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Prof. Dohan Eco 101 Macroeconomics Fall 2014



You will hate me during the semester, rate me harshly at the end of the semester and thank me next semester.

ECON 101. Introduction to Macroeconomics. 3 hr.; 3 cr. Prerequisites: High school algebra and trigonometry. Covers the nature and methods of economics and a survey of major economic problems: the determinants of national income and output, the price level, and employment; the role of money and banking in the economy; and the role of the government’s fiscal and monetary policies.

May not be taken for credit if Economics 103 has already been taken.

For information on the qualification of this course for LASAR, PLAS, and QC Core (Pathways) and students who qualify for the ADA policy see the last page of the syllabus.
CUNY policy on academic integrity: Academic dishonesty is prohibited in the City University of New York and is punishable by penalties, including but not limited to failing grades, suspension and expulsion. You are responsible for reviewing this policy as provided at: . Text-messaging during quizzes or exams will be dealt with very harshly.
Required Materials for Course

Follow the Instructions on the next page of the syllabus for Buying the Aplia Access Card and the Textbook together to Save Money

1. Aplia access card (online homework) for Baumol and Blinder, Macroeconomics 12e
You must buy “Aplia for Baumol and Blinder”, which also includes the text online.

2. Macroeconomics: Principles and Policy by Baumol and Blinder 12th ed, (2012):

3. Wall Street Journal (15-week subscription (print and online) $1 per week. Go to and enter your information for a 15 week subscription for $1 per week (or you have the option of subscribing for 1 year for $99.95). Be sure that you put Prof. Michael Dohan as the Referring Professor so that your name gets placed on my list of students that have subscribed. If you already have online and/or print access at home or work, let me know by email. Subscribing is required, reading parts of it will be a necessity. Quizzes on headlines and specific articles are given in class.

On the FIRST DAY YOU ATTEND CLASS, to be formally enrolled in my class, please do the following:

On the FIRST DAY YOU ATTEND CLASS, to complete your enrollment in Eco 207, do the following:

  1. Send an email from the email address you use most frequently to containing:

___1. your name English (transliteration and “Nickname in English”)

____ 2. student id

____ 3. year & major

4. Career plans if any.

____5. cell phone number (in case I need to reach you)

____ 6. country of origin & languages you speak

____7. MOST IMPORTANTLY, a recent head and shoulders photo of you (a GOOD SELFIE with your phone)

2. Sign up for Aplia for Baumol and Blinder (see instructions on last page).

3. Complete these two graded problem sets on Aplia after doing the first three practice sets.

Introduction to Using Aplia Assignments.

Math and Graphing Assessment with Tutorials.

Two Important Websites for this course Our class website, has announcements about exams, homework and quizzes. It also has homework problems, vocabulary, concept lists and my office hours. We do not use Blackboard. You should immediately register today (but not pay for) Aplia’s website customized for Baumol and Blinder, Macroeconomics, 12 ed. using the course key WXFD-WZPQ-A9YU at
Getting your printed or ebook textbook and Access to Aplia for Macroeconomics
Instructor: Michael R. Dohan, Eco 101 Macroeconomics 46928

Start Date: 8/28/2014

Course Registration Key for Aplia: WXFD-WZPQ-A9YU

Bundle: ISBN10: 1-133-22085-1, ISBN13: 978-1-133-22085-5
Strategy for buying the textbook and Aplia Access Card:

  • Buy the Macroeconomics bundle for Baumol and Blinder which includes both the printed text and Aplia or the eBook and Aplia for just $219.49.

  • If you buy just the textbook, it will cost you $208.49. The cost of buying Aplia Access Card (which is required) is $115.00. So if you buy them separately, you will be paying $323.49 for the textbook and Aplia.

  • If you want to buy just the Aplia Access Card for Baumol and Blinder, you can buy it from for $115.00. If you have the book already or the 11the edition with 2010 update. Also know that when you buy just the Aplia Access Card, you get access to read the book online for the semester.

  • Don’t buy a used copy of the text for more than $70.00. At that price it’s cheaper to buy the bundle.

  • Don’t buy these textbooks at QC bookstore.

Register immediately today to online text and Aplia even before you pay for it.

1. Go to

2. If you already have an account, sign in. If you do not have an account, then create one.

3. Then from your Dashboard, enter the following course registration key WXFD-WZPQ-A9YU in the box “Enter product Access Code or Course Key” provided, and click the Register button. This should take you right to correct Macroeconomics Fall 2014 course.

4. You do not have pay immediately. Remember you must pay for Aplia and enter an Access Code by 11:59
PM on 09/17/2014. You pay for it with a credit card. Cengage will ship your printed textbook to your house
within 3 or 4 days.
Hint: Save on your textbook+Aplia by buying the BUNDLE described above

If you accidentally buy Aplia first, you are eligible to buy a text at a large discount through Cengage.

GRADING POLICY: Your final grade is determined by the following (weights):

1. Two midterm exams: (15% each)

2. Cumulative Final exam covering all chapters with vocabulary, multiple choice, algebraic and written problems (30%)

3. Aplia problems and online quizzes (20%)

4. Graded Written homework (10%). These can be found on

5. Class participation and quizzes (10%).

There is no predetermined grade distribution. In an average semester students earned about 55% A’s & B’s, 17% C’s, 19% D & F and 2% Incomplete, and 6% WU’s (which turn into F) and 1% W. Some classes have as many as 10 A+.

Mid-terms and Final (60%): There will be two midterm exams (tentatively scheduled on the syllabus) and a cumulative final exam. No make-up exams will be given except in the case of illness confirmed in writing by a physician. The mid-terms and finals are multiple-choice, concept-identification (vocabulary), analytical problems (graphical and algebraic) and short answer questions. The mid-term is based on lectures, textbook material, homeworks, and Aplia. Old exams with answers will be posted at before the exam. There are no makeup exams for the midterm and final. If you miss the midterm exam, the final will count for 45% of the grade. If you miss the final, you lose 30% of your grade.

Aplia homework (20%): There are 34 graded problem sets often preceded by practice sets. The graded Aplia problem sets for each lecture are numbered on the syllabus. The graded problems are usually due on the Sunday or Tuesday before an exam. Start the problem sets a few days before the closing day and time. The problems will not be reopened after the deadline. (See the box below). There are some “extra credit problems,” which can also improve your grade. Note: “Grade it Now” problem sets employ a “grade it now” system that allows you to get instant feedback and then retry questions.

What happens if I miss an Aplia assignment?

Aplia Problem Sets cannot be completed after the due date and time posted with the problem set in Aplia.

If you miss an Aplia assignment for whatever reason, you may ask for an extension on that assignment. Throughout the semester you will be able to ask for extensions on at most 5 assignments. You cannot ask for an extension for extra credit assignments and practice problems remain open even after the due date. All requests for resets must be sent to

Homework: Homeworks can be found and printed out from and handed in on the assigned date.

  • Late Homeworks: For each day a homework is late, one point will be taken off your homework grade. Homeworks more than one week late are NOT ACCEPTED and will not be graded or counted toward your grade.

  • Cheating on Homeworks Written homeworks are to be done by yourself and not in groups or copied off of anybody else’s homework. Violations of these policies will result in a 10% reduction in your overall course grade.

  • Hand-in homeworks to my teaching assistants, not to me.

  • Extra-credit assignments (homeworks or essays) will be posted from time to time. They will also give you more hands-on experience using algebra and doing graphing or even research and writing.

Reading Assignments: Reading assignments are from the textbook, should be completed before or on the day they are
. Even though I don’t cover part of the assigned text in class, you are still responsible for the assigned
material in the text.

Class participation, attendance and quizzes: You can get or lose points when I ask you a question in class. Written attendance is
taken every day. But, from experience, to pass the class you have to attend the lectures to get material available only from the
lecture. Be prepared for short quizzes from Wall Street Journal, vocabulary, or key concepts.

In the lectures: Take good lecture notes. Often the lecture covers materials and topics not in the text. You may record my lectures. Rewrite your lecture notes after each lecture.

CD’s of a similar lecture given in an earlier semester are available at cost of $2-3 each. See list on website.

Vocabulary, concepts and knowledge: You will develop non-economic vocabulary and knowledge of the world beyond
the textbook. I may pick an article from the WSJ, or the environment, or answer a student’s question and show you how
economics can give you a different way to think about it. Read the vocabulary lists posted on and keep
a special place in your notes for new words and concepts presented in lecture.

Study time and math skills: You will use basic algebra, slopes and geometry. Students with a good command of English and a good high school education with lots of reading and good algebra will spend about 6 hours per week on the course.

My Approach To Teaching Eco 101: Lively, lots of board examples. I teach Eco 101 as if it is your most important
course for building a foundation for all your other economic courses and developing solid study and learning habits.
It gives you the skills needed in other economics and BBA courses, as well as in accounting, management, political
science, and public administration. I emphasize developing and applying theory to real world problems. First I
develop some fundamental microeconomic concepts (concepts of efficiency and benefit-cost analysis), distinction
between private and public-type goods). Then three weeks on supply and demand, how a market system works, its
shortcomings and the need for government regulation). In macroeconomics we define Gross Domestic Product, price
indices, the three macroeconomic goals of 1) full employment, 2) price stability, 3) economic growth, determinants of
consumption, investment, saving, technological progress and the role of money, finance and banking. Good
government’s fiscal, monetary, regulatory and other policies can successfully address the problems of inflation and
. The current debate about the national debt, federal deficit and government spending is really
irrelevant and reflects an ideological fight by the Republicans over the appropriate role (lesser) and size (smaller) of the federal
One objectives of the course is to develop the concepts and tools that will help you to understand the cause of both current economic problems and major historical economic events like the “Great Depression.” You will learn a framework for decision-making, which involves weighing marginal benefits and marginal costs.

Principal themes of this macroeconomic course: (1) People want a good life which is much more than bread (money) alone (Maslow’s hierarchy of needs). (2) People and businesses respond to incentives. (3) We have a mixed market economy because in real life pure markets and “capitalism” fail without government regulations. (4) They fail because of externalities, the ubiquity of public-type goods and free riders, common property, asymmetric information, the principal agent problem, imperfect competition and more. (5) Government economic policies or the absence of government policies may have unintended consequences, such as the current Great Bush Recession. (6) Every part of a modern market economy is interdependent with other parts. (7) It is the real opportunity costs that are relevant to society, not the “money cost” (the veil of money).

More themes (8) Many Congressmen, bankers, and other decision-makers really don’t know very much about macroeconomics and fiscal and monetary policy. (9) The principal purpose of taxes at the national level is to manage aggregate demand to prevent unemployment, inflation and to promote economic growth (properly measured). (10) The economic policies to fight inflation are completely different than those needed to correct unemployment. (11) Comparing the economics of the household or a business with that of the national economy is to fall victim of the fallacy of composition. (12) Total factor of Productivity (TFP) is the basis of about 80% of our economic growth and raising the per capita output which is crucial to solving future economic problems such as funding social security and a decline of labor relative to the population. (13) Infrastructure increases TFP. (14) In the short run, investment in capital goods, technology and human capital raise TFP (This course will help you understand why we still have this “Great Bush Recession” since 2008 and what the Federal government could have done if politics had not interfered, how we missed an opportunity to build a good infrastructure capital at zero real cost to increase our productivity and compete with the rest of the world.)

Advising and motivating you to study more economics. I will be happy to be your advisor. I also hope to motivate and
prepare some of you to continue on to major in economics and maybe go on for a MBA or a Ph.D in Economics

Learning outcomes: Upon successful completion of this course, you will be able to understand:

  • The meaning of socially efficient use of resources and the role of prices and profit in a market economy and its weaknesses, which may require regulation to improve efficiency and/or equity.

  • The use of supply and demand analysis to predict or evaluate the effects of natural events, political developments, social trends and government policies on society’s allocation of resources.

  • Understand the macroeconomy: what shapes GDP, the roles of government and the private sector, the goals of fiscal and monetary policy, how is money “created”, what can lead to economic downturns or to inflation (or deflation), and what are the actions government can take to address these problems?

  • Understand relationships between economics, other social sciences and mathematics.

Eco 101 Syllabus Fall 2014

Graded Aplia problem sets (A) are usually due on the Sunday after the lecture.

Homeworks (HW) are due on the next lecture date after the topic is covered.

Due By

I Basic Economic Concepts, NIB = lecture material not in book.


Aplia &

Written homework


Aug 28

1. Basic economic concepts and themes underlying the entire course. (NIB)

Scarce Resources (labor, natural resources, physical capital, human capital),versus “public-type” resources (technology, knowledge)

The veil of Money, definition of Money, Money versus real Opportunity costs, goals of economic policy: maximizing well-being

Property rights and their importance. Private-type goods & resources (mutually exclusive or rival uses)

Public type goods and resources (non-rival use or little cost per extra user).

1b How to use Aplia Demonstration of Aplia – one of our class web pages.

Buy Aplia today and start doing practice problems.

Send me an email. Instructions on the first page.


Sep 2

2. 7 Major Economics Concepts for all time:

1. Opportunity costs. 2. Market strikes Back. 3. Comparative advantage. 4. Trade is a win-win action 5. Government policies can improve resource allocation and reduce fluctuations in GDP. 6. Trade-off between inflation and Unemployment, 7. Growth of labor productivity and total factor productivity is important!!!!

Problem of allocation scarce resource: What, how and by whom and for whom. Definition of markets and role of prices in markets.
Definition of “marginal”, efficiency condition where marginal benefit (MB) = marginal cost (MC).


Intro. to using Aplia & Math and graphing assessment w/tutorial due on Sep 7


Sep 4

3. Math lecture: Essential tools for learning economics: Algebra, graphing, and Slopes:
Qd = 400-20 P, Qs = -200 +30P, D(P) = S(P), Find P, then D and S which should be equal. Graph with Q on X axis.

Ch. 1


Sep 9

4. US Economy 2013 - Myth and Reality

The American economy is a mixed market economy with government regulation and financing of public goods but with private production of most goods and services including infrastructure (roads, schools, etc).

Role of the national, state and local governments and Types of Economic Organizations (corporations,

Sectors of the economy and circular flow of money versus goods and services, taxes, etc.

Ch. 2

A: #1, 2, 3 due on Sep 14


Sep 11

5. Production Functions and Factor Productivity Law of diminishing marginal product

Total & marginal productivity of labor & the Malthusian world. Marginal benefit and demand, marginal cost and supply, and the principles of optimal choice. Application 1: Maximizing net output from a plot of land. Application 2: Best levels of pollution.


Take Good

Lect. Notes


Sep 16

6. Production possibility frontier (PPF) defines production possibilities, given resources

Plotting the production possibility frontier of a two-product model with limited labor resources.

Demand > PPF => inflation

Demand < PPF => recession, unemployment and lost output. No social opportunity cost if unemployment.

Opportunity costs are what you have to give up, (MRS), as you move along the PPF.

Increasing relative opportunity costs at full employment.






A: #4, News Analysis due on Sep 21

HW: #1, #2

due on Sep 18

II. Supply and Demand: the heart of microeconomics: Economic rationality? Is it realistic?


Sep 18

7. Supply, Demand and A Market Clearing Price (Some concepts are not in book)

The downward sloping demand curve measures the buyer’s willingness to pay for each additional unit. Or the marginal benefit. Area above price represents Consumer surplus. (Net Benefits to consumer),

Substitute versus complementary goods, normal versus inferior goods.

Supply curves represent a willingness to sell at a stated price and depend on marginal costs and market structure. Producers surplus (profit) and concept of Ricardian economic rent (Net Benefits to producer)

Market equilibrium and its meanings (clearing the market with prices). The meaning of efficiency (MB=MC).

Two functions of prices: 1. Allocation of goods and resources 2. Providing (market) signals



HW: #3

Due on

Sep 30

Sep 23, 25

No classes schedule

A: #5, 6 due on Sep 28


Sep 30

8. Shifts in the curves versus movement along curves. Exogenous factors (weather, prices of inputs,

changes in tastes, technology, growing demand from other countries) shift the whole supply and/or demand curve, moving one along the other curve. As a result, prices and quantity usually change (in the short run (SR), long-run (LR).



A: #7, 8 due on Oct 5


Oct 2

9. Markets are interdependent. Both domestic and world markets are interdependent.
A change in the equilibrium price of one product often affects the supply and demand curves for other prices. For example, higher oil prices increase the cost of fertilizer, plowing, harvesting and transporting which increases the price of agricultural products.

Bush’s policy of producing ethanol from corn raised corn prices, and as a result raised corn land prices and other agricultural land prices, thus causing the prices many other agricultural products to rise, wheat, cotton, soybeans.



HW: #4

Due on

Oct 7


Oct 7

10. A simple algebraic model of a market and market clearing prices

We develop a simple algebraic model using the equation from lecture 3. We show how algebra can be used to solve the market clearing price and quantity and impact of excise tax and impact of changes in exogenous factors.



A: #9, 10 due on Oct 12


Oct 9

11. The Market Strikes Back. Price & non-price rationing, price supports & price ceilings.

How excise taxes affect both the prices paid by the buyer and received by the seller using an algebraic model. Cigarette taxes and alcohol taxes and public health. Who pays the taxes?

Combating externalities and global warming by using excise taxes on hydrocarbons. (coal, oil, natural gas)

HW: #5 & 6

due on Oct 14


Oct 14

12. Causes of market failure & the importance of government regulations & other policies.

External costs, external benefits, common property, public goods versus private goods, asymmetric information and principal agent problem. The subprime mortgage crisis illustrates the importance of government regulations of those areas of the market where it is difficult to get understandable and quality information. See vocabulary lists for definitions and examples of the above terms.

A: #11, 12 due on Oct 15


Oct 16

First Midterm: Chapters 1-4, Class Notes, Aplia up to Mar 12, Homework, WSJ articles

Consult Answers and samples of previous Midterms on



Oct 21

13. Introduction to Macroeconomics: Macroeconomics as a field of study began in the 1950s.

The Great Depression 1933 -> unemployment ->lost output + personal depression + social unrest + lost economic growth. The 1922 Hyperinflation in Germany wreaks havoc on the economy.

Bush’s housing boom and bust leads to the Great Recession of 2008-2013.

Is one’s own personal material standard of living the basis of happiness? Is it relative to others? What about health? Security? Opportunity? Absence of starving beggars on the street? Environment? Fair Income distribution? Maslow’s Hierarchy of Needs

Measuring growth rates: r = (Ct+1- Ct /Ct) x 100 is percent growth rate of consumption from t to t+1 where C = Ct+1- Ct or the change in consumption during the period Ct. Doubling rule: # of periods to double = 70/(r * 100), r = percent growth in variable per period,

Goals of macroeconomic policy and the proper role of the Federal government in managing the macroeconomics through taxation, spending, transfer payments, monetary policy and regulation.

What is the purpose of taxation at the national level? To reduce consumption so as to free up just enough resources for gov’t needs. The importance of effective regulations , consistent legal structure and societal ethics.. Aggregation = systematic abstraction from detail.



A: #13, 14, 15 due on Oct 26


Oct 23

14. Measuring GDP and Prices

How to understand price indexes and deflators used to adjust for inflation. Price deflators = % ∆ in cost of a “typical market basket of goods and services. Real versus nominal GDP. Real wages, real interest, real value of houses and other such things.

Price indices overstate inflation: substitution away from relatively expensive goods, failure to adjust prices for external

benefits and external costs (pollution) on society, hard-to-measure benefit of new goods, technology, services, medicines, music and the loss of artisanship in production. Mass production of private goods versus creative production of public goods (art, music, buildings)

GDP measured two ways: expenditure approach on final goods and services: C +gross I + G + X – M.

All at market prices (nominal GDP) and then corrected for changes in prices (real GDP). Earning approach based on the value-added at each stage of production (wages, interest, rent, profit (corp. & other), depreciation & indirect business taxes. (Also deflated for increased wages etc). Concept of value added at each stage of production.

What is not counted? Counting of intermediate goods would be Double Counting.

(Coal ->electricity->power supply for factories -> final goods (dresses, cars, restaurants). Illegal goods (bads?), non-market production and even trade and DIY activities at home. Activities not using scarce resources: capital gains, gifts, transfers, sale of used goods (used cars, housing). OK, what about the sale of public-type goods (downloaded music). What about large prisons and using resources for war or recovering from natural disasters. What about losing the charm of the farm, the loss of languages and regional dress & customs?




Oct 28

15. Sources of measured economic growth: more efficient use of all input, tech. progress, more capital,

GDP per capita and its growth over time depends on the growth of total factor productivity. (TFP)

Solow Growth model: theory and sources of productivity growth: growth of capital from investment, technological progress and improved labor quality (experience, health, training, education,)

Benefits and Costs of Economic Growth and Measuring Economic and Human Well Being. Do higher real personal incomes and more choice increase happiness? Or is it relative income? Social tranquility. Better health. Opportunity, Environmental Quality, How do we value Global Warming? Are the Chinese people benefiting from their rapid economic growth? Or dying?

Importance of balanced growth and more equitable private income distribution. Balance of private consumption and public goods and services, (environmental quality, the arts, infrastructure, education and care for the disadvantaged…). Importance of balanced responsible growth for social security and your generation. Fewer private material goods -> better standard of living. Health, recreation, education, cultural, green space, equity – not mindless video games, Hummers, and 8000 sq. ft. houses, a new dress for every party and helicopter skiing.


A: #16, 17 due on Nov 2


Oct 30

16. Determinants of Consumption, Marginal Propensity to Consume & the Multiplier

The principal determinant of consumption according to John Maynard Keynes (1936) is disposable income, not interest rates. End of Classical Economic Theory. He believed that the economy did not naturally move toward full employment. Indeed, he concluded, the government may have to frequently “stimulate” the national economy.

Household disposable income Ydi = GDP-depreciation – retained earnings – taxes + transfer payments (Social Security, gov’t interest, unemployment payments) = disposable income = money available to spend. Some economists adjust for current payments on debt from past purchases of goods (houses, home equity loans. How might this affect actual income available to spend on new things?

Determinants of Consumption: Consumption = f(“permanent” disposable income, net wealth, preference, expectations, short-term-consumer debt, health, neighbors’ consumption, demographics, advertising, weather, earnings on savings etc.) of Ydi.

Keynes defined the Marginal Propensity to Consume = C/Ydi = MPC. It is the extra C from an extra $. Together, this consumption function predicts consumption from changes in disposable income. A straight-line consumption function would be C = Ĉ + mpc * Ydi or if Ĉ=400 and the mpc = .80, then C = 400 + .8 *Ydi. Rich people in general have a lower MPC then poorer people.

Concept of Simple Multiplier = 1/(1-MPC). Caused by the secondary expansion of demand from higher incomes coming from higher output from an upward shift in aggregate demand. Works in reverse too. Works for any shift in exogenous determinant of Yd


HW: #7

Due on

Nov 4


Nov 4

17. Demand for Final GDP Output Remember: GDP =C+I+G+X-M. The Keynesian aggregate demand graph.

At equilibrium GDP (Ya*), the supply of aggregate output (Ya) represented by the 45° output line must equal the (voluntary) demand (Yd) for final goods and services and especially on how much households want to buy at any given level of output.

HW: #8

Due on Nov 6

A: #18, 19, 20 due on Nov 9


Nov 6

18. Savings and Investment, Equilibrium and Business Rule of Investment

Desired Saving by households is primarily a function of disposable income Ydi because savings is “non-consumption” so Sd = Ydi – Cd. You could either spend or save your income. If you know one, you know the other. It also depends on many other factors unrelated to I.

  • Thus household saving is really “non-consumption” of, or “non-demand for” current output & determines actual investment.

  • The rate of Planned or desired gross private investment by producers is very variable and depends on profit, interest rates, expectations, current capacity, etc.. It includes new plant and equipment (factories, machines, fixtures, and commercial building), new residential building. And change in inventory.

  • Businesses make purchase decisions on whether actual investment is greater than, equal to or less than planned investment. Saving is not likely to equal planned investment at potential full employment output YFE. The US marginal propensity to save was 0% in 2006-2007 and rose to about 7% in 2010.




Nov 11

19. Understanding equilibrium output: Ya*= Yd =C+I+G+X-M=Yd An Algebraic Model

The simple algebra of income determination A Model for determining equilibrium output (Ya*) where the planned aggregate expenditure (Yd ) = actual aggregate output (Ya). Equilibrium not automatically at the “right place” in terms of inflation or full employment. Macroeconomics helps determine policy.

  • Graphical analysis. Also called the Keynesian cross. Aggregate expenditure Yd = C + I + G +X – M.

  • The output gap is the difference between full employment output YFE and equilibrium level output Ya*. (Ya* = Yfe-Ya*). The aggregate demand gap (Yd) measures how much you have to shift Yd up or down (the primary shift) which times the multiplier = Ya*.

  • Multipliers: government spending multiplier, tax multipliers, foreign trade multiplier. Lags reduce the short run impact when managing GDP for stability and full employment the multiplier which results from the secondary expansion (induced increase) of consumption resulting from a primary shift in aggregate demand Yd .The multiplier effect depends on the marginal propensity to consume (save)


HW: #9, #10

due on Nov 13

A: #21, 22, 23 due on Nov 16


Nov 13

20. Full employment Output and Fiscal Policy Model for determining equilibrium output (Ya*)

Where the planned aggregate expenditure (Yd) = actual aggregate output. Also called the Keynesian cross. The easiest way to understand economic policy and events: unemployment, inflation and the multiplier: Aggregate expenditure Yd = C + I + G +X – M. Graphical analysis. The income gap is the difference between full employment output Yfe and equilibrium level output Ya*. (Ya* = Yfe-Ya*). The aggregate demand gap, Yd measures how much you have to shift Yd up or down (the primary shift) which times the multiplier = Ya*.

Aggregate Supply & Aggregate Demand model of Output and Prices?

Relationship between temporary fixed input and output prices and policy changes and supply and demand shocks (e.g.oil supply shock in 1970’s, housing boom collapse in 2008). Stagflation. Did chapter will only briefly review in lecture.


& 10

HW: #11

due on Nov 18


Nov 18

21. Using the Model for Fiscal Policy Current fiscal policy to increase aggregate demand.

Direct changes in government spending have biggest impact. Tax & transfers affect disposable income first, with a lesser impact on consumption because part is saved. Automatic stabilizers. Problem of lags in government spending projects? Just ask any state and they have a long list of projects. Bush’s tax rebates were ineffective because not a change in permanent income. Review of Ukranus homework #12.


HW: #12

Due on Nov 20

A: #24, 25, 26 due on Nov 23


Nov 20

22. Money, Financial Instruments, and Institutions Money (M1 & M2)

Functions of money: Medium of exchange, store of value and unit of account

History of fractional reserve commercial banking system, the goldsmith and law of large numbers

Commercial banks and savings banks accept demand deposits (checking accounts) and lend out money. They are tightly regulated. They have required reserves and restrictions on assets they can buy and loans they can make. Bank regulation and capital requirements. T-Accts, Reserves, required reserves, lending of excess reserves (Federal funds rate), cost of funds to lend, risk, lending rates and bank profit. Bank runs and the FDIC. Stress test,

Other financial intermediaries. The shadow banking system includes other financial intermediaries (investment banks, insurance companies, hedge funds, brokerage houses, mutual funds, etc.) who basically have only have net equity requirements instead of reserve requirements

Ch. 12

A: #26A, 27, 28 due on Nov 30

Tues Nov 25th, 2nd MID-TERM, in class. Includes lecture, Aplia problems, chapters 5-11, vocabulary lists homework problems.


Dec 2

23. Banks and the Creation of Money: DD= (1/rrr)*R, the demand for reserves (federal funds rate, the money multiplier, (1/rrr) and high-power reserves, R).

How the Fed works to manage the money supply and credit by managing reserves with open market bond purchases and sales to achieve the desired interest rate. Term structure of interest rates.

Federal funds rate: i = f(Ms = Md). The transaction demand for money = f(GDP) and the portfolio or asset demand for money = f (i). Money multiplier: Ms = (1/rrr)* R

Ch. 12

HW #13 due on Dec 4

A: #29, 30, 31 due on Dec 7


Dec 4

24. Monetary Policy: Its New Look under Bernanke. The conventional and unconventional

monetary policies to fight the Great Bush Recession. The monetary tools used by the Fed from 2007 until today are very unconventional to say the least (e.g., massive purchase of non-treasury securities). (MBS, directly recapitalizing of banks and even corporations in exchange for equity). The Bailout, the monetary stimulus, banking regulations, etc. Where did the Treasury (or Fed) get the money for the bailout? Did it cost the taxpayers anything? Or will the real economy & real people (taxpayers) really benefit in the future from “induced investment” and better public infrastructure. The normal term structure of interest rates is that the shorter term securities have lower interest rates.

Ch. 13

HW #14 & #15 due on Dec 9


Dec 9

25. Putting Monetary and Fiscal Policy Together. Monetary policy and fiscal policy working together

as tools for short run economic stabilization. The problem of lags and impact on the value of the dollar. What about the twin deficits? Is there a burden of the U.S. debt on future generations? How to use tax policy and monetary policy to curb consumption and stimulate investment without causing inflation.



A:#32, 33, 34 due on Dec 14


Dec 11

26. Current Economic Policy to Reach Yfe: Deficits: Read Chapter 16 carefully.

Do deficits and Federal debt matter to future generations? It depends on when incurred. If at times of unemployment and used constructively, deficit spending will cause “crowding in” of induced private investment as well as a cost free opportunity to build infrastructure and do D&D. Both increase future AFP and future generation’s well-being so deficit spending has net benefits. If deficits are increasing at time of full employment, it necessitates an increase in taxes and/or increased interest rates to reduce excess demand which causes inflation. The higher interest rates could cause something called “crowding out” of private investment.

That is why the choice of tax and monetary policy effects the composition of output, our future capital stock and ATP.

Shift from excessive private consumption to needed public expenditures on rebuilding old infrastructure, creating high speed rail network, financing auto industry to high mpg cars, financing the creation of a smart electrical grid, investment in non-fossil fuel energy, building better schools, increase housing for low and mid-income groups, reform health insurance, automated medical records. A more focused policy on housing. Global warming as a macro problem.

Ch. 15


Dec 18

FINAL EXAM (Cumulative) Study sample finals, homework problems

Cumulative, lectures, reading, Aplia, plus vocabulary. A hint sheet will be provided

Classroom Decorum

Lateness: Come to class even if you are late. It does NOT count against you, better in class late, then not in class at all. Bring coffee or water or drinks. Of course, try to come to class on time, but I know your schedules, transportation, and work make it difficult at times. Please, however, try to slip into class quietly. I take the LIE to Queens and sometimes I am delayed. I never miss a class, please wait. I will try to communicate with the class if there is an accident and long delays, unfortunately I may get caught in traffic or in advising.
Cell phone and computer policy: Turn OFF all cell phones, beepers, pagers, etc. and I-pods and pack them away in your backpack or purse. Texting is especially disruptive as is using the computer except to take notes. Penalty: they will end up in the Dean of Student’s office. If you are expecting a “crucial call”, let me know before class. Cell phones and ID are collected during the exams.

You may use your computer to take notes for class. You lose this privilege permanently if you use it to surf the web or other none class-related purpose.
Students should not leave the classroom during lectures or exams without permission. If you leave without permission, do not come back into class. Please attend to personal needs before class, plan ahead. If you have a legitimate reason for leaving early, please let me know before class. It is very disruptive to the other students. Cell phone calls are not a valid reason for leaving class! Please wait until class has officially ended to gather your things and to put on your coat. Do not go by the clock. Sometimes I need another few minutes to complete a concept.
You may photograph, record or videotape my lectures. This is a good idea if you don’t always understand all of my English. Photographing the board is the most useful way of supplementing your notes. I have most of my lectures on DVDs for only $3.00 each. Great for the tougher parts of the course.
Dropping the course: I am willing to let a student drop the course with a “passing grade” up to the last day of classes.
E-Mail: I read it every day in the evening. On Tuesday and Thursday, I read it more frequently. In the subject line, put “ECO 101” and the reason why you are emailing.
Tutoring: If you don’t understand a problem, bring it to my attention before class or send me an email and I shall try to answer it during lecture or post an answer on It is very efficient because other students probably have the same question. I do not tutor personally. I have a teaching assistant who tutors at the tutoring lab in KY 131.
Office Hours for Major Advisement and Transfer Evaluation for Students from Russia and the Former USSR: Tuesdays & Thursday 5:15-6:15 PM. To reach me during office hours, call (718) 997- 5461 and leave a message. Speak your phone number slowly and clearly. To leave a written message, call the Eco. Dept. (718) 997-5440. For a confirmed appointment THE BEST WAY to contact me is to send an email to
How this course fits into LASAR, PLAS, and QC Core (CUNY Pathways):

LASAR: For students who matriculated prior to Fall 2009. Economics 101 satisfies one of the two social science requirements.
PLAS: For students who matriculated in Fall 2009 or later, Eco 101 satisfies several requirements for Perspectives on the Liberal Arts and Sciences (PLAS). First, it satisfies one of the two required courses for Analysis of Social Structures: the course focuses on the working of the market economy and the role of government in the economy, helping students to analyze the economic and social structure that shape the world in which we live. Second, it satisfies the PLAS requirement for the US Context of Experience because the course is grounded in understanding the institutional structure of the US economy and the role of the government. Third, because the course (and my course especially) relies heavily on analysis using graphs and mathematical equations, it satisfies a requirement for Abstract or Quantitative Reasoning.

QC Core (CUNY Pathways): For students who matriculated in Fall 2013, Eco 101’s approval is pending under Flexible Core: Individual and Society (IS).
ADA Policy and Problems Reading English: Students with disabilities needing academic accommodation should: (1) Register with and provide documentation to the Special Services office, Kiely 171; (2) bring a letter to me indicating the need for accommodation and what type. This is best done during the first week of class. If you have problems reading English, either because it is not your native language, or you need extra time to take the exam, I recommend you take the exam during regular exam period, which is usually longer than regular class time and you benefit from the comments made by the professor during the exam. For more information about services available to students, contact: Special Services Office: Dr. Mirian Detres-Hickey, Director, Kiely Hall, Room 171; 718-997-5870; email address:

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