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«MBA 703: ECONOMIC ENVIRONMENT OF THE FIRM FALL 2014 Stuart Allen (sdallen Phone TBA:334-3166 (Direct Line) Office hours: Before class (1:00 ...»

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FALL 2014

Stuart Allen (sdallen@uncg.edu) Phone TBA:334-3166 (Direct Line)

Office hours: Before class (1:00 – 1:45 or after class

458 Bryan Building - Economics Department

On Mondays or by appointment


Economic analysis of markets and government intervention that addresses the sustainability of fiscal,

monetary and exchange rate policy and their short- and long-run impact on the global environment.


Bade and Parkin, Foundations of Macroeconomics, 7th edition, ISBN 978-0-13-346062-9


The course will develop your analytical ability (1) to understand the connective linkages of among macroeconomic markets, (2) to analyze the current macroeconomic environment and (3) to assess the effectiveness and sustainability of macroeconomic policies (e.g. fiscal, monetary, and exchange rate).

The course will utilize aggregated markets such as the output, labor, credit/loanable funds, reserve, money and foreign exchange markets to analyze the effect of changes in monetary, fiscal and exchange policy in the context of the domestic and global economy. The lectures, discussions, readings and assignments will help to develop your ability to analyze the current economic environment, evaluate current government policies, and assess the risk facing businesses and households. Historical case studies will be employed as an important teaching tool to explain the current global economic environment.


MBA 715: Integrative Business. MBA 703 is now a third semester course in the four semester program.


See government agencies such as CBO.gov, BEA.gov, Federalreserve.gov and BLS.gov and other sources such as The Tax Foundation. For domestic and international data go to the St. Louis Federal Reserve Bank (FRED) database and for international data go to the United Nations Human Development Report 2011, http://hdr.undp.org. For unique social, political, and analysis related to growth and development go to TED Talks and listen to various presentations “Talks” by Hans Rosling. See the assignment for class 1.


Can be found at http://www.uncg.edu/bae/faculty_student_guidelines.pdf


Attendance and class participation is expected. If you miss class, you are responsible for the class material.

You may record the class. There is no class on Labor Day (Sept 1) or fall break (Oct 13).


The cancellation of class due to weather or other event may be made up by extending class time or having a make-up class period. If a test is cancelled, then be prepared to take the test the very next class period.


Students are responsible for being familiar with the UNCG policy on cheating, plagiarism, misuse ofacademic resources, falsification and facilitation of dishonest conduct. Procedures and penalties related to these and other policy violations are found at: http:/www.uncg,edu/handbook/academic-integrity-policy/. Any violation of the Honor Policy may result in a failure for the assignment and subsequently the course.

MBA703, Outline: Page 2

LEARNING OBJECTIVES FOR MBA 703Students should be able:

1. To use the tools of supply and demand to analyze shifts in the aggregate macro markets.

2. To use the tools of supply and demand to provide analysis of intended and unintended outcomes from government intervention in the market place.

3. To discuss the macroeconomic environment with regard to nominal and real GDP, nominal and real interest rates, economic growth rates, price indexes, deflation and inflation; unemployment and employment; the federal budget deficit and the national debt; the current and capital accounts and its status as a debtor or creditor nation.

4. To analyze labor market issues with regard to employment and unemployment.

5. To identify the sources of economic growth for developed and developing countries with regard to public policy (savings, investment and taxation) that could increase the rate of potential (long-term) real GDP growth.

6. To analyze the effect of short-run fluctuations in the growth rate of real GDP and prices from supply (demand) shocks and to recommend appropriate policy changes.

7. To describe how exchange rates changes correct trade disequilibrium and why financial flows can disrupt the equilibration mechanism and cause trade imbalances to worsen.

8. To analyze the effect of changes in expansionary and contractionary monetary policy on economic activity with regard to employment, real GDP and inflation.

9. To discuss the short- and long-term effects on interest rates, inflation rates, and output growth from overly expansionary monetary policy in the late 1970s and Volcker’s fight against inflation from 1979-1982.

To analyze monetary policy according to Taylor’s rule with reference to the interest rate targeting of 10.

the 1970s, 1990s and 2000s and the resulting boom and bust cycle.

11. To analyze the effects on economic activity and economic growth from fiscal policy and deficit spending with reference to the non-sustainability of current policy.

12. To analyze the effect of the 1980s budget deficits and monetary policy on real interest rates, the current account deficit, the value of the dollar, and the US as creditor or debtor nations.

13. To analyze the adjustment process of the Bretton Woods international financial system and to use the analysis to explain why fixed exchange rates are non-sustainable.

14. To analyze the role of fixed exchange rates in the creation of the boom and bust cycle with regard to the Asian currency crisis in 1997/98.

15. To analyze the current exchange rate policy of China and address its sustainability.


There will be two mid-terms (30% each) and a final exam.(40%). Tentative dates are September 22 and November 4 or 11. The final exam (40%) is December 8 from 3:30 – 6pm. No make-up tests are given. The weight of a missed test (assuming a valid excuse) will be added to the final exam. Otherwise the missed test

grade is zero. Incompletes are not an option. The grading scale is:

A/A-: 90 - 100 B+/B/B-: 80 - 89 C+/C: 70 - 79 F: Less than 70


No extra credit is provided at the end of the course. Rather there are opportunities to bolster your grade with special extra credit assignments during the semester. Points can be earned that are added to your test grade.

The first opportunity (see the end of this syllabus) is the required special assignment due the first day. This assignment will be valued from zero to twenty additional points on test 1 or values from zero to fifteen on the final exam. Grading will be based on your oral and written work.

MBA703, Outline: Page 3 COURSE OUTLINE: MBA 703 Fall 2014 Class 1: Economic Growth and Development Read Chapter 9 Section 4: (Chapter 9.4) Ch 1: The Economic Way of Thinking Ch 2: Globalization and the Circular Flow Model of Economic Activity Ch 3: PPF - Trade and Growth Class 2: Chapter 4: Supply and Demand Ch 4.1 Demand: Fig 4.1 and 4.2 Ch 4.2 Supply: Fig 4.3 and 4.4 Ch 4.3 Market Equilibrium and the Automatic Adjustment Process Fig 4.5 and 4.6 Ch 4.5 Factors that Shift the Supply and Demand Fig 4.7 and 4.8 Shifts in the Curve (Schedule) and Movements along the Schedule Ch 4.6 Double Shifts Figure in Supply and Demand: Fig 4.9 and 4.10 Ch 4.7 Price Rigidities: Floor and Ceilings Fig 4.11, 4.12, 4.13 and 4.14 Consumer and Producer Surplus Ch 4.9 Government Taxation: The Burden of Taxes, Dead Weight Loss Ch 4.10 Government Subsidy Class 3: Measuring GDP Ch 5.1 Income and Expenditure Approaches Ch 5.2 Real GDP Classroom Exercise: Calculating nominal real GDP, actual GDP and the price level Calculate the growth rate of output growth and of the price level, Exercise: Draw a time series diagram of nominal and real GDP for the 1990-2014 period, Class 4:Ch 5.3 The Business Cycle: Potential and Actual Real GDP Exercise: Calculate Potential GDP and the Output Gap in a Time Series Diagram Jobs and Unemployment Ch 6.1 Labor Market Indicators: Definitions and Formula Ch 6.2 U Rate, LFPR, and Alternative Labor Market Measures Ch 6.3: Unemployment and Full Employment, Types, GDP and Output Gap Ch 8.1: More on Potential Real GDP Ch 8.2: Natural Rate of U Rate Class 5: Ch 8 Potential Real GDP and the Natural Unemployment Rate pp. 190 -191 Schools of Thought and Public Policy

Chapter 13.1: Aggregate Supply

Chapter 13.2: Aggregate Demand

Ch 8.1 Labor Market and the Production Function Determine Labor Market Equilibrium Ch 8.2 The Natural Rate of Unemployment and Sticky (Rigid) Wages The book uses real wages not nominal wages. Ch 8.2 Real wages are to be determined by the forces of supply and demand in the labor market, but government intervention and efficiency wages interfere. Full employment translates into potential real GDP.

Test 1: October 6 – Class 7 MBA703, Outline: Page 4 EXTRA CREDIT Opportunity 2: Provide an analysis of the current conditions in your country’s labor market. Your analysis should include a number of different unemployment and employment measures.

What are the important trends? If your country does not have enough data to make the assignment interesting, use the US as the default. Data that could be of interest is the labor force participation rate, employment to population rate, number of multiple jobholders, unemployment duration, job loser and leavers, entrant and reentrants to the labor force, and various measures of unemployment the quality of jobs, the average wage rates etc. Maximum value is 10 points on the first test. Due October 10 at noon.

Class 6 will provide time to review for the test.

Class 6: Ch 7 The CPI and the Cost of Living (This Chapter is not testable material for test 1.

Ch 7.1 The CPI Ch 7.2 The CPI and Other Price Level Measures Ch 7.3 Nominal and Real Values: The Labor Market in Ch 8 uses real wages Ch 7.4 Real vs Nominal Interest Rates: The Loanable Funds Market (Uses Real Interest Exercise: Adjusting by the CPI Class 8: Ch 9 Economic Growth – This chapter will be the topical for the second half of class 7.

Ch 9.1 Growth Rates and the Rule of 70 Ch 9.2 Labor Productivity Growth Capital Accumulation and Diminishing Returns Expansion of Human Capital and the Discovery of New Technology Ch 9.3 Growth Theories Ch 9.4 Achieving Faster Growth: Preconditions and Policies Rosling “Asia’s Rise: How and When?” & “Population Growth using IKEA boxes”

–  –  –

The role of the Fed and the fractional reserve banking system in the creation and destruction of money through the open market purchase or sale of government bonds is demonstrated. The Expansionary case is introduced as is the contractionary case. The distinction between the monetary base and the money supply is critical. The quizzes are identical to what will be asked on test 2 and the final exam. The money multiplier is introduced through these two cases and the influence that the public and the banking system can have on the multiplier is discussed through the history of the Great Depression.

EXTRA CREDIT Opportunity 3: Google the Causes of the Great Depression. Summarize from several web sites the various causes of the Great Depression. Maximum value is 10 points on test 2. Please footnote your source material. Due October 31 at noon.

Class 9:11.3 The Federal Reserve System

11.4 Regulating the Quantity of Money Chapter 12: Money, Interest and Inflation

12.1 Money and the Interest Rate MBA703, Outline: Page 5

–  –  –

Class 10: Chapter 17: Monetary Policy

17.1 How the Fed Conducts Monetary Policy:

17.2 Monetary Policy Transmission: Summary pages: 434-437

17.21 The Fed Fights Recession (pp. 434-435)

17.22 The Fed Fights Inflation (pp. 436-437) The Loanable Funds and the Credit Market – the role of inflationary expectations Class 11: 17.3 Alternative Monetary Policy Strategies – The Role of the Fed.

Ch 13.1 Aggregate Supply Ch 13.2 Aggregate Demand Ch 13.3 Explaining Business Cycles Test 2: November 10 – Class 11 Class 12: The Keynesian Influence Ch 16:1 Federal Budget: Deficits and the Time Bomb Ch 16.2 Fiscal Stimulus Ch 16.3 The Supply Side - Potential GDP - and Growth Class 12/13: Bubbles and Taylor’s Rule and the Financial Meltdown The Causes of the Financial Meltdown Review Monetary Policy Episodes and Include Taylor’s Rule Class 13/14: Chapter 19: International Finance

19.1 The Exchange Rate

19.2 Monetary Policy and the Exchange Rate The International Financial System over Last Century: Booms and Busts What policies Are Sustainable?

Class 15: Comprehensive Final: Monday, December 8 at 3:30 – 6 pm. Do not book a flight out of Greensboro for the holidays before Dec 9th.

MBA703, Outline: Page 6 MBA 703: Economic Policies & Impact on Global Outcomes ASSIGNMENT for the first class – August 18th: Economic Growth and Development The assignment for the first class (August 18) is to choose, analyze and present some of the vast economic, social, education, and health data found at the GAPMINDER Web site for several different countries. You are responsible for your home country (e.g. Minjing – China, Shilpa – India, Rabia – Pakistan, Justine – Taiwan, Harsh – Japan), plus the United States plus one other Asian country of your choice and one European country of your choice. US students will choose one Asian, one European and one African country in additional to the USA. Other students who are registering over the summer will conduct the analysis for the United States, one European country, one Asian Country and their home country.

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