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Regular version of the site

Macroeconomics II

2019/2020
Academic Year
ENG
Instruction in English
10
ECTS credits
Course type:
Compulsory course
When:
2 year, 1-4 module

Instructor

Course Syllabus

Abstract

“Macroeconomics II” is the extension of the course “Macroeconomic” completed by first-year students. The aim of “Macroeconomics II” is to expand knowledge of the principles of a national economy operating. It focuses on features of an open economy, and consists of the topics covered by the course in the light of linkages between a national economy and other countries. This course examines a wide range of essential concepts of a national economy that are a national income, the principles of the open economy, the monetary system, government budget and debt, aggregate demand, the principles of the labor market and aggregate supply, unemployment and inflation, economic growth, economic fluctuations and business cycles. The goals of the course are for students to know what factors influence the dynamics of aggregate demand and supply, to know the relationship between the national economy and the rest of the world, to understand the sources of macroeconomic instability, to know the mechanisms of economic growth and business cycles, and to understand the principles of economic agent behavior. The course will cover a broad range of topics in monetary and fiscal policy. The vital component of the course is self-study which includes fulfilling the research tasks. Students explore official statistics using the statistical package R to determine trends and sources of economic growth in different countries. Lectures and seminars have been being delivered via MS Teams, and all files have been being uploaded into LMS. The second exam is held under asynchronous proctoring for 1.5 hour.
Learning Objectives

Learning Objectives

  • Upon successful completion of the course, the student should be able to demonstrate understanding how relationships with other countries affect a national economy performing and to evaluate effects of economic policies. They should be able to analyze determinants of the exchange rate and interest rates, changing in output and prices, factors of the economic growth, and models of consumer behavior and investments.
  • Students will obtain better understanding regarding relationship between the dynamics of macroeconomic indicator in different countries, effects of economic policy on macroeconomic sustainability, and changing in economic actors’ behavior.
Expected Learning Outcomes

Expected Learning Outcomes

  • Knowledge of such characteristics of an open economy as the balance of payments principles and determinants of the exchange rate.
  • Knowledge of what factors influence the dynamics of aggregate demand and causes economic fluctuations.
  • Knowledge of what factors influence the dynamics of aggregate supply.
  • Skills in analyzing reasons for economic fluctuations and mechanisms of achieving the general equilibrium in an economy, understanding the sources of macroeconomic instability.
  • Understanding the principles of economic agent behavior.
  • Knowledge of the determinants and models of economic growth.
  • Skills in analyzing effects of economic policy on macroeconomic sustainability.
Course Contents

Course Contents

  • The open economy: general characteristics
    1. Measurement in an open economy. Gross Domestic and Gross National Income; The international flows of goods and capital: net export, the national income accounts identity, the trade balance and international capital flows 2. The balance of payments. The principles of recording the balance of payments transactions. The balance of payments categories of accounts: the current account, the capital account, and the financial account. Official reserve transactions. 3. Exchange rates. Nominal and real exchange rates. Nominal, real, and effective exchange rates. Factors in exchange rates: the purchasing-power parity, the interest rate parity. Exchange rate regimes. The influence of economic policy on the real exchange rate. The influence of the exchange rate on the balance of payments. The trade balance and the Marshall-Lerner condition.
  • Aggregate demand
    4. The goods market and financial market equilibrium. The demand for goods (consumption, investment, government spending), the Keynesian Cross model, the IS curve. The demand for money, determining the interest rate, the LM curve. Determining aggregate demand in closed economy: the IS-LM model. The effects of macroeconomics policies on aggregate demand. 5. Aggregate demand in an open economy. The balance of payments equilibrium: the BP curve. Determining aggregate demand in an open economy: the IS-LM-BP model. The effects of macroeconomics policies on aggregate demand under floating and fixed exchange rate regimes in an economy with perfect and imperfect capital mobility.
  • Aggregate supply
    6. The labor market and aggregate supply. The demand for labor and the supply of labor, the labor market equilibrium and aggregate supply: classical and Keynesian approaches. 7. “Modern” theory of aggregate supply. The Sticky-Wage model, the Worker-Misperception model, the Sticky-Price model, the Imperfect-Information model. 8. The labor market imperfections. Unemployment, the natural rate of unemployment model, costs of unemployment (the Okun’s law), efficiency wages: the Solow condition, the Shapiro-Stiglitz model, and involuntary unemployment.
  • Economic fluctuations
    9. Inflation. Cause of inflation: demand-pull inflation and cost-push inflation. Inflation and interest rates, the Fisher effect. Costs of anticipated and unanticipated inflation. Adaptive and rational inflation expectations. The tradeoff between inflation and unemployment: the Phillips curve. The Phillips curve as the aggregate supply curve. 10. The general equilibrium. The general equilibrium: flexible price approach (the economy of full employment). The effects of macroeconomic policies on aggregate demand and aggregate supply. Economic policy multipliers. The general equilibrium: imperfectly flexible price. The effects of macroeconomic policies on aggregate demand and aggregate supply. Economic policy multipliers. A dynamic model of economic fluctuations: short-run fluctuations in output and inflation and the effects of monetary and fiscal policy on those fluctuations. 11. Business cycles. General characteristics (phases and indicators). The impulse-propagation theory of business cycles. Policy shocks as a source of business-cycle impulses. Real business cycles. New Keynesian theories of wage and price rigidities. Business cycles in the open economy. Business cycles under floating and fixed exchange rates.
  • Consumption and investments
    12. Consumption. Intertemporal Choice. The life-cycle hypothesis by Franco Modigliani, the permanent-income hypothesis by Milton Friedman, the random-walk hypothesis by Robert Hall. The interest rate and savings, consumption and risky assets. 13. Investments. Business fixed investment. The rental price of capital. The cost of capital. Investments and the interest rate. Effects of taxes on investments. The Tobin’s q. Residential investment. The model of housing market. Changes in housing demand. Inventory investment.
  • Economic growth
    14. Economic growth: introduction. Stylized facts about economic growth. Extensive and intensive economic growth. Economic growth indicators. 15. The Solow growth model . Assumptions and the dynamics of the model. The impact of a change in the saving rate. The golden rule level of capital. Absolute and conditional convergence. The Solow residual. 16. Human capital augmented Solow model. Assumptions and the dynamics of the model. The steady state of the economy. 17. Endogenous growth. The AK model. The steady state of the economy and conditional convergence in the AK model. The R&D model. Economic growth in an open economy.
  • Economic Policy Issues
    18. Economic Policy: fiscal policy limitations. The common goals of fiscal and monetary policy. Interrelation of the goals. Government budget constraints. Intertemporal government budget constraint. Government budget constraint and strategic fiscal and monetary policy interaction. No-Ponzi condition. Ricardian equivalence. Debt-to-GDP ratio dynamics. 19. Economic Policy: influence on inflation. Fiscal and monetary aspects of inflation: potential sources of inflation. Government deficits and inflation. Money growth and inflation under complete and incomplete price flexibility. Seigniorage and inflation Tax. Inflation and stabilization policy. The Cagan model of hyperinflation.
Assessment Elements

Assessment Elements

  • non-blocking Test 1
  • non-blocking Test 2
  • non-blocking Test 3
  • non-blocking Test 4
  • non-blocking Classroom activity
  • non-blocking Self-study work
  • non-blocking Exam 1
  • non-blocking Exam 2
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.18 * Classroom activity + 0.4 * Exam 1 + 0.18 * Self-study work + 0.12 * Test 1 + 0.12 * Test 2
  • Interim assessment (4 module)
    0.18 * Classroom activity + 0.2 * Exam 1 + 0.2 * Exam 2 + 0.18 * Self-study work + 0.06 * Test 1 + 0.06 * Test 2 + 0.06 * Test 3 + 0.06 * Test 4
Bibliography

Bibliography

Recommended Core Bibliography

  • Blanchard, O. (2017). Macroeconomics, Global Edition (Vol. Seventh edition). Harlow, UK: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=nlebk&AN=1426555
  • Fernando de Holanda Barbosa. (2018). Macroeconomic Theory. Springer. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.spr.sprbok.978.3.319.92132.7

Recommended Additional Bibliography

  • Advanced Macroeconomics, Romer D., 2006