McGILL UNIVERSITY Department of Economics ECON 295-002 INTRODUCTION TO MACROECONOMIC POLICY 1 WINTER 2018 Instructor: Moshe Lander E-mail: moshe.lander@mcgill.ca Phone: 514-398-2102 Office Location: LEA 526 Office Hours: TR 11:30 12:45 Lecture Hours: W 18:05 20:55 Lecture Location: BRONF 151 Teaching Assistant: Miss Sophia Lebeau (sophia.lebeau@mcgill.ca) Teaching Assistant: Miss Peta-Gay Fairclough Campbell (peta-gay.faircloughcampbell@mcgill.ca) Course Overview: This applied macroeconomics course focuses on current and recurrent macroeconomic issues important in understanding the public policy environment in which firms make their decisions. Topics include national accounts; national income determination; economic growth and fluctuations; money, monetary policy and financial markets; international trade and finance. Course Pre- and Co-requisites: MGCR 293 Course Restrictions: For BComm students only Not open to students who have taken or are taking ECON209, ECON 330 or ECON 352 Number of Credits: 3 credits Required Textbook and Materials: Mankiw, N.G., R.D. Kneebone and K.J. McKenzie. Principles of Macroeconomics, 7 th Canadian Edition. Nelson Education Ltd., 2017. Purchase your preferred textbook format at www.nelsonbrain.com/shop/isbn/9780176591991. A copy of this textbook is on reserve at the Humanities and Social Sciences Library. 1 In the event of extraordinary circumstances beyond the University s and/or instructor s control, the content and/or evaluation scheme in this course is subject to change. Announcements will be made in class and/or mycourses. 1
Correspondence: All correspondence in this class will be directed through McGill email addresses only. Any email coming from any other address will be directed to spam immediately and will neither be read nor answered. If you have not activated your account already, please follow the instructions at www.mcgill.ca/it/get-started-it/students. Course Assessment: COMPONENT WEIGHT CONTENT DATE Midterm 1 Midterm 2 Final 30 percent 30 percent 40 percent Chapters 1 6 Chapters 7 11 Chapters 12 17 February 7 February 28 TBD Exams: There are two midterm exams, written during class time and a final exam, written during the final exam period. Midterm exams start at 18:05 and end by 20:55. A calculator is permitted for each exam. All exams contain multiple choice and short-answer questions involving algebra, equations and interpretation. Each exam only covers material from the relevant third of the course. However, the course material is inherently cumulative so students are expected to know the material from previous chapters (see Lecture Schedule and Assigned Readings on the next page). There are no supplemental assignments or make-up exams in this class. Grade Criterion: Letter Points Percent Letter Points Percent Letter Points Percent A 4.0 85 100 B 3.0 70 74 C 2.0 55 59 A- 3.7 80 84 B- 2.7 65 69 D 1.0 50 54 B+ 3.3 75 79 C+ 2.3 60 64 F 0.0 00 49 The official grade in this course is the letter grade. Where appropriate, a class average appears on transcripts expressed as the letter grade most representative of the class performance. Students must obtain a grade of C or better in cases where this course fulfills program requirements. Instructional Method: I have been told that my lecture style is fast-paced and intense but engaging and humorous. Although students often find that this style makes the concepts easier to understand, they are often disappointed when they fail to perform to the level to which they are accustomed on my exams. My exams tend to reward those that are sufficiently knowledgeable of the underlying concepts and have developed an intuitive approach to the material. Memorisation is almost never rewarded. To give you the best chance for success in my course, I strongly encourage you to come prepared and on time, avoid absences, participate regularly with a positive attitude, read the relevant materials before class and do the assigned homework before the subsequent class, dress appropriately and identify problems and seek help as soon as they occur. 2
Lecture Schedule and Assigned Readings: DATE EVENT COVERAGE January 10 Ten Principles of Economics Thinking like an Economist Chapter 1 Chapter 2 January 17 Interdependence and the Gains from Trade The Market Forces of Supply and Demand Chapter 3 Chapter 4 January 24 Measuring a Nation s Income Chapter 5 January 31 Measuring the Cost of Living Production and Growth Chapter 6 Chapter 7 February 7 MIDTERM 1 Chapters 1 6 February 14 Saving, Investment and the Financial System Unemployment and its Natural Rate Chapter 8 Chapter 9 February 21 The Monetary System Money Growth and Inflation Chapter 10 Chapter 11 February 28 MIDTERM 2 Chapters 7 11 March 7 CLASS CANCELLED March 14 Open Economy Macroeconomics: Basic Concepts Chapter 12 March 21 A Macroeconomic Theory of the Small Open Economy Chapter 13 March 28 Aggregate Demand and Aggregate Supply Chapter 14 April 4 The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 15 April 11 The Short-Run Tradeoff between Inflation and Unemployment Five Debates over Macroeconomic Policy Chapter 16 Chapter 17 TBD FINAL EXAM Chapters 12 17 Course Objectives / Learning Outcomes: Chapter 1 Learn that economics is about the allocation of scarce resources Examine some of the tradeoffs that people face Learn the meaning of opportunity cost See how to use marginal reasoning when making decisions Discuss how incentives affect people s behaviour Consider why trade among people or nations can be good for everyone Discuss why markets are good, but not perfect, way to allocate resources Chapter 2 See how economists apply the methods of science Consider how assumptions and models can shed light on the world Learn two simple models the circular flow and the production possibilities frontier Distinguish between microeconomics and macroeconomics Learn the difference between positive and normative statements Examine the role of economists in making policy 3
Chapter 3 Consider how everyone can benefit when people trade with one another Learn the meaning of absolute advantage and comparative advantage See how comparative advantage explains the gains from trade Apply the theory of comparative advantage to everyday life and national policy Chapter 4 Learn the nature of a competitive market Examine what determines the supply and demand for a good in a competitive market See how supply and demand together set the price of a good and the quantity sold Consider the key role of prices in allocating scarce resources in market economies Chapter 5 Consider why an economy s total income equals its total expenditure Learn how gross domestic produce (GDP) is defined and calculated See the breakdown of GDP into its four major components Learn the distinction between real GDP and nominal GDP Chapter 6 Learn how the consumer price index (CPI) is constructed Compare the CPI and the GDP deflator as imperfect measures of the overall price level See how to use a price index to compare dollar figures from different times Learn the distinction between real and nominal interest rates Chapter 7 See how economic growth differs around the world Consider why productivity is the key determinant of a country s standard of living Analyse the factors that determine a country s productivity Examine how a country s policies influence its productivity growth Chapter 8 Learn about some of the important financial institutions in the Canadian economy Consider how the financial system is related to key macroeconomic variables Develop a model of the supply and demand for loanable funds in financial markets Use a model to analyse various government policies Consider how government budget deficits and surpluses affect the Canadian economy Chapter 9 Learn about the data used to measure the amount of unemployment Consider how unemployment arises from the process of job search, minimum-wage laws, bargaining between firms and unions and when firms choose to pay efficiency wages Chapter 10 Consider the nature of money and its functions in the economy Learn about the Bank of Canada and the tools it uses to alter the supply of money Study how the banking system helps determine the supply of money 4
Chapter 11 See why inflation results from rapid growth in the money supply Learn the meaning of the classical dichotomy and monetary neutrality See why some countries print so much money that they experience hyperinflation Examine how the nominal interest rate responds to the inflation rate Consider the various costs that inflation imposes on society Chapter 12 Learn how net exports measure the international flow of goods and services Learn how net capital outflow measures the international flow of capital Consider why net exports must always equal net capital outflow See how saving, domestic investment and net foreign investment are related Learn the meaning of the nominal exchange rate and the real exchange rate Examine purchasing power parity as a theory of how exchange rates are determined Learn that Canada is a small open economy and the implications of perfect capital mobility Chapter 13 Build a model to explain an open economy s trade balance and exchange rate Use the model to analyse the effects of government budget deficits, trade policies, political instability and capital flight Chapter 14 Learn three key facts about short-run economic fluctuations Consider how the economy in the short run differs from the economy in the long run Use the model of aggregate demand and aggregate supply to explain economic fluctuations See how shifts in aggregate demand or aggregate supply can cause booms and recessions Chapter 15 Learn the theory of liquidity preference as a short-run theory of the interest rate Analyse how monetary policy affects interest rates and aggregate demand in open and closed economies Analyse how fiscal policy affects interest rates and aggregate demand in open and closed economies Discuss the debate over whether policymakers should try to stabilise the economy Chapter 16 Learn why policymakers face a short-run tradeoff between inflation and unemployment Consider why the inflation-unemployment tradeoff disappears in the long run See how supply shocks can shift the inflation-unemployment tradeoff Consider the short-run cost of reducing the rate of inflation See how policymakers credibility might affect the cost of reducing inflation Chapter 17 Should policymakers try to stabilise the economy? Should monetary policy be made by rule rather than by discretion? Should the central bank aim for zero inflation? Should fiscal policymakers reduce the government debt? Should the tax laws be reformed to encourage saving? 5
Language of Submission: In accordance with McGill University s Charter of Students Rights, students in this course have the right to submit in English or in French any written work that is to be graded. Academic Integrity: McGill University values academic integrity. Therefore, all students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Code of Student Conduct and Disciplinary Procedures. Text-Matching Software: As per McGill University s Policy on Text-Matching Software, this course uses such software. Item 2 of the Policy states, in part, that, Students shall also be informed in writing before the end of the drop/add period that they are free, without penalty of grade, to choose an alternative way of attesting to the authenticity of their work. Instructors shall provide students with at least two possible alternatives that are not unduly onerous and that are appropriate for the type of written work. If you prefer an alternative way of attesting to your work s authenticity be used, you may choose to Submit copies of multiple drafts; Submit photocopies of sources; Take an oral examination directed at issues of originality; or, Respond in writing to a quiz or questions directed at issues of originality. Student Assessment Policy: The University Student Assessment Policy exists to ensure fair and equitable academic assessment for all students and to protect students from excessive workloads. Students are encouraged to review this Policy, which addresses multiple aspects and methods of student assessment (eg, the timing of evaluation due dates and weighting of final examinations). Copyrighted Materials: Instructor-generated course materials (eg, handouts, notes, summaries, exam questions, etc.) are protected by law and may not be copied or distributed in any form or in any medium without explicit permission of the instructor. Note that infringements of copyright can be subject to follow up by the University under the Code of Student Conduct and Disciplinary Procedures. Inclusive Learning: While I endeavor to provide an inclusive learning environment, if you experience barriers to learning in this course, do not hesitate to discuss them with me and/or with the Office for Students with Disabilities. End-of-Course Evaluations: End-of-Course Evaluations are one of the ways that McGill works towards maintaining and improving the quality of courses and the student s learning experience. You will be notified by e-mail when the evaluations are available. Students Rights: Additional policies governing academic issues that affect students can be found in the Handbook on Student Rights and Responsibilities. 6