Macroeconomics

Mathematical frameworks and real-world applications anchor this introduction to broad movements in the global economy. Key topics include long-run economic growth, technological change, booms and recessions, inflation, interest rates, monetary and fiscal policy, wage inequality, international trade, and exchange rates.

Beginning with national income accounting and the measurement of key macroeconomic variables, students move through long-run and short-run macroeconomics. Long-run frameworks include the Solow growth model and the Romer model. Short-run macroeconomics introduces the AD/AS framework (built on the IS curve, Monetary Policy, and the Phillips curve) in both closed and open-economy contexts. Case studies include GDP growth and income disparities across countries, the Great Recession, the Covid-19 recession, the European debt crisis, the Volcker disinflation, the Great Inflation of the 1970s, and the Asian Currency Crisis of the 1990s.

Students leave prepared to engage critically with macroeconomic discussions in sources such as The Economist, The Economic Times, Mint, and The Wall Street Journal.

The course begins with an introduction to what Macroeconomics is, and the broad range of questions and applications it covers. It then moves on to a discussion on national income accounting and the measurement of key macroeconomic variables.

The next section focuses on analyzing the macroeconomy in the long run. This part begins with a simple general equilibrium model of production that helps to study GDP differences across countries. This is followed by detailed discussions on the Solow and Romer growth models - highlighting their key assumptions, mechanisms, and results. The Solow growth model builds on the idea of capital accumulation as one of the key determinants of growth in the long-run, along with technological progress or total factor productivity (TFP), which is assumed to be exogenously determined in the model. The Romer Model is based on the economics of ideas, and its main insight is that the discovery of new ideas is what drives long-run growth. TFP is endogenously determined in the model based on the actions of economic agents.

Additional topics in this section include labor markets and inflation in the long run.

The second half of the course focuses on the macroeconomy in the short-run, which is basically an analysis of fluctuations in macroeconomic aggregates in the short-run. Short-run macroeconomics introduces the AD/AS framework, which builds on the IS curve, Monetary Policy, and the Phillips curve. This framework helps to understand short-run fluctuations in inflation, output, and employment. Case studies discussed as applications of this framework include the Great Recession, the European Debt Crisis, the Volcker disinflation, the Great Inflation of the 1970s, and the Covid-19 recession.

Additional topics on international finance, exchange rates and open economy macroeconomics, and the role of governments in the macroeconomy will also be covered.

A tight connection between models and data is an important feature of modern macroeconomics, and this connection pervades throughout the course.

•  Make sense of how key macroeconomic variables are measured.
• Explain the key assumptions, mechanisms, and results of the Solow and Romer models.
• Make sense of the labor markets and inflation in the long-run.
• Demonstrate the application of the AD/AS framework in explaining short-run macroeconomic crises in history, such as the Great Recession, the European Debt Crisis, the Volcker disinflation, the Great Inflation of the 1970s, and the Covid-19 recession.
• Illustrate the role played by governments in the macroeconomy, including the role of budget deficits and the government’s budget constraint.
• Explain how exchange rates are determined in the macroeconomy.

• Jones, C. I. Macroeconomics, International Student Edition, 5th Edition. W.W. Norton and Co., 2020.

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