FOUNTAIN UNIVERSITY OSOGBO

COLLEGE OF MANAGEMENT AND SOCIAL SCIENCES

DEPARTMENT OF ECONOMICS

Academic Year 2019/2020 Second Semester

Course Title: Introduction to Macroeconomics II Course Code ECO 204 2 units

Lecturer: Taofeek Olusola AYINDE (Ph.D.)

E-mail: olusolaat@gmail.com; ayinde.taofeek@fuo.edu.ng Telephone: 07063357968

Week 1: INTRODUCTION TO THE COURSE.

CONTENT/DESCRIPTION

The course reviews conventional theories of consumption and savings such as the absolute income
hypothesis, relative income hypothesis, the Kuznet Paradox, Life Cycle Hypothesis and the
Permanent Income Hypothesis (PIH). Also, the theories of investment and capital were examined.
These include the accelerator (fixed and flexible) theories, the Stock Adjustment Hypothesis, the
Permanent Accelerator Theory and the Marginal Efficiency Hypothesis of Keynes (1936). More
so, the money market sector of the economy is examined. Theories of Money Demand and Money
Supply were reviewed. In addition, macroeconomic policies which encompass both the monetary
and fiscal policies are analyzed. Theories of inflation and price movement are also examined.
These include the demand-pull theory, supply-push theory, monetary theory, structural theory,
wage-push, cost-push and profit push theories. More so, macroeconomic theories of inflation such
as the rational expectation theory were considered. The underlying assumptions of these theories
are to be critically analyzed in order to situate the applicability to individuals, societies and
economies.

Economic Theories
Theories are various postulations, thinking and philosophies that crave our understanding various
economic phenomenon. For every economic theory, there are various underlying assumptions that
serve as a building block and the framework upon which the theory rests. Once one or two or more
of these assumptions collapse, the basic message, known as the predictions, of the theory relapse.
Hence, for any economic theory, the assumptions are fundamental to the predictions made in the
theory. The scope of these assumptions are known as the boundary conditions or limitations. The
environment, the human element and the structural make-up of an economy are factors explaining
for the limitations of any economic theory. In this course, lecture on the following theories would
be delivered;
 Theories of Consumption and Savings
 Theories of Investment and Capital
 Theories of Money Demand and Money Supply
 Theories of Prices (Inflation)

Also, monetary and fiscal Policies will be discussed. The general overview of these theories are
taken on a weekly basis for discussion.

GENERAL OVERVIEW OF THE COURSE OUTLINE

Week I: INTRODUCTION TO THE COURSE.

Theories are the basic propositions, postulations and philosophical thinking about which economic
phenomenon behaves. The refinements, modifications, adjustments and extensions of theories
based on new thinking and coupled with the domestic and global economic occurrences are to be
explained. That the presence of new knowledge and the existence of empirical evidences are the
two major factors considered in refining the classical and conventional theoretical positions should
be discussed. Also, the reasons that could validate the congruence and misalignment between
theory and practice are to be well discussed.

Week II: GENERAL OVERVIEW AND ABSOLUTE INCOME HYPOTHESIS

A general overview of the theories of consumption and savings are highlighted. The concept of
consumption and savings are fully discussed. Comprehensively, the review of the theories of
consumption and savings begins with the Absolute Income Hypothesis by John Maynard Keynes
(1936). The assumptions of this theory are highlighted and critically discussed while the
relationship between the Average Propensity to Consume (APC) and Marginal Propensity to
Consume (MPC) are evaluated. The extent of applicability of this theory to individuals, society
and economy is examined.
Week III: THE KUZNET PARADOX AND THE RELATIVE INCOME
HYPOTHESIS
Following the propositions advanced by the Absolute Income Hypothesis of Keynes (1936), both
the Kuznet Paradox and the Relative Income Hypothesis would be used to address some of the
shortcomings and/or criticisms of the Keynes (1936) theory of consumption. How these two
theories extend and modify the Absolute Income Hypothesis would be well explained. The various
assumptions adjusted and the need for the new thinking on consumption would be highlighted.
The relationship between Average Propensity to Consume (APC) and Marginal Propensity to
Consume (MPC) is re-examined. Other determinants of consumption such as the societal factors,
ratchet effects and the bandwagon effects will be analyzed.

Week IV: PERMANENT INCOME AND LIFE-CYCLE HYPOTHESES

The income of consumer is decomposed into the average (or permanent or measured) income and
transitory income as against the aggregate income posited under the Absolute Income Hypothesis
(AIP). These major determinants of consumption under the Permanent Income Hypothesis (PIH)
would be explained. Consumption smoothening patterns between youthful, middle and old lives
are the determinants of consumption under the Life Cycle Hypothesis (LCH) by Milton Friedman
(1957).

Week V: GENERAL DETERMINANTS OF CONSUMPTION

Stemming from the various theories of consumption and savings, the various determinants of
consumption such as income (aggregate, average and transitory incomes) of the consumer, societal
influences, peer-pressure factors, consumption smoothening patterns and other factors obtained
from empirical evidence are highlighted.

Week VI: THEORIES OF INVESTMENT AND CAPITAL – ACCELERATOR

THEORIES AND STOCK ADJUSTMENT HYPOTHESIS
General overview of the concepts and types of investment and capital will be explained. Both the
Accelerator (fixed and flexible) theories coupled with the Stock Adjustment Hypothesis will be
evaluated. The underlying assumptions and predictions are examined. More so, the theories are
critically evaluated in terms of the merits and limitations.
Week VII: PERMANENT ACCELERATOR THEORY AND THE MARGINAL
EFFICIENCY HYPOTHESIS
Permanent Accelerator Theory and the Marginal Efficiency Hypothesis of Keynes (1936) will be
evaluated. The assumptions, predictions and criticisms of these theories would be emphasized.
Also, its application to individuals, societies and economies should be highlighted. The need for
modification and amendments of these theories in order to align to the peculiarities of individuals
and societies should be explained.

Week VIII: MID-SEMESTER EXAM

Students will be examined in the areas that have so far been covered in the Semester. This will
afford students an opportunity of a revision of all topics that have already been taken.

Week IX: MONEY DEMAND AND MONEY SUPPLY

The money market analysis entails the demand for and supply of money. The motives for the
demand for money will be explained. Also, the exogenous determination of the money supply by
the monetary authority will be highlighted. How equilibrium analysis of both jointly determine the
money market interest (currently termed the monetary policy rate; MPR) will the discussed. The
disequilibrium in this market will also be explained and the factors that will restore equilibrium
will be highlighted.

Week X: MACROECONOMIC (MONETARY AND FISCAL) POLICIES

The basic classification of macroeconomic policies such as the fiscal and monetary policies would
be explained. The authorities saddled with achieving these policies would be noted. While the
executives are saddled with formulating the fiscal policy; the monetary policy is the sole
responsibility of the monetary authority (in this case, the Central Bank of Nigeria) in an economy.
The various components of monetary and fiscal policies such as the expansionary and
contractionary forms, the instruments that could be used such as the quantitative and qualitative
types and the direct and indirect instruments are to be highlighted. The students are to be
acquainted that both policies are expected to be complementary and that these policies are directed
towards achieving a set of macroeconomic objectives such as economic growth, price stability,
full-employment equilibrium, equitable distribution of resources and balance of payment
equilibrium.

Week XI: CONVENTIONAL THEORIES OF INFLATION

Inflation, as the persistent general increase in the price level of an economy, has many causal
factors. These causal factors could be explained by the various views and theoretical expositions
on the causes of inflation. The students are to understand that it is only when the actual causes of
inflation are known that appropriate control measures could be instituted to correct for its
damaging consequences. The students would be intimated of the baseline theories; otherwise
known as the conventional theories of inflation. These would include the Quantity theory of money
popularized by Irvin Fisher (1947), demand-pull theory of Keynes (1936), the supply-push, cost-
push/wage-spiral/profit-push and structural theories of inflation.

Week XII: MODERN (MACROECONOMIC) THEORIES OF INFLATION

In addition to the traditional theories of inflation, the modern theories of inflation such as the
rational expectation theory, the new neoclassical synthesis and the new political macroeconomic
of inflation would also be highlighted to the knowledge of the students.

Week XIII: REVISION AND QUIZZ COMPETITION

A quiz competition will be put up in order to elicit feed-back from the students. The students will
be grouped into five. Individual participation will also be encouraged as any member of the group
will be called upon to answer questions or explain a concept on behalf of the group. This will let
the students embark on self-evaluation in preparing towards the examination.

The following are resource materials for further reading are;

RECOMMENDED TEXTS
 Introduction to Macroeconomics; 2nd Edition, Olofin, Sam O., Salisu, Afees A. Published
by Evans Brothers (Nigeria Publishers) Limited, Ibadan, Nigeria.
 Modern Macroeconomics: Theory and Application in Nigeria, Anyanwu, J.C., and
Oaikhenan, H.E.
  Analytical Macroeconomics from Keynes to Mankiw, Sampat Mukherjee
 An Introduction to Modern Macroeconomics, Revised Edition, Iyoha, M.A., Oyefusi, S.A.,
and Oriakhi, D.E. Mindex Publishing Company Limited, Benin City, Nigeria.

ONLINE RESOURCE MATERIALS

 Totonchi, J. (2011). Macroeconomic Theories of Inflation. 2011 International Conference

on Economics and Finance Research, IPEDR, IACSIT Press, Singapore, Vol. 4, Pp.459 –
462.
 Parker, J. (2010). Theories of Investment and Expenditures, Chapter 15, Economics 314
Coursebook.
 Parker, J. (2010). Theories of Savings and Consumption, Chapter 16, Economics 314
Coursebook.
 Lecture Notes on Intermediate Macroeconomics. Metropolitan State University of Denver.
 DeLong, J.F. (undated). Lecture Notes: Chapter 1: Introduction to Macroeconomics, Pg. 1
– 13.


REQUIREMENTS

 Attendance is compulsory for all registrants for the Course

 To be qualified to write the examination for the course, a minimum of 70% attendance
must be obtained by a student
 A mid-semester evaluation as part of the Continuous Assessment is mandatory
 Assignments must be submitted online
 An end of semester evaluation (online) by every student is required to be able to register
for the succeeding semester or access to examination results.

GRADING SYSTEM

Mid-Semester Evaluation 25%

Assignment 10%

Attendance 10%

Examination 60%