Historical Bank Interest Rates - DOC

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					Economics 2 - Principles of Macroeconomics                                Professor: Bruce Brown
Santa Monica College, Spring 2006                       

Sections # 1648 meets Friday 8-11:05 and # 1655 meets Friday 11:30-2:35 in MC 2

Course Description:
    We will first cover some fundamental concepts of economics from Chapters 1-4 of our text, including scarcity,
opportunity costs, efficiency, production possibilities curve, supply, demand and equilibrium. These topics are also covered
in microeconomics and so will be a review for those who have already completed Economics 1 at SMC.
    We then directly consider macroeconomic topics such as: national output (“GDP”), economic fluctuations, (booms =
expansions, and busts = contractions = recessions and/or depressions), aggregation, change in a nation’s average “standard
of living,” unemployment, inflation, aggregate demand and supply, potential output, investment and savings, growth in output
and employment over time, functions of money, money supply, financial institutions, the Federal Reserve System, (the
“FED” - U.S. central bank), monetary theory, interest rates, historical episodes of business cycles, the Great Depression,
Keynesian aggregate expenditure model, monetary policy and fiscal policy, budget deficits, and crowding out.

Course Goals for Students:
  i) Gain a basic understanding of economic ways of thinking and approaching questions.
  ii) Be able to use simple theory to analyze real world issues. For example, understand and be able to use the production
possibility frontier; supply and demand, circular flow model, aggregate supply and demand, and the Keynesian aggregate
expenditure model.
  iii) Understand and be able to use the terminology of economics For example: scarcity; opportunity cost; efficiency;
production; property rights; supply; demand; equilibrium; tax incidence; government spending; regulation; short run; long
run; international trade; quota; tariff; GDP, recession expansion, interest rate, inflation, unemployment, fiscal policy,
monetary policy, price index and potential (full-employment) level output.
  iv) Understand the role of “simple” and necessarily untrue models in describing the real world.
  v) Appreciate the relative strengths and weaknesses of the economic approach in analyzing real world phenomena (e.g.,
production; consumption; trade; income and wealth differences; business behavior; and government policy), in comparison
to approaches found in other social sciences.
  vi) Understand how assumptions can be useful to clarify complicated real world phenomena, but how different
assumptions may lead to different implications. Understand how one’s beliefs regarding appropriateness of particular
assumptions influence beliefs regarding government policy and individual behavior (e.g., how those who think consumers
are well-informed and rational and markets are competitive, are more likely to believe selfish behavior of one person in a
particular situation will help rather than hurt others).

Course Text:
Required Text:, Foundations of Macroeconomics, 2nd edition, 2004 by R. Bade and M. Parkin
Optional text material is available from the publishers webpage:
For students who wish to use optional online material (MyEconLab) the access code is brown21568
A lower cost option is to purchase online access to the text and ancillaries via:
A free online macroeconomics text, possibly useful as a supplement, is available at:

Grades will be determined by one comprehensive (covering all material in the course) final exam (40%), two midterm
exams (20% each), assignments (10%) and attendance (10%). Students are responsible for all material contained in the
assigned textbook chapters or presented in class lectures.

The grade distribution will be as follows:
       A: 85 % - 100 % of possible points
       B: 70 % - 85 % “                    “
       C: 60 % - 70% “                     “
       D: 50 % - 60 % “                    “
       F: below 50 %
Student grades are entirely determined by their total points at the end of the course. Regular attendance is a necessary
condition for success in the class. The text must be actively read more than once in order to understand the material.
Reading relevant text material prior to lectures is essential for most students. Sample problems with answers posted will be
posted at the professor’s SMC webpage:

Students who miss an exam receive a zero score unless they have a physically documented excuse, (e.g., a hospital
record). In the event of a documented, excused, absence, the weight from the missed exam will be placed on the final
exam. If the final exam is missed, and an easily verifiable excuse is presented before course grades are calculated, the
student may receive an incomplete grade.

- There will be no “make-up exams.” Students with a verifiable scheduling conflict may be allowed to take an exam early,
but never late.
- Academic dishonesty will result in an “F” grade for the class, and will be reported to the SMC administration.
Academic dishonesty includes plagiarism, cheating during exams (trying to copy answers of other’s), use of unauthorized
study aids, document falsification.
- During exams use of electronic calculators is permitted - but they may not be shared by students. Students may NOT
use phones or PDAs. Students must bring official photo identification (e.g., driver’s license) on exam days.
- If a student is officially registered as disabled at SMC, and would like request that they be able to take exams at the
testing center to accommodate their special needs, they must notify the professor of this by the second class meeting.

Course Outline and text chapters:

I. Ch. 1 & 2: Introduction; Macro and Micro Economics, Models, Assumptions, Circular Flow Model, Tradeoffs,
Standard of Living, (Chapter 1 – “Graphical Appendix” should be a review, students must know this material)

II. Ch. 3 & 4: Opportunity Cost, Marginal Costs & Benefits; Production Possibilities Frontier (P PF), Stock versus Flow
Variables, Comparative Advantage; Gains from International Trade; Trade Deficits and International Capital Flows;
Introduction to Supply and Demand Individual and Market Supply and Demand, Equilibrium.

III. Ch. 5, 6, 7: Macroeconomic Topics; GDP, U.S. Macro-economy, Nominal versus Real Values; Unemployment;
Inflation, Consumer Price Index.

IV. Ch. 8, 9: Aggregate Demand and Supply, Potential GDP, Natural Rate of unemployment; Investment and Savings;
Financial Markets.

V. Ch. 11, 12, 13: Functions of Money, The Fed, Banks; Multiple Deposit Creation; Interest Rate; Money Supply and
Demand, Monetary Policy, Inflation, Quantity Theory of Money.

VI. Ch. 14, 15, 16, 17, 18: Aggregate Demand and Supply Representation of Business Cycles; Aggregate Expenditures
Model; Fiscal Policy; Government Spending Multiplier Short Run versus Long Run Policy Tradeoffs, Aggregate Labor
Market; Phillips Curve; Relationship between Unemployment and Inflation, Choice of Rules versus Discretion in Polic y.

VII. Ch. 19 & 20: Topics in International Trade and Finance

If time permits: Chapter 10: Models of Economic Growth in Per-Capita Output

Scheduled Exam Dates - Midterm 1: March 24 th; Midterm 2: May 5th; Final Exam June 9th

- Class will NOT meet April 14 or May 26
- I may be contacted by phone at (909) 869-5074             ; or email (I only come to SMC on
Friday and Saturday).
- Exchange phone numbers and/or email addresses with at least one of your classmates. Be sure to find out what
happened in any class you may miss. Studying in groups is encouraged.
 - There may be revisions to this syllabus. If so they will be announced in lecture and posted on the course website.

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