Revised October 2002
Correspondence
Course Instruction
Economics
234 -- Principles of Macroeconomics
TEXTBOOK:
GRADER: Donald L. Bumpass Ph.D.
Department of Economics and International Business
Voice: (936) 294 1268
Fax:
(936) 294 3488
The final examination is a
comprehensive examination and will count a minimum of 75 percent toward the
course letter grade.
A schedule of numerical grades
and their equivalent letter grades is contained in this document.
Department
of Economics and International Business
Correspondence Division
ECONOMICS 234: PRINCIPLES OF MACROECONOMICS
Credit
Hours:
This course is a three (3) hour course.
Textbook:
COURSE OBJECTIVES
It is the objective of this
correspondence course to provide information and instruction in the following
economic areas:
1. To
develop an understanding of economic thinking;
2. To introduce students to the workings of a modern market economy;
and
3. To demonstrate how economic theory and
principles are applied logically and
analytically to economic problems, issues, and controversies.
As business practitioners or consumers, the information
and analytical techniques used in this course should give insight into the
economic context in which we all make our daily economic decisions.
DESCRIPTION
OF THIS CORRESPONDENCE COURSE
The course is composed of twelve (12) lessons and a
final examination to be completed by the student. The lessons may be answered in handwriting or
the answers may be typed. Name, course
number, lesson number, and page number of the lesson will appear at the top,
right corner of each page of the document that the student turns in for
grading.
SUGGESTIONS
FOR PROFICIENT LESSON PREPARATION
Above all, the lessons that a student submits for
grading should be written in clear, legible, standard English. Question answers are to be concise and
complete, reflecting the information and the analysis from the textbook. Answers should not be in the same verbiage
used by the textbook author. Students
will better retain the information and analysis if answers are composed in the
student's "own words."
In the answers to many of these economic lesson
questions, diagrams and graphs are encouraged.
Always remember to label the axis and to explain the schedules on the
diagrams.
The length and scope of the student's answer should
coincide with the amount of emphasis and attention that is given to the issue
in the textbook.
Many lesson questions have two
(2) or more parts. The student must be
careful that all parts of the question are answered.
LESSON
AND COURSE GRADING
At the beginning of each lesson the grade weight per
question will be shown.
For example, each question might be worth 10
points. Each separate lesson and the
final examination will have a maximum value of 100 points. The total maximum value of the 12 lessons
will be 1200 points. The final
examination will have a maximum value of 100 points. The final examination grade counts for 75
percent of the course letter grade. The
final letter grade for the course is assigned according to the schedule below:
Weighted average of: 100 to 90 = A
89
to 80 = B
79 to 70 = C
69 to 60 = D
Below 59 = F
FINAL
EXAMINATION
The final examination is made up of 30 multiple choice
(one [1] point each) and ten (10) questions to be answered by written
essay. From the ten (10) essay
questions, the student will choose seven (7) questions to answer. Each essay will have a maximum value of ten
(10) points.
The final examination has a maximum score of 100 points
and is 75 percent of the course grade.
On the final examination, write the multiple choice
question answers in the margin to the immediate left of the question. Print the letter that corresponds to the
single best answer. Then, answer the
seven (7) essay questions. These
instructions will be repeated on the final examination.
The student is urged to keep the returned graded lessons
and to study those lesson answers in preparation for the final
examination. The student's final
examination performance must show sufficient command over the course topics.
COURSE OUTLINE
LESSON NUMBER
CHAPTERS ECONOMIC TOPICS
1 1, 5,
6 The Mixed Economy; Global Economy
2
7 Measuring Domestic
Output
3
8 Economic Growth, Unemployment,
and Inflation
4 9 Aggregate
Expenditures Model
5
10 More on Aggregate
Expenditures
6 11, 12 Aggregate Demand and Supply; Fiscal
Policy
7 13 Money and Banking
8 14 How Banks Create Money
9 15 Monetary Policy
10 16,
17, 18 More on Aggregate Supply; Economic
Growth
11 37,
38 Trade and Finance: The
Foreign Sector
12 39 Economics of Developing
Nations
Please write your name, course number, lesson number,
and lesson page number in the upper right corner of all the pages of your
lesson answers.
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234
LESSON 1
The Mixed Economy and Global
Economy
Text Reference:
Chapter 1-The Nature and Method of Economics
Chapter 5-The Mixed Economy: Private and Public Sectors
Chapter 6-The
Objective: To examine the government sector in the
Lesson 1 Essay Questions: (16
2/3 points each)
1.
According
to the text author, what are the main economic functions of government?
2. Explain the interrelationships between economic facts,
theories, and economic policies.
3. What are the goals of an economic stabilization policy by
the central government in a
market
system such as the
4. Describe
the four (4) major economic flows that link the
5. How and
why should the central government reallocate (redistribute) income?
6. How
important is international trade to the
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LESSON
2
Measuring Domestic Output
Text Reference:
Chapter 7-Measuring Domestic Output
Objective: To understand the current methods of
measuring the level of and changes in economic activity.
Lesson 2 Essay Questions: (16
2/3 points each)
1. What are
the purposes of the National Income and Expenditure accounts? Describe in
detail one of the measures of national income.
2. Explain
the income approach to the measurement of GDP for the
3. Explain
the expenditure approach to the measurement of GDP for the
4. Discuss two
(2) shortcomings of GDP measures.
5. What is
the difference between "real GDP" and "money GDP"?
6. What is
the consumer price index (CPI)?
What are its difficulties in
accurately measuring inflation?
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LESSON 3
Growth and Instability
Text Reference:
Chapter 8-Economic Growth, Unemployment, and Inflation
Objective: To understand the economic stability problems
of unemployment, inflation, and business cycles.
Lesson 3 Essay Questions: (16
2/3 points each)
1. Define the term "business cycle". Draw a diagram
of a business cycle showing output (vertical axis)
and time (on the horizontal axis). Indicate the events called “peak”,
“downturn”, “trough”, and “recovery”.
2. What are leading indicators?
How are business cycle indicators used to time
cycle turning points? Why should
business managers be interested in cycle turning points?
3. What
are the causes of labor unemployment?
What are the economic costs of unemployment of resources? Define the term "full employment”.
4. Define
“inflation” and “deflation”. What are the
economic costs of inflation? What does
change in the money supply have to do with inflation or deflation?
5. Describe
two (2) measures of economic growth. Explain the “rule of 70”.
6. Using the “Last Word”, suppose that the stock market prices
were to drop 10 percent. How might the lower stock prices cause a decrease in
real GDP? How large will the impact be on consumption spending?
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LESSON 4
Aggregate Expenditures Model
Text Reference:
Chapter 9-Building the Aggregate Expenditures Model
Objective: To understand macroeconomic equilibrium using
total or aggregate demand for national output and aggregate supply.
Lesson 4 Essay Questions: (20
points each)
1. Say’s Law holds that the economy is always at a position on
the “production possibilities curve”. What is the Keynesian view on the matter
of the economy always operating on its PPC?
2. What economic factors determine investment? Draw a diagram of the relationship between
the real interest rate and the level of investment.
3. Explain the case of macroeconomic equilibrium in terms of
aggregate expenditures-domestic output.
In your answer use a diagram to illustrate your verbal answer (Hint: see
Figure 9-9).
4. What economic events might cause a shift or change in the
location of aggregate expenditures?
5. Discuss
Say’s Law using the concept of the production possibilities curve (PPC). Also, using
the PPC, contrast Say’s Law to that of the views of John Maynard Keynes.
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LESSON 5
More on Aggregate Expenditures
Text Reference:
Chapter 10-Aggregate Expenditures: The Multiplier, Net
Exports, and Government
Objective: To understand why and how the equilibrium
real gross domestic product (GDP) fluctuates and to explain how the aggregate
expenditure approach can be expanded to include the public sector and the
foreign sector.
Lesson 5 Essay Questions: (20
points each)
1. What
effect will the following changes have on the equilibrium level of GDP?
a. Threat of war, leading the
public to expect future shortage of consumer durables
b. A decline in the real interest rate
c. An increase in the federal income tax
d. An
extended recession among
2. What is
the multiplier effect? What is the multiplier when the MPS = .4? MPS = .2?
3. Graphically
show the aggregate expenditures model for a private closed economy.
Now, show a decrease in
aggregate expenditures schedule. What will happen to real GDP?
4. What is
the difference between “equilibrium GDP” and “full-employment GDP”?
5. Discuss
the three (3) factors causing the “Great Depression”.
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LESSON 6
Aggregate Demand and Supply
Text Reference:
Chapter 11-Aggregate Demand and Aggregate Supply
Chapter 12-Fiscal Policy
Objective:
To understand the concept of “Aggregate Demand” and “Aggregate Supply” and
“fiscal policy” as the background for current macroeconomic theory and policy.
Lesson 6 Essay Questions: (20
points each)
1. Why is
the aggregate demand curve down-sloping?
2. a) Explain the
shape of the aggregate supply curve, focusing on the horizontal, intermediate, and vertical ranges of the
curve.
b) Explain two (2) factors that will shift
aggregate supply.
3. Discuss
the alternative views on why unemployment in
4. What is the central idea behind the Employment Act of 1946?
What is the on-going role of the Council of Economic Advisors (CEA)?
5. What are
the options for government fiscal policy in addressing each of the following?
a.
An
inflationary "gap"
b.
A
cyclical deficit
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LESSON 7
Money and Banking
Text Reference:
Chapter 13-Money and Banking
Objective: To understand the functions of money, the
demand for money, and an overview of the structure of the financial system.
Lesson 7 Essay Questions: (16
2/3 points each)
1. Define and illustrate three (3) functions of money.
2. Explain
the nature of the supply of money.
3. What
constitutes the money supply dimensions known as Ml and M2?
4. What determines the demand for money? [Hint: Use the definition
of “money” as currency and checking account balances, generally known as Ml.]
5. Describe
generally the financial system in the
6.
Write
a summary of the global greenbacks contained in the "Last Word".
7.
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LESSON 8
How Banks Create Money
Text Reference:
Chapter 14-How Banks Create Money
Objective: To understand the
creation of deposits and checking account money.
Lesson 8 Essay Questions: (16
2/3 points each)
1. Describe
the characteristics of a representative commercial banking firm.
How is a bank different from
other private business firms?
2. What is a "balance sheet"? For a commercial bank,
what constitutes a bank’s assets and liabilities?
3. Draw “T" accounts for 2 commercial banks in a banking
system with a required reserve of 25 percent and initial excess reserves of
$1000. Show the resulting transactions
if the banks make loans to the extent of their excess reserves.
4. What is the demand deposit multiplier if the required
reserve is 25 percent of demand deposits?
5. Explain why there is a need for the Federal Reserve System
to control the money supply.
6. Explain how the bank panic of 1930 to 1933 produced a
decline in the nation’s money supply.
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LESSON 9
Monetary Policy
Text Reference:
Chapter 15-Monetary Policy
Objective: To study and be informed about the control
that the Federal Reserve System (Fed) exerts on the financial institutions and the
mechanics of monetary policy.
Lesson 9 Essay Questions: (20
points each)
1. In addition to fiscal policy, which is the use of tax and
government expenditure policy to stabilize the economy, monetary policy has the
same stabilization objective. What are
the three major instruments of monetary policy that the Fed uses to achieve the
national economic stabilization goals?
2. What is "open market operation"? When the Fed
sells bonds, what makes the banks buy bonds?
If the banks are induced to buy bonds, explain the sequence of events
that finally results in a change in the money supply.
3. What is the "discount rate"? How do changes in the
discount rate affect economic activity?
4. Who
determines whether the Fed should follow a "tight" or an easy
monetary policy?
5.
What
are the major strengths and weaknesses of monetary policy?
6.
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LESSON 10
More on Aggregate Analysis;
Macroeconomic Disputes
Text Reference:
Chapter 16-Extending the Aggregate Supply
Chapter 17-Economic Growth and the New Economy
Chapter 18-Deficits, Surpluses, and the Public Debt
Objective: To present an alternative viewpoint to the
Keynesian model; examine the causes and history of economic growth. Finally,
provide an overview of federal government deficits and surpluses.
Lesson 10 Essay Questions: (20
points each)
1. What are
the basic tenets of “supply-side economics”?
2. Discuss
the following: a) Phillips curve; b) stagflation; and c) Laffer
curve.
3. What are the four supply factors of economic growth?
4. Explain why there is such a close relationship between
changes in rate of productivity growth and changes in the average real hourly
wage.
5. a) What have been two
major sources of the public debt?
b) Why might paying off the public debt reduce
the
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LESSON 11
Foreign Sector Economics
Text Reference:
Chapter 37-International Trade
Chapter 38-Exchange Rates and the Balance of Payments
Objective: To understand why nations participate in
foreign trade; how international payments are made for the goods and services
that we buy from other countries; and the accounting process for international
transactions.
Lesson 11 Essay Questions: (12
1/2 points each)
1. What are
the size and importance of foreign trade?
2. How does the concept of "comparative advantage"
work with free trade?
3. If a country identifies a commodity in which it has a comparative
advantage, why should the country specialize in the production of that product
and engage in foreign trade?
4. Explain
the various types of barriers to trade.
5. Discuss
two (2) reasons for countries to pursue a policy of “protection”.
6. What are the parts of the document known as the
"balance of foreign payments accounts"?
7. What are
the reasons for large
8. How can
a "floating exchange rate" correct an imbalance in foreign payments?
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LESSON 12
Growth and the Developing
Countries
Text Reference:
Chapter 39-Economies of Developing Countries
Objective:
To examine the economically rich and poor countries. The student should be able
to explain why growth in output increases in some countries and declines (or
grows slowly) in other countries.
Lesson 12 Essay Questions: (16
2/3 points each)
1. According to the text author, what determines the
classification of the rich or poor
countries? Identify two (2) “rich” countries and two (2) “poor”
countries.
2. In the context of this topic, explain the idea of economic
growth.
Why
is economic growth desirable?
3. What are
the characteristics of less-developed countries?
4. Discuss
the "Vicious Circle" of poverty in the context of this topic.