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Regular version of the site

Macroeconomics 2

2020/2021
Academic Year
ENG
Instruction in English
7
ECTS credits
Course type:
Compulsory course
When:
3 year, 3, 4 module

Instructor

Course Syllabus

Abstract

Macroeconomics-2 is a one-semester course and it is taught for the third year students in Spring semester. The course focuses on the microeconomics foundations of macroeconomics, demand management policy, the neo-classical (Solow) growth model, inflation and unemployment. The course is taught in English. The students are also studying for Russian degree in Economics, and knowing Russian terminology through reading in Russian is also required. Course prerequisites Students are supposed to be competent in basic economic analysis up to the level of the Introductory Macroeconomics and in calculus taught in the first and second years of studies. Students are also expected to be familiar with constrained optimization studied in the course of Mathematics for Economists during the second year of study and basic game theory tools studied in the course of Microeconomics during the third year. The course itself provides a basis (and so serves as a prerequisite) for such courses as Monetary Economics, International Economics, Development Economics.
Learning Objectives

Learning Objectives

  • This course introduces students to the most influential and compelling theories designed by macroeconomists to explain issues related to the determination of output, unemployment and inflation. Students will acquire a logical and consistent framework for understanding the main macroeconomic facts and events, and develop the ability to employ the correct macroeconomic tool(s) to explain specific macroeconomic issues and justify policy proposals.
Expected Learning Outcomes

Expected Learning Outcomes

  • define and analyse the determinants of business cycles, long run economic growth, unemployment, inflation; use and apply a wide range of economic models to analyse contemporary and historical macroeconomic events, and formulate and propose appropriate macroeconomic policies; be capable to work in a team; be prepared for further units which require a knowledge of macroeconomics;
  • define and analyse the determinants of business cycles, long run economic growth, unemployment, inflation; use and apply a wide range of economic models to analyse contemporary and historical macroeconomic events, and formulate and propose appropriate macroeconomic policies; be capable to work in a team; be prepared for further units which require a knowledge of macroeconomics;
Course Contents

Course Contents

  • Aggregate demand in closed economy: IS-LM model
    Goods market and IS curve derivation. Assets market and LM curve (under money supply targeting). Effectiveness of fiscal and monetary policies.
  • AD-AS model
    The aggregate supply (AS) curve. The long run aggregate supply curve and short run AS curve. Explanations of upward sloping short run aggregate supply curve. Sticky wages (Keynesian) model. Classical worker misperception model, new Keynesian sticky price model, new classical imperfect information model of short run AS. Expectations and short run AS. The aggregate demand curve. Explanations of the slope. Equilibrium in aggregate supply- aggregate demand model. Monetary and fiscal policy in the long run and in the short run. Supply shocks. Money neutrality and classical dichotomy. Rational expectations ans policy ineffectiveness proposition.
  • Demand management policy
    Aggregate demand (AD) shocks. Responses to AD shocks: non-intervention, activist policy. Time lags (inside and outside). Lucas critique. Monetary policy: targets and instruments. Rules versus discretion. Time inconsistency problem. Solutions for time-inconsistency problem: constitutional rules, reputation, delegation to an independent authority with different preferences/incentives (independent central banker). Examples of monetary policy rules.
  • Inflation and Unemployment
    Labour market: labour force, unemployment rate, participation rate (covered in year 2). The types and causes of unemployment: frictional, structural and classical (or real wage) unemployment. Hysteresis. (covered in year 2). Phillips curve. AD-AS model in the long run. Inflation in the long run. Inflation in the short run. The costs and benefits of inflation. Seignorage. The cost of disinflation policy.
  • The Neoclassical (Solow) Growth Model
    Factors of economic growth, Solow residual. Stylized facts of economic growth. Assumptions of the Solow model. Derivation of the capital accumulation equation. Steady state. Comparative statics (predictions of the model): changes in saving rate, in population growth rate, etc. The golden rule of capital accumulation. Solow model with labour augmenting technological progress. Endogenous growth theory.
  • Microfoundations of aggregate consumption
    Keynesian consumption function and Kuznets puzzle. Intertemporal choice model. Life Cycle and Permanent Income theories. PIH under rational expectations. Barro-Ricardo equivalence. Reasons for the failure of Barro-Ricardian equivalence. Fiscal policy. Implications of Barro-Ricardo equivalence.
  • Microfoundations of aggregate investment
    Yield to maturity and term structure of interest rates. Stock market and the price of stock. Keynesian theory of aggregate investment. The components of investment spending. Neoclassical model of investment. Accelerator models of investment. Tobin’s q-theory.
  • Money demand and money supply
    Functions of money. The transactions demand (Baumol-Tobin model). The speculative theory of money demand: demand for money as a safe asset. The modern quantity theory of money. The monetary base and the money supply. The money multiplier model (covered in year 2) Control of the central bank over the money supply.
  • Aggregate demand in an open economy: the IS-LM-BP Model
    The IS curve in an open economy. The foreign exchange market and exchange rate terminology. The BP curve and capital mobility. Macroeconomic policy under imperfect capital mobility (comparison with perfect capital mobility and capital control).
Assessment Elements

Assessment Elements

  • non-blocking Home assignments
  • non-blocking Group project
  • blocking Midterm exam
  • non-blocking UoL/Internal Exam
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.1 * Group project + 0.1 * Home assignments + 0.4 * Midterm exam + 0.4 * UoL/Internal Exam
Bibliography

Bibliography

Recommended Core Bibliography

  • Blanchard, O., Amighini, A., & Giavazzi, F. (2013). Macroeconomics: A European Perspective (Vol. 2nd ed). Harlow: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1418008
  • N. Gregory Mankiw. (2020). PDF Macroeconomics 10th Edition by N. Gregory Mankiw Download. https://doi.org/10.5281/zenodo.3752461

Recommended Additional Bibliography

  • Macroeconomics, Dornbusch, R., Fischer, S., 2011