ECO1011S - Macroeconomics

Introduction

You have completed a course in microeconomics in which you were introduced to some of the fundamental concepts in economics, such as the notions of scarcity and opportunity cost, the marginal principle, the concepts of supply and demand, and equilibrium. You have an understanding about different market structures and how firms are likely to operate in order to maximise their profits.

The focus in ECO1010F was on individuals, be it a consumer, a firm or an industry. In ECO1011S this changes. The focus is not on individuals, but on the whole economy. Rather than looking at the factors that determine an individuals consumption decisions (i.e. his/her income, the expected utility derived from different goods and the prices of those goods), the focus in ECO1011S is on total consumption of all consumers in the economy. Similarly, the focus is not on the output decision of any individual firm, or even an industry, but on the total output of all firms in the economy as a whole.

A number of new terms will be introduced in this course. Many of these concepts are quoted regularly in the financial press and on television, such as gross domestic product (GDP), personal consumption expenditure (PCE), investment, and the inflation, interest and exchange rates. The aim of ECO1011S is to introduce these concepts and to explain the relationships between them.

Because the real world is a complex place and there are so many interrelationships, we simply cannot understand or explain everything. So what we do in the economics discipline is to describe the most important issues, often using theories or models. These models help us understand the essence of an issue. Typically one would start off with a fairly simple model which is based on very strict (and sometimes unrealistic) assumptions, and then gradually relax the assumptions to get to a more realistic understanding of the real world. In ECO1011S we introduce two models: the aggregate expenditure model (also known as the Keynesian cross) and the AD-AS model. In ECO2004S these models will be expanded and the IS-LM model will be introduced.

You will be issued with a course reader, which includes a number of readings that cover South African economic issues. The tests and exams will also have a strong South African flavour. Since ECO1011S lays the groundwork for ECO2004S, the standard of the course, as well as tests and the exam is likely to be higher than in the past, in order to decrease the size of the jump to ECO2004S.

By the time you start ECO1011S you should have a good idea of what is expected of you to pass economics. To maximise your chances of success, we suggest that you follow the following guidelines:

• Be prepared. Read the relevant sections in the textbook in advance. These are indicated in the course outline. It is also useful to read the textbook after the lecture, but from our experience it is usually best to read the textbook before the class begins, so that you can follow the lecturer more easily.
• Ask questions. If you have read the textbook in advance, you know what to expect in the lecture. The lecturer should hopefully make difficult concepts clearer. If the explanation in class does not settle the matter in your mind, approach the lecturer during his or her office hours, after the lecture, or ask a question during the lecture. Do not be shy and think that you will work it out at home. This usually does not work.
• Make the best use of the tutorials. Tutorials offer you the opportunity to practise the theoretical concepts covered in the lectures, in a small learning group environment. Learning is an active process. Simply reading the material will not be enough to pass. You need to draw the diagrams (and there are many of them) and do the calculations yourself. Experience has shown that students who work diligently for tutorials tend to perform much better in tests and the exam than those who take a casual approach.
• Form study groups: Two or three minds are often better than one. A study group is great because if you do not understand something, a partner in the group can hopefully explain it to you. Also, if you are the person who does the explaining, you are likely to benefit because explaining something to somebody really focuses the mind and highlights any deficiencies in your own understanding.

Corn van Walbeek
Convener: ECO1011S.