Lahore University of Management Sciences

ECON 121 – Principles of Macroeconomics

Fall 2018-19

Instructor Usman Khan

Room No. 243
Office Hours By appointment
Email usmankhan@lums.edu.pk
Telephone Ext 8075
Secretary/TA
TA Office Hours
Course URL (if any)

Course Basics
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

Course Distribution
Core Core
Elective
Open for Student Category
Close for Student Category

COURSE DESCRIPTION
The course is pitched at the core principles level so is based on the understanding that students have at least attained the some basic
macroeconomics knowledge equivalent to that covered in any primary Economics course.

COURSE PREREQUISITE(S)

 Principles of Economics/ A Level Economics




COURSE OBJECTIVES
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 study of macroeconomic topics within the degree programme, and as one of
the key elements in the professional training of an economist. The techniques used will heavily rely on concept building and to
ignite critical and analytical reasoning. The course will use microeconomic models of utility maximization, profit maximization
and welfare maximization from an individual prospective and then build to develop macro-models using the assumption of
aggregation. The major areas of focus will be the inputs market, goods market, money/asset market, and economic growth.
Business cycles will also be discussed and linked to macroeconomic policy debate issues of ‘active’ versus ‘passive’ and ‘rules’
versus discretion. The equilibrium IS-LM, AD-AS model will be covered with some basic applications, providing a smooth
transition to Intermediate Macroeconomics.

Learning Outcomes
 Lahore University of Management Sciences
 Understand the structure of the economy and theories of macroeconomics at a level appropriate for a first year economics
graduate
 Understand the key links between the goods market, input markets and money markets.
 Understand the macroeconomic models underlying the goods, input and money market, as well as the IS-LM, AD-AS framework.
Grading Breakup and Policy

Quiz(s): 30% (6)

Midterm Examination: 30%
Final Examination: 40%

Examination Detail

Yes/No: Yes
Combine Separate: Separate
Midterm
Duration: 1 hour 50 mins
Exam
Preferred Date: preferably 7th week
Exam Specifications: multiple choice and structured questions

Yes/No: Yes
Combine Separate: Separate
Final Exam
Duration: 2 hours
Exam Specifications: multiple choice and structured questions

COURSE OVERVIEW
Week/
Recommended Objectives/
Lecture/ Topics
Readings Application
Module
Measurement and Structure of the National Economy
Economy Chapter 1,2 (AB) and Chapter 2 &
Section 10.1 (MK) • Introduction •
National Income Accounting: The
Measurement of
 Production, Income, and Expenditure
• Gross Domestic Product • Saving
and Wealth • Multiplier and
different taxes • Real GDP, Chained
GDP Price Indices, and Inflation •
Interest Rates
Productivity, Output, and Employment Chapter 3 (AB) and Chapter 6 (MK)
• The Demand for Labour • The
 Supply of Labour • Labour Market
Equilibrium • Type of
Unemployment • Okun’s Law
Consumption, Saving, and Investment Chapter 4 (AB) and Chapter 16 (MK)
• Consumption and Saving • Two
period life cycle model • Investment
 • Endogenous investment model and
Tobins Q • Goods Market
Equilibrium

Saving and Investment in the Open Economy Chapter 5 (AB)) • Balance of

 Payments Accounting • Goods
Market Equilibrium in an Open
 Lahore University of Management Sciences
Economy • Saving and Investment in
Large and Small Open Economies •
Fiscal Policy and the Current
The Asset Market, Money, and Prices Chapter 7 (AB) and Chapter 18 (MK)
• Definition of Money • Portfolio
Allocation and the Demand for

Assets • The Demand for Money •
Asset Market Equilibrium • Walras
Law • Money Growth and Inflation
Business Cycles Chapter 8 (AB) and Chapter 14 (MK)
• Introduction to Business Cycles •
 Business Cycles and
rationality • Active vs Passive Policy
• Rules vs Discretion Policy
The IS-LM/AD-AS Models Chapter 9 (AB) and Chapter 10, 11
&13 (MK) • The FE Line: Equilibrium
in the Labour Market • The IS Curve:
Equilibrium in the Goods Market •
The LM Curve: Asset Market
Equilibrium • General Equilibrium in
the Complete IS-LM Model • Price
 Adjustment and the Attainment of
General Equilibrium • Aggregate
Demand and Aggregate Supply •
Applications of AD/AS and ISLM
models • Aggregate supply models
in the short run • Phillips curve •
Deflation path • Cost of deflation
and inflation policy
Economics of Growth Chapter 6 (AB) and Class notes •
Exogenous growth model: Solow
Model • Applications of Solow •

Relaxing the assumptions of Solow
and introducing endogenous growth
• Lucas Model

Textbook(s)/Supplementary Readings

Mankiw N. G. , Principles of Macroeconomics, 6th Edition or earlier versions, Worth (MK)

Abel Andrew B. & Bernanke Ben S, Macroeconomics, 5th Edition, Addison Wesley (AB)