Macroeconomics II, 2d module, academic year 2009-2010

The Economy in the Short Run. Business Cycles and Macroeconomic Policy.

T. Mikhailova

The motivation of the course.

This is the second half of the introductory macroeconomic sequence at NES. The goal of this module is to introduce the students to the basic theories of business cycles and the tools for policy analysis. The first two modules are called to develop intuition and substantive understanding of macroeconomics, which will later be formalized in the subsequent modules.

We will discuss the behavior of the economy in short run, when prices are sticky. We will derive the IS-LM model and will use it to explain the economic fluctuations and to derive policy recommendations. We will consider models of closed and open economy.

Texts. The primary textbook is:

Mankiw, N. Gregory, “Macroeconomics,” Worth Publishers, New York, 2003, further denoted Mankiw.

Additional textbook:

Jeffrey D. Sachs and Felipe Lаrrain B., Macroeconomics in the Global Economy, Prentice-Hall, Inc., first edition, 1993, further denoted SL.

Grading system.

There will be home assignments during the course; however, they will not be graded. Instead, on the due date there will be a quiz at the beginning of the class based on the material of the home assignment. 20% of the final grade comes from the quizzes. The remaining 80% comes from the final exam.

Tentative schedule.

  1. Introduction: swings in economic activity; nominal and real rigidities as overlooked model in the oversimplified model; short run and long run

Mankiw, Ch 9

  1. AS-AD analysis, short run and long run. Neoclassical vs. neokeynesian approaches

Mankiw, Ch. 9, SL Ch 17

  1. Keynesian cross. Goods market equilibrium.

Mankiw, Ch 10

  1. Demand for loanable funds and the money market.equilibrium model

Mankiw, Ch 10

  1. IS-LM analysis. Aggregate Demand

Mankiw, Ch. 11, SL Ch 12

  1. Aggregate demand in the open economy.

Mankiw, Ch., 12, SL Ch 13, 14

  1. Aggregate supply

Mankiw, Ch. 13, SL Ch 15

  1. Macroeconomic policy: objectives, targets, constraints. Philips curve. Commitment in monetary policy: disinflations, liquidity traps

Mankiw, Ch. 14, SL Ch 19

  1. Government debt

Mankiw, Ch.15