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NUS Business School National University of Singapore BMA5011: Macro and International Economics Semester 1, AY2011/2012 Instructor: Sun Bae Kim Course objective This course has two objectives. The first is to introduce MBA students to the basic tools (“core models”) of macroeconomics and international economics. The course begins with the long run analysis of what drives economic growth. It then moves on to the short run analysis of business cycle dynamics (how output, employment, interest rate and price are determined) and the role of stabilization policy. The final segment of the course extends these analyses to the open economy. Key issues covered here include the determination of exchange rate in the short- and the long run, the effectiveness of monetary and fiscal policy under high capital mobility, how economic “shocks” are transmitted internationally and what policy can achieve in response. The second objective of the course is to link the basic insights of the “core models” to “real life” or case studies, with special focus on Asia. The aim here is to demonstrate that economics can be a powerful tool to understand and, possibly anticipate, key macroeconomic events and developments and their feedback mechanism to policy and financial markets. Assessment method Class participation (15%) Assignments (25%) In-class tests (60%) Required text Rudiger Dornbusch, Stanley Fisher and Richard Startz, Macroeconomics, Eleventh Edition (International Edition 2011), McGraw-Hill Course outline I. Introduction & Preliminaries 1. Why study macro? Goal of the course, roadmap, schedule 2. Use of models in economics 3. Case studies 4. How to get the most out of the course 5. National income accounting and other major macroeconomic variables II. Economic Growth in the Long Run 1. Growth Accounting 2. Growth Theory: The Neoclassical Model 3. Globalization and Growth 4. Policy Implications 5. Case Studies (non-exhaustive) a. Singapore’s Strategy—From ‘Extensive’ to ‘Intensive’ Growth b. Is China Overinvesting? Will it Grow Old Before Getting Rich? c. The Rise of BRIC and Financial Market Implications d. Middle income trap e. Dimensionality problems in policy planning III. Introduction to Business Cycles: Output in the Short Run 1. Income and Spending: Keynesian Multiplier Model 2. Money, Interest, and Income: IS-LM Model 3. Aggregate Demand and Aggregate Supply 4. Case Studies (non-exhaustive) a. Historical Perspectives on Central Banking and Monetary Policy b. Business Cycle, Policy Response and Financial Markets c. Global Financial Crisis and the Great Recession d. Deleveraging and Balance Sheet Recession: Japan vs. US e. Unconventional Monetary Policy (QE) f. Fiscal Sustainability IV. Open Economy Macro 1. Foreign Exchange and the Balance of Payments 2. Policy in an Open Economy: Mundell-Fleming Model 3. Exchange Rate in the Short Run 4. International Transmission of Shocks and Policy Options 5. Exchange Rate in the Long Run: Real Equilibrium Exchange Rate 6. International Monetary System: Historical Perspectives 7. Case Studies (non-exhaustive) a. Asian Financial Crisis b. Sequencing of liberalization and the “Twin Crisis” c. Perspectives on Singapore’s Monetary & Exchange Rate Framework d. Is the RMB undervalued? e. Global Imbalance and International Policy Coordination: from G7 to G20 and beyond