Macroeconomics II

obligatory courses

The course will introduce students to the models and techniques used in modern macroeconomic theory at the intermediate level. The objective of the course, besides specialized knowledge acquisition, is to develop the ability of critical thinking, using the quantitative tools in macroeconomic analysis, offering alternative solutions to complex problems, defend positions in discussions in an analytically rigorous but lucid way.

The course begins with the analysis of the short run inflation and output dynamics, using the DAD/DAS model. Then, the lectures will discuss the long-run growth determinants in the neoclassical growth theories. The presentation of the microfoundations of consumers' and investors' behavior and monetary and fiscal policy conduct follows. Finally, the role of fiscal and monetary policies are discussed.

Lectures 1- 4. Introduction. The dynamic DAD/DAS model.

The aim of the lectures is to derive the DAD-DAS model and use it to analyse the impact of demand and supply shocks.

The tutorials are devoted to solving quantitative and qualitative problems and tasks, designed to depend the understanding of the DAD/DAS model

Lectures 5-7 Fiscal and monetary policies. Government Spending and Its Financing; The Government Budget Constraint; The Evolution of the Debt-to-GDP Ratio; Cyclically Adjusted Deficit; Ricardian Equivalence.

The Conduct of Monetary Policy, Money Supply Determination, Money Demand and Equilibrium in the Money Market.

The aim of the lectures is to identify the determinants of government debt dynamics and the constraints that excessive debt imposes on fiscal policymaking and to discuss the modern conduct of monetary policy. The aim of tutorials is to calculate the value of primary surplus required to maintain a stable debt to GDP ratio for various values of real interest rate and GDP growth rates and to present advantages and weak points of various monetary policy strategies.

Lectures 8-11. Growth Dynamics: The Solow Model.

The aim of the lectures is to analyze the determinants of the rate of economic growth under the neoclassical assumption of diminishing marginal product of capital and exogenous technological progress. The aim of tutorials is to quantitatively decompose growth rates, analyze the properties of the steady state and to explain differences in the level of income using Solow growth

Lectures 12-15 Microfoundations. Consumption and Saving; The Interest Rate and Consumption – The Intertemporal Choice of Consumer; The Life-Cycle and Permanent-Income Hypothesis.

Investment The User Cost of Capital; The Desired Capital Stock; Taxes and the Desired Capital Stock; From the Desired Capital Stock to Investment

The aim of the lectures is to analyze consumptions and investment determinants. The aim of tutorials is to analyze the determinants of consumption and investment using empirical and analytical examples.

Mandatory

Mankiw G., Macroeconomics, Worth Publishers, 2003 or newer

Supplementary:

Abel, A. B. and Bernanke B. S. (2005), Macroeconomics, Pearson Education.

Upon the lecture completion, a student:

KNOWLEDGE:

- is able to identify the determinants of output, unemployment, interest rate, and prices in the short, medium and long run.

- is able to analyze the impact of demand and supply shocks on the economy.

SKILLS:

- is able to select an appropriate model to analyze macroeconomic phenomena in different time horizons, different phases of the business cycle and different degrees of nominal rigidities.

- is able to design an optimal monetary and fiscal policy mix aimed at achieving low inflation and output stabilization and predict the consequences of monetary and fiscal policy.

- is able to interpret the empirical relations between macroeconomic variables using theoretical models and on this basis to explain the strength and the responsiveness to external influences of the detected macroeconomic relations.

- is able to describe macroeconomic processes in a formalized way at the intermediate level.

- is able to recognize basic limitations of using theoretical models to explain real-world economic problems.

SOCIAL SKILLS:

-is able to meet time-constrained targets through effective planning and organization.

1. Points from the tutorial

2. Points from the written final exam

3. Points from the introductory on-line tests.

The final grade from Macroeconomics II is given based on the:

• Final exam: 54 points

• Tutorial: 40 points

• On-line tests: 6 points

Approximate grading:

0 – 49 points: fail; 50 - 59 points: satisfactory; 60 - 69 points: satisfactory+; 70 - 79 points: good; 80 - 89 points: good+; 90 - 97 points: very good; 98 - 100 points: very good!

FINAL EXAM

The final exam be held at the Faculty of Economic Sciences.

The final exam will consist of open-ended questions and single-choice questions. The maximum amount of points is 54.

The prerequisite to take the exam is to pass the tutorial.

On-line test

There will be 6 (before-the-lecture) entry assignments, held on-line, on Moodle Platform. Each assignment will consist of 5, single-choice questions. These assignments will cover the material discussed during the previously held lectures.

Each assignment will be accessible for a limited period of time (approximately 4 days), but once the assignment is open, it has to be completed within 10 minutes. After 10 minutes the assignment will close and it will not be possible to re-open it.

Points from each assignment:

• 0-2 correct answers – 0 points

• 3 correct answers – 0,5 points

• 4-5 correct answers – 1 points

The maximum amount of points from all assignments is 6. These entry assignments cannot be re-taken.

TUTORIAL

The maximum tutorial mark is 40 points and is based on two in-class tests and additional student activities.

• The two in-class test are worth at least 30 points (but they may be worth more).

• The additional points can be collected as a result of various in-class activities and/or in-class test and/or other assignments.

The exact number of points from tests and other activities will be announced by the tutorial teachers. Nevertheless, they will sum up to 40 points.

Passing the tutorial requires collecting at least 20 points.