ECO 2301–501: Principles of Macroeconomics

Fall 2005, W 7:00–9:45 p.m., GR 2.302

Instructor: Fr. Juan J. Molina, O.Ss.T.

E-mail: juan.molina@utdallas.edu
Office: Green 3.406
Tel: 972-883-6436
Office Hours: Mondays and Wednesdays, 10:50–11:45 a.m. Wednesdays, 5:30–6:30
p.m. (or by appointment, which is highly encouraged. Call my office
or send me an email to set up an appointment).

Required Text: Principles of Macroeconomics by Karl E. Case and Ray C. Fair.

Seventh Edition, Prentice Hall

Optional Text: Beveridge, Thomas. Study Guide for Case and Fair, Principles of
Macroeconomics, Prentice Hall, 2004.

Course Description: The objective of the course is to analyze the behavior of the U.S.
economy as a whole. I will focus on several key variables such as gross domestic product, the
unemployment rate, interest rates and the rate of inflation. I follow the book on most things
but not everything. So, emphasis should be placed on learning what I teach in class. Focus
will also be placed on whe ther government policy (taxation, spending, money supply, etc.)
can improve economic performance.

Grading: Quizzes: 5 % each (x 2 = 10%)

Homeworks: 5% each (x 3 = 15%)
Class participation, attendance, and turning in of non- graded
homeworks: 10%
One Midterm exam: 30%
Final Exam: 35%

The Students’ Responsibility with Regard to Readings, Lectures, Homeworks, and Exams:
While attendance is only required on test dates, students who are frequently late or absent
will be penalized. I strongly encourage class participation to get full 10% credit. I do not
allow make ups for the midterm and final, since attendance is mandatory on these days. I do
allow make up for the quizzes, but keep in mind that make up quizzes are more difficult due
to the time difference between the schedule quiz date and the day when a student takes it. It
is also unfair to those who have prepared for a schedule quiz not to make a make-up quiz
more difficult. Also, I only allow quiz make ups within two weeks of the scheduled quiz day.
The reason for this is to avoid students showing up a month after a quiz expecting to be
graded just like everyone else.
While there are several homeworks and assigned problems, only three will be graded. These
homeworks will be assigned a couple of weeks in advance and are due the stated week. If
they are late, they are penalized. No extra credit is allowed in exams or quizzes in order to be
fair to everyone in the class and so that students keep up with the assigned readings and all
the other material being covered. So just keep up!
I do post on the class’ website on WebCT an outline before each class. The Outline tells you
what we are to do at each class and which chapters you should be reading. It also helps me be
clear with you as to what will be covered at each class and how each class fits in the overall
picture of the course. I have found that students like the outlines so that if they miss a class
they know what was covered and are able to catch up more easily. If I am using a PowerPoint
presentation for a particular class, I also post it on WebCt. Usually, I post all the electronic
tools we will be using on a given Wednesday the Tuesday before the class. This allows
students to begin to think about class time at least a day in advance. All this also helps
students study for the exams and quizzes.

Exam Grades will be curved by normalizing the highest score in the class on any exam to
100%. Then letter grades are assigned according to the following:

96–100% A+ 92–96% A 88–92% A–

84–88% B+ 80–84% B 76–80% B–
72–76% C+ 68–72% C 64–68% C–
60–64% D+ 56–60% D 52–56% D–
0–52% F

Policy Regarding Grades of Incomplete: No grade of Incomplete will be given except in the
direst of circumstances and with authoritative evidence regarding the need for such a grade.
Be aware that a final grade is required from the Registrar’s Office a few days after the final
exam, so professors are obligated to submit a grade for students and are not allowed to give a
grade of Incomplete without proper documentation.

Academic Dishonesty: Academic dishonesty will not be tolerated. Any student who cheats
will be subject to the harshest punishment possible.

Tentative Course Outline (Due to changes due to unforeseen circumstances)

I- Introduction to the analysis of supply, demand and market equilibrium (2 ½ weeks).

Major Topics: What is economics? The efficiency of decentralized market economies. The
Supply and Demand Curves. Equilibrium. Factors that shift a supply or demand curve:
substitutes, complements, changes in income, wages, input prices. Price ceilings and price
floors; shortages and surpluses. (It is essential that students understand the concepts of slope
and intercept. Specifically, you should understand and be able to apply the ideas presented in
the appendix to Chapter 1 of the text.)
Read CF: Chapter 1 (including the appendix), Chapters 2, 3, and 4.
Problems : Chapter 1: Questions 4, 5, and 7; Appendix to Chapter 1: Questions 1, 2, and 3;
Chapter 3: Questions 2, 4, 8, 10, and 12; Chapter 4: Questions 5 and 6.

II- GDP, Inflation, Unemployment and the Business Cycle (2 ½ weeks).

Major Topics: Introduction to Macroeconomics. Distinguish Macroeconomics from
Microeconomics. Aggregate supply and aggregate demand. The Keynesian and Classical
approaches to macroeconomics. Trend growth, economic fluctuations and the business cycle.

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Nominal and real gross domestic product. The expenditure categories of GDP.
Unemployment. Inflation and the Consumer Price Index (CPI). How to deflate data. Real
wages and the real rate of interest.
Read CF: Chapters 5, 6, and 7.
Problems : Chapter 5: Questions: 1, 4, and 10; Chapter 6: Questions: 2, 8, and 9;
Chapter 7: Questions: 2, 3, 8 and 13

III- The Simple Keynesian Theory of Consumption, Output and Fiscal Policy (2½ weeks)
Major Topics: The fundamental identity of national income accounting. The Keynesian
consumption and savings functions. The marginal propensity to consume. The marginal
propensity to save. Equilibrium GDP. The simple Keynesian theory of recessions and
expansions. The multiplier. Government expenditure, taxes, and disposable income in the
model. The effect of a change in government expenditure. Countercyclical fiscal policy. The
effect of a change in taxes. The algebraic determination of equilibrium GDP. Important
caveats to the Keynesian model.
Read CF: Chapters 8 and 9.
Problems: Chapter 8: Questions 2, 5, 7 and 8; Chapter 9: Questions 3, 8, and 11.

IV- Money, Banking, The Federal Reserve, and Monetary Policy (2 ½ weeks)
Major Topics: What is money? Functions of money, measures of money. Banks, bank
ledgers, and reserve assets. Required reserves and excess reserves. Bank loans. The principle
of multiple deposit creation. The money multiplier. The institutional structure of the Federal
Reserve system. Tools for controlling the money supply: the discount rate, reserve
requirements, open market operations. Bond prices and interest rates. The money supply and
demand curves. Money market equilibrium. Interest rates and investment. The effect of
changes in the money supply on interest rates, investment, and GDP. Fiscal policy and
crowding out.
Read CF: Chapters 10, 11, and 12.
Problems: Chapter 10: Questions 3, 4, 5, 11; Chapter 11: Questions 4, 5, 7, 8, and 9;
Chapter 12: Questions 1, 5.

V- Aggregate Supply, Aggregate Demand, and Equilibrium GDP (2 weeks)

Major Topics: The Keynesian model as a theory of aggregate demand. Sticky wages and the
short-run aggregate supply curve. The short-run effects of monetary policy. Supply shocks.
The long-run aggregate supply curve. The long-run effects of monetary and fiscal policy. The
Philips curve. Stabilization Policy. Policy lags.
Read CF: Chapters 13, 14, and 15.
Problems: Chapter 13: Questions 4, 6, 7 and 9; Chapter 14: Questions 1, 8; Chapter 15:
Questions: 4, 5, 7, and 8.

VI- Long-Run Growth (1 week, If time allows)

Major Topics: The sources of economic growth. Productivity. Policies for capital formation,
for improving human resources, for spurring technological change.
Read CF: Chapter 18.
Problems: To be announced (TBA)

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Other Things and dates To Know:

Midterm Exam: Wednesday October, 12, 2005.

Last Day of Class: Wednesday November 23rd, 2005.
Final Exam: 7:00 pm on Wednesday November 30th , 2005.