Course Contents

1. Inflation  Introduction of inflation, demand pull inflation, cost push inflation, unemployment and inflation, inflation and interest rate. 2. Growth Theories  Introduction to growth, Harrod-Domar Model, Neoclassical growth model, neoclassical equilibrium growth rate, technological progress, population growth. 3. Stabilization Policies  Should policy be active or passive? lags in the implementation and effects of policies, the difficult job of economic forecasting: ignorance.  Expectations and Lucas Critique; Historical Record; should policy be conducted by Rule or Discretion?  Distrust of policy makers and the political process, time inconsistency of discretionary policy, rules for monetary policy, rules for fiscal policy 4. Government Debt and Budget Deficit  Size of the government debt, problems in measurement, traditional view of government debt, Ricardian view of government debt, other perspectives on government debt. 5. Advances in the Theory of Economic Fluctuations  Theory of real business cycles, interpretation of labor market, importance of technology shocks, neutrality of money, flexibility of wages and prices.  New Keynesian economics, small menu costs and aggregate demand externalities, recession as coordination failure.  Rational expectations. 6. Aggregate Demand in the open Economy  The Mundell-Fleming Model, the small open economy under floating exchange rates, the small open economy under fixed exchange rates, interest rate differentials, should exchange rates be fixed or floating?  The Mundell-Fleming model with a changing price level. 7. Important Lessons of Macroeconomics  In the LR, a country’s capacity to produce goods and services determines the standard of living of its citizens  In the short run, aggregate demand influences the amount of goods and services that a country produces  In the long run, the rate of money growth determines the rate of inflation, but it does not affect the rate of unemployment  In the short run, policy makers who control monetary and fiscal policy face a tradeoff between inflation and unemployment