Download Learning Outcomes. By the end of the course students should be

MACROECONOMICS I
INTERNATIONAL GROUP
Course 2004-2005
Departamento de Análisis Económico
Facultad de Economía
Universidad de Valencia
LECTURER
ROOM
OFFICE HOURS
Professor Javier Andrés
3E07
Monday, 10.30-14.30
Friday,
10.30-12.30
CLASS TEACHER
Professor Antonio Zabalza
3A05
Monday
Academic Credit Weighting:
6 credits
Length:
One Semester (15 two-hour lectures)
Status:
Core for degrees in:
Business Administration, Economics
Academic year:
2004 – 2005, 1st semester
Aims
Macroeconomics studies of the determination of the main aggregate variables,
such as output, inflation, unemployment, etc. The macroeconomic approach
takes these variables as being the result of actions taken by households, firms
and governments across all the markets in the economy. These variables are
thought of as equilibrium prices and quantities in such markets. This is the
general equilibrium nature of macroeconomics. Thus, emphasis will be placed
on understanding how these different markets work and how they interact with
each other. The way markets work depends on the time perspective with which
we look at them. Most macroeconomic phenomena are associated with the
passage of time. This is the dynamic feature of macroeconomics. More than in
any other field in economics, macroeconomists disagree about the causes of the
observed outcomes. These impassioned debates are based on different views of
the way markets adjust, as well as on different interpretations of the available
evidence. This is important because these different views are the basis of
alternative actions taken by governments to tackle economic problems.
Controversies are intrinsic to macroeconomics.
This course covers the theory of modern macroeconomics in detail. The aim of
the course is to equip students with an understanding of how markets work in
generating the observed macroeconomic outcomes and to provide them with a
grasp of macroeconomic analysis at the intermediate-level using graphical
techniques.
After an introductory topic, Topics 2 and 3 develop the theory of aggregate
supply and demand under price flexibility. The macroeconomics of the long run
is a straightforward extension of the topics studied in Intermediate
2
Microeconomics and gives a glimpse of how a market-clearing, frictionless,
economy works. In this setting there is a clear separation between the
determinants of real and nominal variables: the ‘classical dichotomy’. Basically,
output, employment and relative prices, including the real interest rate, are
independent of the amount of money, which only determines long-run
inflation.
In the short run though, the main aggregate variables fluctuate around their
long-run values. Topics 4, 5 and 6 lay out the basic tenets of short-run
macroeconomics. Labor and product market frictions induce firms to supply
more output when nominal demand rises. We study how these frictions destroy
the ‘classical dichotomy’ and give a prominent role to demand management
(fiscal and monetary) policies. Then, we look in detail into how goods and
financial markets interact to generate the aggregate demand curve (IS-LM).
Topics 7 and 8 cover the same material but in this case taking into account that
modern economies are tightly integrated in international goods and financial
markets. In this part we focus on the saving-investment equilibrium as well as
on the theory of short-run aggregate demand in open economies.
The course combines both lectures and classes. The problems to be discussed in
the classes are an integral part of the course. The final exam will contain both
theory questions and exercises.
Learning Outcomes. By the end of the course students should be able to:
1. Understand what determines output and employment over the long
run.
2. Explain why long-run inflation is mostly a monetary phenomenon.
3. Understand what determines saving and investment and the impact on
the economy of public debt and deficits, both in the short run and in the
long run.
4. Use a simple model to study the impact of fiscal and monetary policies.
Discuss why monetary policy may have a significant temporary effect
on output and employment, but not a permanent one.
5. Understand the functioning of labor markets as well as the effect of
pricing behavior by firms and wage determination on macroeconomic
outcomes.
6. Understand the implications of openness and the integration of modern
economies with world goods and financial markets.
7. Be able to read press articles and reports by economic institutions,
understanding that macroeconomic controversies do not reflect flawed
versus accurate views of how economies work, but rather alternative
views of how markets operate.
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Recommended readings:
Students may follow the material available at the web page
http://aeser.anaeco.uv.es/macroade. Lecture notes provided there must be
taken as a useful, but by no means exhaustive, guide to the course. Students are
strongly advised to read the recommended readings. The most useful textbook
is:
Mankiw, N. G.: Macroeconomics, Worth Publishers, Fifth Edition, 2003.
Additional material for both lectures and classes will be provided during the
course as they become necessary.
Further references:
Blanchard, O.: Macroeconomics, Prentice Hall, Second Edition, 2000.
Abel, A. and B. Bernanke: Macroeconomics, Pearson Education, Fourth Edition,
2003.
Dornbusch, R. S. Fisher, and R. Starz: Macroeconomics, McGraw-Hill, Ninth
Edition, 2003.
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COURSE TOPICS
1. Introduction.
1. What macroeconomics is about.
2. General equilibrium: markets and agents, prices and quantities.
3. The short run versus the long run.
Mankiw, Chapters 1 and 2
Blanchard, Chapters 1 and 2
2. The Determinants of National Income. The Long Run
1. Long-run aggregate supply.
2. Factor markets and income distribution.
3. Aggregate demand: saving and investment.
Mankiw, Chapter 3.
3. Money and Prices.
1. What is money: money supply and money demand.
2. Money and prices in the long run.
3. Money, prices and the interest rate.
Mankiw, Chapter 7.
4. Introduction to Economic Fluctuations
1. From the long run to the short run.
2. Aggregate demand and supply.
3. Macroeconomic shocks and fluctuations.
Mankiw, Chapter 9.
5. Aggregate Demand: IS-LM.
1. The goods and services market.
2. Financial markets.
3. The aggregate demand function.
Mankiw, Chapters 10 and 11.
Blanchard, Chapters 3, 4 and 5
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6. Aggregate Supply.
1. Frictions in the labor market: rigid nominal wages and workers’ imperfect
information.
2. Frictions in product markets: price rigidity and firms’ imperfect information.
3. Inflation, output and unemployment in the short run.
Mankiw, Chapter 13.
Blanchard, Chapter 8
7. Savings and Investment in the Open Economy.
1. The macroeconomics of the (small) open economy.
2. The exchange rate.
3. Savings and investment: the balance of payments.
Mankiw, Chapter 8.
Blanchard, Chapter 18
8. Aggregate Demand in the Open Economy
1. The goods market in the open economy
2. The money market in the open economy
3. Aggregate demand: flexible versus fixed exchange rates
Mankiw, Chapter 12
Blanchard, Chapters 19 and 20
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