Department of Economics
ECON 2105H Principles of Macroeconomics (Honors)	William D. Lastrapes Spring 2006
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Economics is the study of how people deal with the problem of scarcity and choice. The fundamental assumption of economics is that individuals behave rationally when faced with this problem. This assumption turns out to provide an extremely wide and clear window through which we can view and understand important aspects of the world around us.  In this course, we take a first look at formal economic models based on the premise of rationality that shed light on basic economic questions, with a focus on macroeconomics: how the economy as a whole determines the availability and utilization of scarce resources. Some familiar macroeconomic concepts discussed are inflation, unemployment, interest rates, money, economic growth, and fluctuations in economic activity. We also analyze the effects of the government's fiscal and monetary policies on the overall economy. My primary objective is to introduce students to fundamental macroeconomic models to help them understand how economists explain aggregate economic activity. The course is built around five fundamental principles of macroeconomics: 1. The overall level and growth of income and output in a nation are determined by the interaction of households, firms, and governments as they produce, exchange, consume, save and invest. Economic interaction between these sectors typically takes place through markets. 2. Physical and human capital accumulation and technological advances are the primary means by which the standard-of-living grows in modern economies. 3. In the long-run, market prices balance supply and demand, so that resource availability determines production and income independently of aggregate demand. a. Real wages and employment are determined by the scarcity of labor and labor’s value in the production of goods. b. Real interest rates are determined by borrowing and lending in financial markets, and influence saving, consumption, and the allocation of resources over time. c. Money reduces the costs of transactions. In the long-run, the quantity of money is neutral. 4. In the short-run, fluctuations in aggregate demand and the quantity of money can cause recessions and unemployment owing to market rigidities. 5. Monetary policy and fiscal policy are tools available to the government to stabilize the economy. But expectations of policy can profoundly influence how macro policies work.	William D. Lastrapes Office: 534 Brooks Hall Phone: 706 542 3569 E-mail: last@terry.uga.edu Class period: 11:00 – 12:15, Tues/Thurs Classroom: 202 Moore College Office hours: 2:00 – 3:00 MWF Final exam: Tuesday, May 9, 12:00 – 3:00 PM