United International University

School of Business, Department of Economics

EC0 2302 (Intermediate Macroeconomic Theory I)
Spring - 2011
________________________________________________________________________
Course Instructor: Taslima Rahman
Class Hour: ST – 04:55 pm – 06:25 pm
Office Hour: ST – 10:50am – 3:15 pm
MW – 09:00am – 10:30am
01:45pm -02:00pm
Room # 502/2
Course Objectives:
• To re-introduce the students to macroeconomic theory at an elementary level and then to
bring them quickly to a relatively advanced level of understanding.
• Students should learn to use the IS-LM models and aggregate supply and demand tools
to analyze macroeconomic policy.

Topics to be covered (Tentative):

1. National Income Accounting: The circular flow of income and expenditure, equality of
aggregate income, aggregate expenditure and the total value of output, some measures of
national income, approaches to measure national income, GDP, GNP, real vs. nominal
variables, deflator, price index, uses of national income measurement, and difficulties in
measurement of national income.

2. Economic Growth: The accumulation of capital, the golden rule level of capital,
population growth and technological progress in the Solow Model

3. The Role of Aggregate Demand: Simple Keynesian Model: Conditions for equilibrium
output, the components of Aggregate Demand, Determining Equilibrium Income,
Changes in Equilibrium income, fiscal stabilization policy, exports and imports in the
simple Keynesian model

4. Money, Interest and Income: Interest rates and aggregate demand, Keynesian theory of
the interest rate the Keynesian theory of money demand, the effects of an increase in the
money supply, some implications of interest on money, the IS-LM model: money market
equilibrium and the LM Curve, Product market equilibrium and the IS curve, the IS and
LM curve combined.

5. Policy Effects in the IS-LM Model: Factors that affect Equilibrium income and interest
rate: money influences and the shift in the LM schedule, real influences and the shifts in
the IS curve, the real effectiveness of monetary and fiscal policy: policy effectiveness and
the slope of the IS-LM schedule.

6. Aggregate Supply and Demand: The Keynesian aggregate demand curve, the
Keynesian aggregate demand schedule combined with the classical theory of aggregate
supply, Keynesian contractual view of the labor market: sources of wage rigidity, a
flexible price-fixed money wage model, labor supply and the variability in the money
wage, the effects of the shifts in the aggregate supply schedule, Keynes versus the
classics.
Books to Consult:
 1. N. Gregory Mankiw, Macroeconomics
2. M.A. Taslim& A. Chowdhury, Macroeconomic Analysis for Australian Students

Evaluation:

• There will be three (at least) quizzes, two midterms and a final exam. In addition, there
may be a few assignments. 70% of marks will be attributed to quizzes, midterm,
assignments, class attendance and participation.

• Evaluation policy:

 Class attendance and participation : 5%

 Class Tests : 15%
 Assignment : 5%
 Two Mid-term Exams : 25% + 20%
 Final : 30%
General Information:
You will need the text book and class materials with you during class time. You will not need a
cellular phone. Students are advised to switch off their CELL PHONES during class hours.

Each student is responsible for class attendance. The students are expected to be prepared and
willing to contribute their opinion and experiences to the class discussions. Attendance will be
taken at every class and late attendance will not be allowed. You must attend over two-thirds of
the class sessions in order to earn a passing grade for the course.

If you miss class, it is your responsibility to get class notes and information from a fellow
classmate.

Class Makeup:
In case of unfavorable circumstances lecture or exam may be cancelled. In that case students will
be offered a makeup.

Instructor’s Flexibility:
Major features of the course are highly unlikely to change in a meaningful way, but the course
instructor reserves the flexibility in changing the features or policies of the course to improve
efficiency, to preserve equity, or to react to unforeseen circumstance subject to program
guidelines.
 Course 203: Intermediate Macroeconomics I (Compulsory)

1. Introduction /Basic Concepts of Macroeconomics: What is macroeconomics? How do we

aggregate? Macroeconomic markets, macroeconomic issues and trade-offs; Tinbergen’s Rule.
Stocks and flows; statics, comparative statics and dynamics.

2. National Income Accounting: The circular flow of income and expenditure, GDP, real GDP
and nominal GDP, Price Index.

3. Basic Model of Income Determination (Fixed Price): The autarky economy without
government, consumption and saving functions, the multiplier, the autarky economy with
government, balanced budget multiplier.

4. Money, Interest and Income: Equilibrium in the commodity market: the IS curve,
equilibrium in the money market: the LM curve.

5. Equilibrium in Commodity and Asset Markets: Commodity and money market

interactions, effectiveness of monetary and fiscal policies, the classical case, the liquidity trap.

6. Extended Model of Income Determination (Flexible Price and Open Economy):

Aggregate demand curve, the open economy, foreign exchange market, balance of payments, IS-
LM-BP model, fiscal and monetary policies under fixed and flexible exchange rate regimes,
perfect mobility of capital, aggregate demand in an open economy.

Course 204: Intermediate Macroeconomics II (Compulsory)

01. The Labour Market: Demand for labour, Supply of labour, Classical model, Imperfect
foresight models: adaptive expectations, complete money illusion and New Keynesian models.
02. Aggregate Supply: Classical model, imperfect foresight models
03. Inflation: Demand-pull and cost-push inflation, the Phillips curve. Expectations-augmented
Phillips curve, Costs of inflation, Control of inflation.

04. Unemployment: Definition, Frictional, structural and cyclical unemployment, beveridge

curve, hidden unemployment, Long-term unemployment, hysteresis. Theories of unemployment:
Efficiency wage theory; insider-outsider theory; implicit contract theory.
05. Consumption Function: The life-cycle theory of consumption, the permanent income
theory of consumption, some implications of the theories.

06. Demand for Money: Definition and functions of money, transactions, precautionary and
speculative demand for money. The transactions demand for money: the inventory-theoretic
approach (Baumol-Tobin). The speculative demand for money: portfolio balance theory.

Recommended Text Book:

Taslim, M. A. & Chowdhury, A., Macroeconomic Analysis for Australian Students,

Prentice Hall, Sydney.

Additional References:

Dornbusch, R. & Fischer, S., Macroeconomics, McGraw Hill.

Froyen, R. T., Macroeconomics: Theories & Policies, Macmillan.

Parkin, M. & Bade, R., Macroeconomics and the Australian Economy, Allen & Unwin