The College of William and Mary

Department of Economics
Syllabus
Spring Semester - 2006

Course: Economics 102 Principles of Macroeconomics

Instructor: Martin B. Schmidt
Office & Phone: 116 Morton Hall & 1-2376
Office Hours: 9:00-10:30am & 2:00-2:30pm T, R or by appointment
Email: schmidtm@wm.edu

Textbook: Kennedy Peter. Macroeconomic Essentials: Understanding Economics in

Kennedy,
the News, 2nd Edition, MIT Press, Cambridge, NA, 2000.
Wheelan, Charles, Naked Economics
Economics, W.W. Norton, New York, NY, 2002.

Course Description: Macroeconomics is distinct in that its focus is on the economy as a whole,
whereas Microeconomics concentrates on the individual actors of the economy. Our main
concerns in this class will be the theory of national income, both it's measurement and
determinants; the workings of a capitalist economy; along with the effects of public policy, both
the role of the government and the central bank. There is little disagreement in the mainstream
of economics on the first; the theory of national income. There is, however, considerable
controversy on the workings of a capitalist economy, which understandably leads to different
prescriptions for public policy.

Course Objective: The purpose of this class is to familiarize the student with the tools of
macroeconomics and for the student to be able to use these to discuss relevant issues. The
objective is to present the various macroeconomic theories to the student, so that the student can
make informed and efficient decisions.

Course Procedures: The reading assignments relate to that week's lectures; you are advised to do
the readings in advance of weeks lectures. The tutorial lists specific questions that will be
discussed during the second part of Thursday lecture. These relate to the previous week's lecture
material; you are expected to prepare answers to these questions before coming to class. In
addition you are expected to answer the assigned questions. These are for your benefit. I will
place an answer key on blackboard so that you may check your answers. Finally, your text

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provides 50 multiple choice questions (on Blackboard) for each chapter. You should answer
these after you have read, attended lecture and answered the assigned problems for each
assigned chapter.

Course Grading: There will be 2 required exams. The first will be worth 100 points. The 2nd
exam, which will be administered during finals week, contains two parts. The first will be over
the final portion of the class, while the second will be comprehensive. This exam will be worth
200 points. All exams are mandatory and only valid college-sanctioned excuses will be accepted.
If you know that you will be missing class or an exam you should make prior arrangements with
me.

Therefore, there is a total of 300 points possible. Your final grade will depend on your position
relative to your classmates. This does not mean that I will take the highest grade and take 90%,
80%, 70%,... from that. It does mean that there is a possibility of a curve, but that usually you will
need 90% or 270 points for an A, 80% or 240 points for a B,...

On Learning Economics: Economics is an analytical discipline, and therefore the best way to
learn economic concepts is to work problems, work more problems, and work even more
problems. You should study economics in much the same way you study for a math course.
Many students make the mistake of studying like they would for a history course.

The first step in learning economics is to learn the basic terminology used by economists. You
should understand what an economist means by "capital". But you should remember that the
definitions and terminology are not ends in themselves, but rather are important because they are
necessary to solve problems. In a math course, it is important to understand what a "+" sign is,
but only because the definition allows you to add numbers. If you memorize the definition of a
plus sign, but do not know how to use one, you will most certainly not learn math. The same is
true of economic concepts.

The second step is to attempt to replicate the analysis presented in the chapters. In other words,
when the text presents a key economic concept or answers a problem, you should attempt to
reproduce the concept or answer on a blank sheet of paper. Reading the text over and over is no
substitute for this. This is very similar to learning math; the best way to learn to add is not to
read a math book over and over, but rather to practice adding numbers.

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Finally, once you have mastered the problems presented throughout a chapter, you should then
read the Kennedy - Chapter again to provide an overall view of the material in the chapter.
Then, you should attempt to answer the questions at the end of the chapter.

Tentative Course Outline

Week 1: Introduction; Supply and Demand

Reading: Kennedy - Chapter 1 & Appendix A; Wheelan Chapter 1 & 2
The economics of a POW camp - R. A. Radford, Economica, 1945
Assignment: No assignment this week.

Week 2: Measuring Macroeconomic Variables

Reading: Kennedy - Chapter 2, Appendix 2.1, & Kennedy - Chapter 3; omit Curiosity 3.3
Wheelan Chapter 9
Tutorial: Kennedy - Chapter 2, #2, #8, #N2.
Assignment: Answer the six street smarts questions on the course blackboard website.

Week 3: Demand Equilibrium and the Multiplier

Reading: Kennedy - Chapter 4 & Appendix 4.3; Wheelan Chapter 4
Tutorial: Kennedy - Chapter 2, #1, #N7; Kennedy - Chapter 3, #3, #N1.
Assignment: Kennedy - Chapter 2, #3, #N9, Kennedy - Chapter 3, #5, #N3.

Week 4: The Supply Side

Reading: Kennedy - Chapter 5, Appendix 5.1, 6; Wheelan Chapter 6.
Tutorial: Kennedy - Chapter 4, #1, #7, #19, #N7, #N8, #N9.
Assignment: Kennedy - Chapter 4, #15, #23, #N5.

Week 5: Money, Banking and Inflation

Reading: Kennedy - Chapter 7, 8, Appendix 8.1; Kennedy - Chapter 9 (rule); Wheelan
Chapter 10
Tutorial: Kennedy - Chapter 5, #1, #9, #11; Kennedy - Chapter 6, #1, #13
Assignment: Kennedy - Chapter 5, #3, #13; Kennedy - Chapter 6, #3.

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Week 6: Interest Rates and Monetary Policy
Reading: Kennedy - Chapter 10 & Appendix 10.1; Kennedy - Chapter 11 & Appendix 11.1;
omit Curiosity 11.1 (Term structure)
Tutorial: Kennedy - Chapter 7, #3, #7; Kennedy - Chapter 8, #11, #N1; Kennedy - Chapter
9, #1, #3, #N5
Assignment: Kennedy - Chapter 7, #9; Kennedy - Chapter 8, #1; Kennedy - Chapter 9, #N3

Week 7: Policy Debates; Budget Deficits

Reading: Kennedy - Chapter 14; Curiosity 13.2 (on seigniorage, p.235)
Tutorial: Kennedy - Chapter 10, #5, #7, #N1; Kennedy - Chapter 11, #3, #13, #17, #N3
Assignment: Kennedy - Chapter 10, #9, #N5; Kennedy - Chapter 11, #1, #N1

Week 8: Catch-up and Midterm Exam

Reading: Review; Previous midterm multiple-choice questions discussed in lecture
Tutorial: Review practice mid-term
Assignment: No assignment

Week 9: Exchange Rates; Balance of Payments

Reading: Kennedy - Chapter 15 &Appendix 15.1 (Comparative Advantage); Wheelan
Chapter 11
Tutorial: Review midterm
Assignment: Kennedy - Chapter 14, #1, #7, #N3

Week 10: Policy in an Open Economy

Reading: Kennedy - Chapter 16: omit curiosity 16.2 (J curve)
Tutorial: Kennedy - Chapter 15, #1, #5, #9, #11, #N1
Assignment: Kennedy - Chapter 15, #15, #21, #27, #N7

Week 11: PPP and IRP

Reading: Kennedy - Chapter 17 & 18
Tutorial: Kennedy - Chapter 16, #1, #9, #11, #15, #17
Assignment: Kennedy - Chapter 16, #7, #13, #19

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Week 12: Stagflation
Reading: Kennedy - Chapter 12 & 13: omit Curiosity 12.3 (Sacrifice ratio)
Tutorial: Kennedy - Chapter 17, #5, #15, #N3; Kennedy - Chapter 18, #5, #7, #N1, #N7
Assignment: Kennedy - Chapter 17, #13, #N1; Kennedy - Chapter 18, #3, #N5

Week 13: Catch-up and Review

Reading: Kennedy - Chapter 1 (Section1.5)
Tutorial: Kennedy - Chapter 12, #1, #7, #31, #N1; Kennedy - Chapter 13, #1, #11, #19
Assignment: No assignment

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