Core Course 3: Introductory Macroeconomics
This course provides an overview of the economy as a whole, introducing key variables like GDP, inflation, and unemployment, and analyzing models of income determination.
Course Content Details
1. Introduction to Macroeconomics and National Income Accounting
This unit introduces the core issues of macroeconomics, such as economic growth, business cycles, inflation, and unemployment. A major focus is on National Income Accounting, which provides the framework for measuring economic activity. We will learn how to calculate Gross Domestic Product (GDP) using different approaches and understand the distinction between nominal and real GDP.
Key Topics:
- The Circular Flow of Income
- Measuring GDP: The Production, Expenditure, and Income Approaches
- Nominal vs. Real GDP and the GDP Deflator
- Limitations of GDP as a measure of well-being
- Other Measures of Income (GNP, NNP, etc.)
2. The Labour Market and Unemployment
This unit focuses on the labor market, a critical component of the macroeconomy. We will analyze how the unemployment rate is measured and discuss its different types: frictional, structural, and cyclical. The concept of the natural rate of unemployment will be introduced, along with an exploration of the economic and social costs of unemployment.
Key Topics:
- Measuring Unemployment and the Labor Force Participation Rate
- Frictional, Structural, and Cyclical Unemployment
- The Natural Rate of Unemployment
- The Costs of Unemployment
- Classical and Keynesian Views on Unemployment
3. Money, Inflation, and the Financial System
This unit explores the roles of money and the financial system in an economy. We will discuss the functions of money, how the money supply is measured, and the role of the central bank in controlling it. We will also analyze the causes and consequences of inflation, the general rise in the price level, and its relationship with the quantity of money.
Key Topics:
- The Functions and Types of Money
- The Role of the Central Bank and Commercial Banks
- The Money Multiplier and the Creation of Money
- The Quantity Theory of Money
- Causes and Costs of Inflation
4. The Closed Economy in the Short Run (IS-LM Model)
This unit introduces the workhorse model of short-run macroeconomic analysis: the IS-LM model. The model provides a framework for understanding the simultaneous determination of national income and the interest rate. The IS curve represents equilibrium in the goods market, while the LM curve represents equilibrium in the money market. Their intersection determines the overall short-run equilibrium.
Key Topics:
- The Keynesian Cross Model of Income Determination
- Derivation and Properties of the IS Curve (Investment-Saving)
- Derivation and Properties of the LM Curve (Liquidity preference-Money supply)
- Short-Run Equilibrium in the IS-LM Model
- Analyzing Shocks with the IS-LM Framework
5. Fiscal and Monetary Policy
Building on the IS-LM model, this unit analyzes the two main tools of macroeconomic policy. Fiscal policy involves the government's decisions regarding spending and taxation. Monetary policy refers to the central bank's actions to influence the money supply and interest rates. We will use the IS-LM framework to see how these policies can be used to stabilize the economy.
Key Topics:
- How Fiscal Policy (Government Spending, Taxes) shifts the IS Curve
- How Monetary Policy (Money Supply) shifts the LM Curve
- The Government Expenditure and Tax Multipliers
- Effectiveness of Fiscal and Monetary Policy
- Introduction to Aggregate Demand (derived from IS-LM)