Macroeconomics I

obligatory courses

Students should have a basic knowledge of economics, be able to distinguish micro- and macroeconomic approach and to know the basics of microeconomics (at least as regards the functioning of markets, theories of consumer and producer). Particularly useful would be to get credit for some courses form the offer of the Faculty of Economic Sciences (Introduction to microeconomics, Microeconomics I and II)

The course aims at presentation of the basic concepts, categories and simple models of modern macroeconomic analysis. Mastering the material should allow understanding of the functioning of the economy as a whole, learning about the structure of modern macroeconomic theory and give a solid basis for studying macroeconomics at the intermediate and advanced level. Hence, emphasis will be placed on mastering basic macroeconomic independencies and on underlining differences between short-term and long-term dependencies.

Credit for classes is based on the written final exam consisting of computational tasks, open questions, graphics tasks. In order to be permitted to write an exam, it is necessary to get a credit for discussion classes first. During the exam, a student may get a maximum of 90 points, with additional 10 points that may be obtained from the discussion classes. Credit for the whole course will be given to students that will gather min. 60 points.

The course in Macroeconomics I is built around several basic areas. Together they give a concise view of the functioning of the economy as a whole, allow to learn the structure of modern macroeconomic theory and provide a basis for studying macroeconomics at a higher level.

In the first part of the course, which discusses the purpose and method of macroeconomics, fundamental macroeconomic problems (economic fluctuations and economic growth, unemployment, inflation) are presented, the main macroeconomic sectors (households, companies, country, abroad) are discussed and an idea of a circular motion of products and money is introduced. Next the concepts of aggregate demand and aggregate supply are discussed. Students get also familiarized with the structure of modern macroeconomic theory.

The second part of the course focuses on the problem of measuring of the macroeconomic categories (employment, unemployment, production and its components, inflation and external balance (the exchange rate, balance of payments)). The distinction between real and nominal categories is introduced as well.

The third part of the course introduces classical macroeconomic approach by discussing how the markets for production factors (microeconomic approach) are associated with macroeconomic equilibrium. The importance of opening of the economy is also discussed. At the end the Cobb-Douglas production function is introduced.

The subject of the fourth part of this course is a basic model describing the functioning of the economy in the short run: the Keynesian model. It is discussed both in the basic two-sector version, as well as in versions with state and foreign market. Introduction of the mechanisms of business and investment decisions (reflecting the role of interest rates in determining the aggregate expenditures) leads to a concept of the IS curve - a key element of short-term macroeconomic analysis (ISLM model).

The subject of the fifth part of the course is money and money market. This part of the course introduced such issues as functioning of the banking system, money creation, money supply control, determinants of money demand and money market equilibrium. The elaboration ends with a derivation of the LM curve, which describes the equilibrium in the money market in the model ISLM.

The sixth part of the course deals with the short-term macroeconomic equilibrium (ISLM model) and transmission mechanisms of monetary and fiscal policies. In the last part of the course the aggregate demand and its determinants and the mechanisms behind the aggregate supply (adjustment in the labor market) are discussed (model ASAD). The model allows to analyze the causes and consequences of demand and supply shocks and the effectiveness of fiscal and monetary policy.

Required reading

Bednarski M., J. Wilkin (red.), Ekonomia dla prawników i nie tylko, Wydawnictwo Prawnicze Lexis-Nexis, Warszawa 2008, chapters: 12-13; abbreviation: BW

Begg D., R. Dornbusch, S. Fischer, Ekonomia, tom II [Makroekonomia], PWE, Warszawa 2003; abbreviation: BDF

Begg D., P. Smith, Ekonomia. Zbiór zadań, PWE, Warszawa 2001, abbreviation: BS

Dornbusch R., S. Fisher, Macroeconomics, ed.8, New York 2000, McGraw-Hill, część I abbreviation: FD

Hall R., J. B. Taylor , Makroekonomia, PWN, Warszawa 2000, rozdz. 1-3, abbreviation: HT

Keynes J.M., Ogólna teoria zatrudnienia, procentu i pieniądza, PWN, Warszawa 1985, chap.: 6, 18; abbreviation: KJM

Snowdon B., H. Vane, P. Wynarczyk, Współczesne nurty teorii makroekonomii, Wydawnictwo Naukowe PWN, Warszawa 1998, chap.: 1-3, abbreviation: SVW

Additional reading:

Dornbusch R., S. Fisher, Macroeconomics, 8 ed., McGraw-Hill, New York, 2000,

Mankiw G., Macroeconomics, 5 ed., Worth Publisher, 2003

After the course, the student will:

Knowledge:

- be able to identify the macroeconomic problems and to understand their interaction with microeconomic problems,

- know the system of national accounts, the construction of indicators measuring changes in production, income, inflation, employment, balance of payments,

- be able to distinct between classical and Keynesian approaches used in the macroeconomic analysis,

- understand how the financial assets’ market works, including money supply and the main determinants of the demand for money,

- understand the Keynesian model, the IS-LM model, the basic labour market, the AD-AS model,

- get a basic understanding of the macroeconomic interdependences of the short period,

- be able to distinguish the analysis of short and long-term in macroeconomics,

- understand the mechanisms and effects of fiscal and monetary policies.

Skills:

- be able to identify the macroeconomic phenomena on the basis of available statistical data,

- be able to distinguish between real and nominal categories,

- be able to formulate and falsify the hypotheses concerning main macroeconomic developments (in the context of IS-LM model, AD-AS model, etc.),

- be able to graphically and algebraically analyze equilibrium in the Keynesian model, IS-LM model, AD-AS model,

- be able to predict the consequences of changes in aggregate expenditures, fiscal policy and monetary policy, changes in the supply of labour (along with its structural aspect),

- be able to make simple calculations related to money supply, trends in expenditures (consumption, foreign trade balance, investments), multiplier effects, production level in equilibrium,

- be able to predict the effects of various fundamental, exogenous events and the use of macroeconomic policies for changes of production, unemployment, inflation, national budget, balance of payment,

- be able to assess economic events and formulate own opinions (at macroeconomic grounds).

Attitudes:

- acquire self-reliance in application of the theoretical knowledge to the analysis of basic macroeconomic phenomena, through the use of empirical examples, referring to the sources of macroeconomic data,

- attain more responsibility and self-control by not being formally required to attend the lectures,

- improve his/her work organization as a result of requirements imposed during discussions’ classes,

- will develop more interest for economic issues, including tracking the current macroeconomic events

- will improve in terms of reliability and honesty through rigorous enforcement of the examination requirements for getting a credit.

1. The attendance at the discussion classes and getting a credit on the basis of the established criteria,

2. Written exam (different kinds of tasks: calculations, graphs, definitions, explanation of interdependence between variables, open questions etc.),

3. Obtaining at least 60 points out of 100 possible (10 – discussion classes, 90 – exam).