MAFE 02: Macroeconomics

Objective of the course

To provide the participants with a fair theoretical understanding of a selected set of
macroeconomic models with which some real world macroeconomic phenomena can
be explained.
Scope of the study
The module covers a bunch of short-run, medium-run and long-run macroeconomic
models and a few sectoral models. A brief introduction to macroeconomic policy will
also be provided. Then the role of expectations will be introduced and some of the
concepts discussed during the first half of the course are reconsidered in the context of
a world where expectations matter. Finally, some topics on open economy
macroeconomics will be introduced.
Teaching Methods
Students are expected to participate actively for each session. The module will consist
of take-home assignments, classroom tests in addition to teaching and discussions.
Participants are encouraged apply theoretical knowledge for the local and
international practical issues.
Course Contents
The Goods market; Keynesian Income Determination Model Financial Markets; The
IS-LM Model; The Labour Market AS-AD Model; Solow Growth Model; Sectoral
Models; Consumption
Investment; Unemployment and Phillips Curve;
Inflation; Introducing Expectations to Economic Theory; Financial markets and
Exceptions Goods Market and Expectations;
Expectations and Economic
Policy Open Economy Macroeconomics
Recommended Readings
1.
2.
3.
4.

Lectures are mostly based on the following two texts:

Blanchard, Oliver (2006) Macroeconomics, 4th ed, Prentice Hall.
Mankiw, Gregory (2007) Macroeconomics, 6th ed, Worth Publishers.
Branson, William H. (1989), Macroeconomics: Theory and Policy, 3rd ed, Harper
Collins.
5. Romer, David (2001) Advanced Macroeconomics, 2nd ed, McGraw Hill.

Detailed course outline

No.
1
2
3
4
5
6
7
8
9
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11
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15
16
17
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20
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Topic
Introduction course, origin and core macroeconomics ideas
Introduction course, origin and core macroeconomics ideas
Goods market and the Keynesian Income Determination Model
Financial Markets and the IS-LM Model-I
Financial Markets and the IS-LM Model-II
Labor Market and the AS-AD Model-I
Labor Market and the AS-AD Model-II
Expectations and goods market
Expectations and financial market
Expectations and IS-LM model
Transactions with the international economy
The goods market in an open economy
Financial market in an open economy
The labor market and wage setting
General equilibrium, aggregate demand and aggregate supply -I
General equilibrium, aggregate demand and aggregate supply -II
Growth model-I
Growth model-II
Consumption Theories-I
Consumption Theories-II
The Philips curve, inflation, deflation and unemployment-I
The Philips curve, inflation, deflation and unemployment-II
Recessions and Business cycles I
Recessions and Business cycles II
Monetary policy and practice-I
Monetary policy and practice-II
Fiscal policy and practice-I
Fiscal policy and practice-II
Monetary policy in Sri Lanka
Fiscal policy in Sri Lanka
Total

Hours
02
02
03
02
02
02
02
02
02
02
02
02
03
02
02
02
02
02
02
02
02
03
02
02
02
02
02
02
02
02
60