# Economics (ECN)

The Economics Department offers a BA in Economics, a minor in Economics, and a BS in Mathematical Economics (with the Math Department).

## Learning Goals for Economics Majors and Minors

To learn and be able to communicate in written and oral form about

- How markets function
- How and why markets sometimes achieve and sometimes fail to achieve fundamental goals including economic efficiency and welfare
- The basis for competing ideas about economic policies
- How to apply economic concepts beyond market settings
- How to analyze economic data
- Broad trends in the U.S. and world economies
- To apply the tools of economics after graduation in solving problems on the job, in the societal/policy arena, and in daily life.

**Goals in Required Economics Classes**

The B.A. in Economics requires that all students complete five core economics courses. The department has adopted these learning outcomes for those five courses.

On successful completion of Econ 150: Introduction to Economics, students should understand the following concepts and be able to use them to frame and/or solve economic problems

Opportunity cost and marginal analysis

Determinants of supply and demand, and how supply and demand interact to determine market outcomes

Elasticity and how to calculate it

Economic efficiency, consumer surplus, producer surplus and deadweight loss

Effects of taxes, subsidies, price ceilings/floors

Causes of market failure to achieve efficiency

Comparative advantage and gains from trade

How to measure GDP, real GDP, inflation, and unemployment

Causes of and trends in long-run economic growth

Causes of short-run macroeconomic fluctuations

Causes of inflation

How monetary and fiscal policy work

On successful completion of Econ 201: Applied Econometrics, students should:

Understand, and be able to work with, least squares multiple regression.

Understand the concept of statistical significance and be able to distinguish this from economic importance.

Understand that correlation is not causation, and have resources for assessing whether a statistical relationship may reflect causality.

Understand the various threats to the validity of the classical linear regression model and know how to perform appropriate tests for detecting such threats.

Understand the issues of model specification, including the requirement that a meaningful statistical model must be grounded in theory or prior knowledge.

Be able to work with logarithmic or quadratic specifications, dummy variables and interaction terms as appropriate.

Have a demonstrated ability to assemble a suitable data set (with some help) and to apply regression analysis to answer an empirical question of interest.

Have an understanding of some additional econometric techniques and issues – for example, time-series models, panel-data models, two-stage least squares or models for limited dependent variables.

On successful completion of Econ 205: Intermediate Microeconomics I students should have learned the following concepts and be able to use them to frame and/or solve economic problems

Indifference curves and utility functions in conjunction with budget constraints in analyzing consumers’ choices

Income and substitution effects

Production functions and isoquant curves in analyzing firms’ behavior

The measurement of fixed costs, variable costs, total costs and marginal costs and how they influence firms’ decisions

How firms’ decisions determine prices and outputs in markets with perfect competition and monopoly.

On successful completion of Econ 206: Intermediate Microeconomics II, students should have learned the following concepts and be able to use them to frame and/or solve economic problems

How firms’ decisions determine prices and outputs in different market settings including perfect competition, monopoly, monopolistic competition, oligopoly and monopsony.

Strategic decisions and Nash Equilibrium

The behavior of factor markets

Risk preferences

Present discounted value

Causes of market failure to achieve efficiency due to asymmetric information, externalities and public goods

On successful completion of Econ 207: Intermediate Macroeconomics, students should understand and/or be able to apply the following concepts and tools to examine these macroeconomic problems:

The measurement of GDP, aggregate prices, and unemployment, and the distinction between the short-run and long-run

The circular flow of income and expenditure

Nominal wage and price rigidities

Equilibrium in the goods and services market and the market for loanable funds

The quantity theory of money and what determines the demand for money

The relationship between money and inflation, and the social costs of inflation

The labor market and theoretical explanations of unemployment

The relationship between capital accumulation, population growth, technology and long-run economic growth using aggregate production functions

Aggregate demand and aggregate supply, and the business cycle

The IS-LM model and its predictions for fiscal and monetary policy

Application of macroeconomic theory to the short-run tradeoff between inflation and unemployment

Debt and government budget dynamics

The evolution of financial systems

## Learning Goals for Mathematical Economics Majors

In addition to the goals above, Mathematical Economics majors should be able to analyze economic problems more formally using the concepts and tools from optimization theory, dynamical systems, linear algebra, probability theory, and statistics.

**Goals in Required Mathematical Economics Classes**

The B.S. in Mathematical Economics requires that all students complete seven core economics courses – Econ 150, 205, 207, 210, 211, 215 and 218. The learning outcomes for Econ 150, 205, and 207 are listed above. The department has adopted these learning outcomes for the additional courses in the Mathematical Economics major.

On successful completion of Econ 210: Optimization Techniques in Economics students should understand the following and be able to apply the techniques and tools introduced in the course to analyze optimization problems in microeconomics:

- Solving constrained optimization problems in one and two dimensions.
- Performing comparative statics analysis with and without optimization.
- Using expected utility theory and solving optimization problems under uncertainty.

On successful completion of ECN 211: Macroeconomic Dynamics students should

- Most generally, be able to work back and forth between algebraic calculation and economic intuition, to check the former and sharpen the latter. More specifically, they should
- Be able to use the methods of total differentiation and Cramer’s rule to solve for comparative static effects in the context of a multiple-equation macroeconomic model expressed in general function form, and interpret the reduced-form coefficients so as to elucidate the economic relationships implied by the model.
- Be able to take a dynamic macro model expressed in continuous time and analyze its stability properties via use of a phase diagram; understand the difference between (moving) equilibrium and steady state.
- Be able to work with models with the saddlepath property under forward-looking expectations, and specifically to solve for the trajectory of such a model to its new steady state following a disturbance.
- Understand the uses and limitations of Dynamic Stochastic General Equilibrium as a modeling strategy in macroeconomics.

On successful completion of ECN 215: Econometric Theory and Methods students should

- Understand and be able to work with the principles of least squares and maximum likelihood in estimation of econometric models.
- Understand and be able to diagnose cases in which Ordinary Least Squares is inefficient, biased and/or inconsistent.
- Be aware of, and able to implement, alternatives to classical OLS including robust covariance matrix estimation, Feasible Generalized Least Squares and Instrumental Variables estimation.
- Understand, and have resources to deal with, the special statistical issues arising in the analysis of time-series and panel data.
- Have a demonstrated ability to use econometric methods to tackle a problem of interest (i.e., formulate a sensible model, gather suitable data, run appropriate regressions, implement relevant diagnostic tests, and interpret the results with attention to both their statistical significance and their substantive importance).

On successful completion of Econ 218: Seminar in Mathematical Economics, students should understand advanced mathematical techniques such as dynamic programming or lattice theory, and be able to apply these techniques to solve optimization and equilibrium problems in various fields of economics such as growth theory, search theory, and auction theory.

## Assessment of Student Learning Outcomes

In May 2012, 30 graduating seniors took the Economics Department’s first exit exam to help the Department assess how well these learning goals have been achieved. Beginning in 2013, all graduating Economics and Mathematical Economics majors will take the exit exam.