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KOÇ UNIVERSITY
Instructor: Prof. Sumru Altug
Office: CAS 250
Phone: X1673
TA: Osman Zeki Gökçe
Term: Fall 2010
E-mail:
[email protected]
Off. Hrs:
MW2:00-3:00
ECON 302
Advanced Macroeconomics
Aims
The course will study the micro-foundations of macroeconomics and examine the rational individual
decisions that underlie the macroeconomic phenomena.
The course aims:
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To build simple general equilibrium model incorporating both household and business sector
decisions
To introduce uncertainty in the macro model and emphasize the role of expectations in
determining equilibrium outcome
To provide an open economy perspective to macroeconomics
Objectives
By the end of the course, students should be able to understand:
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Consumption-saving decisions at the household level
The determinants of firms’ investment decisions
Monetary policy and inflationary dynamics
The phenomenon of long term growth and development
Dynamic fiscal policy
Macroeconomic policy-making in an open economy
Required Text
David Andolfatto (2008). Macroeconomic Theory and Policy, 2nd edition, Munich Personal RePEc
Archive (http://mpra.ub.uni-muenchen.de/6403/)
Suplemental Text
David Romer (2005). Advanced Macroeconomics, 2td edition, Mc Graw Hill.
Assessment
1st Mid-term Exam
2nd Mid-term Exam
Final Exam
Quizzes
Class participation
20 percent
25 percent
40 percent
10 percent
5 percent
Your letter grade depends on your total point accumulation out of 100 possible points. Plan well ahead for
exams. There will be no early exams or e-exams. If you miss an exam, you have to make sure that your
excuse is documented and approved by the University. If you have a valid reason with required
documentation, such as a doctor’s report approved by the University, you will be allowed to take the
make-up exam. Since you can drop the lowest quiz scores, no make-ups will be given for quizzes missed.
Attendance
Poor attendance at lectures is a factor that undermines the quality of education for all concerned -- the
instructor, those who attend classes and lectures, and those who don't. Students are encouraged to attend
all lectures.
Academic Honesty
“Honesty and trust are important to all of us as individuals. Students and faculty adhere to the following
principles of academic honesty at Koç University:
1. Individual accountability for all individual work, written or oral. Copying from others or providing
answers or information, written or oral, to others is cheating.
2. Providing proper acknowledgement of original author. Copying from another student’s paper or from
another text without written acknowledgement is plagiarism.
3. Authorized Teamwork. Unauthorized help from another person or having someone else write one’s
paper or assignment is collusion.
Cheating, plagiarism, and collusion are serious offenses resulting in an F grade and disciplinary action.”
Course Outline
1. The Gross Domestic Product. National Income and Product Accounting. Measurement Issues.
Nominal versus Real GDP. Trends and Cycles. Schools of Thought.
2. Output and Employment. The Market for Goods and Labor. General Equilibrium in a Static IncomeLeisure Model. A Neoclassical Interpretation of the Business Cycle. Welfare-Reducing Stabilization
Policy.
3. Uncertainty and Expectations. Decision-Making Under Uncertainty. Ex ante versus ex post
outcomes. Rational and Irrational Expectations. Multiple Equilibria and Animal Spirits. WelfareImproving Stabilization Policy.
4. Unemployment. Labor Market Flows. A Simple Indivisible-Labor Model of Employment Choice.
Reservation Wages. Modeling Unemployment. Government Insurance Policies.
5. Consumption and Saving. A 2-Period Endowment Model. International Borrowing and Lending. The
Real Rate of Interest. The Intertemporal Budget Constraint. Consumer Demand and Desired Domestic
Saving. The Current Account and the Trade Balance. Transitory, Anticipated,
and Persistent Productivity Shocks. Reverse Causality.
6. Fiscal Policy. Accounting and Data. Government Spending and Taxation in a Static Model. Lump-Sum
versus Distortionary Taxation. Government Transfer Policies. Government Deficits in a 2-Period Model.
The Intertemporal Government Budget Constraint. The Ricardian Equivalence
Theorem. Transitory Government Expendenture Shocks and Tax-Smoothing Policy. Tax versus BondFinanced Increases in Government Purchases.
7. Capital and Investment. Domestic Investment Demand in a 2-Period Model. A Small Open Economy
with Saving and Investment. Interpreting the Cyclical Behavior of the Trade Balance. Closed Economy
Analysis and the Determination of the Real Rate of Interest. The IS Curve and the Keynesian Cross.
Interpreting Policy Implications Based on Conventional Wisdom.
8. Money and Inflation. A Simple Overlapping Generations Model. The Demand for Real Money
Balances. Monetary Equilibrium. The Welfare-Enhancing Role of Monetary Exchange. Money Neutrality
and Non-Neutrality. Inflation, Seigniorage, and War Finance. The Laffer Curve. A
Simple Model of Money and Banking. Government versus Private Supply of Money. International
Monetary Systems. Nominal Exchange Rate Indeterminacy. Multilateral and Unilateral Fixed Exchange
Rate Regimes. Speculative Attacks. Monetary Union.
9. Economic Growth and Development. Long-Run Evidence. A Malthusian Model with Fertility
Choice. Children as an Investment Good. Private Property Rights and Asset Markets. Accounting for the
Great Transition. Recent Development Patterns. Special Interests.