EC 102, Section AA Boston University

Introductory Macroeconomic Analysis Fall, 2017

Professor: Bruce Watson

bdwatson@bu.edu

Lectures: Section AA Mondays, Wednesdays and Fridays, 1:25 2:15

Morse Auditorium

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

Office Hrs: Mondays 2:30 4:30

Wednesdays 2:30 4:30
(Starting Monday, Sept. 11)

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:

First Midterm: Fri., Oct. 13

(covering the material from Fri. Sept. 8 through Fri., Oct. 6)

Second Midterm:Fri., Nov. 10

(covering the material from Fri., Oct. 7 through Fri., Nov. 4)

Final: Thurs., Dec. 21

(cumulative, but slightly weighted toward material covered after the
second midterm)

After the midterms and 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.
Please Note:

It is your responsibility to plan your travel or other events around exam dates. In
particular, the date of the final exam is determined by the Registrar and cannot be
changed for any reason. Requests to take the final on a different day,
including requests for a make-up final, in order to accommodate travel or
other end-of-semester plans, will not be considered.

No makeup midterms will be given. 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 nine 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 nine scores for the semester will be dropped from the calculation of each
students semester grade. So, if you cannot do one of the problem sets 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 seven of your nine 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 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.)

The curve applied will be as follows:

Letter Grade Percentile Rank Range

of Letter Grade

A 80th %ile 100th %ile

A- 65th %ile 80th %ile

B+ 55th %ile 65th %ile

B 45th %ile 55th %ile

B- 35th %ile 45th %ile

C+ 25th %ile 35th %ile

C 20th %ile 25th %ile

C- 10th %ile 20th %ile

D 2nd %ile -- 10th %ile

F 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:

A 93.0%

A- 90.0%

B+ 87.0%

B 83.0%

B- 80.0%

C+ 77.0%

C 73.0%

C- 70.0%

D 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 readings listed below are drawn from the textbook: Macroeconomics (6th
ed.), by Glenn Hubbard and Anthony OBrien. The majority of the reading in the text
reinforces material you'll learn in class, but some of the topics we cover may not appear
in the book. Conversely, some of the reading is purely for background, and will not be
covered explicitly in class.

You should consider the textbook to be most useful as a reference, or as an additional

source of review for material we have presented in class. In short, you are not required
to buy the book. The readings listed in the course calendar below are merely
supplementary material, and not assignments. You will not be responsible-on
problem sets or exams-for material in the book that we have not covered in class.
If you have purchased a used copy of an earlier edition of Hubbard and OBrien, you
should still find it useful. However, the page numbers given below refer to the latest, 6th,
edition.

The rest of the readings listed below will be drawn from recent newspaper and magazine
articles. These will all be available on the course web site.

You will be responsible on problem sets and exams for some of the newspaper and
magazine articles.

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. 6 Course Introduction and Overview

MyEconLab Registration

Fri., Sept. 8 Syllabus Review

Key Macro Variables: Gross Domestic Product (GDP)
Definition
Measurement
Components of GDP

Hubbard & OBrien: Section 8.1

Mon., Sept. 11 Potential GDP

Per Capita GDP
Real vs. Nominal GDP
Key Macro Variables: Inflation
GDP Deflator

Hubbard & OBrien: Section 8.3

Wed., Sept. 13 Inflation (cont.)

The Consumer Price Index (CPI)
CPI vs. GDP Deflator
Real vs. Nominal Interest Rates
The Price Level and Interest Rates
Costs of Inflation

Hubbard & OBrien: Sections 9.4 9.7

PS 1 Available on MyEconLab

Fri., Sept. 15 Key Macro Variables: Unemployment

Measurement
Kinds of Unemployment
Causes of Unemployment

Hubbard & OBrien: Section 9.1 9.3

Mon., Sept. 18 The Economy in the Long Run: Introduction to Growth
Calculating Growth Rates
The Rule of 70

Hubbard & OBrien: Section 10.1

Section 11.1

Wed., Sept. 20 Growth (cont.)

The Sources of Growth
The Per Worker Production Function
Technological Change

Hubbard & OBrien: Section 11.2

PS 1 Must Be Completed by 11:45 PM

PS 2 Available on MyEconLab

Fri., Sept. 22 Growth (cont.)

New Growth Theory
Growth Across Countries
Convergence

Hubbard & OBrien: pp. 360 361 (Section on New Growth

Theory)
Section 11.4

The poor and the rich, The Economist, May 25, 1996

Mon., Sept. 25 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
Wed., Sept. 27 Some Development Success Stories
China
India
Microfinance

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, Nov. 3, 2005

PS 2 Must Be Completed by 11:45 PM

PS 3 Available on MyEconLab

Fri., Sept. 29 Development Success Stories (cont.)

Mon., Oct. 2 The Economy in the Short Run: Aggregate Expenditure

Components of Aggregate Expenditure: Consumption

Hubbard & OBrien: Sections 12.1 12.2

Wed., Oct. 4 Components of Aggregate Expenditure: Investment

What Do Economists Mean By Investment?
Where Do Companies Get Funds for Investment?

Hubbard & OBrien: Section 6.2

PS 3 Must Be Completed by 11:45 PM

PS 4 Available on MyEconLab
 Fri., Oct. 6 Components of Aggregate Expenditure: Net Exports
Nominal Exchange Rates
Real Exchange Rates
Exchange Rates and Interest Rates

Hubbard & OBrien: Section 18.2

Tues., Oct. 10 No ClassVideo Review for First Midterm

Wed., Oct. 11 Live Web Conference Office Hours

8:00 10:00 PM
PS 4 Must Be Completed by 11:45 PM

Fri., Oct. 13 First Midterm Exam

(covering the material from Fri. Sept. 8 through Wed., Oct. 4)

Mon., Oct. 16 Net Exports (cont.)

Real Exchange Rates (Review)
Purchasing Power Parity

Hubbard & OBrien: pp. 666 670 (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

Wed., Oct. 18 Net Exports (cont.)

Determinants of Exports
Determinants of Imports
Determinants of Net Exports

PS 5 Available on MyEconLab

Fri., Oct. 20 Current Account, Financial Account, and Balance of Payments

Hubbard & OBrien: Section 18.1

Mon., Oct. 23 Putting the Components Together: Aggregate Expenditure (AE) and
Aggregate Demand (AD)
Why Does the Aggregate Demand Curve Slope Down?

Hubbard & OBrien: pp. 434 436 (Up to, but not including,
Graphing Macroeconomic Equilibrium)

Wed., Oct. 25 Movements Along the AD Curve vs. Shifts in the AD Curve
What Causes the AD Curve to Shift?

Hubbard & OBrien: pp. 436 442

PS 5 Must Be Completed by 11:45 PM

PS 6 Available on MyEconLab

Fri., Oct. 27 Aggregate Supply

Long-Run Aggregate Supply (LRAS)
Short-Run Aggregate Supply (SRAS)
Negative and Positive Supply Shocks

Hubbard & OBrien: Section 13.2

Mon., Oct. 30 Putting AD, LRAS and SRAS Together: Macroeconomic

Equilibrium and the Business Cycle
Comparative Statics
Inflationary Gaps and Recessionary Gaps

Hubbard & OBrien: Section 13.3

Wed., Nov. 1 The Tradeoff Between Unemployment and Inflation:

The Phillips Curve

Hubbard & OBrien: Chap. 17

PS 6 Must Be Completed by 11:45 PM

PS 7 Available on MyEconLab
 Fri., Nov. 3 Monetary Policy
Introduction to Money and Banking
Bank Accounting

Hubbard & OBrien: Sections 14.1 14.2

Mon., Nov. 6 Review Session for the Second Midterm

Wed., Nov. 8 Practice Problems for Second Midterm

PS 7 Must Be Completed by 11:45 PM

Fri., Nov. 10 Second Midterm Exam

(covering the material from Mon., Oct. 16 through Fri., Nov. 3)

Mon., Nov. 13 Monetary Policy (cont.)

The Deposit Multiplier

Hubbard & OBrien: Section 14.3

Wed., Nov. 15 Monetary Policy (cont.)

The Federal Reserve System
Open Market Operations
Other Tools of the Fed

Hubbard & OBrien: Section 14.4

PS 8 Available on MyEconLab

Fri., Nov. 17 Monetary Policy (cont.)

Money Supply and Money Demand
Equilibrium in the Money Market

Hubbard & OBrien: Section 15.2

Mon., Nov. 20 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

Mon., Nov. 27 Monetary Policy (cont.)

Monetary Policy in the Long Run
The Quantity Theory of Money
Hyperinflation

Hubbard & OBrien: Section 14.5

Wed., Nov. 29 Fiscal Policy

Introduction and Overview
Some Facts and Figures
The Role of Social Security

Hubbard & OBrien: Section 16.1

PS 8 Must Be Completed by 11:45 PM

PS 9 Available on MyEconLab

Fri., 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

Mon., Dec. 4 Fiscal Policy (cont.)

Fiscal Policy in the Long Run: Crowding Out

Hubbard & OBrien: Section 16.5 16.6

Wed., Dec. 6 Review for the Final Exam

Fri., Dec. 8 Review for the Final Exam

 Mon., Dec. 11 Special Office Hours for the Final Exam

PS 9 Must Be Completed by 11:45 PM

Thurs., Dec 21 Final Exam

12:30 2:30