Bachelor
2020/2021
Introduction to Macroeconomics
Type:
Compulsory course (HSE University and University of London Double Degree Programme in Economics)
Area of studies:
Economics
Delivered by:
International College of Economics and Finance
When:
1 year, 3, 4 module
Mode of studies:
offline
Language:
English
ECTS credits:
6
Contact hours:
108
Course Syllabus
Abstract
a. Pre-requisites Since the course of Introductory Macroeconomics is taught in English, students need to have the fluent knowledge of this language. Besides, students should possess basic mathematics and graphing skills. b. Abstract The course gives the introduction to the macroeconomic fundamentals and to the main concepts and principles of macroeconomic theory and policy. The course deals with the analysis of aggregate product and national income as well as price level determination; measurement and problems of unemployment and inflation and their trade-off; money and banking; commodity market, financial market, loanable funds market and labour market equilibrium; economic growth and economic fluctuations, primarily in order to understand the key instruments, mechanisms and consequences of the stabilization – fiscal and monetary – policies in the short and in the long run and different theories regarding these policies. A special part of the course is devoted to the issues of the international economics such as the international trade and finance, the balance of payments structure, exchange rates and the determinants of their changes, ends of the stabilization policies in the open economy.
Learning Objectives
- The purpose of the course is to give students a thorough understanding of the principles of economics that apply to an economic system as a whole and of the mechanism of macroeconomic processes and different types of macroeconomic policy.
- The specific aims of the course are: to give the knowledge of macroeconomic terminology and basic macroeconomic concepts and issues; to show the economic intuition of macroeconomic performance and aggregate economic activity; to form the economic way of thinking, that is to use the intuitive analysis of economic process and macroeconomic policy; to explain the main principals of macroeconomic analysis using simple algebra and graphs; to teach students to apply their knowledge to analyze, interpret and explain specific macroeconomic problems, stylised economic facts and real macroeconomic situations; to form ability in reading and understanding economic literature.
- Having completed this course, the student is expected to be able: to learn and acquire new knowledge and skills; to work with information: to find, evaluate and use information from various sources, necessary to solve scientific and professional problems; to conduct research, including problem analysis, setting goals and objectives, identifying the object and subject of research, choosing the means and methods of research; to identify and critically evaluate the main trends of modern economics; to collect, analyze and interpret the data of domestic and foreign statistics on socio-economic processes and phenomena; to solve analytical and research problems with modern technical means and information technologies.
Expected Learning Outcomes
- to define the science of macroeconomics; to distinguish between macroeconomic and microeconomic problems and variables; to explain the main principles and methods of macroeconomic analysis; to give the intuition of how the whole macroeconomy performs using the circular flows model, and to describe the macroeconomic system and its key elements
- to define gross domestic product (GDP) and the three methods of its calculation, to calculate other variables of aggregate output and aggregate income; to distinguish between nominal GDP and real GDP, between actual GDP and potential GDP; to calculate the key macroeconomic variables such as unemployment rate, inflation rate, output growth rate, level of economic welfare
- - to explain the way of defining of equilibrium real output in the long run and in the short run, and to interpret the importance of aggregate demand for determination of the short-run equilibrium in macroeconomy;
- - to derive the short-run consumption function, the saving function and the investment function, and to give the intuition of the market clearing process in the goods market in the short run, of the multiplier effect, of the “paradox of thrift” and of the output gaps, and to show them on the Keynesian Cross graph
- - to interpret the effect of government purchases, lump-sum taxes, transfer payment, balanced budget and proportional taxes on aggregate demand and aggregate output, and to calculate government sector multipliers;
- - to explain the role of the foreign sector and of the change in the functions of aggregate expenditures and of aggregate saving in the three sector and four sector models of the goods market, and to calculate all types of the goods market multipliers in the open economy;
- - to interpret the aggregate demand curve, to derive the AD curve from the Keynesian Cross graph, and to explain the main properties of the AD curve (slope, shifts and movement along)
- to list the targets, the instruments and the types of fiscal policy; to interpret the mechanism of each type of fiscal policy and to show it on the appropriate graphs; to explain the drawbacks and limitations of fiscal policy, especially the crowding-out effect and the budget deficit; to discuss the alternative approaches to fiscal policy in macroeconomic theory and practice, the way of reasoning and the conclusions
- to define financial assets and their types; to define money and to list the functions and the kinds of money; to give the intuition of the money creation process and of the multiplier effect in the money market; to interpret the determinants of the money demand and of the money supply, and to give intuitive explanation of the money market equilibrium and the process of its restoration
- to define the ultimate goals and the intermediate targets of monetary policy, to list the tools and the types of monetary policy; to give the intuition of the money transmission mechanism and to show it on the graphs; to list and to interpret the drawbacks and problems associated with monetary policy; to estimate the absolute and the comparative effectiveness of monetary and fiscal policy
- - to define labour demand and labour supply; to explain the labour market equilibrium; to derive the long-run aggregate supply (LRAS) curve and the short-run aggregate supply (SRAS) curves from the long-run equilibrium and the short-run equilibrium of the labour market, respectively; to list and interpret modern approaches to the causes for the deviations in the short run of actual output from its potential level and thus of the positive slope of the SRAS curve
- - to define aggregate demand (AD) and aggregate supply (AS), and to interpret the equilibrium in the AD-AS model and the process of its restoration;
- - to determine the types of AD and AS shocks and to explain the mechanism and the consequences of each type of shocks in the short run and in the long run
- - to define unemployment and the way of its calculation, and to interpret sources and types of unemployment;
- - to distinguish natural unemployment rate from the actual rate of unemployment and to use the labour force dynamics model to calculate the natural rate of unemployment;
- - to discuss the consequences of unemployment both economic and non-economic, individual and societal, especially the Okun’s law, and to list government policy measures to reduce unemployment
- - to define inflation and its types, and to interpret the causes of inflation;
- - to discuss and explain the costs of inflation, and to show why inflation is a deterrent for the long-run economic growth;
- - to distinguish expected inflation from unexpected inflation, and to explain the Fisher effect
- - to explain the trade-offs between inflation and unemployment, and to interpret the Phillips curve relation and the history of its development;
- - to construct the short-run and long-run Phillips curves, and to give the intuition how economy moves from the short run to the long run under different types of inflationary expectations;
- - define disinflation policy, explain its mechanism and interpret the sacrifice ratio under the two strategies of disinflation policy
- - to define the long-run economic growth and its main goal, and to show the long-run economic growth on the graphs;
- - to discuss the types and the sources of the long-run economic growth using the production function, and to explain how government policy can stimulate the long-run economic growth
- - to define the exchange rate, to list the factors that influence the demand for national currency and the supply of national currency, and to explain the exchange market equilibrium and the causes and consequences of its changes;
- - to discuss the balance of payments and its structure; and to explain how the balance of payments becomes balanced under the fixed exchange rate system and under the flexible exchange rate system;
- - to explain the mechanism and the ends of fiscal and monetary policy in the open economy under the fixed exchange rate system and under the flexible exchange rate system
Course Contents
- Introduction to MacroeconomicsSubject of Macroeconomics. Major Macroeconomic Issues. A Brief History of Macroeconomics. Aggregation. Macroeconomic Agents and Macroeconomic Markets. The Model of Circular Flows in the Closed Private Economy, in the Mixed Closed Economy, and in the Open Economy. The Major Identities in Macroeconomics. The Capital Formation Equation. The Macroeconomic System. Macroeconomic Policy
- Measuring National Output and National IncomeNational Income and Product Accounting System. Gross Domestic Product (GDP). Methods for Calculating GDP. Other Variables of National Accounts. Nominal versus Real GDP. GDP Deflator, Consumer Price Index (CPI) and Their Differences. Actual Real and Potential Real GDP. The Long-Run Economic Growth and the Business Cycle. Limitations of the GDP Concept. International Comparisons. Macroeconomic Situation in Russia
- Goods Market Equilibrium in the Private Closed EconomyDetermination of Output in the Long Run and in the Short Run: the Difference. Demand-Side Analysis. The Consumption Demand, and the Consumption Function. The Saving Function. The Investment Demand and the Investment Function. The Determination of Equilibrium Output in the Short Run (the “Keynesian Cross Model”). The Conditions for the Goods Market Equilibrium, and the Role of Inventory Changes in its Restoration. The Multiplier Effect. The «Paradox of Thrift». Equilibrium Output and Potential Output. Inflationary and Recessionary Gaps
- Goods Market Equilibrium in the Mixed Closed and in the Open EconomyThe Government in the Circular Flows. The Effect of Government Purchases, Taxes and Transfers on Output. The Government Sector Multipliers. The Foreign Sector in the Circular Flows. Net Exports and Aggregate Demand. The Multiplier Effect in the Open Economy. The Keynesian Cross Model as the Model of Aggregate Demand. The Aggregate Demand Curve. Effects Explaining the Negative Slope of Aggregate Demand Curve. Causes of the Shifts of the Aggregate Demand Curve
- Fiscal PolicyFiscal Policy and its Objectives. Instruments of the Fiscal Policy. Types of the Fiscal Policy: Expansionary and Contractionary, Discretionary and Automatic Fiscal Policy. The Mechanism of the Fiscal Policy. The Drawbacks of Active Fiscal Policy: the Crowding out Effect, the Government Budget Deficit. Deficit Financing and the Loanable Funds Market. The Loanable Funds Market Equilibrium and Causes for Changes. The Effectiveness of Fiscal Policy in the Short Run: the Role of the Interest Rate Sensitivities of Investment Demand and of the Demand for Money. The Approaches to Fiscal Policy. Fiscal Policy and Aggregate Supply. The Laffer Curve. Specific Features of Fiscal Policy in Russia.
- Money and Money Market EquilibriumMoney and its Functions. Kinds of Money. Money Supply Aggregates. The Banking System. The Central Bank and its Functions. Commercial Bank and its Balance Sheet. Types of Bank Reserves. How Banks Create Money. The Money Market Multipliers. The Money Supply Curve. The Demand for Money and its Determinants. The Money Demand Curve. The Liquidity Preference Theory. The Interest Rate and the Bond Prices. The Money Market Equilibrium and its Restoration.
- Monetary PolicyMonetary Policy, its Goals and Targets. The Tools of Monetary Policy. Types of Monetary Policy. Expansionary and Contractionary Monetary Policy. The Keynesian Money Transmission Mechanism. Contemporary Channels of Monetary Policy Transmission. The Effectiveness of Monetary Policy in the Short Run: the Role of the Interest Rate Sensitivities of Investment Demand and of the Demand for Money. The Effect of Monetary Policy on Real Output in the Long Run. The Quantity Theory of Money. The Neutrality of Money in the Long Run. Specific Features of Monetary Policy in Russia.
- Labour Market Equilibrium and Aggregate SupplyThe Production Function and Aggregate Supply. The Role of the Labour Market. The Labour Market Equilibrium. The Labour Market with Flexible Wages. The Long-Run Aggregate Supply Curve. The Labour Market with Sticky Wages. The Short-Run Aggregate Supply Curve. Determinants of Aggregate Supply in the Short Run. Different Approaches to Aggregate Supply.
- Aggregate Demand and Aggregate SupplyThe Aggregate Demand and Aggregate Supply Model. Equilibrium in the AD-AS model in the Long Run and in the Short Run. The Role of the Shocks of Aggregate Demand and Aggregate Supply. Changes in Aggregate Demand and in Aggregate Supply and the Equilibrium in the ADAS Model in the Short Run and in the Long Run. How an Economy Adjusts to the LongRun Equilibrium in the Absence of Any Policy Actions. Fiscal and Monetary Policy in the Framework of the AD-AS Model. Adverse Supply Shocks and Demand Management Policy Dilemma. How to Fight Stagflation.
- UnemploymentPopulation and Labour Force. Non-Labour Force and Unemployed. Measurement of Unemployment. Types of Unemployment: Frictional, Structural and Cyclical. The Natural Rate of Unemployment and its Determinants. The Nonaccelerating Inflation Rate of Unemployment (NAIRU). The Real-Wage Unemployment and its Causes. The Individual and the Social Costs of Unemployment. The Okun’s Law. Government Policy to Reduce Unemployment. International Comparisons. Features of Unemployment in Russia.
- InflationThe Concept and the Types of Inflation. Deflation and Disinflation. Causes of Inflation. Demand-Pull Inflation and the Quantity Theory of Money. Government Budget Deficits and Inflation. The Costs of Inflation. Specific Costs of Unanticipated Inflation. Nominal Interest Rate and Inflation: the Fischer Effect. Hyperinflation, its Causes and Examples. How to Fight Hyperinflation. Inflation, its Causes and Dynamics in Russia.
- The Phillips CurveTrade-offs between Inflation and Unemployment. The Short-run Phillips Curve. Expectations-Augmented Phillips Curve. The Effect of the Supply Shocks. The Phillips Curve as the Model of Aggregate Supply. Natural Rate Hypothesis and the Long-Run Phillips Curve. The Movement of the Economy from the Short-Run to the Long-Run Equilibrium. The Cost of Reducing Inflation. Strategies to Reduce Inflation. Disinflation Policy of the Bank of Russia.
- The Long-Run Economic GrowthThe Concept of Economic Growth. The Measures of Economic Growth. Economic Growth and the Standard of Living. “The Rule of 70”. The Types and Sources of Economic Growth. Determinants of Economic Growth. The Role of Labour Productivity and Technological Progress. Government Policy to Stimulate the Long-Run Economic Growth. Problems of the Long-Run Economic Growth in Russia.
- The Open EconomyInternational Links between the Economies. The International Trade: Net Exports and its Determinants. The International Financial System: Capital Flows and their Determinants. Russian Economy as an Open Economy. Foreign Exchange Market and its Equilibrium. Nominal and Real Exchange Rate. Exchange Rate Systems. The Central Bank Interventions. Devaluation and Revaluation. Depreciation and Appreciation. Balance of Payments and its Structure. The Balance of Payments Equilibrium under Fixed Exchange Rates and under Flexible Exchange Rates. Russian Balance of Payments. Monetary and Fiscal Policy in the Open Economy: Mechanism and Economic Effects.
Assessment Elements
- final International ExamThe final International Exam includes all themes.
- midterm Mock ExamThe midterm Mock Exam covers the first half of the course.
- TestThe Test covers the whole course.
- home assignments
