The role of this module is to equip students with a good grounding in the principles of macroeconomic analysis.  This will enable students, if they wish, to continue their studies of macroeconomics in the second and third years.

The Macroeconomicsmodule aims to provide students with a thorough introduction to the method, content and theory of macroeconomics and the effects of monetary and fiscal policy on the economy.

A    Knowledge and Understanding:

• understand the determination of inflation, output fluctuations over the business cycle, and unemployment
• be able to identify and differentiate between the various theories and models of the economy, for example Keynes versus the Classical, and to comment on the strengths and weaknesses of each
• be familiar with the theories of interest rate and exchange rate determination and be able to identify their role in the formulation of current economic policy
• be aware of some of the recent history of macroeconomic behaviour and policy in the UK and the rest of the world

B    Intellectual Skills: 

• be aware of the role of fiscal and monetary policy in stabilising the economy and determining the rate of inflation

C    Discipline Specific Skills: 

• be able to respond to questions about the effects of changing key policy variables on the economy. These questions may take the form of essays or of short true/false ‘puzzles’. They should know the different approaches taken by Keynesian and Classical economists so as to understand the evolution of modern macroeconomic analysis. They will comprehend this analysis as well as its predecessor models through the medium of diagrammatic analysis and simple algebraic representations. They should apply these in class (for example when asked questions by tutors, usually involving demonstration at the white board), in home revision, and in assessment.

D    Transferable Skills: 

• be conversant with the basic concepts of macroeconomics and be able to undertake basic macroeconomic analysis of, for example, the effects of a monetary expansion

3 lectures per week, 1 tutorial per week. Total contact hours 40 approx study requirement per week in addition estimated at 10 hours per week for an average student.

This course requires mastery of diagrammatic and simple algebraic techniques. For this reason the students must spend a great deal of time practising these techniques both before and in class. During lectures they have to assimilate the methods as well as absorbing general information about the subject.

Indicative study hours:   200

There are two assessments, each a 50-minute session. One half is devoted to testing mathematical skills - the solution of simple algebraic problems involving macroeconomic models. The other half consists of ‘puzzle’ questions requiring true/false answers with brief notes of explanation. This tests the student’s ability to analyse shocks to the economy using the methods described above.

There is also a final exam, of three hours. For this there are four essay questions, designed to set out the appropriate analysis for particular macroeconomic policy issues - such as unemployment and inflation.

Aggregate supply and demand

Introduce the ideas of aggregate supply and demand as the organising principle of macroeconomics.

The Classical Model

The model of the economy in which markets clear and prices are flexible, except in the very short run.

The Keynesian Model

The alterations made by Keynes to the Classical Model in order to generate involuntary unemployment and the multiplier. The IS and LM curves.

The Neo-Classical Synthesis

Adding the Phillips Curve, augmented by adaptive expectations, to the Keynesian Model, thus creating a synthesis of the Classical Model in the long-term and the Keynesian in the short term.

Rational Expectations and the New Classical and New Keynesian Models

The RE Hypothesis, explained diagrammatically, and the basis of modern models with flexible prices and contracts.

The Open economy

Extending the model to trade and capital flows- the Mundell-Fleming model.

Supply-side issues

Productivity, growth and unemployment.Optimal government intervention in tax, spending and benefits.

Money and banking

Money supply, the money multiplier and the effect on the demand for money of competitive banking.

National accounts and balance sheets

The basics of national accounting conventions.

Modern Macroeconomics, Parkin and Bade