EC 102, Sections AA & BB Boston University

Introductory Macroeconomic Analysis Fall, 2024

Professor: Bruce Watson

bdwatson@bu.edu

Lectures: 102 AA: Mondays, Wednesdays and Fridays, 1:25 – 2:15

102 BB: Mondays, Wednesdays and Fridays, 2:30 – 3:20
Morse Auditorium

Office Hours: Via Zoom

https://bostonu.zoom.us/j/5491671782
Meeting ID: 549 167 1782
Tuesdays, 4:30 – 6:00 (Starting Sept. 10)
Wednesdays, 4:30 – 6:00 (Starting Sept. 11)

TFs and Sections: Sections are designed to review material presented in lecture, to go over
example problems, and to prepare you for exams. They meet at specific
times with your assigned TF. Sections in this course are optional.
However, you will find it greatly to your advantage to attend. We are
very fortunate to have fantastic TFs, and I’m sure their sections will be
very helpful to you.

Sections will begin the week of Sept. 9.

There will be no sections Sept. 3 – 6.
 SYLLABUS

This course provides an introduction to current economic issues and to basic

macroeconomic principles and methods. The economist John Maynard Keynes wrote that
"the ideas of economists and political philosophers, both when they are right and when
they are wrong, are more powerful than is commonly understood." Economics is not
primarily a set of answers, but rather a method of reasoning. By the end of the semester,
you will be able to use the analysis practiced in the course to form your own judgments
about many of the major economic problems faced by the United States and other
countries.

Macroeconomics is the study of the economy as a whole. We start with the three key
macro variables: GDP, inflation and unemployment. We go on to study economic
growth, financial markets, business cycles, and the impact government can have on the
economy through monetary and fiscal policy. Along the way, we will cover such topics
as interest rates, investment, the exchange rate, and international trade.

Course Requirements

 Exams

There will be three multiple choice exams given in the course—two midterms and a final.
The dates of the exams are:

First Midterm: Fri., Oct. 4

(Covering the material from Sept. 4 to Sept. 27)

Second Midterm: Fri., Nov. 8

(Covering the material from Oct. 7 to Nov. 1)

Final: AA: To Be Announced

BB: To Be Announced
(cumulative, but slightly weighted toward material covered after the
second midterm)

After the midterms and final, your score will be available on the course Blackboard site
as soon as possible. You will be able to log in and see only your score.
Please Note:

 It is your responsibility to plan your travel or other events around exam dates. In
particular, the date of the final exam is determined by the Registrar and cannot be
changed for any reason. Requests to take the final on a different day,
including requests for a make-up final, in order to accommodate travel or
other end-of-semester plans, will not be considered.

 No makeup midterms will be given. The lower of each student’s two midterm
scores will be dropped from the calculation of their semester grade. If you miss
one of the midterms for any reason, you will receive a zero, and the score will be
dropped from the calculation of your semester grade. NO MAKEUP EXAMS
WILL BE GIVEN. If you miss both midterms for any reason, you will receive a
grade of zero for your midterm score.

 Problem Sets

There will be ten problem sets assigned in MyEconLab during the term. Problem sets are
assigned and due according to the schedule below:

Wednesday 9/11/2024 PS 1 Assigned

Wednesday 9/18/2024 PS 1 Due; PS 2 Assigned
Wednesday 9/25/2024 PS 2 Due; PS 3 Assigned
Wednesday 10/2/2024 PS 3 Due
Wednesday 10/9/2024 PS 4 Assigned
Wednesday 10/16/2024 PS 4 Due; PS 5 Assigned
Wednesday 10/23/2024 PS 5 Due; PS 6 Assigned
Wednesday 10/30/2024 PS 6 Due; PS 7 Assigned
Wednesday 11/6/2024 PS 7 Due
Wednesday 11/13/2024 PS 8 Assigned
Wednesday 11/20/2024 PS 8 Due; PS 9 Assigned
Wednesday 12/4/2024 PS 9 Due; PS 10 Assigned
Wednesday 12/11/2024 PS 10 Due

Problem sets must be completed and submitted by 11:45PM on the date it is due.

The due date on problem sets cannot be extended for any reason. However, the lowest
two of the ten scores for the semester will be dropped from the calculation of each
student’s semester grade. So, if you cannot do one of the psets some week, that will just
be one of the scores that gets dropped.
Grading

Grades will be determined by the final (40%), the higher of your two midterm scores
(30%), and the average of the highest eight of your ten problem sets (30%).

After your semester weighted average has been determined, your letter grade will
be calculated two ways, and if there’s any difference in the result, I’ll give you the
higher of the two letter grades which result.

 Curve

In the first calculation, semester grades will determined by a curve. The nature of a curve
is that your grade is based on your performance relative to all other students in the class.
It does not involve an “absolute standard,” e.g., 90 – 100 = A, 80 – 90 = B, etc., which
you may be used to from high school or in some other courses. I believe that a curve is
ultimately the fairest way to determine grades, since it does not set some arbitrary
absolute standard, but judges students on their performance relative to their peers.

With a curve, your grade is based on your percentile rank in the class, i.e., the percentage
of students in the class who had a total semester weighted average below yours. If you
are in the 60th percentile, for example, that means that 60% of students had a weighted
average equal to or below yours, while 40% of students had a weighted average above
yours.

The curve applied will be as follows:

Letter Grade Percentile Rank Range
of Letter Grade

A 80th %ile – 100th %ile

A- 65th %ile – 80th %ile

B+ 55th %ile – 65th %ile

B 45th %ile – 55th %ile

B- 35th %ile – 45th %ile

C+ 25th %ile – 35th %ile

C 20th %ile – 25th %ile

C- 10th %ile – 20th %ile

D 2nd %ile -- 10th %ile

F 0th %ile -- 2nd %ile`

For example, if your semester weighted average is 86% and that average puts you in the
57th percentile overall (this will vary from class to class), that would be a B+.
  Absolute Scale

In the second calculation, grades will be determined by the standard scale you may be
familiar with from high school. In this approach, your letter grade is based simply on
your weighted average for the semester. Here is the scale:

A 93.0%

A- 90.0%

B+ 87.0%

B 83.0%

B- 80.0%

C+ 77.0%

C 73.0%

C- 70.0%

D 65.0%

E/F 0.0%

To continue the example from above, if your weighted average for the semester is 86%,
your grade based on the absolute scale, would be a B.

Between the two grading systems, the curve would give you the higher letter grade (B+
for the curve vs. B for the absolute scale), so your semester grade in this case would be a
B+.
Readings

You automatically get an e-copy of the book when you register for MyEconLab.
You are NOT required to buy a separate copy of the book.
The book is a reference only, and you are not required to read it.

Most of the readings listed below are drawn from the textbook: Macroeconomics (9th
ed.), by Glenn Hubbard and Anthony O’Brien. The majority of the reading in the text
reinforces material you'll learn in class, but some of the topics we cover may not appear
in the book. Conversely, some of the reading is purely for background, and will not be
covered explicitly in class.

You should consider the textbook to be most useful as a reference, or as an additional

source of review for material we have presented in class. In short, you are not required
to buy a hard copy of the book. The readings listed for each of the topics below are
merely supplementary material, and are not assignments. You will not be
responsible-on problem sets or exams-for material in the book that we have not
covered in class.

If you have purchased a used copy of an earlier edition of Hubbard and O’Brien, you
should still find it useful. However, the page numbers given below refer to the latest, 9th,
edition.

The rest of the readings listed below will be drawn from recent newspaper and magazine
articles. These will all be available on the course web site.

You will be responsible on problem sets and exams for some of the newspaper and
magazine articles.

Academic Conduct

It is your responsibility to know and understand the provisions of the CAS Academic Conduct
Code (copies are available in CAS Room 105). Cases of suspected academic misconduct will be
referred to the Dean's Office. In addition, anyone found cheating on an exam will receive a zero
grade for the exam.
 COURSE OUTLINE

Course Introduction and Syllabus Review

Key Macro Variables: Gross Domestic Product (GDP)

Definition
Measurement
The expenditure method
Components of GDP
Potential GDP
Per Capita GDP
Real vs. Nominal GDP

Hubbard & O’Brien: Sections 8.1, 8.3

Section 10.1.3 (On “Potential GDP”)

Key Macro Variables: Inflation

GDP Deflator
The Consumer Price Index (CPI)
CPI vs. GDP Deflator
Nominal vs. Real Interest Rates
Costs of Inflation

Hubbard & O’Brien: Sections 9.4 – 9.7

Key Macro Variables: Unemployment

Measurement
Kinds of Unemployment
Causes of Unemployment

Hubbard & O’Brien: Sections 9.1 – 9.3

Economic Growth
Calculating Growth Rates
The Rule of 70

Hubbard & O’Brien: Section 10.1

 The Sources of Growth
The Per Worker Production Function
Technological Change
Productivity in the U.S.

Hubbard & O’Brien: Chapter 11

New Growth Theory

Growth Across Countries
Convergence

“The poor and the rich,” The Economist, May 25, 1996

Economic Development: The Three Alternative Approaches

Development Debates

Jeffrey Sachs, “Institutions Matter, but Not for Everything,” Finance

and Development, June, 2003
“Venezuela’s paradox: People are hungry, but farmers can’t feed them,”
Washington Post, May 22, 2017
“Grinding the poor,” The Economist, Sept. 27, 2001
Kenneth Rogoff, “Unlocking Growth in Africa,” Finance and
and Development, June, 2003.
Tim Harford, The Undercover Economist, Chap. 8, “Why Poor Countries are Poor”

Some Development Success Stories

China
India

Tim Harford, The Undercover Economist, Chap. 10, “How China Grew Rich”
“China’s Economic Woes Drag On With Factory Disruptions, Property Slump,”
Wall Street Journal, Aug 31, 2022

The Economy in the Short Run: Aggregate Expenditure

Components of Aggregate Expenditure: Consumption

Hubbard & O’Brien: Sections 12.2.2 – 12.2.4

Components of Aggregate Expenditure: Investment
What Do Economists Mean By Investment?
Where Do Companies Get the Funds for Investment?

Hubbard & O’Brien: Section 12.2.5

Components of Aggregate Expenditure: Net Exports

Nominal Exchange Rates
Real Exchange Rates
Exchange Rates and Interest Rates
Purchasing Power Parity

Hubbard & O’Brien: Section 18.2

Determinants of Exports
Determinants of Imports
Determinants of Net Exports

Hubbard & O’Brien: Section 12.2.7

Putting the Components Together: Aggregate Demand and Aggregate Supply

Aggregate Expenditure (AE) and Aggregate Demand (AD)
Why Does the Aggregate Demand Curve Slope Down?
Movements Along the AD Curve vs. Shifts in the AD Curve

Hubbard & O’Brien: Section 13.1

Aggregate Supply
Long-Run Aggregate Supply (LRAS)
Short-Run Aggregate Supply (SRAS)
Negative and Positive Supply Shocks

Hubbard & O’Brien: Section 13.2

Putting AD, LRAS and SRAS Together: Macroeconomic Equilibrium and the
Business Cycle
Comparative Statics
Inflationary Gaps and Recessionary Gaps
The Short Run vs. The Long Run

Hubbard & O’Brien: Section 10.3

Section 13.3
The Tradeoff Between Unemployment and Inflation: The Phillips Curve

Hubbard & O’Brien: Section 17.1

Section 17.2.2

Monetary Policy
Introduction to Money and Banking
Bank Accounting
The Deposit Multiplier

Hubbard & O’Brien: Sections 14.1 – 14.3

The Federal Reserve System

Open Market Operations
Other Tools of the Fed

Hubbard & O’Brien: Section 14.4

Money Supply and Money Demand

Equilibrium in the Money Market
Monetary Policy and Economic Activity
Short-run Economic Fluctuations Revisited
The Phillips Curve and Monetary Policy

Hubbard & O’Brien: Sections 15.2 – 15.3

Sections 17.3 – 17.4

Monetary Policy in the Long Run

The Quantity Theory of Money
Hyperinflation

Hubbard & O’Brien: Section 14.5

Fiscal Policy
Introduction and Overview
Facts and Figures
Fiscal Policy and Demand Management in the Short Run
The Government Spending and Tax Multipliers
Fiscal Policy in the Long Run: Crowding Out
Monetary vs. Fiscal Policy
Limitations of Demand Management Policies
Automatic Stabilizers

Hubbard & O’Brien: Chapter 16