General Competences
We first study long-term economic growth and then we discuss the short-term fluctuations in economic activity by a detailed analysis of the demand and supply side, to combine both in a study of government policy.
- Introduction
- Understand the main economic quantities
- Understand the links between the economic quantities
- Long-term economic growth
- Understand the exogenous growth model from Solow, and how capital accumulation determines economic growth.
- Know how the parameters of the Solow model determine growth.
- Apply the Solow model on practical issues about development and economic growth.
- Economic fluctuations
- 3.1. Demand side
- Understand the main theories of consumption and investment
- Understand how the monetary/financial system functions
- Understand how an open economy differs from a closed economy
- 3.2. Supply side
- Understand the main theories that explain supply and the role that expectations play in it.
- Understand how the supply side in the long and short term differs.
- Know how government policy affects the supply side.
- Government policy
- Understand the structure and the effects of monetary policy
- Understand the structure and the effects of budgetary policy
- Understand the economic and political considerations of government policy
In the general education that this course offers:
- Look at problems with a critical approach
- Make use of economic models to analyse general economic problems, and propose solutions
- Apply economic models to critically analyse policy
- Understand the limitations of macroeconomic analysis
Cursus specifieke competenties
These three models are the basic tools for macroeconomics.
Firstly, we expect you to flawlessly master the basic concepts of these models. You know their definition, know how to recognize this concept, how to calculate it, and how to apply it in a macroeconomic context.
With these elements you should be able to be shown the dynamic interaction between families, businesses, government, and the financial system (in a closed or an open economy). You will also know the operation of the main economic models and see how this interaction happens there.
In the classic model,
In the IS / LM and AD / AS model,
In the Solow model,
You may primarily reflect the effects of these models: you will know how the models are set up, what their basic elements, and how the economic cycle behaves in that model.
Afterwards you should be able to demonstrate a simulation of the operation of the models by setting up a thought experiment under certain scenarios. What happens if a specific economic event such as a change in policy, puts a dynamic in motion which affects all stakeholders in the economy? What are the results of that?
You can then also independently apply economic models to real economic problems, and the consequences of certain choices to study the long and short term, and to make a balance between the positive and negative effects on short- and long-term policy choices. You can study examples of economic phenomena and explain their kind in a structured way.
Each part of the course is more specifically focused on:
Part 1: Basic Concepts
- Understand the main economic variables
- Understand the (dynamic) coherence between economic variables.
Part 2: The medium term - the classic model
- Understand the economic cycle between families, businesses and government, and the crucial role of financial markets.
- Understand the operation of a basic classical model based on flexible pricing and assumptions about the behavior of the government and in a closed economy.
- Understand the different theories to explain consumption and investment behavior.
- Understand the role of monetary policy and the functioning of the financial system and the money market, and how savings and investments are essential to rebalance the economy over the medium term
- Understand how the organization of labor determines employment and GDP. See why the labor market is dynamic, and why unemployment arises. Make the distinction between frictional, natural and cyclical unemployment. Understand the Okun relationship.
Part 3: The short term - IS / LM - AD / AS
Demand
- Understand the main theories of consumption and investment.
- Understand the functioning of the monetary / financial system.
- Understand how different open a closed economy.
- Understand how the IS LM model is built from the demand side and the demand (consumption, investment, government) and the money market determine the interest rate and output.
- Understand how specific the general demand by price changes, driving through the money market, investment demand.
Supply side
- Understand the main theories that explain supply and the role that expectations play in it.
- Understand how the supply side is different in the long and short term
- Understand the equivalence between the supply curve and the Phillips curve.
Government policy
- Understand the structure and the effects of monetary policy.
- Understand the structure and the effects of fiscal policy.
- Understand the economic and political considerations of public policy.
Part 4: The long-term - the Solow model
- Understand the exogenous growth model of Solow, where capital accumulation determines economic growth.
- Know how to determine the parameters of the Solowmodel.
- Adjust the Solow model to practical issues about development and economic growth.