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ECON202 MACROECONOMIC THEORY I

Course Objectives

This is an intermediate level macroeconomics course for second year students. The course examines the short-run and medium-run determination of key macroeconomic variables in both closed and open economies, primarily in the context of an IS/LM/BP-AD/AS model. The course aims to develop a general framework to analyse important policy questions and provide a sound understanding of macroeconomic aggregates and macroeconomic and financial linkages between economies. More specifically, the course aims to provide students with a solid economic grounding in understanding the mechanisms underpinning the macroeconomy.

There are two main objectives of this course. Firstly, to provide knowledge of the core theoretical models used in macroeconomics, for both closed and open economies, and to use them to enhance understanding of real-world macroeconomic experiences (especially involving macroeconomic policy). Secondly, to give students a solid grasp of macroeconomic analysis at the intermediate level using both graphical and algebraic techniques. Throughout the course emphasis is placed on developing the skills needed to critically evaluate explanations of economic outcomes in this framework and policy success on both a theoretical and empirical basis. On completion of this course the student will be able to understand theoretical models which are used to explain the behaviour of the aggregate economy in the short and medium-run and will have gained the ability to use these models to answer questions about the impact of shocks and of macroeconomic policy on a small open economy.

By the end of this course, the students will be able to

• understand macroeconomic aggregates and have a solid background in understanding the mechanisms underpinning the macroeconomy;
• analyze the core theoretical models used in macroeconomics, for both closed and open economies, and use them to enhance understanding of real-world macroeconomic experiences (especially involving macroeconomic policy);
• develop a solid grasp of macroeconomic analysis at the intermediate level using both graphical and algebraic techniques;
• develop skills to critically evaluate explanations of economic outcomes in this framework and policy success on both a theoretical and empirical basis;
• understand theoretical models which are used to explain the behavior of the aggregate economy in the short-, medium-, and long-run and gain the ability to use these models to answer questions about the impact of shocks and of macroeconomic policy on a small open economy.
• understand the response of policy makers to macroeconomic issues and expectations;
• retrieve macroeconomic data from statistical sources using the internet or the library;
• perform basic statistical analysis with macroeconomic data using Excel.

Course Content

Measurement of economic activity; national income accounting; determination of the level of economic activity; the `Classical` and `Modern` theories of income and employment; general equilibrium of product and money markets; impact of international trade fluctuations and growth in economic activity; aggregate income distribution.

Course Learning Outcomes

By the end of this course, students will be able to

• Describe national income accounting. 
• Demonstrate their understanding of the extended Keynesian income-expenditure model algebraically and diagrammatically. 
• Explain the creation and role of the Money in the economy. 
• Derive the IS and LM curves from equilibria in the asset and goods markets. 
• Evaluate the relationship between interest rates and income using IS-LM analysis.
• Evaluate the relationship between prices and income using AS-AD analysis. 
• Use the IS-LM-BP and AD-AS models to analyze a variety of fiscal, monetary and exchange rate policy choices. 
• Use economic analysis to evaluate current social and political issues and policies
• Differentiate between Keynesian theory and Classical theory. 
• Explain and compare the impacts of monetary policy and fiscal policy in a closed economy. 
• Explain and compare the impacts of monetary policy, fiscal policy and exchange rate policy in an open economy. 
• Explain labor market and Phillips-curve. 
• Analyze Phillips curve, Okun's Law and basic macroeconomic variables. 
• Apply macroeconomics to current policy issues.