Principles of Macroeconomics P102

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Principles of Macroeconomics(P102)

• Instructor Misty Stowers
• Class Website www.portervillecollege.edu/mstower
  s
• Email abmp17_at_hotmail.com
• Class Hours W 7-950 pm
• Bldg/Room SM 109

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Course Objective

• To learn the principle concepts and theories of
  macroeconomics, To analyze macroeconomic trends
  and apply them to societal conditions To be
  informed about historical perspectives and
  current events pertaining to economics. These
  objectives will be achieved through classroom
  lectures and discussions, class and homework
  assignments, and examinations.

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Course Materials

• Boyes, W., Melvin, M. (2005). Economics, 6th
  Edition. Houghton Mifflin New York.
• You must have internet access to retrieve class
  lectures and assignments. Our class website is
• www.portervillecollege.edu/mstowers

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Attendance Policy

• You are required to attend all class sessions and
  actively participate in class discussion and
  activities.

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Grading Policy

• Grades will be determined by total percentage
  points earned in the course. I do not grade on a
  curve. I use the following scale to determine
  final grades in the course
• 90-100 A
• 80-89 B
• 65-79 C
• 55-64 D
• 54 below F

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Assignment Policy

• There will be no make-ups for exams, quizzes, or
  homework assignments that you miss. Only
  compelling reasons with supporting certifications
  from credible sources will be considered.
  Homework must be hand-delivered to me in the
  classroom on their respective due dates. Late
  homework assignments can be turned in for ½
  credit. Late arrivals to exam sessions will not
  receive extra time.

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Course Requirements

• In-Class Assignments 15
• Homework Assignments (10) 20
• Exam 1 15
• Exam 2 (Midterm) 15
• Exam 3 15
• Exam 4 (Final) 20

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Cheating Plagiarism

• I will follow the colleges policy on academic
  honesty specified in the Porterville Catalog. In
  particular, seemingly identical examinations and
  assignments will be subject to cheating policy.

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Why Study Economics?

• You are required to
• You have an interest in it
• You want a well-paying job
• Fact Economics is the highest paying social
  science. The median base salary of business
  economists in 2000 was 83k/year.

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What is Economics?

• Economists are concerned with why the world is
  what it is.
• Work conditions
• Salary structure
• Living standards
• Pricing of goods and services
• Differences between poor and rich
• Economics is probably best defined as the study
  of unintended consequences
• Example Costs and benefits of all social
  policies.

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Definition of Economics

• Economics is the study of how people choose to
  allocate their resources among unlimited wants.
• People have unlimited wants-they always want more
  goods and services than they have or what they
  can afford on their income.
• People must use their limited time and income to
  select those things that they want most and
  forego the rest.

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Scarcity

• Scarcity Scarcity means that there is not enough
  of an item to satisfy everyone who wants it.
• Economic Good Any item that is scarce.
• Economic Bad Any item we would pay to have less
  of.
• Free Good A good for which there is no
  scarcity.

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Factors of Production

• Some goods are used to produced other goods.
  These are called factors of production (also
  called inputs resources).
• Example Ingredients cookies.
• Three categories of resources
• Land (includes all natural resources)
• Labor (physical intellectual services of
  people)
• Capital (products used in production)

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Resources

• People obtain income from their resources.
• Owners of land receive rent.
• People who provide labor are paid wages.
• Owners of capital receive interest.

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Choices

• Economics is the study of how people choose to
  use their scarce resources to attempt to satisfy
  their unlimited wants.
• Rational self-interest term economists use to
  describe how people make choices.
• People will make choices that give them the
  greatest amount of satisfaction.
• Rational self-interest depends on information
  available individuals perception of what is in
  his/her best self-interest (bounded rationality).
• Human beings are self-interested, not selfish.

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What is the Economic Way of Thinking?

• The economic approach is a logical method of
  approaching and solving economic problems.
• Positive Analysis analysis of what is.
• Normative Analysis analysis of what ought to be
  (imposing opinion value).
• Example Crime Rates
• Positive Analysis 80 of convicted drug-users
  will relapse continue using drugs once released
  from prison.
• Normative Analysis There should be a law to
  provide rehabilitation facilities for drug-users,
  rather than imposing harsh prison sentences.

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Microeconomics vs. Macroeconomics

• Microeconomics the study of economics at the
  level of the individual consumer or firm.
• Macroeconomics the study of the economy as a
  whole.

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Our Economic Choices

• We all make economic choices in our lives.
• Example The choice to go to college
• Why did you choose to enroll in college?
• How much education do you plan on attaining? Why?

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Class Readings and Discussion

• Read Community College Week Handout.
• How do you feel about this article?
• How does it pertain to your own decisions about
  obtaining a college education?

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Class Readings and Discussion

• Read the Commentary on page 13 in the textbook.
• What do you plan on majoring in?
• Will your major provide you with higher income or
  higher job satisfaction or both?
• What factors are most important to you in
  choosing a career?

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Appendix Chapter 1

• Objective Show how to interpret and construct
  graphs by
• Reading graphs
• Constructing graphs
• Interpreting slopes

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Reading Graphs

• 3 types of charts are most often used by
  economist
• Line graphs
• Most commonly used graph in economics
• Bar graphs
• Pie charts
• Least used chart in economics, although it is
  used often enough that you should be familiar
  with it.

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Line GraphIncome Ratio between College Graduates
High School Graduates
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Bar GraphUnemployment Rate by Educational
Attainment
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Pie ChartPercentage of U.S. Population
Completing School
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Relationships Between Variables

• Most line bar graphs involve two variables
• Independent variable a variable whose value
  does not depend on the values of other variables
• Dependent variable a variable whose value
  depends on the value of the independent variable.

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ExampleUnemployment Rate by Educational
Attainment

• The independent variable is the educational
  status of the man or woman.
• The dependent variable is the unemployment rate
  for each group.
• This is because the unemployment rate is
  dependent upon the educational attainment.

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Direct Inverse Relationships

• Direct Relationship exists when the values of
  related variables move in the same direction (the
  value of dependent variable increases as the
  independent variable value increases)
• Also called a positive relationship
• Inverse Relationship exists when the values of
  related variables move in opposite directions
  (the value of the dependent variable decreases as
  the independent variable value increases)
• Also called negative relationship

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Example What kind of relationship exists in
this graph?
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Example What kind of relationship exists on
this graph?
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Constructing Graphs
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Interpreting Graph

• Point Price per PC PC purchased
• A 10 0
• B 9 1
• C 8 2
• D 7 3
• E 6 4
• F 5 5
• G 4 6
• H 3 7
• I 2 8
• J 1 9
• K 0 10

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Graphs

• The previous graph only considered two variables
• Price
• of Computers sold
• In the real world, other variables may affect the
  price computers sold.
• Example Disposable income of the consumer
• Question What would happen to the curve if
  disposable income of the consumer increased?

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Shift of Curve with Increase in IncomeWhat
would happen if income decreased?
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Slopes

• The slope is the steepness of the curve.
• Curves that run downward from left to right are
  negative slopes (inverse relationship)
• Curves that run upward from left to right are
  positive slopes (direct relationship)
• Calculating a slope Rise ? P
• Run ? Q
• Change in Y variable divided by change in X
  variable.

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Example

• First calculate the run
• Moving from 0 PCs to 8000 PCs we have a run of
  8000.
• Next, we calculate the corresponding rise, which
  is 4,000
• Plug s into formula
• Rise/run4,000/8,000
• ½ .50
• The slope of a straight-line curve is the same
  at all points along the curve.

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Example

• Straight-Line Graph
• 1. Calculate the run.
• 2. Calculate the rise.
• 3. Calculate the slope of the line in the given
  graph.
• 4. Is the slope positive or negative?

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Equation for a Straight Line

• Y a bX
• Y dependent variable
• X independent variable
• a intercept (value of Y when X 0)
• b slope

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Example

• Equation YabX
• Ydependent variable
• PCs Purchased (Q)
• Xindependent variable
• Price per PC (P)
• New Equation QabP
• aY intercept when X 0
• Thus, a10,000
• b slope rise/run
• 1000/-1000 -1
• New Equation Q 10,000-1P
• This equation can now tell us how many PCs will
  be purchased at any given price.

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Review

• Economic data are typically positive numbers.
  Because of this
• a. the coordinate system must be completed used.
• b. only the lower right of the coordinate system
  can be used.
• c. only the lower left of the coordinate system
  can be used.
• d. only the upper left of the coordinate system
  can be used.
• e. only the upper right of the coordinate system
  can be used.

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Review

• Refer to graph. When X increases by 10 units,
  which line shows the biggest increase in Y?
• When X decreases by 10 units, which line shows
  the greatest decrease in Y?

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Review

• Which graph depicts an inverse relationship
  between variables X and Y?
• Which graph depicts a direct relationship between
  variables X and Y?

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Homework 2

• Page 11, Chapter 1
• Exercises 1, 5, 6, 9
• Readings for next week Chapter 2