MBA Macroeconomics UEBS, Jonathan Crook

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Coures overview of Macroeconomics with J. Crook at Edinburgh University Business School

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MBA Macroeconomics UEBS, Jonathan Crook

  1. 1. MACROECONOMICS Course Booklet Semester 1 2011/2012FTMBAMBAIB – Core Course
  2. 2. Contents Page NumberCourse Details .................................................................................................... 3Course Description and Objectives .................................................................... 3Learning Outcomes ............................................................................................ 3Planned Student Learning Experiences ............................................................. 4Teaching Approach............................................................................................. 4Assessment ........................................................................................................ 4Feedback ............................................................................................................ 5Failure to Attempt or Complete Assessed Coursework or an Examination ........ 5Exam Arrangements for Disabled Students........................................................ 5Plagiarism Statement.......................................................................................... 6Appeals............................................................................................................... 6Consultation........................................................................................................ 6Course Monitoring Surveys ................................................................................ 6Required Text(s) ................................................................................................. 6Course Website .................................................................................................. 7Advised Preparatory Work.................................................................................. 8Course Lecturer(s).............................................................................................. 8Study Programme............................................................................................... 9Lecture Outlines and Readings ........................................................................ 11Exam Papers .................................................................................................... 11Appendix 1: Further Reading............................................................................ 11Appendix 2: Workshops.................................................................................... 12Tutorials ............................................................................................................ 13Putting you at the heart of business 2 FTMBA/MBAIB - Macroeconomics
  3. 3. Course DetailsCourse Code: BUST11208Title: MacroeconomicsCollege: Humanities and Social ScienceSchool: University of Edinburgh Business SchoolCourse Organiser: Professor Jonathan N. CrookContact Hours: 24Semester: 1aLectures: N/ATutorials:This is a 10-credit course. As per the Scottish Credit Qualifications Framework (SCQF), this meansthat it should entail 100 hours of student effort. For example:Contact hours 8 x 2 hour lectures 16 8 x 1 hour tutorials 8Preparatory reading 8 x 4 hours in advance of 32 lectureTutorial work 8 x 2 hours in advance of 16 tutorialExamination Writing exam and revision 28 Total 100 student effort hoursCourse Description and ObjectivesThis course is designed to provide a sufficient understanding of macroeconomics to allow anunderstanding of relevant articles in the Financial Times, Economist, etc and reports by governmentagencies, the World Bank, or consultants. This is seen as essential to an understanding of businessbecause:Macroeconomics affects all companies by(a) level of demand for products;(b) interest rates - with their effect on the costs of the firm;(c) the exchange rate - which tends to intensify or reduce competition even for firms not overtly engaged in trade;(d) and each of these elements interact both with themselves and with other factors, such as government policy.Learning OutcomesKnowledge and Understanding:• The elements measured by GNP, GDP and National Income• The role of savings and investment - and more generally the role of leakages (savings, taxation and imports) and injections (Investment, Government expenditure and Exports) in determining the level of GDP• The implications of rising GNP for tax revenues and the current account of the balance of payments• The role of government in expanding aggregate demand through fiscal policy• The creation of money by the banking system and the limits due to reserve requirements• The role of the interest rate in affecting the demand for money• The role of money supply in inflation• The use of monetary policy to control inflation and the role of the central bank• The determinants of changes in the current and capital accounts of the balance of payments – and their impact on exchange ratesPutting you at the heart of business 3 FTMBA/MBAIB - Macroeconomics
  4. 4. This course complements other courses in the Programme as follows:(a) Finance courses - by providing an understanding of the determinants of interest and exchangerates in the economy.(b) Strategic Management - by providing the analysis of demand, interest rates, inflation, and foreignexchange rates which influence many strategic decisions.More widely, macroeconomics is probably the clearest example of systems thinking and as suchprovides many students with a new approach to analysis.Cognitive Skills:This course is principally geared to providing an understanding of the macro-economy. Skillstraining is not explicitly part of the course. However, developing this understanding inevitablydevelops and exercises the following important skills:(a) Logical thought in analysing cause and effect in the presence of interdependence(b) Clarity of exposition in explaining complex systems(c) The use of symbols and simple equations to model real-world phenomena(d) Understanding data in the presence of multi-causal phenomena (in which it complements the course on statistical analysis)Subject Specific Skills:N/APlanned Student Learning ExperiencesLectures provide the framework and agenda and motivate private study by providing thestructure of the argument. These are supported by weekly workshops, which both clarify understanding and, by providing a forum for discussion, encourage the students to take an active role in working with the concepts and to develop the ability to explain how the different factors work.Note that the workshops are voluntary. Those who do not wish to attend are, however, advised tocheck the workshops and answers as they may be used as the basis for exam questions.Teaching ApproachFeedback and ConsultationThe workshops will provide a forum for feedback on understanding of concepts, clarity of problemsolving, analytical skills and reasoning. Further details will be given to students by the lecturer.AssessmentForm of Assessment:The examination is designed to test the students understanding of the macroeconomic system. Theexamination will consist of six questions from which you will be required to answer any two. Theexamination will last one hour and thirty minutes.Putting you at the heart of business 4 FTMBA/MBAIB - Macroeconomics
  5. 5. Assessment Criteria:Rationale for 100% examination based assessmentSince Macroeconomics is much more useful when understood as a system, an examinationmotivates students to revise the course as a whole. With the intensity of the course, it is a severeextra burden on the students to produce essays, and in view of the short time over which the courseruns, it would be difficult to set essays which covered enough of the course to be useful. An earlyessay would not pick up the systems flavour, and a late one comes too near the exam to providefeedbackDates of Assessment:17th-21st October is the exam period.FeedbackStudents will gain feedback on their understanding of the material when they discuss their answers tothe tutorial questions in the tutorials. Students may also ask questions in Lectures to assess tehirknowledge.Generic feedback will be given on the performance of the class in the Exam.Failure to Attempt or Complete Assessed Coursework or an ExaminationWhere a student fails to attempt or fails to complete assessed coursework or an examination, thecourse organiser will seek to establish from the student whether the failure is legitimate (i.e.supported by appropriate documentary evidence) or not. A failure to attempt assessed coursework oran examination without good reason will result in a zero mark being awarded for that element ofassessment. In the case of a legitimate failure to attempt or complete assessed coursework, thecourse organiser may decide to offer an extended submission deadline (without marks deduction forlate submission). Where a student is able to produce evidence of legitimate reasons for failure toattempt or complete an examination, and where it has not been possible to offer an extendedsubmission deadline for a legitimate failure to attempt or complete assessed coursework, the courseorganiser will refer the case to the Special Circumstances Committee.Groupwork IssuesWhere group work is involved, should there be any problems with the group dynamic, these shouldbe raised by two concurring members of the team with the course organiser before the ReadingWeek.Exam Arrangements for Disabled StudentsIf required, specific reasonable adjustments will be made to enable disabled students to sitexaminations, including any written, practice or oral examination, continuously assessed courseworkor dissertation which counts towards the final assessment. For more information about the supportdisabled students can receive and the approval process for making reasonable adjustments visithttp://www.ed.ac.uk/schools-departments/disability-office/students/support-we-offer. Arrangementsfor degree examinations must be approved in advance by the Registry (650 2214), and the DisabilityOffice (650 6828) for dyslexic students, and reported to the examiners. The Registry requiresnotification of specific examination arrangements for dyslexic students well in advance of examinationweeks and specific deadlines apply (see http://www.ed.ac.uk/schools-departments/registry/other-Putting you at the heart of business 5 FTMBA/MBAIB - Macroeconomics
  6. 6. info/dyslexia). For all other disabled students the Registry must see and accept a medical certificateor similar documentation relating to the student or be satisfied that an acceptable certificate will beproduced. Such students should discuss their requirements with their Programme Director and/or theDisability Office at the earliest opportunity.Plagiarism StatementPlagiarism and cheating are offences against the University discipline. The full text of the University’sregulation on plagiarism and cheating can be found on the University’s website athttp://www.docs.sasg.ed.ac.uk/AcademicServices/Discipline/StudentGuidanceUGPGT.pdfAppealsThe process for students appealing against the assessment of grades is described in the Code ofPractice for Taught Postgraduate Programmes.ConsultationStudents are encouraged to raise any concerns of a subject specific nature with the relevant courseorganiser. All but the simplest issues take time to resolve, and so please raise the issues as soon asyou are aware of them.In the event that your course organiser cannot assist you, please contact your Programme Director.Course Monitoring SurveysBecause the PGT programmes are constantly being streamlined to remain progressive andcontemporary, it is essential that you provide feedback on the courses you undertake so that theacademic and administrative staff can be aware of your needs and the needs of your peers; the onlyway we can do this is if you let us know our strengths and what can be improved to make yourlearning experience with us as relevant and fulfilling as possible.At the conclusion of every semester you will be asked to complete anonymous online coursemonitoring surveys. You will be notified when the surveys relevant to your programme become live.The results of these surveys will then be collated and distributed to the course lecturer(s) who will inturn provide feedback on the course.All information provided by students and course lecturer(s) will be taken into consideration bydecision makers within the Business School – and may alter the way that future courses areadministered. We are providing you with an outlet to voice your opinions and it is very important forthe current state and the future of the Business School and its students that you do so.Required Text(s)Students will need to collect the following text from Blackwells:D Begg, G Vernasca, S Fischer & R Dornbusch, Economics, 10th edition, McGraw Hill, 2001.Those who find the course very difficult may find the following useful;D Begg, S. Fischer and R. Dornbusch, Foundations of Economics, 3rd Edition McGraw Hill, 2006.D Begg and D Ward Economics for Business, 3rd Edition McGraw Hill, 2009.While these are useful sources of orientation, they are at a lower level of detail than desirable.Putting you at the heart of business 6 FTMBA/MBAIB - Macroeconomics
  7. 7. Because of the international nature of the MBA, the empirical details are not useful to many of thegroup. For an understanding of the recent developments of the UK economy and amplification ofyour theoretical understanding by empirical example, see:Griffiths, Alan and Wall, Stuart, Applied Economics, 11th Edition Prentice Hall, 2007For alternative explanations of the same concepts see:J Sloman and A. Wride, Economics, 7th Edition Prentice Hall, 2009.Web SitesA review of the UK Economic Situation is to be found in the Chancellors Budget speech. It isreproduced in full with explanatory appendices on:UK: HM Treasury, home page with access to Budget Reports and other publications:http://www.hm-treasury.gov.uk/UK Monetary Policy is explained on:http://www.bankofengland.co.uk/European Monetary Policy: Euro Area: European Central Bank:http://www.ecb.int/IMF (International Monetary Fund): World Economic Outlookhttp://www.imf.org/external/ns/cs.aspx?id=29OECD (Organisation for Economic Cooperation and Development)http://www.oecd.org/USA: Monetary Policy, The Federal Reservehttp://www.federalreserve.gov/monetarypolicy/default.htmSA: Federal Reserve Bank of San Francisco: US Monetary Policy: an Introductionhttp://www.frbsf.org/publications/federalreserve/monetary/index.htmlUSA : Economic Report of the Presidenthttp://www.gpoaccess.gov/eop/index.htmlCourse WebsiteLecture materials will be made available online via WebCT, which is accessible from the “quick links”area on MyBiz http://www.business-school.ed.ac.uk/mybiz/homeOn the course website you will be able to find a copy of this booklet, course handouts,announcements and other facilities. It is important that you regularly check the WebCT system inorder to keep up to date with the course. You should be automatically registered for all your courses;if you are not please consult the Stuart Mallen, the programme secretary (emailoffice+mba@business-school.ed.ac.uk) to ensure that your records are in order. A user guide and fulldetails of how to logon and use the system are available on the website. N.B. It is vitally importantthat you check your WebCT mailbox regularly OR set it up so that it forwards messages automaticallyto your regular e-mail account.Putting you at the heart of business 7 FTMBA/MBAIB - Macroeconomics
  8. 8. Advised Preparatory WorkN/ACourse Lecturer(s)Professor Jonathan N. Crook - BA (Lancaster); MSc (Wales)Tel: 0131 650 3802Office: Room 3.27, Business School, 29 Buccleuch Place, Edinburgh, EH8 9JSEmail: Jonathan.Crook @ed.ac.ukRead Economics at Lancaster. Visiting Fulbright Postdoctoral Research Scholar, McIntyre School ofCommerce, University of Virginia, USA, Visiting Fellow, University of Warwick, UK and VisitingFellow, European University Institute, Florence. Currently Fellow of the Financial Institutions Centre,Wharton School, University of Pennsylvania and of the Centre for Finance and Credit Markets,University of Nottingham, UK. Elected Fellow of the Royal Society of Edinburgh. Director of the CreditResearch Centre.Putting you at the heart of business 8 FTMBA/MBAIB - Macroeconomics
  9. 9. Study Programme Course OutlineReferences to BFD are to the recommended text, the 10th Edition of Begg, Vernasca, Fischerand Dornbusch EconomicsDemand, Supply and the Market 19 SeptThe "Market"; demand and supply curves; behind the demand curve; Tastes, Prices and Incomes;behind the supply curve: technology, input costs and government regulations.Reference: BFD Chapter 3, pp42-60Multiple choice exercises:http://highered.mcgraw-hill.com/sites/0077117875/student_view0/chapter3/multiple_choice_quiz.htmlMACROECONOMICSThe Determination of National Income 23 SeptThe circular flow of income; actual values of consumption, investment, saving, governmentexpenditure, and foreign payments. Components of aggregate demand: planned amounts ofconsumption, planned investment spending; aggregate demand; equilibrium output; the equality ofplanned savings and planned investment expenditures.Reference: BFD Chapter 15, Sections 15-3 to 15-4 only, pp362-373 and Chapter 16, sections16-1 to 16-5, pp383-392.Self test questions to question 16( further questions refer to the next session):http://highered.mcgraw-hill.com/sites/0077117875/student_view0/chapter20/multiple_choice_quiz.htmlThe Multiplier, Fiscal Policy and Foreign Trade 26Septa) The MultiplierThe multiplier; the paradox of thrift.Reference: BFD Chapter 16, sections 16-6 and 16-7, pp392-395Self test questions on Chapter 20 (Question 17 onwards):http://highered.mcgraw-hill.com/sites/0077117875/student_view0/chapter20/multiple_choice_quiz.htmlb) Fiscal Policy and Foreign TradeThe government and aggregate demand; the balanced budget multiplier; the governmentbudget; deficits and the fiscal stance; automatic stabilisers; the limitations on active fiscal policy;The National Debt and the deficit; foreign trade and income determination.Reference: BFD Chapter 17, pp398-417.Self test questions:http://highered.mcgraw-hill.com/sites/0077117875/student_view0/chapter21/multiple_choice_quiz.htmlPutting you at the heart of business 9 FTMBA/MBAIB - Macroeconomics
  10. 10. Money and Modern Banking 30 SeptMoney and its functions; commercial banks and the money supply; the money multiplier;competition between banks. The demand for money.Reference: BFD Chapter 18 pp420-438Self test questions:http://highered.mcgraw-hill.com/sites/0077107756/student_view0/chapter22/student_self-test_questions.htmlInterest Rates and Monetary Transmission 3 OctThe Bank and the money supply; reserve requirements; the discount rate; open marketoperations; the repo market; the lender of the last resort. Equilibrium in financial markets.Monetary control; the targets and instruments of monetary policy; the transmission mechanism:wealth effects and the credit channel.Reference: BFD Chapter 19 pp441-460Bank of England Quarterly Bulletin, (1997) “Comparing the monetary transmissionmechanisms in France, Germany and the United Kingdom: Some issues and results” May, pp152-161.Self test questions:http://highered.mcgraw-hill.com/sites/0077117875/student_view0/chapter23/multiple_choice_quiz.htmlAggregate Supply and Inflation 7 OctAggregate demand; aggregate supply; equilibrium inflation. Labour market and wages. Short runaggregate supply. Adjustment to equilibrium, supply and demand shocks.Reference: BFD Chapter 21, pp481-500.Reference: Bank of England, Minutes of the Monetary Policy Committee Meeting 2nd and 3rdAugust 2006, Published 16th Augusthttp://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2006/mpc0608.pdfInflation 10 OctDefinition of inflation. The Phillips curve in the long run and in the short run, supply shocks.Costs of inflation; controlling inflation.Reference: BFD Chapter 22, pp501-524.Exchange Rates and the Balance of Payments 14 OctThe Forex market; Exchange rate regimes; the balance of payments, determinants of thecurrent account; the capital account; speculation and interest rate parity; internal and externalPutting you at the heart of business 10 FTMBA/MBAIB - Macroeconomics
  11. 11. balance. Long run equilibrium, the role of foreign debt or assets.Reference: BFD Chapter 24, pp549-568Self test questions:http://highered.mcgraw-hill.com/sites/0077117875/student_view0/chapter28/multiple_choice_quiz.htmlLecture Outlines and ReadingsAs aboveExam PapersWhere applicable all available exam papers can be found on the University of Edinburgh website at:http://www.exampapers.lib.ed.ac.uk/Appendix 1: Further ReadingN/APutting you at the heart of business 11 FTMBA/MBAIB - Macroeconomics
  12. 12. Appendix 2: WorkshopsFTMBA AND MBAIBMACROECONOMICS WORKSHOPSTo check your understanding of Macroeconomics, you should use three elements: 1. The self-test questions on the website as indicated in the course booklet. They provide an excellent way of reviewing your understanding of the building blocks of the subject. 2. The questions at the back of each chapter are well worth answering, and you can check your answers against those provided in the book. Bring any difficulties you experience to the Workshops. 3. Try to answer the questions below. These provide you with a test of your understanding of how the building blocks fit together, and you will need to ensure that you have this as well as the detail.You will be provided with answers to these questions. If you are satisfied that you have understoodthe material, it is unlikely that the workshop will be of significant benefit. Otherwise, please come tothe workshop to sort out any difficulties.Putting you at the heart of business 12 FTMBA/MBAIB - Macroeconomics
  13. 13. TutorialsWeek 1 – 23 September: Supply and demand1. The car manufacturing industry in Europe and the USA has seen a dramatic decrease in demand over the last 12 months. For example, GM was forced into bankruptcy earlier this year. Consider the market for new cars. Explain the effects of each of the following changes on the equilibrium price charged and quantity sold of new cars: a) a decrease in consumer incomes; b) a decrease in bus fares; c) an decrease in the wage rate paid to workers in car plants; d) an increase in the price of petrol; e) a decrease in the price of second hand cars.2. If incomes were growing, consider how prices and quantities might change for the two products featured in the supply and demand diagrams below. Price Demand Price Demand Supply Supply Quantity Quantity Cars Housing a) Why might the supply curve for housing be very steep as drawn in the left hand diagram? b) Could the Supply curve for Cars be even flatter? For example what would it mean if it were horizontal? Is a horizontal supply curve possible in reality? What would its implications be for prices if incomes rose? c) What might cause the whole supply curve to shift down? d) Suppose there was an increase in the number of people who defaulted on their mortgages and found that their house was re-possessed by their bank. What would be the effects (if any) on the supply and demand for houses?Putting you at the heart of business 13 FTMBA/MBAIB - Macroeconomics
  14. 14. Week 2 – 26 September: The circular flow of income1. Write down an identity that shows the items in the macroeconomic accounts that need to be added together to equal GDP.2. Write down the condition necessary for the economy to be at an equilibrium level of output.3. What would cause a rise in GDP in the following simple Keynesian models? i. A closed economy with no government. ii. A closed economy with a government sector. In each case give an example from recent news events.4. Flooding is apparently becoming a feature of winters in the UK. What elements of the impacts of flooding in the UK might be expected to cause UK GDP to rise, and conversely, what elements would be likely to cause it to fall? Do you think on balance GDP will increase as a result? (A good approach would be to list the elements in the circular flow of income, probably using the categories of Leakages and Injections, and suggest how each item will be affected.)Week 2 – 30 September: The Multiplier 1. What would cause a rise in GDP in a simple Keynesian model of an open economy with a government sector. 2. What is the multiplier? Define it. Explain why it occurs. 3. If GDP falls, what would be the effect on Tax income for the government, - express this as an equation. How would this affect the balance of the government budget? Would there be other factors also affecting it? 4. For the US and UK governments, are an decrease in expenditures on the war in Afganistan likely to decrease their GDPs, and would GDP fall if the expenditures on the war were exactly matched by reduced taxation (i.e. maintaining a balanced budget!)? 5. What do you expect to be the effects on aggregate demand and on GDP of the recent fall in US house prices?Putting you at the heart of business 14 FTMBA/MBAIB - Macroeconomics
  15. 15. Week 3 - 3 October: Fiscal Policy and Foreign Trade and Money and Banking1. What makes the size of the multiplier smaller in an open economy with a government sector compared to that in a closed economy? (Use the equation for the multiplier to show this).2. If GDP rose in an open economy, what would be the effect on Imports – express as an equation, and explain.3. In 2008 the Bank of England and the Federal Reserve Board of the US increased the money supplies of their economies. Many commentators think the Bank of England will shortly substantially increase the money supply again. Suppose the Bank of England, by open market operations, does increase the money supply in the UK. Explain how, by increasing the monetary base, the supply of money measured by M4 would increase. Is this what has actually happened?4. In 2007-08 the world’s financial markets were in turmoil because of defaults in the US ‘subprime’ mortgage markets. Explain how this would affect bank reserves, as opposed to just the mortgage lender’s reserves.5 How have banks adapted to the fall in their reserves, and with what consequences?6. Write short notes on: the opportunity cost of money and the demand for money.Week 3 – 7 October: Interest Rates and Monetary Transmission 1. Write short notes on: a) The repo market and monetary control b) The impact of rising interest rates on consumption c) The impact of rising interest rates on investment 2. What is meant by ‘Quantitative Easing’? Can the Fed in the US achieve quantitative easing a) By using the repo market – explain the mechanisms b) Through its role as banker to the US government c) Through its role of lender of the last resort? d) Is quantitative easing likely to have increased the money supply as compared to pre-crisis levels?Putting you at the heart of business 15 FTMBA/MBAIB - Macroeconomics
  16. 16. Week 4 – 10 October: Aggregate Supply and Prices 1. Write short notes on : a) How we calculate real wages; b) How we calculate real interest rates; c) The aggregate demand curve; d) The long run aggregate supply curve. 2. Suppose that the political changes in Libya result in more oil being available on world markets and the world price of crude oil decreases. If the UK government has a given inflation target, explain what you would expect to happen to aggregate demand, long run aggregate supply, output and the rate of inflation in the UK economy. 3. Why does the long run aggregate supply curve differ from the short run aggregate supply curve? 4. Suppose the Bank of England tightens monetary policy. Explain the effect on UK output and employment. 5. Suppose opportunities for investing in high tech companies increases aggregate demand in the short term but aggregate supply in the long run. Using AD and AS curves, show why output might rise without inflation increasing. 6. Will the recession affect the US (or UK) or any other individual country’s Aggregate Supply schedule or does it just move the short term equilibrium down the schedule?Week 4 – 14 October: Inflation 1. What is the Quantity Theory of Money? 2. What is the natural rate of unemployment ? 3. Why, all things constant, is the long run Phillips curve vertical at a specific unemployment rate? 4. Why does the short-run Phillps curve slope downwards? 5. Suppose a new UK government announces it wishes to cut the inflation target from 2.5% to 1%. Explain why the succes go the Government’s new policy depends on whether workers believe the policy of not. 6. Why is inflation a problem? Who suffers most from inflation? 7. How can a government control inflation?Putting you at the heart of business 16 FTMBA/MBAIB - Macroeconomics
  17. 17. Student Feedback from 2010/2011Number of respondents: 37Expected number of respondents: 40Response rate: 92.5%Macroeconomics with Jonathan CrookPlease state your level of agreement with the following:The course met the stated objectives Strongly agree: 35.1% 13 Agree: 56.8% 21 Neither agree nor disagree: 8.1% 3 Disagree: 0.0% 0 Strongly disagree: 0.0% 0The course was well organised Strongly agree: 34.3% 12 Agree: 51.4% 18 Neither agree nor disagree: 14.3% 5 Disagree: 0.0% 0 Strongly disagree: 0.0% 0Were your expectations met by the course? Yes: 91.9% 34 No: 8.1% 3What overall rating would you give this course?Rating Excellent: 24.3% 9 Above average: 51.4% 19 Average: 24.3% 9 Below average: 0.0% 0 Poor: 0.0% 0Putting you at the heart of business 17 FTMBA/MBAIB - Macroeconomics

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