You are on page 1of 684

Reading Pack

Principles of Macroeconomics
Econ 121

Irfan Ahmad Qureshi

Spring Semester 2016-17

Lahore University Of Management Sciences

Mushtaq Ahmad Gurmani School of Humanities &
Social Sciences
Lahore University of Management Sciences
ECON 121 Principles of Macroeconomics
Spring 2016-17

Instructor Irfan Ahmad Qureshi

Room No. 253
Office Hours Mondays and Wednesdays, 3:00 p.m. to 4:00 p.m.
Secretary/TA Muhammad Rashid
TA Office Hours
Course URL (if any)

Course Basics
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 110 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week 1 Duration 60 minutes
Tutorial (per week) Nbr of Lec(s) Per Week Duration

Course Distribution
Core x
Open for Student Category Undergraduate
Close for Student Category


The course is offered to first year undergraduates with the understanding that students have knowledge of macroeconomics at the
level covered in any primary Economics course. The principle aim of this course is to introduce the student to the fundamental
determinants of national income, employment, the price level and the interactions with the global economy in the short and long
run within a framework of active learning of economic theory and modelling.


Principle of Economics


The purpose of this course is to provide students with a thorough understanding of core concepts and methods of
macroeconomics as a foundation for subsequent courses in macroeconomics within the degree programme. The
techniques used will heavily rely on concept building and to ignite critical and analytical reasoning. The major
building blocks of the fundamental macroeconomic IS-LM/ AD-AS model will be covered in detail; the inputs
market, goods market, and the money/asset market. This model will be used to study business cycle fluctuations, and
evaluate historical and contemporary debates pertaining to both monetary and fiscal policy. Finally, the course will
examine comparative growth theories to explain long-run economic growth.
Lahore University of Management Sciences

Learning Outcomes
By the end of this course, students should be able to:

Understand the structure of the economy and theories of macroeconomics at a level appropriate for a first year
economics undergraduate;
Understand the key links between the goods market, input markets, money markets;
Combine the microeconomic models underlying the goods, input, money, and financial markets, as well as the IS-
LM, AD-AS framework.
Focus on macroeconomic policy issues using the IS-LM/AD-AS framework.
Critically discuss a whole range of current economic issues relevant to the global economy.

Grading Breakup and Policy

Grades for this course will be based on a midterm exam, a final exam, and six announced quizzes.

Quiz(s): 30% (4 announced quizzes, 10% each, quiz with the lowest grade will be dropped)
Midterm Examination: 30%
Final Examination: 40%

Announced quizzes will be held during the regular class meeting time. The quizzes will be cumulative, meaning that it will cover
material till that point in the semester.

Midterm Exam:
The midterm exam will be held during the regular class meeting time and the date will be communicated to you well in advance.
Tentatively, the mid-term will be held after we finish part 3 of the course.

Final Exam:
The final exam will be held during the final exam period at the end of the semester, according to the Universitys official final exam
schedule. The final exam will be cumulative, meaning that it will cover material from the entire semester.

I will not accept petitions for missing quizzes and exams (mid-term and final).

Academic and Personal Integrity:

Please re-familiarize yourself with the Universitys policies on academic integrity, which are described in the Undergraduate
Student Handbook. Needless to say, cheating, plagiarism, and collusion in this course cannot and will not be tolerated.

Examination Detail

Midterm Duration: 100 minutes

Exam Exam Specifications: Closed Books/Closed Notes

Final Exam Duration: 120 minutes

Exam Specifications: Closed Books/Closed Notes
Lahore University of Management Sciences
Week/Module Topics Objectives/Application
Part 1 1. The Science of Macroeconomics (M) Chp. 1, 2 Learn basic economic
Introduction 2. The Data of Macroeconomics concepts related to the
components of GDP, Prices,

Part 2 1. National Income: Where it Comes From and (M) Chp. 3 - 7 Understand the determinants
Classical Theory: The Where it Goes. of national income, the
Economy in the Long 2. The Monetary System: What It is and How It market for goods, labor,
Run Works capital and money, and
3. Inflation: Its Causes, Effects, and Social Costs examine the classic models
4. The Open Economy of monetary theory.
5. Unemployment and the Labor Market
Part 3 1. Economic Growth I: Capital Accumulation and (M) Chp. 8,9 Focus on explaining long run
Growth Theory: The Population Growth economic growth using the
Economy in the Very 2. Economic Growth II: Technology, Empirics and classic models, and evaluate
Long Run Policy policies which promote
Part 4 1. Introduction to Economic Fluctuations (M) Chp. 10 - 14 Assess business cycle
Business Cycle 2. Aggregate Demand I: Building the IS-LM model fluctuations using the
Theory: The Economy 3. Aggregate Demand II: Applying the IS-LM standard IS-LM/AD-AS
in the Short Run model model. Analyze
4. The Open Economy Revisited: The Mundell- macroeconomic policy using
Fleming Model and the Exchange Rate Regime this framework, extending to
5. Aggregate Supply and the Short-Run Tradeoff open-market economics.
between Inflation and Unemployment
Part 5 1. A Dynamic Model of Economic Fluctuations (M) Chp. 15 - 17 Examine the state of the art
Topics in 2. Understanding Consumer Behavior concepts leading to the
Macroeconomic 3. The Theory of Investment development of DSGE
Theory models. Critically evaluate
the classic issues pertaining
monetary policy.
Part 6 1. Alternative Perspectives on Stabilization Policy (M) Chp. 18 - 20 Focus on macroeconomic
Topics in 2. Government Debt and Budget Deficits policy issues and challenges;
Macroeconomic Policy 3. The Financial System: Opportunities and alternative macroeconomic
Dangers frameworks and the
importance of the financial

Textbook(s)/Supplementary Readings and Course Materials

The material discussed in class and readings from the required textbook defines this course. For your convenience, copies of my
lecture slides are available through the course webpage and on my website, listed above. I will primarily refer from the following
1. Macroeconomics. Ninth Edition, N. Gregory Mankiw, Macmillan educations (2015), Global Edition. (M)