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ECON102: Principles of Macroeconomics

Unit 1: Introduction to Macroeconomics   *To build a solid house, one needs a solid foundation.  In macroeconomics, this foundation centers on a few key questions: How do we measure overall economic activity?  What are the relevant aggregates (totals) needed to measure overall economic activity?  What role do governmental and other institutional policies play in an economy?  What are some important components that affect the whole economy?  Because macroeconomics concerns itself with so many different parts of the economy, it is critical to focus on these key questions and ideas before moving on to the parts themselves.

This first unit outlines important concepts and relates them to the economy as a whole.  We will first address growth, unemployment, and inflation as the three central concerns of macroeconomics.  Next, we will identify critical public policies, such as money creation (monetary policy) and taxes and spending (fiscal policy), exploring their respective effects on an economy.  Finally, we will take a look at a diagram that shows the circular flow of the resource market (income) and the product market (goods and services).

In this unit, you will also learn how macroeconomics developed in the 1930s as a result of a debate between economists, who believed that market and price mechanisms should be able to adjust in order to resolve economic downturns and depressions, and others, who believed periodic economic dislocations could be managed through the use of public policies and government intervention.  This debate is as relevant today as it was in the 1930s.*

Unit 1 Time Advisory
This unit should take approximately 10.75 hours to complete.

☐    Subunit 1.1: 5 hours

☐    Sub-subunit 1.1.1: 3 hours

☐    Sub-subunit 1.1.2: 2 hours 

☐    Subunit 1.2: 2.25 hours

☐    Subunit 1.3: 2.25 hours

☐    Subunit 1.4: 1.25 hours

Unit1 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Describe the characteristics of demand and supply, and apply the demand and supply model. - Define real gross domestic product and identify the phases of a business cycle. - Define inflation and deflation, and explain how each affects the price and economic growth of an economy. - Articulate why the price-level changes and how it can affect economic stability. - Explain how unemployment is calculated and measured in the United States. - Demonstrate an understanding of the role of the government in the economy. - Identify the components of the macroeconomy and relate them to the circular flow diagram.

1.1 Introduction to Macroeconomics   1.1.1 Aggregation in Macroeconomics   - Reading: Professor Robert Schenk’s CyberEconomics: “Overview: Introduction to Macro”

Link: Professor Robert Schenk’s *CyberEconomics*: [“Overview:
Introduction to
Macro”](http://ingrimayne.com/econ/EconomicCatastrophe/OverviewA6.html)
(HTML)  

 Instructions: Read the introduction and then select “Different
Tools” on the left-hand tab to read about the difference between
microeconomics and macroeconomics.  After reading the article click
on the “Review” tab to assess yourself.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

1.1.2 Microeconomic Connections and Foundations   Note: This sub-subunit will revisit concepts you learned in ECON101: Principles of Microeconomics.  This section will review the basic model of demand and supply, the concept of equilibrium, and the way markets operate in an economy.  Do not rush through these readings; it is important to fully understand these topics.  It may also be helpful to practice sketching demand and supply graphs on your own in order to see how equilibrium values change with curve shifts.

  • Reading: Principles of Macroeconomics: “Chapter 3: Demand and Supply” and “Chapter 4: Applications of Demand and Supply”

    Link: Principles of Macroeconomics“Chapter 3: Demand and Supply” (PDF) and “Chapter 4: Applications of Demand and Supply” (PDF)

    Instructions: Read these two chapters in their entirety to learn about demand and supply concepts.

    Terms of Use: The text was adapted by The Saylor Foundation under a CreativeCommons-Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensee.

  • Assessment: Cengage Learning: William Boyes and Michael Melvin’s Economics: “Chapter 3: Markets, Demand and Supply and the Price System – Test 1 and Test 2” Link: Cengage Learning: William Boyes and Michael Melvin’s Economics: “Chapter 3: Markets, Demand and Supply and the Price System – Test 1 and Test 2” (Flash)
     
    Instructions: Click on the hyperlinks for Test 1 and Test 2 beneath Chapter 3 and complete each assessment.  Once you have selected an answer choice, a note at the bottom of the screen will indicate whether or not your choice was correct.
     
    Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • Reading: PEOI.org: John Petroff’s Macroeconomics: “Chapter 3: Demand and Supply” Link: PEOI.org: John Petroff’s Macroeconomics: “Chapter 3: Demand and Supply (PDF)

    Instructions: Read the entire chapter.  At the bottom of the page, click on the “Assignments” link, and complete assignments 1-4.

    Terms of Use: The article above is released under a Creative Commons Attribution-NonCommercial-Share-Alike Generic License 2.5.  You can find the original version of this article here.

1.2 Macroeconomic Concerns   1.2.1 Real Gross Domestic Product (or Aggregate Output)   - Reading: Principles of Macroeconomics: "Chapter 5, Section 1: Growth of Real GDP and Business Cycles" Link: Principles of Macroeconomics: “Chapter 5, Section 1: Growth of Real GDP and Business Cycles” (PDF)
 
Instructions: Read the introduction and then read the first section in its entirety.  This material will provide you with a general understanding of how the present financial crisis can be contextualized by studying macroeconomics, which is the analysis of aggregate values of economic variables.
 
Terms of Use: This text was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-Share-Alike 3.0 License without attribution as requested by the work’s original creator or licensee.

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style="font-size: 10pt; font-family: Calibri, sans-serif; background-position: initial initial; background-repeat: initial initial;"></span>

1.2.2 Inflation and the Price Level   - Reading: Principles of Macroeconomics: “Chapter 5, Section 2: Price-Level Changes” Link: Principles of Macroeconomics: “Chapter 5, Section 2: Price-Level Changes” (PDF)
 
Instructions: Read the second section, which serves as an introduction to price-level changes.  We will study it in depth later in this course.
 
Terms of Use: This text was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-Share-Alike 3.0 License without attribution as requested by the work’s original creator or licensee.

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style="font-size: 10pt; font-family: Calibri, sans-serif; background-position: initial initial; background-repeat: initial initial;"></span>
  • Web Media: YouTube: NTDTelevision’s “High Inflation Sends China Food Prices Soaring” Link: YouTube: NTDTelevision’s “High Inflation Sends China Food Prices Soaring” (YouTube)

    Instructions: Watch this brief video.

    Watching this video should take approximately 2 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

1.2.3 Unemployment   - Reading: Principles of Macroeconomics: “Chapter 5, Section 3: Unemployment” Link: Principles of Macroeconomics: “Chapter 5, Section 3: Unemployment” (PDF)
 
Instructions: Read the third section, which serves as an introduction to unemployment.  We will study it in depth later in this course.
 
Terms of Use: This text was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-Share-Alike 3.0 License without attribution as requested by the work’s original creator or licensee.

<span
style="font-size: 10pt; font-family: Calibri, sans-serif; background-position: initial initial; background-repeat: initial initial;"></span>

1.3 Government and the Economy   1.3.1 Fiscal Policy   - Reading: biz/ed’s Economics Glossary: “Fiscal Policy” Link: biz/ed’s Economics Glossary: “Fiscal Policy” (HTML)
 
Instructions: Read the definition of fiscal policy on this page to familiarize yourself with the basic objectives of fiscal policy.  We will study this topic in detail later in the course.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Reading: PEOI.org: John Petroff’s Macroeconomics: “Chapter 9: Fiscal Policy”

    Link: PEOI.org: John Petroff’s Macroeconomics: “Chapter 9: Fiscal Policy” (PDF)

    Instructions: Read this chapter, which identifies the policies needed when inflation and recession are present.

    Terms of Use: The article above is released under a Creative Commons Attribution-NonCommercial-Share-Alike Generic License 2.5.  You can find the original version of this article here.

  • Web Media: YouTube: Paj Holden’s “Fiscal Policy and Automatic Stabilizers” Link: YouTube: Paj Holden’s “Fiscal Policy and Automatic Stabilizers” (YouTube)

    Instructions: Watch the entire video clip.  Please note that the topic of automatic stabilizers will be explored in the resources in subunit 5.3 and sub-subunit 5.3.1.

    Watching this video should take approximately 9 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

1.3.2 Monetary Policy   - Reading: biz/ed’s Economics Glossary: “Monetary Policy” Link: biz/ed’s Economics Glossary: “Monetary Policy” (HTML)

 Instructions: Read the definition of monetary policy presented on
this page to familiarize yourself with the basic objectives of
monetary policy.  Click on the “History” icon on the left-hand side
to see how monetary policy has developed over time.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Reading: U.S. Department of State: Christopher Conte and Albert R Karr’s An Outline of the U.S. Economy: “Chapter 7: Monetary and Fiscal Policy” Link: U.S. Department of State: Christopher Conte and Albert R Karr’s An Outline of the U.S. Economy: “Chapter 7: Monetary and Fiscal Policy” (PDF)

    Instructions: Read this article by Christopher Conte, a former editor and reporter for the Wall Street Journal, and Albert R. Karr, a former Wall Street Journal reporter.  This article provides an overview of the fiscal and monetary policy of the United States.  Reflect on how these policies might be coordinated to achieve macroeconomic objectives.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Web Media: YouTube: ACDC Leadership’s “Inflationary and Recessionary Gaps: Fiscal and Monetary Policy Overview” Link: YouTube: ACDC Leadership’s “Inflationary and Recessionary Gaps: Fiscal and Monetary Policy Overview” (YouTube)

    Instructions: Watch this brief video.

    Watching this video should take approximately 4 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

1.3.3 Macroeconomic Goals   - Reading: PEOI.org: John Petroff’s Macroeconomics: “Chapter 15: Economic Growth” Link: PEOI.org: John Petroff’s Macroeconomics: “Chapter 15: Economic Growth” (PDF)

 Instructions: Read this chapter on economic growth, which explains
why it is important for the government to define an appropriate
growth policy and sustain it over time.  

 Terms of Use: The article above is released under a [Creative
Commons Attribution-NonCommercial-Share-Alike Generic
License 2.5](http://creativecommons.org/licenses/by-nc-sa/2.5/deed.en). 
You can find the original version of this
article [here](http://www.peoi.org/Courses/Coursestu/mac/fram15.html).
  • Lecture: YouTube: University of Lawrence: Paj Holden’s “Macroeconomic Goals of the Government” Link: YouTube: University of Lawrence: Paj Holden’s “Macroeconomic Goals of the Government” (YouTube)

    Instructions: Watch this short video, which identifies the government’s main macroeconomic objectives.  Although this lecture does not focus on how these goals are met, as we advance through the course we will how the government does this through the implementation of fiscal, monetary, and growth policies.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

1.4 Components of the Macroeconomy   1.4.1 Resource (or Factor) Markets, Financial Markets, and Product Markets   - Reading: AmosWeb’s Encyclonomic Webpedia: “Resource Markets”

Link: AmosWeb’s *Encyclonomic Webpedia*: [“Resource
Markets”](http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=resource+markets) (HTML)  

 Instructions: This page highlights the characteristics that define
resource, product, and financial markets.  It shows how they are
interconnected using the circular flow diagram, which we will study
in detail next.  Ignore the last two subheadings (“Spotlight on
Labor” and “Natural Unemployment”), which will be covered later in
the course.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Assessment: AmosWeb’s “Resource Markets Quiz” Link: AmosWeb’s “Resource Markets Quiz” (HTML)

    Instructions: From the “Select a topic” option, choose “Resource Markets,” and then click on “Retrieve Test” to get to the test page.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

1.4.2 Circular Flow Diagram   - Lecture: YouTube: University of Lawrence: Paj Holden’s “The Circular Flow of Income – Macroeconomics”

Link: YouTube: University of Lawrence: Paj Holden’s [“Circular Flow
of Income –
Macroeconomics”](http://www.youtube.com/watch?v=gaEY-p-21F8&feature=related) (YouTube)  

 Instructions: Watch this video to see how the circular flow diagram
is generated.  For practice, draw the diagram on your own and test
yourself to see if you remember all the points that appear in the
diagram.  Understanding the processes in the circular flow diagram
will be crucial for the understanding of future topics.  

 Watching this video should take approximately 9 minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Web Media: Flashecon.org: Living Economics’ Macroeconomic Lectures: “Circular Flow”

    Link: Flashecon.org: Living Economics’ Macroeconomic Lectures: “Circular Flow” (Flash)

    Instructions: Watch this video, which is about the circular flow diagram.

    Watching this video should take approximately 4 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Web Media: Khan Academy’s “Circular Flow of Income and Expenditures”

    Khan Academy’s “Circular Flow of Income and Expenditures” (YouTube)

    Instructions: Watch this video, which is about the circular flow of income and expenditures and fiscal policy cycle.

    Watching this video should take approximately 9 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 United States License.  It is attributed to the Khan Academy.

Unit 1 Assessment   - Assessment: Econ100’s “Chapter 4: Demand and Supply” and “Chapter 5: A First Look at Macroeconomics”

<span lang="EN">Link: Econ100’s [“Chapter 4: Demand and Supply” and
“Chapter 5: A First Look at
Macroeconomics”](http://www.econ100.com/usa/mac5e/index.html) (HTML)  

 Instructions: Click on the “Quiz” tab on the left hand side menu
and then go to Chapters 4 and 5 to take the test.  Please attempt
all four levels of the quiz for a thorough assessment of the
material covered in this unit.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.</span>