bu.edu
Lectures: Section AA Mondays, Wednesdays and Fridays, 2:00 2:50
Kenmore Classroom Bldg Auditorium
Office:

Room 537 in the Economics Dept., 270 Bay State Road

Office Hrs: Tuesdays

3:00 4:30
Wednesdays 5:00 6:30
(Starting Tuesday, Sept. 16)
Blackboard Site:

http://blackboard.bu.edu/

TFs and Sections: The economics department staffs a TF Principles Center in Room B17
(in the basement) of the Economics Department, 270 Bay State Road. A TF will
ordinarily be there Mon. Thurs. from 10 to 6, and Fri. from 10 to 5. It is best if
you can go whenever one of the TFs assigned to our class is on duty; they are
terrific and are obviously the most knowledgeable about exactly what our class is
covering. The office hours for our TFs will be posted on the class Blackboard
site.
However, if you cannot make it when one of our TFs is available, you can go to
the Principles Center any time it is open to get some help.
Sections are designed to review material presented in lecture, to go over example
problems, and to prepare you for exams. They meet at specific times with your
assigned TF. Sections in this course are optional. However, you will find it
greatly to your advantage to attend. We are very fortunate to have fantastic TFs,
and Im sure their sections will be very helpful to you.

SYLLABUS
This course provides an introduction to current economic issues and to basic
macroeconomic principles and methods. The economist John Maynard Keynes wrote that
"the ideas of economists and political philosophers, both when they are right and when
they are wrong, are more powerful than is commonly understood." Economics is not
primarily a set of answers, but rather a method of reasoning. By the end of the semester,
you will be able to use the analysis practiced in the course to form your own judgments
about many of the major economic problems faced by the United States and other
countries.
Macroeconomics is the study of the economy as a whole. We start with the three key
macro variables: GDP, inflation and unemployment. We go on to study economic
growth, financial markets, business cycles, and the impact government can have on the
economy through monetary and fiscal policy. Along the way, we will cover such topics
as interest rates, investment, the exchange rate, and international trade.

Course Requirements

Exams

There will be three multiple choice exams given in the coursetwo midterms and a final.
The dates of the exams are:
Fri., Oct. 10 (covering the material from Fri., Sept. 5 through Wed., Oct 1)
Fri., Nov. 7 (covering the material from Wed., Oct. 1 through Fri., Oct. 31)
After both of the midterms and the final, your score will be available on the course
Blackboard site as soon as possible. You will be able to log in and see only your score.
The final exam for our course is on Monday, Dec. 15, from 3:00 to 5:00.
The final will be cumulative, but slightly weighted toward material covered after the
second midterm.

Please Note:

It is your responsibility to plan your travel ahead around exam dates. In particular,
the date of the final exam is determined by the Registrar and cannot be
changed for any reason.

The lower of each students two midterm scores will be dropped from the
calculation of their semester grade. If you miss one of the midterms for any
reason, you will receive a zero, and the score will be dropped from the calculation
of your semester grade. NO MAKEUP EXAMS WILL BE GIVEN. If you miss
both midterms for any reason, you will receive a grade of zero for your midterm
score.

Problem Sets

There will be ten problem sets assigned during the term. These will be multiple choice
sets completed on MyEconLab. Further instructions about MyEconLab will be given
well before the first problem set
The due date on problem sets cannot be extended for any reason. However, the lowest
two of the ten scores for the semester will be dropped from the calculation of each
students semester grade. So, if you cannot do one of the psets some week, that will just
be one of the scores that gets dropped.

Grading
Grades will be determined by the final (40%), the higher your two midterm scores (30%),
and the average of the highest eight of your ten problem sets (30%).
Your grade will be calculated two ways, and if theres any difference in the result,
Ill give you the higher of the two letter grades which result.
Curve
In the first calculation, semester grades will determined by a curve. The nature of a curve
is that your grade is based on your performance relative to all other students in the class.
It does not involve an absolute standard, e.g., 90 100 = A, 80 90 = B, etc., which
you may be used to from high school or in some other courses. I believe that a curve is
ultimately the fairest way to determine grades, since it does not set some arbitrary
absolute standard, but judges students on their performance relative to their peers.
With a curve, your grade is based on your percentile rank in the class, i.e., the percentage
of students in the class who scored below you. If you are in the 60th percentile, for

example, that means that 60% of students had scores equal to or below yours, while 40%
of students had scores above yours.
The curve is applied to your total semester points. Your problem set average (dropping
the two lowest) will be out of 100 pts. possible; your higher midterm score will be out of
100 pts. possible; and your final will be out of 133.33 points possible. (This gives the
weighting mentioned in the first paragraph of this section.)
BUs grading guidelines stipulate that the median grade for all 100- and 200-level courses
be B-. Therefore, the curve used in this class assigns a B- to all semester point totals
from the 45th to the 55th percentile. Totals which fall below the 45th percentile receive a
grade below B-, and totals which fall above the 55th percentile receive a grade above B-.
The curve applied will be as follows:
Letter Grade

Percentile Rank Range

of Letter Grade

85th %ile 100th %ile

A-

75th %ile 85th %ile

B+

65th %ile 75th %ile

55th %ile 65th %ile

B-

45th %ile 55th %ile

C+

35th %ile 45th %ile

20th %ile 35th %ile

C-

10th %ile 20th %ile

2nd %ile -- 10th %ile

0th %ile --

2nd %ile`

For example, say that your semester point total is 235/333.33, and that this puts you in
the 57th percentile overall. Your semester grade, then, would be a B.
Absolute Scale
In the second calculation, grades will be determined by the standard curve you may be
familiar with from high school. In this approach, your letter grade is based on your total
points as a percentage of the total possible points for the semester. Here is the scale:

93.0%

A-

90.0%

B+

87.0%

83.0%

B-

80.0%

C+

77.0%

73.0%

C-

70.0%

65.0%

E/F

0.0%

So, for example, if your total points for the semester were 85% of the total possible
points, you would get a letter grade of B.

Readings
Most of the reading assignments are drawn from the textbook, Macroeconomics (5th ed.),
by Hubbard and OBrien. The majority of the reading in the book reinforces material
you'll learn in class, but some of the topics we cover may not appear in the book.
Conversely, some of the assigned reading is for background, and will not be covered
explicitly in class.
The rest of the reading will be drawn from recent newspaper and magazine articles and
other books. These are all available on the course Blackboard site.

Academic Conduct
It is your responsibility to know and understand the provisions of the CAS Academic
Conduct Code (copies are available in CAS Room 105). Cases of suspected academic
misconduct will be referred to the Dean's Office. In addition, anyone found cheating on
an exam will receive a zero grade for the exam.

COURSE CALENDAR
Wed., Sept. 3 Course Logistics
Getting Started with MyEconLab
Fri., Sept. 5 Characteristics of Macro
Key Macro Variables: Gross Domestic Product (GDP)
Definition
Measurement
Hubbard & OBrien: Chap. 1, including the Appendix
Sections 8.1 8.2
Mon., Sept. 8 GDP (cont.)
Measurement (Review)
Components of GDP
Potential GDP
Per Capita GDP
Real vs. Nominal GDP
Hubbard & OBrien: Section 8.3
pp. 307 (passage on Potential GDP)
Wed., Sept. 10 Key Macro Variables: Inflation
GDP Deflator
The Consumer Price Index (CPI)
CPI vs. GDP Deflator
Hubbard & OBrien: p. 252
Section 9.4
PS 1 Available on MyEconLab
Fri., Sept. 12 Inflation (cont.)
Real vs. Nominal Interest Rates
The Price Level and Interest Rates
Costs of Inflation
Hubbard & OBrien: Sections 9.6 9.7

Mon., Sept. 15 Key Macro Variables: Unemployment

Measurement
Kinds of Unemployment
Causes of Unemployment
Hubbard & OBrien: Section 9.1 9.3
Wed., Sept. 17 The Economy in the Long Run: Introduction to Growth
Calculating Growth Rates
The Rule of 70
Hubbard & OBrien: Section 10.1
Section 11.1
PS 1 Must Be Completed by 11:45 PM
PS 2 Available on MyEconLab
Fri., Sept. 19 Growth (cont.)
The Sources of Growth
The Per Worker Production Function
Technological Change
Hubbard & OBrien: Section 11.2
Mon., Sept. 22 Growth (cont.)
New Growth Theory
Growth Across Countries
Convergence
Hubbard & OBrien: pp. 343 345 (Section on New Growth
Theory
Section 11.4
The poor and the rich, The Economist, May 25, 1996

Wed., Sept. 24 Economic Development: The Three Alternative Approaches

Development Debates
Hubbard & OBrien: Section 11.5
Jeffrey Sachs, Institutions Matter, but Not for Everything, Finance
and Development, June, 2003.
Grinding the poor, The Economist, Sept. 27, 2001
Kenneth Rogoff, Unlocking Growth in Africa, Finance and
and Development, June, 2003.
Tim Harford, The Undercover Economist, Chap. 8, Why Poor
Countries are Poor
PS 2 Must Be Completed by 11:45 PM
PS 3 Available on MyEconLab
Fri., Sept. 26 Some Development Success Stories
China
India
Microfinance
Hubbard & OBrien: pp. 330 331
Tim Harford, The Undercover Economist, Chap. 10, How China
Grew Rich
A model of reform, The Economist, Sept. 15, 2005
Can India Overtake China, Foreign Policy, July/August, 2003
Reading the tea leaves, The Economist, Jan. 25, 2007
How China Could Yet Fail Like Japan, Financial Times, June 14,
2011
Catching up, The Economist, Aug. 21, 2003
Micro no more, The Economist, Nov. 3, 2005
The hidden wealth of the poor, The Economist, Sept. 15, 2005
Mon., Sept. 29 Some Development Success Stories (cont.)
Wed., Oct 1 The Economy in the Short Run: Aggregate Expenditure
Components of Aggregate Expenditure: Consumption
Hubbard & OBrien: pp. 372 381
PS 3 Must Be Completed by 11:45 PM
PS 4 Available on MyEconLab

Fri., Oct. 3 Components of Aggregate Expenditure: Investment

What Do Economists Mean By Investment?
Where Do Companies Get Funds for Investment?
Hubbard & OBrien: pp. 246 247
Section 6.3
pp. 377 (The Difference Between
Actual Investment and Planned
Investment)
pp. 387 390

Mon., Oct. 6 Review Session for the First Midterm

Wed., Oct. 8 Investment and the Financial System (cont.)
Savings, Investment, and the Market for Loanable Funds in a
Closed Economy
Hubbard & OBrien: Section 10.2
PS 4 Must Be Completed by 11:45 PM
Fri., Oct. 10 First Midterm
(covering the material from Fri., Sept. 5 through Wed., Oct. 1)
Tues., Oct. 14 Components of Aggregate Expenditure: Net Exports
Nominal Exchange Rates
Real Exchange Rates
Exchange Rates and Interest Rates
Hubbard & OBrien: Section 18.2

Wed., Oct. 15 Net Exports (cont.)

Real Exchange Rates (Review)
Purchasing Power Parity
Hubbard & OBrien: pp. 632 635 (From What Determines
Exchange Rates in the Long Run? to The Euro)
McCurrencies, The Economist, May 25, 2006
The Big Mac Index, The Economist, July 24, 2014
PS 5 Available on MyEconLab
Fri., Oct. 17 Net Exports (cont.)
Determinants of Exports
Determinants of Imports
Determinants of Net Exports
Hubbard & OBrien: pp. 385 387 (Up to, but not including,
Graphing Macroeconomic Equilibrium)
Mon., Oct. 20 Current Account, Financial Account, and Balance of Payments
Hubbard & OBrien: Section 18.1
Wed., Oct. 22 The Open Economy Version of the Loanable Funds Market
Hubbard & OBrien: Section 18.3
PS 5 Must Be Completed by 11:45 PM
PS 6 Available on MyEconLab
Fri., Oct. 24 Putting the Components Together: Aggregate Expenditure (AE) and
Aggregate Demand (AD)
Why Does the Aggregate Demand Curve Slope Down?
Hubbard & OBrien: pp. 414 416 (up to but not including Shifts of
the Aggregate Demand Curve versus Movements along it)

Mon., Oct. 27 Movements Along the AD Curve vs. Shifts in the AD Curve
What Causes the AD Curve to Shift?
Hubbard and OBrien: pp. 416 421
Wed., Oct. 29 Aggregate Supply
Long-Run Aggregate Supply (LRAS)
Short-Run Aggregate Supply (SRAS)
Negative and Positive Supply Shocks
Hubbard & OBrien: Section 13.2
PS 6 Must Be Completed by 11:45 PM
PS 7 Available on MyEconLab
Fri., Oct. 31 Putting AD, LRAS and SRAS Together: Macroeconomic
Equilibrium and the Business Cycle
Comparative Statics
Inflationary Gaps and Recessionary Gaps
Hubbard & OBrien: Section 10.3
Sections 13.3
Mon., Nov. 3 Review Session for the Second Midterm
Wed., Nov. 5 The Tradeoff Between Unemployment and Inflation:
The Phillips Curve
Hubbard & OBrien: Sections 17.1 17.2 (pp. 578 587)
PS 7 Must Be Completed by 11:45 PM
Fri., Nov. 7 Second Midterm
(covering the material from Wed., Oct. 1 through Fri., Oct. 31)

Mon., Nov. 10 Monetary Policy

Introduction to Money and Banking
Bank Accounting
Hubbard & OBrien: Sections 14.1 14.2
Wed., Nov. 12 Monetary Policy (cont.)
Bank Accounting
The Deposit Multiplier
Hubbard & OBrien: Section 14.3
PS 8 Available on MyEconLab
Fri., Nov. 14 Monetary Policy (cont.)
The Federal Reserve System
Open Market Operations
Other Tools of the Fed
Hubbard & OBrien: Section 14.4
Mon., Nov. 17 Monetary Policy (cont.)
Money Supply and Money Demand
Equilibrium in the Money Market
Hubbard & OBrien: Section 15.2

Wed., Nov. 19 Monetary Policy (cont.)

Monetary Policy and Economic Activity
Short-run Economic Fluctuations Revisited
The Phillips Curve and Monetary Policy
Hubbard & OBrien: Sections 15.3 15.4
PS 8 Must Be Completed by 11:45 PM
PS 9 Available on MyEconLab

Fri., Nov. 21 Monetary Policy (cont.)

Monetary Policy in the Long Run
The Quantity Theory of Money
Hyperinflation
Hubbard & OBrien: Section 14.5

Mon., Nov. 24 Fiscal Policy

Introduction and Overview
Some Facts and Figures
The Role of Social Security
Hubbard & OBrien: Section 16.1
Mon., Dec. 1 The Government Spending and Tax Multipliers
Fiscal Policy and Demand Management in the Short Run
Hubbard & OBrien: Section 16.2
Section 16.4
Wed., Dec. 3 Fiscal Policy (cont.)
Fiscal Policy in the Long Run: Crowding Out
Hubbard & OBrien: Section 16.5 16.6
PS 9 Must Be Completed by 11:45 PM
PS 10 Available on MyEconLab
Fri., Dec. 5 Fiscal Policy and the Loanable Funds Market
Monetary vs. Fiscal Policy
Limitations of Demand Management Policies
Automatic Stabilizers
Mon., Dec. 8 Review for the Final

Wed., Dec. 10 Review for the Final

PS 10 Must Be Completed by 11:45 PM
Mon., Dec 15
3:00 5:00

Final Exam