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   Course Title    Intermediate Macroeconomics
Lecturer    Stela Raleva
Institution    University of National and World Economics
Country    Bulgaria


  1. Aim of the course

The Intermediate Macroeconomics course is designed for students who have already taken courses in Micro-, Macro- and International Economics. It aims to present the foremost achievements of Macroeconomic theory and its role to understanding the controversial macroeconomic reality. Therefore, the course objective is to reveal theoretic grounding and practical implications of Macroeconomic theory to the varied settings of Macroeconomic Policies. The primary target of the course is the ability of students to undertake macroeconomic analysis of real world situations focusing on the application of theoretical models and the assessment of different beliefs and visions in creating macroeconomic policies in the existing economic environment.

  1. Role of the course in the overall degree curriculum

This course is one of the fundamental required courses in the curriculum of the undergraduate program. It is designed to expand and improve knowledge from the course of Basic Macroeconomics and to prepare students for the "advanced skills" assumed in our graduate courses in Macroeconomics Analysis and Applied Macroeconomics

  1. Methods used

The teaching strategy incorporates traditional lectures and seminars. Lectures do not cover everything in the mandatory text but include some ideas and terms not discussed in the book. On the other hand, some topics presented in the book are just applications of the basic ideas and the students have to prepare them without prior explanation.

Seminars enforce and extend the areas covered in the lectures. The seminar activities are mixture of covering prepared work and seminar discussion topics. This requires the students read not only the mandatory text and recommended textbooks, but to engage in extensive reading of recommended articles, books, clippings, etc. and making appropriate use of current empirical evidence. During the course each student has to prepare a course assignment oriented to practical implications of main theoretical issues and ideas.

  1. Course Content

The course is structured within 90 hours of lectures and seminars (4 hours lectures and 2 hours seminars a week for one term) and cover the following topics:

Week 1 : Introduction to Intermediate Macroeconomics.

Three main macroeconomic models: long-run, medium-run and short-run models. Long-run economic behavior and economic growth. The economy with fixed productive capacity: medium- and short-run analysis. Main macroeconomic problems and contemporary macroeconomic theories: keynesian and new-keynesian theories, monetarism, rational expectations theory, real business-cycle theory, supply-side theory, structuralism and etc.

Week 2: Measuring Output and the Price Level

Gross domestic product(GDP). The circular flow of expenditure and income. Different ways to measure GDP: the expenditure method, the factor incomes method and the output (value-added) method. Value-added and double counting. Gross national income (GNI) and net national income (NNI). Gross national disposable income (GNDI) and net national disposable income (NNDI). Gross national product (GNP) and net economic welfare (NEW). Nominal versus real variables. Price indexes and inflation.

Week 3: Output and price level determination: Aggregate supply and aggregate demand

Aggregate supply(AS). Determinants of aggregate supply: the production function, the demand for labor and the supply of labor. Income and substitution effects. Classical and keynesian approaches to aggregate supply. Aggregate supply in the short run and in the long run. Aggregate demand(AD). Determinants of aggregate demand. Aggregate supply-aggregate demand equilibrium. The classical-keynesian policy debate.

Week 4: Aggregate expenditure. Consumption expenditure and saving.

Components of aggregate expenditure: relative importance and volatility. Consumption expenditure. The Keynesian consumption function. Average and marginal propensities to consume and to save. The aggregate consumption function. Permanent income and life cycle theories of consumption. Consumption under uncertainty. Liquidity constraints and myopia. Saving. Business saving and household saving. National saving. Consumption, saving and interest rate.

Week 5: Aggregate expenditure. Investment and net export.

Investment. Stock and flow concepts. Fixed business investment, inventory investment and investment in residual structure. Depreciation. Gross and net investment. Factors affecting investment: the rate of interest. The accelerator theory. The basic classical model of investment determination. Household investment decisions. Uncertainty. Taxation and subsidization of investment. The "crowding out" debate. Export, import and net export. Determinants of net export.

Week 6: Government expenditure and taxation.

Government expenditures and revenues. Government debt and budget deficit. Effects of changes in government revenues and taxes. A temporary and a permanent tax-financed increases in government expenditure. The crowding out effect. The Ricardian equivalence. Government budget deficit in the absence of and in overlapping generation models. Taxation. Direct or indirect taxes. The rate of taxation and the tax base. Impact of taxes on incentives to work, save and take risk.

Week 7: Expenditure and income. Equilibrium expenditure and the multiplier.

Aggregate expenditure and real GDP. Autonomous and induced aggregate expenditure. The marginal propensity to spend. Equilibrium expenditure and convergence to equilibrium. Changes in autonomous expenditure and in the marginal propensity to spend. The paradox of thrift. Multipliers of autonomous aggregate expenditure in closed and in open economies. Equilibrium expenditure and the price level. Equilibrium expenditure and AS-AD equilibrium.

Week 8: Money, financial markets and banking.

Money: nature and functions. Components of the money stock. The demand for money. The Baumol-Tobin model of transactions demand for money. Precautionary and speculative motives for holding money. The income velocity of money and the quantity theory. Financial intermediaries. Functions of the commercial banks and other financial intermediaries. The simple money multiplier and creating money. Money base and money multipliers.

Week 9: The central bank and monetary policy

Functions of the central bank. Central bank operation and the monetary base. Open market operations, discount rate, reserve requirements and foreign-exchange operations. Money supply and the government budget constraint. The money market equilibrium. Equilibrium interest rate and real money. Money, credit and interest rate. Targets of the central bank: monetary base, inflation and nominal GDP targeting.

Week 10: Equilibrium in the goods and money markets. The IS-LM model.

Money, interest rate and aggregate demand. Effectiveness and time lags of monetary policy. Monetary transmission mechanisms. Fiscal and monetary policy interaction. The keynesian-monetarist controversy. The goods market and the IS curve. The money market and the LM curve. IS-LM equilibrium and aggregate demand. The IS-LM equilibrium and monetary and fiscal policies in a closed economy. The IS-LM model for the open economy with fixed and with flexible exchange rates.

Week 11: Unemployment

Labor force, employment and unemployment. Measuring unemployment. Frictional, structural and cyclical unemployment. Natural rate of unemployment and full employment. The Okun' s law. Classical and keynesian approaches to unemployment. Unemployment with flexible and with sticky wages. Factors, affecting contemporary unemployment: real wages, unemployment benefits, demand deficient and new technology. The costs of unemployment.

Week 12: Inflation and expectation.

Definition and measurement. Low inflation, high inflation and hyperinflation. Perfectly anticipated and imperfectly anticipated inflation. Monetary theory of inflation. Quantity theory and expectation-augmented Phillips curve. Inflation and rational expectation. The Cagan' s model of hyperinflation. The non-monetary theories of inflation. Trade unions and wage push. Import prices and real wage resistance. The policy implication of monetary and non-monetary theories of inflation. The political economy of inflation.

Week 13: Business cycle

Theory and evidence of business cycle. Alternative concepts of business cycle: money-credit, investment, endogenous, exogenous, new-keynesian and new-classical theories. The pure inventory cycle, the multiplier-accelerator model and policy shocks. The real business cycle theory. The theories of wage and price rigidities.

Week 14: Economic growth

Measurement and factors. Economic growth and business cycle. Development of the theory of economic growth. The keynesian and the new-keynesian theories of growth. The new-classical theory of growth. Macroeconomic policy to promote growth. Investment and saving. Labor services. Structural changes and productivity. International trade, exchange rate and economic growth.

Week 15: Macroeconomic stabilization policy

Nature and targets of macroeconomic policy: full employment, steady economic growth, low inflation, stable exchange rate and balanced international trade. The Timbergen framework. Macroeconomic policy instruments. Lags in the effects of policy. The rational expectation critique to the theory of economic policy. Uncertainty and economic policy. Rules versus discretion and dynamic inconsistency.

  1. Readings

A/ Mandatory

  1. Sttatev St. Macroeconomics, University of National and World economy, Postgraduate school, Sofia, 1999.
  2. Dornbusch R., Fischer St. and Startz R. Macroeconomics, 7-th ed., Irwin McGraw-Hill, 1998.
  3. Sachs J. and Larrian B. Macroeconomics in the Global Economy, Prentice-Hall, 1993.
  4. Parkin M. and Bade R. Modern Macroeconomics, 2-nd ed., Phillip Allan, Hertfordshire, 1988.

B. Recommended:

  1. Barro R. Macroeconomics, 4-th ed., John Wiley and Sons, New York, 1993.
  2. Gordon R. Macroeconomics, Harper Collins, 1993.
  3. Hall R and Taylor J. Macroeconomics: theory, performance and policy, W.W. Norton and Company, 1988.
  4. Griffiths A. and Wall St. (ed.) Applied Economics, 5-th ed., Longman Group, 1993.


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