Download reading list and course outline

READING LIST AND COURSE OUTLINE
Week 1 (Jan 5-Jan 9)
Topics: Introduction to macroeconomics. What are unemployment and inflation; how are they
measured (including both CPI and GDP deflator), and in what ways are they harmful? What are
GDP and Potential GDP and how do they relate to the business cycle? What is the NAIRU?
Required Reading: part of Chapter 11 AUnemployment, Inflation and National Output@ (pp.
143-148). Supplement A in the Course Handbook.
Week 2 (Jan 12-Jan 16)
Topics: How the GDP is measured, and how to interpret this measure of our total production of
goods and services.
Required Reading: Supplement B in the Course Handbook.
Week 3 (Jan 19-Jan 23)
Topics: The central macroeconomic theory we study is one in which changes in spending
influence the current level of total output. First, we study the factors which determine the
desired level of Consumption spending across the economy, and the desired level of Investment
in machinery, equipment, buildings and so on. These can be expressed as functions of the level
of Income in the economy and can be combined to form the Aggregate Expenditure Function. In
a simplified model of the overall economy (or macro economy), with the price level constant, we
analyze the forces which determine the equilibrium level of National Income at any point in
time. We find that changes in desired spending may have a multiplied effect on equilibrium
National Income; we can calculate the size of this multiplier.
Required Reading: part of Chapter 12 AGDP and the Multiplier Process@ (pp. 158-165)
Week 4 (Jan 26-Jan 30)
Topics: We extend our macroeconomic model by adding desired expenditure by government and
by the foreign trade sector (exports minus imports), as well as personal taxation by government.
Fiscal policy is the use of government spending and taxation to exercise some control over the
macroeconomy.
Required Reading: part of Chapter 12 AGDP and the Multiplier Process@ (pp. 165-167)
FIRST MID-TERM TEST – Saturday February 7th, 2-4pm
Week 5 (Feb 2-Feb 6)
Topics: Assuming the price level is variable rather than fixed, we need a more complex
macroeconomic model. We derive the Aggregate Demand Curve (or function) from the
Aggregate Expenditure Curve (or function). Also, because output prices may change more
quickly than input prices, the amount supplied - Aggregate Supply - may change as prices
change. Together, Aggregate Demand and Aggregate Supply determine the levels of National
Income and prices in the short run.
Required Reading: part of Chapter 12 AGDP and the Multiplier Process@ (pp. 167-171) and part
of Chapter 11 AUnemployment, Inflation and National Output@ (pp. 148-155). Also,
Supplement C in the Course Handbook.
Week 6 (Feb 9-Feb 13)
Topics: In the longer run, after either a demand or supply shock, input prices do not stay constant
but tend to adjust to return the economy to equilibrium at Potential GDP. We explore how these
adjustments occur much more quickly under some circumstances than under others. We find
that this opens up a potential role for fiscal policy to stabilize the macro economy as it moves
through the business cycle. Fiscal policy is nowadays more often concerned with reducing the
size of the deficit and the public debt than with stabilizing the economy. If a government is
running a deficit, does that mean it is stimulating the macro economy? The concepts of the
structural deficit and cyclical deficit can help us to sort this out. What is the current size of the
deficit and the debt? Are they problematic and why or why not?
Required Reading: Chapter 13 AFiscal Policy and the National Debt@ (pp. 174-185)
Reading Week (Feb 16-Feb 20)
Topics: Take a bit of a break, do some reading and thinking, get caught up in your courses before
it's too late!
Required Reading: Study your notes, do problems and read textbooks during the day. In the
evenings, read a good novel, perhaps a mystery or a romance, or go see a movie with friends.
Week 7 (Feb 23-Feb 27)
Topics: The macroeconomic model we have developed this term has demand and supply, prices
and incomes, but it does not explicitly have any money or a rate of interest (the price of
borrowing money). We now examine the effects on the macroeconomy of changes in the supply
of money. Money is defined. We pay special attention, using simplified balance sheets, to the
role of the banking system in the expansion and contraction of the money supply.
Required Reading: part of Chapter 14 AMoney and Banking@ (pp. 187-193).
Week 8 (Mar 1-Mar 5)
Because the supply of money can have important effects on the macroeconomy, the Bank of
Canada (a government institution) attempts to control monetary conditions by exercising control
over the supply of money. Generally, the Bank of Canada uses indirect forms of control,
especially open-market operations. We discuss open-market operations and other tools of
monetary control. Control over the supply of money gives the Bank of Canada some measure of
control over current interest rates; ignoring international influences, we discuss how the demand
and supply of money together determine the level of interest rates and how the interest rate
adjusts to a new equilibrium value. The Bank of Canada can use monetary policy to influence
the macroeconomy; still ignoring international influences, we can analyze its effect on the
Aggregate Demand-Aggregate Supply model (the transmission mechanism). Monetary policy is
a powerful tool, but there are problems in using it; we discuss these.
Required Reading: part of Chapter 14 AMoney and Banking@ (pp. 193-198). Part of
Chapter 15 AInterest Rates and Exchange Rates@ (pp. 200-206) and Supplement D in the
Course Handbook.
SECOND MID-TERM TEST – Friday March 12th, 3-5pm
Week 9 (Mar 8-Mar 12)
Topics: There are problems with the use of both monetary and fiscal policy in practice.
We begin to discuss these this week.
Required Reading: Chapter 16 AStabilization Policy@ (pp. 215-230)
Week 10 (Mar 15-Mar 19)
Topics: Some of the most powerful influences on the Canadian economy are
international; in particular our trade with the U.S. and the level of interest rates in the
U.S. are important. To think about these effects on the Canadian economy, we discuss
how the Balance of Payments between Canada and other countries is measured. We
identify the different transactions which make up the Current Account balance and the
Capital Account balance. This discussion sets the stage for our model of the foreign
exchange market in Canada; we look at how the demands and supplies of the Canadian
dollar on the foreign exchange market determine its price or exchange rate (the rate at
which the Canadian dollar can be traded for other currencies, primarily the U.S. dollar).
We consider the foreign exchange market graphically and algebraically.
Required Reading: part of Chapter 15 AInterest Rates and Exchange Rates@ (pp. 206212) and Supplement E in the Course Handbook.
Week 11 (Mar 22-Mar 26)
Topics: The openness of the Canadian economy to international economic influences
makes the use of monetary policy and fiscal policy more complicated. We have to amend
our earlier discussion of fiscal and monetary policy, which were implicitly based on the
assumption of a relatively closed (independent) economy. Assuming that the exchange
rate is flexible, we discuss how the effects of fiscal and monetary policy are different
when they are presumed to affect the exchange rate, as well as the level of domestic
Aggregate Demand.
Required Reading: Chapter 17 AOptions for a Small Open Economy@ (pp. 232-241)
Week 12 (Mar 29-Apr 2)
Topics: We have concentrated most of our attention this semester on the discussion of
what causes (and what can cure) business fluctuations. The Aother@ side of
macroeconomics is Aeconomic growth@. What causes economic growth? What
government policies can stimulate or retard economic growth? Does economic growth
have inevitable spillover effects which harm society? We discuss these important issues
briefly at the end of the course.
Required Reading: Chapter 19 AGrowth and Development@ (pp. 259-272)