Introduction to Macroeconomic Policy

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Oct 28, 2013 (3 years and 11 months ago)

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Economics 295B: Course Outline
page
1


McGill University










Professor Christopher Ragan

Economics 295B










Leacock 321
-
C

Winter

2011








christopher.ragan@mcgill.ca










Introduction to Macroeconomic Policy


Tuesdays and Thursdays, 4:00
pm


5:30 pm, Leacock 132



*****



I. Housekeeping Details


1. Office Hours.
My office hours are Tuesdays

and Thursdays from
1
:
30

p
m


2:30

pm. If you are
unable to see me then, please send
me
an e
-
mail to make an appointment.


2.
Required
Textbook.
The text
book

for this class is the macroeconomics half of
Economics
, by C.
Ragan and R. Lipsey (1
3
th

Canadian
Edition, published by Pearson Canada). You can also purchase
the macro half separately;
Macroeconomics
(same authors, same publishers). Both are available at
Paragraphe

bookstore.




With
new

versions of the textbook, you
will
receive pin
-
code access to
M
yEconLab
,
an on
-
line collection of questions and supplementary materials designed specifically for
this

textbook.
M
yEconLab

provides students with an excellent way to study the material, conduct self
-
tests,
access the e
-
book to review topics during a self
-
test, and access the
Additional Topics

readings
, many of which we will use in this course.




For those students who have a used copy (
or
previous edition) of the textbook, pin
-
code
access to M
yEconLab

can be purchased separately

from Paragraphe bookstore
.




Note that the three (optional) mid
-
term quizzes will be done within
MyEconLab

so it is

strongly recommended that you
have access to it.




For instructions on how to register for
MyEconLab
,
check out the video that is posted
under
“general course info
rmation” on the course’s WebCT page.




3. Supplementary Readings.
I will supplement the textbook with several readings
, m
ost of
which
I
will make
available on the course’s WebCT page. I will also assign several of the
Additional Topics
that have been wri
tten to accompany this textbook. They are
only

available on the
textbook

s
MyEconLab
site.


4. In
-
class on
-
line questions and demos with “
monocleCAT
”.

I will use an on
-
line version of
classroom clickers and demos in this class, and students can subscribe t
o this system by buying their

────────────────




Economics 295B: Course Outline
page
2


subscription from Paragraphe bookstore. For more details you should read the brief description found
under “general course information” on the course’s WebCT page.


Students who register for “monocleCAT” and participate in at
least 75% of the in
-
class questions will
receive a 5
-
percentage
-
point increase in their grade.


5
. TAs, Weekly Tutorials, and Discussion Questions.
There will be
several
1
-
hour
tutorial
sessions offered each week.
You are expected to attend one session pe
r week.

During these weekly
tutorial sessions, the TA will go over that week’s Discussion Questions (which are posted on the
course’s WebCT page). These questions are designed to force you to think through the various issues,
and will be very helpful in
yo
ur
preparation for the exams.


6
. Grading.
There will be three
(optional) mid
-
term
quizzes in this course, plus one
(mandatory)
final
exam in April.




Each of the three quizzes will be worth 1
2
% of your final course grade. The quizzes must be
completed

on
-
line (on the
textbook

s
MyEconLab

site
) at the specified times below:



Quiz #1:

Tuesday

February
1

4pm



5
pm


Quiz #2:

Tuesday

March
1

4
pm


5
pm


Quiz #3:

Tuesday

March
29


4
pm


5
pm


Note that these are regular class times, so there are
no legitimat
e reasons

for not being available
to write these quizzes.


Any student who attempts a quiz will be deemed to have completed it, and thus their grade on
this quiz will represent 12% of the
ir

course grade.
Students must complete these quizzes
on their
own
. A
ny collaboration whatsoever is forbidden.




The final exam will be scheduled by the University during the final exam period in April. Your
grade on this exam will
constitute
(100
-
12X)
% of your final course grade
, where X is the
number of optional quizzes

that you attempted
.





You therefore
have a
choice

regarding
how you
will be
graded in this course.



Less
effort


greater risk:

take the 100% final exam



Greater effort


less risk:

take
all
quizz
es and then the 64% final exam



*****










────────────────




Economics 295B: Course Outline
page
3


II.
Ge
neral Course
Description


This course is designed to introduce you to the basics of macroeconomics, as well as some
beyond
-
the
-
basics topics such as open
-
economy macro, fiscal and monetary policy, and
unemployment. Some emphasis will be placed on existing

debates in the design and conduct of
macroeconomic policy. The following four themes will clearly emerge.


Theme #1:
In the short run, most economists agree there is no guarantee that the economy will arrive at
a position of “full employment”. A short
-
run

macroeconomic equilibrium with unemployed resources
(both capital and labour) is entirely feasible.


T
heme #2:
Due to the first theme, the government has a role
––
at least in principle
––
in influencing the
level of aggregate economic activity. This is the
motivation for “stabilization” policy, using fiscal policy or
monetary policy, or both. There is, however, some debate about the effectiveness of various policy
instruments.


Theme #3:
There is a broad consensus among economists that the economy, over the

long run, will
approach a position of “full employment”. There is naturally some debate about what the “long run”
really means (or, in other words, how quickly we get there).


Theme #4:
There is a broad consensus that one of the key determinants of avera
ge

living standards is
the amount of income per capita. There is also a consensus that an important determinant of per capita
income is the level of productivity. Unfortunately, there is also a consensus that we do not know as
much as we would like to know

about what causes productivity improvements. There is also debate
about whether government policy is able to influence the rate of growth of productivity.


*****





III. Broad Course Outline



Part A: The Basics (7 weeks)


Section 1. Introduction t
o Macroeconomic Issues

Section 2. The Real Economy in the Short Run

Section 3. The Phillips Curve and the Adjustment Process

Section 4. Productivity and Long
-
Run Economic Growth

Section 5. Money, Monetary Policy, and Inflation



Part B: T
opics Beyond the Basics (5 weeks)


Section 6. Open
-
Economy Macroeconomics

Section 7. Government Debt and Deficits


────────────────




Economics 295B: Course Outline
page
4


Section 8. Labour Markets and Unemployment

Section 9. Wrap
-
U
p and Review



*****






IV. Detailed Course Outline


Readings
marked “RL” are from the Ragan/Lipsey textbook. Readings marked “WCT” are on the
course’s WebCT page under the “extra readings” icon. Readings marked “MEL” are Additional Topics
that are found on the
textbook’s
MyEconLab website. Other readings you can fin
d yourself using the
references given.



Part A: The Basics



Section 1.

Introduction to Macroeconomic Issues



(1 week)


Topics Include:




definitions of key macroeconomic variables




the circular flow of income (income v. production v. ex
penditure)




the measurement of aggregate prices and quantities

Readings:


RL


Chapters 19 and 20


MEL “
What Makes People Happy?





Section 2.

The Real Economy in the Short Run



(2 weeks)


Topics Include:




determinants of plan
ned consumption and investment




the concept of equilibrium aggregate output




what is the “multiplier”?




Aggregate Demand (AD) and Aggregate Supply (AS) curves

Readings:


RL Chapters 21, 22, and 23


MEL “The Consumption Fun
ction in Canada”


MEL “Oil Prices and the Canadian Economy”




Section 3.

The Phillips Curve and the Adjustment Process



(
2

week
s
)




────────────────




Economics 295B: Course Outline
page
5


Topics Include:




the concept of potential output




wage adjustment and the output gap (the Phillips
Curve)




the importance of wage “stickiness”

Readings:


RL Chapter 24



Section 4.

Productivity and Long
-
Run Economic Growth


(2 weeks)


Topics Include:




short
-
run versus long
-
run macro relationships




the basics of growth accou
nting




the relationship between saving, investment and growth

Readings:


RL Chapters 25 and 26


MEL “Understanding and Addressing Canada’s Productivity Challenges”


MEL “Investment and Saving in Globalized Financial Markets”



WCT
Christopher Ragan,

Two Policy Challenges Driven by Population Aging

,
Policy


Options
,
O
ctober 2010
.


Paul Krugman, “The Myth of Asia’s Miracle”,
Foreign Affairs
, December 1994.




Section 5.

Money, Monetary Policy, and Inflation




(2 week
s)


Topics Include:




the nature of money, central and commercial banks




the interest rate and monetary equilibrium




the transmission mechanism of monetary policy




short
-
run non
-
neutrality and long
-
run neutrality of money




the costs of inflation; the benefits of low inflation


Readings:


RL Chapters 27
-
30


MEL “The Costs of High Inflation”


WCT

Milton Friedman, “The Role of Monetary Policy”,

AER
,

March 1968.


WCT
Christopher Ragan, “Why Monetary
Policy Matters: A Canadian Perspective”,
Bank


of Canada Review
, Winter 2006
-
07.


MEL “The U.S. Housing Collapse and the Financial Crisis of 2007
-
2008”


MEL “A Beginner’s Guide to the Stock Market”





Part B: Topics Beyond t
he Basics



Section 6.

Open
-
Economy Macroeconomics




(2 weeks)



────────────────




Economics 295B: Course Outline
page
6


Topics Include:




balance of payments accounting




market
-
determined exchange rates




should we care about current
-
account deficits?




is there a “right” value for t
he exchange rate?

Readings:


RL Chapter 35


WCT Interview with Jeffrey Sachs,
World Economic Affairs
, Winter 1999.


WCT Interview with Milton Friedman,
World Economic Affairs
, Winter 1999.


MEL “Monetary Policy and the Exchange
Rate in Canada”




Section 7.

Government Debt and Deficits




(1 week)


Topics Include:




the government budget constraint: primary versus actual deficits




the dynamics of the debt
-
to
-
GDP ratio




the long
-
term burden of government deb
t

Readings:


RL Chapter 32


WCT Interview with Paul Martin,
World Economic Affairs
, Autumn, 1997.


MEL “What Caused the Build
-
Up of Canada’s Public Debt?”


MEL “Budget Deficits and National Saving”



Section 8.

Labour Markets a
nd Unemployment



(1 week)


Topics Include:




cyclical v. frictional/structural unemployment




flows versus stocks in the labour market




the determinants of NAIRU




turnover and labour
-
market flexibility

Readings:


RL Chapt
er 31


MEL “Understanding the Canada
-
U.S. Unemployment Gap”


MEL

Does Government Support of Specific Industries Really Create Jobs?








Section 9.

Wrap
-
U
p and R
eview




(1 week
, time permitting
)


Topics Include:




putting the shor
t run and long run in perspective




New Keynesian versus New Classical dogma


────────────────




Economics 295B: Course Outline
page
7





some recent history of macroeconomic ideas

Readings:


WCT Interview with Paul Krugman,
World Economic Affairs
, Winter 1997.


WCT Interview with John

Kenneth Galbraith,
World Economic Affairs
, 1997.


Blanchard, Olivier, “The Story of Macroeconomics”, in
Macroeconomics
, Addison
-
Wesley
-
Longman, 1998.



*****