UNIVERSITY  OF ILLINOIS

College of Business/Department of Economics

Economics 529: Macroeconomics for Business

Summer 2018

Professor:

Hadi Salehi Esfahani

Office:

210 DKH

Phone:

333-2681

E-Mail:

Esfahani@uiuc.edu

Office Hours:

MW 5:00-6:00 p.m.

 

 

 

Course Description:

 

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The goal of this course is to enable you to assess the macroeconomic environment in which a business operates. Macroeconomic conditions play important roles in business decisions and performance: Aggregate income, unemployment, and inflation rate influence profitability, interest rates determine the cost of capital, and exchange rates affect international competitiveness.

This course pays particular attention to the macroeconomic consequences of globalization and the roles played by government policies, institutions, and the public's expectations about the future course of the economy. The emphasis on globalization is because international trade and investment are integral parts of business in today's world. Study of macroeconomic policies (both fiscal and monetary) is a major theme in the course because those policies can influence macroeconomic performance in important ways. Businesses need to understand such effects in order evaluate the consequences of those policies for themselves. To do even better, businesses need to further understand the macroeconomic policymaking institutions, which are the rules and norms by which governments make their policies. This can help them form ideas about future policies and future performance, thus making more informed decisions about production and investment. Understanding market institutions and their roles in the macroeconomy also matters because performance is influenced by the manner in which markets and individuals respond to policies. This idea also tells us that the expectations about how policymakers may behave and how markets may respond to them play critical roles in current actions and plans of businesses and individuals. We examine how expectations about the future course of the economy are formed and how they interact with current macroeconomic conditions.

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

  • Demonstrate a basic understanding of the macroeconomic system and interpretation of key macroeconomic indicators.
  • Understand how the exchange rate is determined and how it interacts with domestic and foreign prices to determine the competitiveness of an economy’s producers.
  • Analyze the market for money and understand how the interest rate is determined.
  • Understand how GDP level and inflation rate are determined in an economy and how macroeconomic factors and monetary and fiscal policies shape them.
  • Analyze the key factors that account for the large differences in per capita incomes across countries.
  • Identify the characteristics of socially desirable macroeconomic policies and understand why actual policies may deviate from them.
  • Assess a country’s macroeconomic prospects based on the characteristics of its resources, technology, and policymaking environment.

 

 

Learning Tools:

 

 

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Besides lectures, we will maintain discussion on economic issues through Compass. The Compass Website for the course provides reading material and day-to-day information about the course. I encourage you to use the discussion boards on Compass for questions and messages at any time. I will be checking Compass frequently to offer quick responses to your messages. However, in case an urgent problem arises, please do not hesitate to also send a regular email or call me to make sure no time is wasted.

The required readings for the course are Background Notes that are written specifically for this class and will be made available through Compass in advance of classes. Background Notes are written in a very concise manner to optimize the time that you need to spend on this course. However, you should consult supplemental materials for the course as needed if you feel that the Notes do not provide you with adequate information and insight. These materials consist of two textbooks:

Paul R. Krugman, Maurice Obstfeld, and Marc J. Melitz, International Economics: Theory and Policy, 11th ed., Addison Wesley, 2018.

Gregory Mankiw, Macroeconomics, 9th Edition, Worth Publishers, 2016.

These books are recommended and their earlier editions from a few years back would also work because their frameworks have not changed in tangible ways.

The Economist, Financial Times, and The Wall Street Journal also provide important resources on current macroeconomic conditions and will be referenced frequently during the course. 

 

 

Assignments and Exams:

 

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For learning and evaluation purposes, there will be two types of exercises. The first type is a series of 12 in-class quizzes designed to help you remain involved during the long class hours! The second type is a series of five assignments and a final exam, all of which are take home and open book. You can work on them in groups, but each student must write his/her own answers individually. To prepare you for the problem sets and exams, a set of (non-graded) practice questions are also provided on Compass.

The purpose of all these assignments is to help you master the material more effectively and receive fast and frequent feedback on your learning. Because some of you may be traveling or may just have "bad days," only 10 best quizzes and four best assignments will be taken into consideration for the overall grade. The lowest assignment grade will be discarded. This does not apply to the final, which is required.

 

 

Grading Policy:

 

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The grade in this course will be based on the results of in-class quizzes, assignments, and the final exam as well as peer evaluation by co-team members. The breakdown of the total score for the course is as follows:

 

 

 

 

 

 

Ten Best In-Class Quizzes

Four Best Assignments

Final Exam

Study Group Peer Evaluation 

10% of total grade (1% each)

60% of total grade (15% each)

22% of total grade

8% of total grade

ACADEMIC INTEGRITY: According to the University policy, violation of academic integrity is a serious offense. In the context of assignments, term papers, and exams of this course, violating academic integrity is copying of answers from other students or any other source, rather than authoring them. Quoting from other sources with proper citation is permitted, but that cannot be the entire answer. Quotations could be only part of a discussion and must be merely for clarification or documentation purposes. Your answers must show that you have understood the material and can argue the case on your own. Anyone found in violation of academic integrity in this course will be subject to the penalties discussed in the Student Code. These penalties include, among others, failure for the course or dismissal from the University.

 

 

SCHEDULE OF LECTURES AND REQUIREMENTS

Date

Topic

Learning Objectives

Assignments

Monday

May 14

Key Macroeconomic Indicators and Their Measurement

Why you need to understand macroeconomics.

Which macroeconomic variables matter for business.

How to define and measure the key macroeconomic variables.

Background Note 1

Krugman & Obstfeld, Ch. 13

Mankiw, Chs. 1

Wednesday

May 16

GDP Components and  Twin Deficits

Understanding the key components of GDP.

Understanding the relationship between GDP, budget deficit, and trade deficit.

Background Note 2

Krugman & Obstfeld, Ch. 13

Mankiw, Ch. 2

Monday

May 21

The Foreign Exchange Market I

Understanding the role of the exchange rate in the economy.

Submit Assignment 1

Background Notes 3

Krugman & Obstfeld, Ch. 14

Wednesday

May 23

The Foreign Exchange Market II

Understanding how the exchange rate is determined.

How economic conditions and perceptions influence the exchange rate.

Background Notes 3

Krugman & Obstfeld, Ch. 14

Wednesday May 30

Money, Interest Rate, and the Exchange Rate

Understanding the role of money in the economy.

How money influences the interest rate and the exchange rate.

Submit Assignment 2

Background Note 4

Krugman & Obstfeld, Ch. 15

Mankiw, Ch. 4

Monday

June 4

Aggregate Expenditure and GDP in the Short Run When Prices Are "Sticky"

Understanding the determinants of aggregate expenditure in the economy.

How GDP is determined in the short run when prices are sticky.

Submit Assignment 3

Background Notes 5

Krugman & Obstfeld, Ch. 17

Mankiw, Ch. 9 & 10

Wednesday

June 6

Fiscal and Monetary Policies in the Short Run When Prices are "Sticky"

More on how GDP is determined in the short run when prices are sticky.

Background Notes 5

Krugman & Obstfeld, Ch. 17

Mankiw, Ch. 11

Monday

June 11

Expectations and the Long Run Exchange Rate

The determinants of the exchange rate in the long run.

The connections between productivity, economic growth, and the exchange rate.

Submit Assignment 4

Background Notes 6

Krugman & Obstfeld, Ch. 16

Wednesday

June 13

Long-Run Economic Performance and Short-Run Adjustments

Understanding the factors that drive aggregate output in the long run.

How expectations about the future of the economy are formed.

The role of expectations, contracting, and economic shocks in output and price adjustment in the short-run.

Background Notes 7

Mankiw, Chs. 7, 8, & 13

 

Monday

June 18

Macroeconomic Policies and Institutions

Understanding the characteristics of desirable macroeconomic policies.

The debate on active vs. passive macroeconomic policies.

The role of monetary and budget institutions in macroeconomic policy and performance.

Submit Assignment 5

Background Notes 8

Mankiw, Chs. 14 & 15

Friday

June 29

Submit Final Exam