Principles of Macroeconomics

Macroeconomics is a way of thinking about all markets together, rather than single markets individually. Macroeconomics answers questions like,

• Why did the Great Depression happen in so many different countries at once?
• Why are some countries rich and others poor?
• What role do banks and financial firms play in the economy?
• Why is the stock market so unpredictable?
• How should financial markets be regulated?
• How does inflation affect an economy?

The goal of this class is to give you the tools to understand the macroeconomy, to appreciate the functional role of important institutions, and to be able to evaluate policy proposals.

The class is structured in three roughly equal sections:

1. Foundations

Unit	Reading
1. What Is Macro?	Ch. 1, “The Big Ideas” (+chs. 3-4 if you haven’t had Principles of Micro)
2. Basic Concepts in Macro Opportunity cost, marginal analysis, equilibrium, nominal/real, efficiency
3. Trade and Money Positive/negative/zero-sum, comparative advantage, arbitrage, money	Ch. 2, “The Power of Trade and Comparative Advantage”
4. National Income Accounting GDP, the price level, aggregation	Ch. 6, “GDP and the Measurement of Progress”

2. Long-run Macro

5. Growth and Real Income in the Long Run Causal inference, global development efforts, the resource curse, political vs market allocation, the curse of aid	Ch. 7, “The Wealth of Nations and Economic Growth”
6. Institutions and Growth Property rights, the Coase Theorem, trust and the rule of law, “deep roots”, clientelism, rent-seeking

3. Short-run Macro

7. Short-run Macro and the Equation of Exchange The money supply, the equation of exchange, inflation, the quantity theory of money, the volume of spending	Ch. 12, “Inflation and the Quantity Theory of Money”
8. Labor and Unemployment Factors of production, unemployment and idling, labor markets, technological unemployment, barriers to entry	Ch. 11, “Unemployment and Labor Force Participation”
9. Business Cycles Sticky prices, monetary neutrality, the natural rate of unemployment	Ch. 13, “Business Fluctuations: Aggregate Demand and Aggregate Supply”
10. Causes of Business Cycles Private vs central banking, banking crises, the demand for money, asset bubbles, seigniorage, central bank independence	Ch. 15, “The Federal Reserve and Open Market Operations”
11. Monetary and Fiscal Policy Open market operations, bank clearing, the federal funds market, interest rates, quantitative easing, public finance	Ch. 16, “Monetary Policy”
12. International Macro (time permitting) Exchange rates, purchasing power parity, exchange rate regimes, Mundell-Fleming, exchange rate crises	Ch. 20, “International Finance”

The textbook is Cowen & Tabarrok, Modern Principles of Macroeconomics.