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Intermediate Macroeconomics

Purpose of Course  showclose

In this course, you will build on and apply what you learned in the introductory macroeconomics course (ECON102).   You will use the concepts of output, unemployment, inflation, consumption, and investment to study the dynamics of an economy at a more advanced level.   For example, now that you understand the relationship between supply and demand in general terms, you will be asked to examine the effects that short-run and long-run price changes have on full employment and output.  As the course progresses, you will gain a better appreciation for how policy shifts and changes in one sector impact the rest of the macroeconomy (whether the impacts are intended or unintended).  You will also examine the causes of inflation and depression, and discuss various approaches to responding to them.  By the end of this course, you should be able to think critically about the economy and develop your own unique perspective on various issues.

Remember that macroeconomics attempts to explain the role of government and the scope of total production in a national economy.  Economists use abstract quantitative tools to develop concepts about how markets and systems work; basic assumptions are made and then relaxed to create more flexible and realistic models.  This course will use a variety of mathematical techniques to describe how the macroeconomy changes over time.

Course Information  showclose

Welcome to Intermediate Macroeconomics!  This class presents a rigorous framework for developing economic analysis.  The material is detailed and relies heavily upon a variety of quantitative skills.  The course utilizes sophisticated mathematical techniques to explain basic underpinnings of macroeconomic theory.  While some of the concepts are similar to those in the introductory macroeconomics course, the material in this class develops more complex relationships and requires greater synthesis of abstract ideas.

For many economics majors, Intermediate Macroeconomics is their first exposure to developing abstract models about entire economic systems; however, remember to explore theory and policy applications.  For example, consider how a significant change in government policy causes a ripple effect throughout the entire economy. An abstract model may indicate one solution, but also think about the practical policy outcomes.  Reflect on the meaning of the models in a broader context and develop the ideas from both a business and social science perspective.

Below, please find general information on this course and its requirements. 

Course Designer:  Joy Zhao and Tony Pizur, Ph.D.

Primary Resources: This course is comprised of a range of different free, online materials.  However, the course makes primary use of the following materials:

Requirements for Completion: In order to complete this course, you will need to work through each unit and all of its assigned materials.  Listen to each of the lectures and read each of the assigned chapters from the text.  Problem sets will be offered in each unit to help you complete the final exam, which consists of 50 multiple-choice questions.

Note that you will only receive an official grade on your final exam.  However, in order to adequately prepare for this exam, you will need to work through the quizzes and problem sets listed above.  In order to “pass” this course, you will need to earn a 70% or higher on the final exam.  Your score on the exam will be tabulated as soon as you complete it.  If you do not pass the exam, you may take it again.

Time Commitment: This course should take you a total of 90.5 hours to complete.  Each unit includes a “time advisory” that lists the amount of time you are expected to spend on each subunit.  These should help you plan your time accordingly.  The required time to complete the course depends greatly on your proficiency in multi-variable calculus.  Those students with a stronger quantitative background should find that information is presented in a straightforward fashion and that each unit should take approximately the listed time advisory to complete.  Those students needing to further develop their calculus skills may take considerably longer to complete the course; it is possible to ponder a single equation for some time.  It may be useful to take a look at these time advisories and to determine how much time you have over the next few weeks to complete each unit, and then to set goals for yourself based upon your proficiency with calculus.  For example, unit 1 should take you about 17 hours to complete.  Perhaps you can sit down with your calendar and decide to complete subunit 1.1 (a total of 3 hours) on Monday, subunit 1.2 (a total of 4 hours) on both Tuesday and Wednesday, etc.

Tips/Suggestions: As noted in the “Course Requirements,” multi-variable calculus (MA103) is a pre-requisite for this course.  If you are struggling with the mathematics as you progress through this course, consider taking a break to revisit MA103, focusing especially on optimization techniques.  Do not get discouraged if some of the equations look daunting; try to break them down and understand what they mean in terms of theory or applications.  For example, you can write what a concept means in words and then compare it to how same ideas are expressed in an equation.  Usually, the individual terms (or parts) of an equation correspond to a particular theory or policy implication.  This should help you understand how the theory, policy issues, and quantitative methods relate to each other.  After a set time, perhaps 15 minutes, set any puzzling material aside and return to it later with a fresh perspective.  

Many of the assumptions in the models are somewhat unrealistic on first inspection.   For example, certain functions are used more for their differentiability rather than for their ability to describe real-world phenomena.  As you progress in economics, these assumptions can be relaxed to build models that better approximate the actual environment.



Learning Outcomes  showclose

Upon successful completion of this course, the student will be able to:

  • Explain the standard theory in macroeconomics at an intermediate level.
  • Explain and use the basic tools of macroeconomic theory, and apply them to help address problems in public policy.
  • Analyze the role of government in allocating scarce resources.
  • Explain how inflation affects entire economic systems.
  • Synthesize the impact of employment and unemployment in a free market economy.
  • Build macroeconomic models to describe changes over time in monetary and fiscal policy.
  • Compare and contrast arguments concerning business, consumers and government, and make good conjectures regarding the possible solutions.
  • Analyze the methods of computing and explaining how much is produced in an economy.
  • Apply basic tools that are used in many fields of economics, including uncertainty, capital and investment, and economic growth.

Course Requirements  showclose

In order to take this course, you must:

√    Have access to a computer.

√    Have continuous broadband Internet access.

√    Have the ability/permission to install plug-ins or software (e.g. Adobe Reader or Flash).

√    Have the ability to download and save files and documents to a computer.

√    Have the ability to open Microsoft files and documents (e.g. .doc, .ppt, .xls, etc.).

√    Be competent in the English language.

√    Have read the Saylor Student Handbook.

√    Have completed the following courses: ECON101: Principles of Microeconomics; ECON102: Principles of Macroeconomics; ECON103/MA101: Single-Variable Calculus I; MA103: Multivariable Calculus; ECON104/MA121: Introduction to Statistics.

Unit Outline show close


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  • Unit 1: Gross Domestic Product & Decisions Under Uncertainty  

    Gross Domestic Product (GDP) is the main measure economists use to explain how much an economy produces at any given time.  Over time, trends can be identified and patterns of growth and contraction can be seen.  Inflation, or the general rise of prices, affects how GDP is measured, and economists have to account for variations in measurement tools and approaches.  No one measurement system or technique is most accurate all of the time.  Different schools of thought consider how to calculate and interpret GDP from their own perspectives.
               
    Decisions are often made with incomplete knowledge under shifting economic, political, and social conditions.  Determining how best to estimate and compensate for uncertainty is a complex process; macroeconomists use mathematical techniques to approximate real-world choices and outcomes.  Decisions under uncertainty draw on a variety of techniques, including game theory, statistical analysis, and calculus.  

    Unit 1 Time Advisory   show close
    Unit 1 Learning Outcomes   show close
  • 1.1 Gross Domestic Product  
  • 1.2 Trends and Cycles  
  • 1.3 Decisions Under Uncertainty  
  • Unit 2: Output, Employment, and Unemployment  

    Individuals must make a choice between spending their time working or pursuing other activities like raising a family, leisure, or enhancing health and wellness.  When individuals offer their services for work, they receive a wage in exchange for giving up alternative choices.  Commensurate with the individual’s choice, firms must also demand labor for an employment market to exist.  When the wage individuals demand equals the wage offered by firms, equilibrium exists.
     
    The government is very active in most labor arrangements.  Aside from regulating the work environment, government typically provides minimum guarantees of wage, unemployment insurance, and a system of income in retirement.  Macroeconomists have various ways of modeling the trends, effects, and causes of unemployment.  Sustained high levels of unemployment may lead to societal difficulties. 

    Unit 2 Time Advisory   show close
    Unit 2 Learning Outcomes   show close
  • 2.1 Output and Employment  
  • 2.2 Business Cycle and Policies  
  • 2.3 Unemployment  
  • Unit 3: Consumption, Savings, Capital and Investment  

    Households are generally defined as the owners of all factors of production in an economy.  Since households provide the factor services of labor, land, capital, and ownership to businesses, they receive payment in the form of wages, rent, interest, and profits.  When we talk about “household behavior” in this unit, we mean the decisions that households make in various contexts—such as decisions concerning consumption, savings, investments in education and training.
     
    “Firm behavior” is primarily concerned with boosting efficiency and productivity in the production of goods and services.  The firm’s decision-making processes center upon technology, entrepreneurship, innovation, employment relations, outsourcing, and competition policy.  The interplay of decisions between households and firms is critical to maintaining a flow of goods, services, and incomes in a complex economy.  This unit focuses on the decisions made by households and firms, the factors the influence those decisions (such as the trade balance, and interest rates faced by firms), and their effects on the macroeconomy.
     
    Most of us are familiar with the interest paid on deposits or the interest paid on a mortgage.  This unit will discuss this concept in macroeconomic terms.  It will explain that individuals and firms need money in the present in order to operate, so when money is borrowed for use, a payment is made for its use over a period of time.  We call these payments interest rates.  As with the price of anything, if demand increases for the use of money, then its price (the interest rate) also rises.

    Unit 3 Time Advisory   show close
    Unit 3 Learning Outcomes   show close
  • 3.1 Consumption and Savings  
  • 3.2 Capital and Investment  
  • 3.3 IS-LM Analysis  
  • Unit 4: Fiscal Policy  

    Fiscal policy describes the government’s spending and taxing decisions.  The economic objective of government is to maximize social well-being while operating within a budget. The government’s role in the economy is complex, and economic models attempt to account for the far-reaching effects of policy decisions.  Simple one-period or static models lay the foundation for analyzing short-term effects of taxing and spending decisions.  Dynamic multiperiod models are then constructed to better explain the ripple effects of government policies.
     
    Every government faces the choice to either raise revenue through taxes or borrow funds by issuing bonds.  There is no one correct decision, and tradeoffs must be considered.  A well-thought-out policy will incorporate external factors like the current business cycle, international developments, and demographic changes.  For example, increased taxation tends to slow economic activity yet limits the amount of debt.  Aside from economic considerations, optimal tax and borrowing policies must factor in the political process.  A final policy is a compromise among many stakeholders, and good fiscal policy analysis is framed by political forces. 

    Unit 4 Time Advisory   show close
    Unit 4 Learning Outcomes   show close
  • 4.1 Static Models of Spending and Taxation  
  • 4.2 Dynamic Models of Spending and Taxation  
    • Reading: David Andolfatto’s Macroeconomic Theory & Policy, 2nd ed. “Chapter 6: Fiscal Policy: pages 142 to 151.”

      Link: David Andolfatto’s Macroeconomic Theory & Policy, 2nd ed. (PDF) “Chapter 6: Fiscal Policy: pages 142 to 151.”
       
      Instructions: When you click on the link above, you will be directed to an archive of the text.  Click on the PDF image at the top of the page to download the PDF file.  This is an Adobe Acrobat file that requires Adobe Acrobat Reader, which can be downloaded free at Adobe’s site.  Read chapter 6, pages 142 to 151.  Note: These are the page numbers of the document, not the PDF page numbers.  Think about how spending and taxation affect a dynamic model, as compared to the static ones in the last section.  Consider how different kinds of policies, like sustained interventions and shocks, affect the economy.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Lecture: iTunes U: Berkeley University’s Department of Economics: Steven Wood’s “Lecture 18.”

      Link: iTunes U: Berkeley University’s Department of Economics: Steven Wood’s “Lecture 18.” (iTunes U)
       
      Instructions: Click on the “View in iTunes” hyperlink for the item titled “Lecture 18.”  Listen to the entire lecture (75 minutes).
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.3 Taxes vs. Borrowing  
  • Unit 5: Monetary Policy  

    This unit will teach you how economists think about money.  For economists, money is something that produces money services—in other words, any commodity, document, token, or claim that can be used as a medium of exchange and that people demand for that purpose.  If the value of a given asset rises because people demand its services, we call that asset “money” or “money assets.” Over time, as different demands for money services arise, new instruments emerge to supply those services.  This unit looks at the different motives for demanding money and different forms used to supply the demand. We also explore the role of institutions in regulating money.

    Unit 5 Time Advisory   show close
    Unit 5 Learning Outcomes   show close
  • 5.1 Overlapping Generations Model  
  • 5.2 Monetary Policy and Inflation  
  • 5.3 International Monetary Systems  
  • Final Exam  
    • Final Exam: The Saylor Foundation's ECON202 Final Exam

      Link: The Saylor Foundation's ECON202 Final Exam

      Instructions: You must be logged into your Saylor Foundation School account in order to access this exam.  If you do not yet have an account, you will be able to create one, free of charge, after clicking the link. 

      Note: The Saylor Foundation does not yet have materials for this portion of the course. 


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