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LAHORE UNIVERSITY OF MANAGEMENT SCIENCES ECON 121: PRINCIPLES OF MACROECONOMICS Instructor’s Name: Syed Zahid Ali Year: 2003-2004 Office: 245 Quarter: Spring E-Mail: [email protected] Office Hours: Monday Thursday 12.00 – 1.00 12.00 – 100 Course Pre-requisites: None Course Description: The purpose of this course is to give students an introductory exposure of macroeconomic theories, issues and understanding of goods market, input markets, money markets, asset markets, and foreign exchange markets. After defining key variables such as output, prices, inflation, unemployment, and exchange rate etc., we will develop various theoretical frameworks to formalize the relationships between these variables. Such a relationship will help track the economy in a dynamic setting. We also explore and explain the reasons that cause recessions, inflation, and unemployment and government budget deficit and debt. The factors that determine the interest rates and exchange rates will also be identified. Goals: Upon completion the course it is expected that students should be able to: (a) (b) (c) (d) Text Book understand the basic structure of the economy; understand the key links between the five markets i.e., goods market, input markets, money markets, foreign exchange markets and assets market.; understand basic macroeconomic models as given by Classical, Keynesian, and Modernists; appreciate the role of monetary and fiscal policies in solving macroeconomic problems. 2 Abel Andrew B. & Bernanke Ben S (2001) Macroeconomics, 4th Edition, Addison Wesley (AB) Additional Readings: 1. Gregory N, Mankiw (1994) Macroeconomics, 2nd Edition, Worth Publishers. 2. Hall, Rober E. & John B. Taylor (1997) Macroeconomics, 5th Edition, W.W.Norton & Company: New York. Class Schedules There will be twenty 75 minutes and ten fifty minutes lectures. 1.0 Measurement and Structure of the National Economy (Week 1) 1.1 1.2 1.3 1.4 1.5 National Income Accounting: The Measurement of Production, Income, and Expenditure Gross Domestic Product Saving and Wealth Real GDP, Price Indexes, and Inflation Interest Rates Suggested Reading: AB Chap. 2 2.0 Productivity, Output, and Employment (Week 2) 2.1 2.2 2.3 2.4 2.5 2.6 Introduction The Demand for Labour The Supply of Labour Labour Market Equilibrium Unemployment Okun’s Law Suggested Reading: AB Chap. 3 3.0 Consumption, Saving, and Investment (Week 3) 3.1 3.2 3.3 3.4 Introduction Consumption and Saving Investment Goods Market Equilibrium 3 Suggested Reading: AB Chap. 4 4.0 Saving and Investment in the Open Economy (Week 4) 4.1 4.2 4.3 4.4 4.5 Introduction Balance of Payments Accounting Goods Market Equilibrium in an Open Economy Saving and Investment in Large Open Economies Fiscal Policy and the Current Account Suggested Readings: AB Chap. 5 5.0 The Asset Market, Money, and Prices (Week 5, 6) 5.1 5.2 5.3 5.4 5.5 Definition of Money Portfolio Allocation and the Demand for Assets The Demand for Money Asset Market Equilibrium Money Growth and Inflation Suggested Readings: AB Chap. 7 6.0 The IS-LM/AD-AS Model: (Week 6, 7, 8)) 6.1 6.2 6.3 6.4 6.5 6.6 6.7 General Framework for Macroeconomic Analysis Introduction The FE Line: Equilibrium in the Labour Market The IS Curve: Equilibrium in the Goods Market The LM Curve: Asset Market Equilibrium General Equilibrium in the Complete IS-LM Model Price Adjustment and the Attainment of General Equilibrium Aggregate Demand and Aggregate Supply Suggested Readings: AB Chap. 9 7.0 Classical Business Cycle Analysis: Market-Clearing Macroeconomics (Week 8, 9) 4 7.1 7.2 7.3 7.4 7.5 Introduction Definition of Business Cycle Business Cycles in the Classical Model Money in the Classical Model Misperceptions Theory and the Non-neutrality of Money Suggested Readings: AB Chap. 10 8.0 Keynesianism: The Macroeconomics of Wage and Price Rigidity (week 10) 8.1 8.2 8.3 8.4 Real-Wage Rigidity Price Stickiness Monetary and Fiscal Policy in the Keynesian Model The Keynesian Theory of Business Cycles and Macroeconomic Stabilization Suggested Readings: AB Chap. 11 Grading Quizzes (3) 30% Mid-Term 30% Final 40% Quizzes and Mid-Term Schedule Quiz 1 Quiz 2 Quiz 3 Quiz 4 Mid-Term Session 4 Session 8 Session 16 Session 20 Week 6 A non-credit Assignments will also be given from time to time. Students are also advised to visit www.awlonline.com/abel_bernanke for useful exercises.