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School of Economics
Introduction to
Macroeconomics
Module Handout – Spring 2010
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Module Code
L11200
Credits
20
Module Convenor
Dr. John Gathergood
Room C34
Ext. 66447
[email protected]
Lectures
Tuesday 12.00pm Maths B1
Thursday 11am Maths B1
Thursday 4pm Maths B1
Tutorials
Sign up on Nexus
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L11200 Introduction to Macroeconomics 2009/10
1. Module Content
This module provides an introduction to modern macroeconomic analysis.
Macroeconomics is concerned with some of the most pressing and fundamental
questions economists can ask, such as: What determines economic growth? Why do
economies exhibit expansions ('booms') and contractions ('busts') in output? What
drives employment and wages, saving and investment? What causes inflation and why
is it a problem? What, if anything, can governments do to improve the performance of
an economy?
Microeconomics is concerned with the analysis of economic agents and markets at the
individual level. Macroeconomics is concerned with the aggregate implications of
microeconomic behaviour at the economy-wide level. So there is a clear connect
between the actions of individual agents in the economy and the aggregate performance
of the economy. This is the starting point for modern macroeconomic analysis - though
macroeconomics has not always been understood or taught in these terms, and prior
study of macroeconomics at A-level or equivalent is not based on this modern
understanding of macroeconomics built on 'microfoundations'. Consequently prior study
of economics is not necessary for taking this module and students who have studied
macroeconomics previously may have to re-think how they understand the aggregate
economy. The course is structured as follows:
Section 1: Introduction (2 lectures)
Introduction to the course and key economic indicators such as GDP, unemployment
and inflation.
Section 2: Economic Growth (5 lectures)
This section explores what determines the output (GDP) of economies over time and
why levels of GDP and growth rates of GDP vary immensely between countries. GDP is
important because it determines the incomes and prosperity of individuals. The section
begins with an historical overview of global economic growth and goes on to develop a
model of aggregate output which can explain most of the pattern of growth across
nations over time.
Section 3: Economic Fluctuations (8 lectures)
Most economies exhibit positive long-run growth in output (in the UK we are used to
GDP growth of 2-3% per annum). However, most economies also experience strong
short-term fluctuations in output, employment, investment, wages and interest rates.
The current UK recession is one such downturn in the economy. This section builds on
the model of economic growth developed in the previous section and seeks to
understand what causes short-term fluctuations, and why employment, unemployment,
wages and interest rates fluctuate along with GDP.
Section 4: Money and Prices (4 lectures)
Macroeconomics is primarily concerned with how much an economy is producing (how
many cars, handbags, computers), how many workers are being employed, how much
investment in new capital and technology is taking place and what proportion of output
is paid to workers and the owners of capital. As such, macroeconomics is not interested
in money and prices alone but rather what monetary values and prices represent, the
'real economy'. However incorporating money and nominal prices into the model of
economic fluctuations developed in the previous section can drastically impact the
model’s predictions for the real economy. This section incorporates these phenomena,
with particular focus on price inflation.
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L11200 Introduction to Macroeconomics 2009/10
Section 5: Government Policy (4 lectures)
Governments tax economic agents and then spend tax revenues, plus manipulate
interest rates in the economy. They do this in part to try to prevent booms and busts in
output, control inflation and to increase overall growth of output. Which policies work,
and why? For example, is it a good idea for the government to spend during a recession
via a 'fiscal stimulus'? This section expands the model to include a government sector
and analyses various forms of government policy. It concludes that some forms of
government policy can work, sometimes.
2. Lectures and Tutorials
A range of different teaching methods are employed to develop means for students to
gain an understanding of the material and that opportunities for students to show their
analytical and discursive skills exist. The methods used are:
 Three hours of lectures per week
These will provide the basic information in each topic area and will form the
foundation for further reading and analysis on an individual basis. Lecture notes and
further materials will be provided on the WebCT virtual learning environment (see
below).
 Tutorials
Tutorials are compulsory. Tutors will set at least three pieces of work to be assessed
over the Semester with additional tutorial work and/or exercises where necessary.
The onus is on students to provide the input in tutorials. Exercises and further
materials will be provided on the web.
 Reading
While lectures will cover a great deal of material, it is essential that students read
around and beyond the material presented there. This again ensures a solid basis is
built up for the material covered in Years Two and Three and will normally provide a
very good examination grade at the end of the module. Getting into the habit of
doing background reading is vital and the earlier this can be achieved the better.
3. Reading Material
The module content will follow closely the following textbook, which students should
purchase. Note that the course follows the international edition, not the U.S. edition. It
is essential that students study this textbook when undertaking the course.
Barro, R. J. (2008) 'Macroeconomics: A Modern Approach (International
Edition)', Thomson South Western. ISBN-10 0-324-54567-3
A supplementary textbook which will be referred to throughout the course is:
Miles, D. and Scott, A. (2005) 'Macroeconomics: Understanding the Wealth of
Nations', Wiley. ISBN-10 0-470-86892-9
It should be emphasised that students should not attempt to study this module whilst
drawing on macroeconomics textbooks used on A-level (or equivalent) courses, or other
macroeconomics textbooks. In addition a number of texts exist to help you develop your
writing skills including (recommended more generally for Year One economics
students):
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L11200 Introduction to Macroeconomics 2009/10
Barrass, R. (1995) Students Must Write, Routledge.
Cottrell, S. (2005) Critical Thinking Skills , Palgrave Study Guides.
Greetham, B. (2001) How to Write Better Essays , Palgrave Study Guides.
Neugeboren, R. (2005) The Student's Guide to Writing Economics ,
Routledge.
Phelan, P. and Reynolds, P. (1996) Argument and Evidence: Critical analysis
for the social sciences, Routledge.
4. Module Assessment
There are two compulsory elements to the assessment for the module:
Mid-Term Exam on Sections 1 and 2
As with L11100, there is a mid-term examination. The mid-term exam will take the
form of a 45 minute on-line assessment to be held in March (30% of the assessment for
the module). The Mid-term exam will cover topics 1 and 2, excluding the first lecture. It
will include the material covered in lectures plus the reading material suggested for the
course.
Within the WebCT ‘assessments’ section there are approximately 200 multiple choice
questions relating to topics 1 and 2 which available for practice prior to the March online assessment. The practice questions are taken from the same set of questions which
will appear in the on-line assessment, so can be taken as indicative of difficulty of the
questions which will arise in the assessment.
Final Exam on Sections 3, 4 and 5
The final exam will take the form of a 90 minute unseen written examination to be held
in May (70% of the assessment for the module). The exam will consist of two questions.
Candidates must answer both questions. Two sample exam papers are available via
WebCT.
Please note: this module has been substantially revised for the 2009/10 session, so
you are strongly advised not to consult past exam papers and examination feedback
relating to this module in previous years.
5. Plagiarism
Students are reminded that plagiarism is a very serious academic offence and that they
should refer back to their booklet Undergraduate Student Handbook for confirmation of
what it is and the penalties for committing it. Students are further reminded that they
have signed a declaration acknowledging that they understand the nature of the offence
and the attendant penalties. Those students taking this module from outside the School
should consult with Dr. Morgan who will provide a copy of the relevant pages from the
School's Undergraduate Student Handbook and a declaration form which they must
sign.
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L11200 Introduction to Macroeconomics 2009/10
Week
Commencing
25 January
Lectures and Content
Section 1: Introduction
1. Introduction
2. National Income Accounting
Section 2: Economic Growth
3. Key Facts About Economic Growth
Barro
Chapters
Tutorials
Ch. 1
Ch. 2
Ch. 3
1 February
4. The Solow Growth Model
5. Working With the Model
6. Conditional Convergence and Growth
Ch. 3
Ch. 4
Ch. 4
8 February
7. Long-Run Growth
Section 3: Economic Fluctuations
8. Markets, Prices, Supply and Demand I
9. Markets, Prices Supply and Demand II
Ch. 5
Ch. 6
Ch. 6
1. Section 1:
Introduction
& Economic
Growth I
10. Consumption, Saving and Investment I
11. Consumption, Saving and Investment II
12. The Equilibrium Business Cycle Model
Ch. 7
Ch. 7
Ch. 8
2. Section 2:
Economic
Growth II
13. Expanding the Model with Labour Supply
14. Capital Utilization and the Business Cycle
15. Unemployment and the Business Cycle
Ch. 8
Ch. 9
Ch. 9
3. Section 3:
Economic
Fluctuations I
Section 4: Money and Prices
16. Money and the Price Level I
17. Money and the Price Level II
18. Inflation and Money Growth
Ch. 10
Ch. 10
Ch. 11
4. Revision
for Mid-Term
Assessment
19. Inflation in the Business Cycle Model
Section 5: Government Policy
20. Government Expenditure
21. Taxation
Ch. 11
5. Section 3:
Economic
Fluctuations
II
22 March
22. Public Debt I
23. Public Debt I
24. Summary
Ch. 14
Ch. 14
29 March
25. Conclusion
15 February
22 February
1 March
8 March
15 March
3 May
Mid-Term Online Assessment – 9 March
Ch. 12
Ch. 13
6. Section 4:
Money and
Prices
7. Section 5:
Government
Policy
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