Outline For Macroeconomics
McGill University
Winter 2013
Professor Christopher Ragan
Leacock 321-C
Economics 295B
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 10:00 am - 11:00 am. If you are unable to see me then, please speak to me to arrange an appointment.
2. Required Textbook and MyEconLab. The textbook for this class is the macroeconomics half of Economics, by C. Ragan and R. Lipsey (13th 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 …show more content…
textbook, you will receive pin-code access to MyEconLab, an on-line collection of questions and supplementary materials designed specifically for this textbook. MyEconLab 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, some of which we will use in this course.
For students who have a used copy of the textbook: pin-code access to MyEconLab can be purchased separately from Paragraphe bookstore.
Note that the three (optional) mid-term quizzes can only be done within MyEconLab so it is strongly recommended that you have access to it.
The MyEconLab registration number for this course is XL14-M1XG-401Y-0Z62.
3. Supplementary Readings. Several supplementary readings will be placed on the course’s
MyCourses page. I will also assign several of the Additional Topics that have been written to accompany this textbook. They are only available on the MyEconLab site.
4. Assignments. There will be three assignments for this class. They will be posted on the course’s
MyCourses page and must be handed in by groups of 5 students. These assignments are mandatory.
────────────────
— McGill University, Economics 295B: Course Outline page 1—
5. Grading. There are three parts to your final course grade:
1. There will be three optional quizzes in this course. Each quiz is worth 10% of your final grade. The quizzes must be done online on MEL and must be done on a
McGill computer with a physical internet connection. The dates and times for the quizzes are as follows:
Quiz #1:
Quiz #2:
Quiz #3:
Wednesday
Wednesday
Wednesday
February 6
March 13
April 10
9 pm – 10 pm (Chapters 19-22)
9 pm – 10 pm (Chapters 23-26)
9 pm – 10 pm (Chapters 27-30)
2. There will be three mandatory assignments in this course. Students must hand in joint assignments (with groups of five students). Each assignment is worth 4% of each student’s final grade. No late assignments will be accepted.
3. The final exam will be scheduled by the University during the April exam period.
Your grade on this exam will constitute (88-10Q)% of your final course grade, where Q is the number of optional quizzes taken.
6. Diversification. Note that you have a choice regarding how you will be graded in this course.
Less effort – greater risk:
Greater effort – less risk:
take the 88% final exam take all three quizzes and the 58% final exam
*****
────────────────
— McGill University, Economics 295B: Course Outline page 2—
II. General 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.
Theme #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, plenty of 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 average material 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.
*****
────────────────
— McGill University, Economics 295B: Course Outline page 3—
III.
Broad Course Outline
Part A: The Basics (~7 weeks)
Section 1. Introduction to 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: Topics Beyond the Basics (~5 weeks)
Section 6. Open-Economy Macroeconomics
Section 7. Government Debt and Deficits
Section 8. Labour Markets and Unemployment
Section 9. Wrap-Up and Review
*****
IV. Detailed Course Outline
Readings marked “RL” are from the Ragan/Lipsey textbook. Readings marked “MC” are posted on the course’s MyCourses page under the “extra readings” icon. Readings marked “MEL” are Additional
Topics that are found on the textbook’s MyEconLab website. Other readings can be found using the references given.
Part A: The Basics
Section 1.
Introduction to Macroeconomic Issues
(~2 weeks)
Topics Include:
definitions of key macroeconomic variables
the circular flow of income (income v. production v. expenditure)
the measurement of aggregate prices and quantities
Readings:
RL Chapters 19 and …show more content…
20
MEL “What Makes People Happy?”
────────────────
— McGill University, Economics 295B: Course Outline page 4—
Section 2.
The Real Economy in the Short Run
(~2 weeks)
Topics Include:
determinants of planned 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 Function in Canada”
MEL “Oil Prices and the Canadian Economy”
Section 3.
The Phillips Curve and the Adjustment Process
(~1 week)
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 accounting
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”
MC Christopher Ragan, “Two Policy Challenges Driven by Population Aging”, Policy
Options, October 2010.
Paul Krugman, “The Myth of Asia’s Miracle”, Foreign Affairs, December 1994.
────────────────
— McGill University, Economics 295B: Course Outline page 5—
Section 5.
Money, Monetary Policy, and Inflation
(~3 weeks)
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
MC Milton Friedman, “The Role of Monetary Policy”, American Economic Review, March
1968.
MC Christopher Ragan, “Why Monetary Policy Matters: A Canadian Perspective”, Bank of Canada Review, Winter 2006-07.
MC Christopher Ragan, “The Evolution of Canadian Monetary Policy: Good Ideas Through Natural
Selection”, 2012.
MEL “The U.S. Housing Collapse and the Financial Crisis of 2007-2008”
MEL “A Beginner’s Guide to the Stock Market”
MEL “The Costs of High Inflation”
Part B: Topics Beyond the Basics
Section 6.
Open-Economy Macroeconomics
(~1 week)
Topics Include:
balance of payments accounting
market-determined exchange rates
should we care about current-account deficits?
is there a “right” value for the exchange rate?
Readings:
RL Chapter 35
MC Interview with Jeffrey Sachs, World Economic Affairs, Winter 1999.
MC Interview with Milton Friedman, World Economic Affairs, Winter 1999.
MEL “Monetary Policy and the Exchange Rate in Canada”
────────────────
— McGill University, Economics 295B: Course Outline page 6—
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 debt
Readings:
RL Chapter
32
MC Interview with Paul Martin, World Economic Affairs, Autumn, 1997.
MC Christopher Ragan, “A Federal Budget Designed for the Times: The Economic Action Plan of
2009”, 2009
MEL “What Caused the Build-Up of Canada’s Public Debt?”
MEL “Budget Deficits and National Saving”
Section 8.
Labour Markets and Unemployment
(~1 week, time permitting)
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 Chapter 31
MEL “Understanding the Canada-U.S. Unemployment Gap”
MEL “Does Government Support of Specific Industries Really Create Jobs?”
Section 9.
Wrap-Up and Review
(~1 week, time permitting)
Topics Include:
putting the short run and long run in perspective
New Keynesian versus New Classical dogma
some recent history of macroeconomic ideas
Readings:
MC Interview with Paul Krugman, World Economic Affairs, Winter 1997.
MC Interview with John Kenneth Galbraith, World Economic Affairs, 1997.
*****
────────────────
— McGill University, Economics 295B: Course Outline page 7—
Winter 2013
Professor Christopher Ragan
Leacock 321-C
Economics 295B
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 10:00 am - 11:00 am. If you are unable to see me then, please speak to me to arrange an appointment.
2. Required Textbook and MyEconLab. The textbook for this class is the macroeconomics half of Economics, by C. Ragan and R. Lipsey (13th 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 …show more content…
textbook, you will receive pin-code access to MyEconLab, an on-line collection of questions and supplementary materials designed specifically for this textbook. MyEconLab 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, some of which we will use in this course.
For students who have a used copy of the textbook: pin-code access to MyEconLab can be purchased separately from Paragraphe bookstore.
Note that the three (optional) mid-term quizzes can only be done within MyEconLab so it is strongly recommended that you have access to it.
The MyEconLab registration number for this course is XL14-M1XG-401Y-0Z62.
3. Supplementary Readings. Several supplementary readings will be placed on the course’s
MyCourses page. I will also assign several of the Additional Topics that have been written to accompany this textbook. They are only available on the MyEconLab site.
4. Assignments. There will be three assignments for this class. They will be posted on the course’s
MyCourses page and must be handed in by groups of 5 students. These assignments are mandatory.
────────────────
— McGill University, Economics 295B: Course Outline page 1—
5. Grading. There are three parts to your final course grade:
1. There will be three optional quizzes in this course. Each quiz is worth 10% of your final grade. The quizzes must be done online on MEL and must be done on a
McGill computer with a physical internet connection. The dates and times for the quizzes are as follows:
Quiz #1:
Quiz #2:
Quiz #3:
Wednesday
Wednesday
Wednesday
February 6
March 13
April 10
9 pm – 10 pm (Chapters 19-22)
9 pm – 10 pm (Chapters 23-26)
9 pm – 10 pm (Chapters 27-30)
2. There will be three mandatory assignments in this course. Students must hand in joint assignments (with groups of five students). Each assignment is worth 4% of each student’s final grade. No late assignments will be accepted.
3. The final exam will be scheduled by the University during the April exam period.
Your grade on this exam will constitute (88-10Q)% of your final course grade, where Q is the number of optional quizzes taken.
6. Diversification. Note that you have a choice regarding how you will be graded in this course.
Less effort – greater risk:
Greater effort – less risk:
take the 88% final exam take all three quizzes and the 58% final exam
*****
────────────────
— McGill University, Economics 295B: Course Outline page 2—
II. General 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.
Theme #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, plenty of 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 average material 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.
*****
────────────────
— McGill University, Economics 295B: Course Outline page 3—
III.
Broad Course Outline
Part A: The Basics (~7 weeks)
Section 1. Introduction to 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: Topics Beyond the Basics (~5 weeks)
Section 6. Open-Economy Macroeconomics
Section 7. Government Debt and Deficits
Section 8. Labour Markets and Unemployment
Section 9. Wrap-Up and Review
*****
IV. Detailed Course Outline
Readings marked “RL” are from the Ragan/Lipsey textbook. Readings marked “MC” are posted on the course’s MyCourses page under the “extra readings” icon. Readings marked “MEL” are Additional
Topics that are found on the textbook’s MyEconLab website. Other readings can be found using the references given.
Part A: The Basics
Section 1.
Introduction to Macroeconomic Issues
(~2 weeks)
Topics Include:
definitions of key macroeconomic variables
the circular flow of income (income v. production v. expenditure)
the measurement of aggregate prices and quantities
Readings:
RL Chapters 19 and …show more content…
20
MEL “What Makes People Happy?”
────────────────
— McGill University, Economics 295B: Course Outline page 4—
Section 2.
The Real Economy in the Short Run
(~2 weeks)
Topics Include:
determinants of planned 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 Function in Canada”
MEL “Oil Prices and the Canadian Economy”
Section 3.
The Phillips Curve and the Adjustment Process
(~1 week)
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 accounting
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”
MC Christopher Ragan, “Two Policy Challenges Driven by Population Aging”, Policy
Options, October 2010.
Paul Krugman, “The Myth of Asia’s Miracle”, Foreign Affairs, December 1994.
────────────────
— McGill University, Economics 295B: Course Outline page 5—
Section 5.
Money, Monetary Policy, and Inflation
(~3 weeks)
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
MC Milton Friedman, “The Role of Monetary Policy”, American Economic Review, March
1968.
MC Christopher Ragan, “Why Monetary Policy Matters: A Canadian Perspective”, Bank of Canada Review, Winter 2006-07.
MC Christopher Ragan, “The Evolution of Canadian Monetary Policy: Good Ideas Through Natural
Selection”, 2012.
MEL “The U.S. Housing Collapse and the Financial Crisis of 2007-2008”
MEL “A Beginner’s Guide to the Stock Market”
MEL “The Costs of High Inflation”
Part B: Topics Beyond the Basics
Section 6.
Open-Economy Macroeconomics
(~1 week)
Topics Include:
balance of payments accounting
market-determined exchange rates
should we care about current-account deficits?
is there a “right” value for the exchange rate?
Readings:
RL Chapter 35
MC Interview with Jeffrey Sachs, World Economic Affairs, Winter 1999.
MC Interview with Milton Friedman, World Economic Affairs, Winter 1999.
MEL “Monetary Policy and the Exchange Rate in Canada”
────────────────
— McGill University, Economics 295B: Course Outline page 6—
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 debt
Readings:
RL Chapter
32
MC Interview with Paul Martin, World Economic Affairs, Autumn, 1997.
MC Christopher Ragan, “A Federal Budget Designed for the Times: The Economic Action Plan of
2009”, 2009
MEL “What Caused the Build-Up of Canada’s Public Debt?”
MEL “Budget Deficits and National Saving”
Section 8.
Labour Markets and Unemployment
(~1 week, time permitting)
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 Chapter 31
MEL “Understanding the Canada-U.S. Unemployment Gap”
MEL “Does Government Support of Specific Industries Really Create Jobs?”
Section 9.
Wrap-Up and Review
(~1 week, time permitting)
Topics Include:
putting the short run and long run in perspective
New Keynesian versus New Classical dogma
some recent history of macroeconomic ideas
Readings:
MC Interview with Paul Krugman, World Economic Affairs, Winter 1997.
MC Interview with John Kenneth Galbraith, World Economic Affairs, 1997.
*****
────────────────
— McGill University, Economics 295B: Course Outline page 7—