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Principles of Macroeconomics

Objectives

The course objectives are to study the main macroeconomic variables and to provide a first approach to the modelling of the economy in the short and the long run. At the end of the semester, students should be able to define the main macroeconomic variables and understand the central effects of macroeconomic policy, both in the short and in the long run. Students should also become familiar with fundamental data on the Portuguese economy.

General characterization

Code

1101

Credits

7.5

Responsible teacher

Jose Ferreira Machado | Jose Miguel Costa

Hours

Weekly - Available soon

Total - Available soon

Teaching language

Portuguese and English

Prerequisites

N/A

Bibliography

Required reading:

Parkin M., Economics, 12th edition, Pearson, 2016. (P)

Alternative references (for those that already have these books):

  • Krugman P. and R. Wells, Economics, 3rd edition, Worth Publishers, 2013. (KW)
  • Lipsey R. and A. Chrystal, Economics, 13th edition, Oxford Univ. Press, 2015. (LC)
  • Parkin M., Economics, 8th edition, Pearson, 2008. (P)

Resources

All the relevant course material and information related with the course are available in Moodle, at http://moodle.novasbe.pt

Teaching method

Teaching will be based on the main textbook, which provides a comprehensive discussion of the main macroeconomic themes at an introductory level. The book will support the introduction of the fundamental macroeconomic models in a simplified way, mainly making use of graphical analysis. The use of the main textbook will be complemented with discussions on the recent evolution of actual data (in particular on the Portuguese economy) and on current real-world debates, which shall motivate the use of the models studied in class and help students develop their critical analysis.

Evaluation method

The assessment is based on problem sets (10%), midterms (25%) and a final exam (65%).

Regular Exam Period:

The final grade is calculated as follows:

Final Grade = 10% × Problem Sets + 25% × Best Midterm + 65% × Final Exam

  • Problem sets: average of 2 problem sets (to be done in groups of 3 or 4 students).
  • Two midterms: only the best score is considered for the final grade.
  • Final exam: minimum of 8.5 in 20.

Resit Exam Period:

For the resit/special season the final grade is calculated as in the regular exam period.

Grade Improvement:

For grade improvements (independently of the exam period) the final grade may correspond exclusively to the exam grade, if the student explicitly shows this preference in written form, in the beginning of the exam. If there is no explicit choice, the grade will be calculated as in the regular exam period.

Subject matter

  • 1. Introduction:

    a. Economic issues and concepts: production possibilities and opportunity cost; demand and supply.

    b. Main issues in macroeconomics.

    c. Some data on the Portuguese economy.

    Readings: P (Ch. 1-3) KW (Ch. 1-3, 21) LC (Ch. 1-2, 15)

  • 2. Measuring the main economic aggregates:

    a. Output and economic growth: circular flow of income and National Accounts.

    b. Price level: real variables vs. nominal variables; price indices.

    c. Jobs: participation and unemployment; labor market flows.

    Readings: P (Ch. 21-22) KW (Ch. 22-23) LC (Ch. 15)

  • 3. Long-run trends:

    a. Economic growth.

    b. Savings, investment and the financial system.

    c. Money, the price level, and inflation.

    Readings: P (Ch. 23-25) KW (Ch. 24-25, 29) LC (Ch. 26, 18)

  • 4. Short-run fluctuations:

    a. Aggregate supply and aggregate demand.

    b. The Keynesian multiplier.

    c. Supply and demand shocks.

    Readings: P (Ch. 27-29) KW (Ch. 26-27, 31) LC (Ch. 16, 21-23)

  • 5. Macroeconomic Policy:

    a. Fiscal policy. Changes in taxes and public expenditure. Government budget constraint. Budget deficit and public debt.

    b. Monetary policy. Objectives, tools and transmission mechanism. Rules vs discretion. Lucas critique.

    c. Exchange rate and balance of payments.

    Readings: P (Ch. 30-31, 26) KW (Ch. 28, 30, 32-34) LC (Ch. 25, 24)