Principles of Macroeconomics
Code
1101
Academic unit
null
Department
Dept
Credits
7,5
Teacher in charge
Teresa Vasconcelos e Sousa
Teaching language
Portuguese, English
Objectives
This course introduces students to macroeconomic systems, providing them with an understanding of the interdependence between key macroeconomic variables and providing a first approach to the modelling of the economy in the short and the long run. Students should obtain a critical understanding of the behavior of economic aggregates and of the key model assumptions, a basic understanding of the determinants of national income (short and long run, in open and closed economies) and be familiar with specific data on the Portuguese economy. Upon completion of the course students should be able to undertake systematic macroeconomic analysis in the framework of current macroeconomic topics such as the ones related to the 2008 financial crisis.
Prerequisites
N/A
Subject matter
1. Introduction. Economic issues and concepts. Some data on the Portuguese Economy.
2. Macroeconomic issues and measurement. What is macroeconomics? Why do we need macroeconomics? National Accounts. Circular flow of income. Macroeconomics fundamental identity. Real and nominal variables. Price indexes.
3. A basic model of the determination of GDP in the short run. Aggregate spending in closed and open economies. Equilibrium GDP. The multiplier. Issues on fiscal policy.
4. Money. The nature and the origins of money. How does money get into the economy? Two models of banking. Money values, kinds of assets. The rate of interest and the price of bonds. Money demand and supply. Equilibrium in the monetary market. Monetary policy and the ECB.
5. Aggregate demand and aggregate supply. Investment and the interest rate. The monetary transmission mechanism. Macroeconomic equilibrium in AD-AS. Potential output. The long run. The Phillips curve. Expectations of a positive inflation rate. Short- versus long-run effects. The business cycle. Unemployment and inflation.
6. Open economy macroeconomics. The current account and foreign indebtedness. Saving and the current account. Balance of Payments. Exchange rates. The demand for foreign currency assets. Equilibrium in the foreign exchange market. Interest rates, expectations. The money supply and the exchange rate in the short and the long runs.
7. Fiscal and monetary policies in open economies. Short-run equilibrium for an open economy: the DD-AA model. Temporary and permanent changes in monetary and fiscal policy. The liquidity trap.
Bibliography
The reference textbook is ?Economics? by Lipsey & Chrystal, 12th edition, Oxford, 2011. This textbook constitutes mandatory reading. Relevant chapters for each topic are referenced by (L&C).
For students that already have ?Economics? by Krugman & Wells, 2nd ed., Worth 2009, this book could constitute alternate reading ? relevant chapters referenced by (K&W).
Additional references for specific topics may be posted on the course?s Moodle page.
Teaching method
Evaluation method
-2 Midterms: only the best score is considered for the final grade. The weight is 25%. -Problem Sets, mandatory, described below. The weight of the whole group of problem sets is 10% and the minimum score to pass the course is 9. -Final exam, with a weight of 65% and a minimum score of 8.5. -Students undertaking grade improvement are subject to the same assessment rules. These rules also apply to assessment in the resit period.