Download PRINCIPLES OF MACROECONOMICS

Econ 121
Spring Semester 2010-11
Lahore University of Management Sciences
ECON 121: Principles of Macroeconomics
Instructor’s Name:
Office:
E-Mail:
Office Hours:
Syed Zahid Ali
245
Semester:
[email protected]
tbd
Year:
Spring
2010-2011
Course Pre-requisites: Principles of Economics
Course Description:
1. Overall Theme
To provide the students with an introduction to the basic macroeconomic principles; to
enable students to appreciate the workings of real (labour and goods) and asset/money
markets and the nature of equilibrium in each market; to emphasize the role of
macroeconomic policies that affect internal and external deficits, inflation and growth of per
capita income. Throughout the course a focus will be on ‘critical thinking’ to analyze
macroeconomic problems. Specific Learning Standards emphasized in this course include:
Critical thinking – analyzes information; utilizes logic and microeconomic models;
recognizes patterns and rationality to form optimizing conclusions; recognizes and evaluates
assumptions, and support of arguments.
Literature research skills – doing independent research / use of available literature to
synthesize information into coherent whole.
Global Awareness – understands the global environment in which economies operate.
2. Purpose & Objective
The purpose of this course is to provide students with a thorough understanding of core
concepts and methods of macroeconomics as a foundation for subsequent study of macro
economic topics within the degree programme, and as one of the key elements in the
professional training of an economist. The techniques used will heavily rely on concept
building and to ignite critical and analytical reasoning. The course will use microeconomic
models of utility maximization, profit maximization and welfare maximization from an
individual prospective and then build to develop macro-models using the assumption of
aggregation. Eyebrows
3. Focus areas
The major areas of focus will be the inputs market, goods market, money/asset market, and
economic growth. Business cycles will also be discussed and linked to macroeconomic
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Econ 121
Spring Semester 2010-11
policy debate issues of ‘active’ versus ‘passive’ and ‘rules’ versus discretion. The
equilibrium IS-LM, AD-AS model will be covered with some basic applications, providing a
smooth transition to Intermediate Macroeconomics.
The course is pitched at the core principles level so is based on the understanding that
students have at least attained the some basic macroeconomics knowledge equivalent to that
covered in any primary Economics course.
Upon completion of the course it is expected that students should be able to:
(a)
(b)
(c)
understand the structure of the economy and theories of macroeconomics at a
level appropriate for a first year economics graduate;
understand the key links between the goods market, input markets and money
markets.
understand the macroeconomic models underlying the goods, input and money
market, as well as the IS-LM, AD-AS framework.
Text Book – Course Pack
Abel Andrew B. & Bernanke Ben S, Macroeconomics, 5th Edition, Addison Wesley (AB)
Mankiw N. G. , Macroeconomics, 6th Edition or earlier versions, Worth (MK)
Lecture Schedules
There will be 28, 100 minutes lectures.
Class tutorials will be arranged on the request of students
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Econ 121
Spring Semester 2010-11
Topic
Week
Measurement and Structure of the National Economy
Chapter 1,2 (AB) and Chapter x (MK)
 Introduction
 National Income Accounting: The Measurement of Production,
Income, and Expenditure
 Gross Domestic Product
 Saving and Wealth
 Multiplier and different taxes
 Real GDP, Chained DGP Price Indexes, and Inflation
 Interest Rates
Week 1
Productivity, Output, and Employment
Chapter 3 (AB) and Chapter x (MK)
 The Demand for Labour
 The Supply of Labour
 Labour Market Equilibrium
 Unemployment
 Okun’s Law
 Aggregate demand equation
 Phillips curve
 Deflation path
 Cost of deflation and inflation policy
Week 2,3
Consumption, Saving, and Investment
Chapter 4 (AB) and Chapter x (MK)
 Consumption and Saving
 Two period life cycle model
 Consumption models (Franco Mod., Friedman
Permanent Income, David Laibson and Random Walk)
 Investment
 Endogenous investment model and Tobins Q
 Goods Market Equilibrium
Week 4,5
Saving and Investment in the Open Economy
Chapter 5 (AB) and Chapter x (MK)
 Balance of Payments Accounting
 Goods Market Equilibrium in an Open Economy
 Saving and Investment in Large and Small Open Economies
 Fiscal Policy and the Current Account
Week 6,7
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Econ 121
Spring Semester 2010-11
The Asset Market, Money, and Prices
Chapter 7 (AB) and Chapter x (MK)
 Definition of Money
 Portfolio Allocation and the Demand for Assets
 The Demand for Money
 Asset Market Equilibrium
 Walras Law
 Money Growth and Inflation
 Money multiplies and liquidity theories
Weeks 8,9
Business Cycles
Chapter 8 (AB) and Chapter x (MK)
 Introduction to Business Cycles
 Business Cycles and rationality
 Lucas critique and Policy ineffective proposition
 Active vs Passive Policy
 Rules vs Discretion Policy
Weeks 10, 11
The IS-LM/AD-AS Models
Chapter 9 (AB) and Chapter x (MK)
 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
 Applications of AD/AS and IS-LM models
Weeks 11,12,13
Economics of Growth
Weeks 14
Chapter 6 (AB) and Class notes
 Exogenous growth model: Solow Model
 Applications of Solow
 Relaxing the assumptions of Solow and intruding endogenous growth
 Lucas Model
Grading
Evaluation
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


CP
4 Quizzes
Midterm Exam
5%
30%
30%
Final Exam
35%
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Econ 121
Spring Semester 2010-11
If one quiz is missed, the average grade of the remaining quizzes with a grade reduction will
be awarded. If an additional quiz is missed, no marks will be awarded. There will be no
retakes strictly.
Quizzes and Mid-Term Schedule
4 – Quizzes
1 – Midterm
1 – Final
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