Core Course 9: Intermediate Macroeconomics-II

This course explores the microeconomic foundations of macroeconomic behavior, along with key topics like inflation, growth, and business cycles.

Course Content Details

1. Microfoundations of Consumption and Investment

This unit delves into the individual decision-making that underlies aggregate consumption and investment. We move beyond the simple Keynesian consumption function to explore intertemporal choice models, such as Fisher's model and the life-cycle/permanent-income hypotheses. Similarly, we analyze the factors that drive a firm's investment decisions, such as the user cost of capital.

Key Topics:

  • The Fisher Model of Intertemporal Choice
  • The Life-Cycle and Permanent-Income Hypotheses for Consumption
  • Theories of Investment: Tobin's q and the Accelerator Model
  • The User Cost of Capital

2. The Phillips Curve and the Inflation-Unemployment Tradeoff

This unit examines the relationship between two of the most critical macroeconomic variables: inflation and unemployment. We start with the original Phillips Curve, which suggested a stable tradeoff. We then introduce the role of expectations, leading to the expectations-augmented Phillips Curve and the concept of a long-run vertical Phillips Curve at the natural rate of unemployment (NAIRU).

Key Topics:

  • The Original Phillips Curve
  • The Role of Inflationary Expectations
  • The Short-Run and Long-Run Phillips Curve
  • The Natural Rate of Unemployment (NAIRU)
  • The Sacrifice Ratio

3. Economic Growth: The Solow Model

This unit shifts the focus from short-run fluctuations to long-run economic growth, the primary driver of living standards. We develop the Solow Growth Model, which shows how capital accumulation, population growth, and technological progress determine a country's output per worker in the long run. We will analyze the steady state of the economy and how changes in saving rates and technology affect it.

Key Topics:

  • The Production Function and the Accumulation of Capital
  • The Steady State in the Solow Model
  • The Effects of Saving and Population Growth
  • The Golden Rule Level of Capital
  • The Role of Technological Progress

4. Business Cycles and Macroeconomic Policy Debates

The final unit returns to short-run fluctuations, or business cycles. We will discuss different theories of business cycles, including Real Business Cycle (RBC) theory. This leads into a broader discussion of major debates in macroeconomics, such as the effectiveness of policy activism versus fixed rules, and the debate over time consistency and central bank independence.

Key Topics:

  • Facts about the Business Cycle
  • Real Business Cycle (RBC) Theory
  • The Policy Debate: Rules vs. Discretion
  • The Time Inconsistency Problem
  • Debates over the Government Debt and Deficits

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