Lahore University of Management Sciences

ECON 121 – Principles of Macroeconomics

Fall 2020
Instructor Kinza Emad Khan
Room No. G-0112, Department of Economics, Ground Floor
Office Hours To be announced in class
Email kinza.emad@lums.edu.pk
Telephone Ext: 8480
Secretary/TA
TA Office Hours TBA
Course URL

Course Teaching Methodology

• Teaching Methodology: Blend of both synchronous or asynchronous
• Lecture details: live lectures will be conducted on Zoom and recordings will be shared when required

Course Basics
Credit Hours 4
Lecture(s) Lec(s) Per Week 2 Duration 1 hour 15 minutes
Recitation/Lab (per week) Lec(s) Per Week 3 Duration 50 minutes
Tutorial (per week) Lec(s) Per Week 0 Duration

Course Distribution
Core Yes
Elective
Open for Student Category Freshmen/MS 1st year students
Close for Student Category

Course Description
Overall Theme
To provide the students with an introduction to the basic macroeconomic principles; to enable students to appreciate the workings
of real (labour and goods) and asset/money markets and the nature of equilibrium in each market; to emphasize the role of
macroeconomic policies that affect internal and external deficits, inflation and growth of per capita income. Throughout the course
a focus will be on ‘critical thinking’ to analyze macroeconomic problems.

Focus areas
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.

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- Levels Economics
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Course Objectives
This course aims to provide students with a thorough understanding of core concepts and methods of
macroeconomics as a foundation for subsequent study of macroeconomics 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 perspective and then build to
develop macro-models using the assumption of aggregation.

Learning Outcomes
Upon completion of the course it is expected that students should be able to:
(a) Understand the structure of the economy and theories of macroeconomics at a level appropriate for a
first year economics graduate;
(b) Understand the key links between the goods market, input markets and money markets.
(c) Understand the macroeconomic models underlying the goods, input and money market, as well as the
IS-LM, AD-AS framework.

Grading Break Up: Component Details and Weightages

Assignment(s): 6 assignments (n-1) 50%

Midterm Examination: 25%
Final Examination:25%

Examination Detail

Yes/No: Yes
Midterm Combine Separate: Separate
Exam Duration: 1 hour 50 minutes
Preferred Date: 7th week
Exam Specifications: Multiple Choice & Structured Questions

Yes/No: Yes
Final Exam Combine Separate: Separate
Duration: 1 hour 50 minutes
Exam Specifications: Multiple Choice & Structured Questions
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Course Overview
Week/
Lecture/ Topics
Module
1 Measurement and Structure of the
National Economy
• Introduction
• National Income Accounting:
The Measurement of
Production, Income, and
Expenditure
• Gross Domestic Product
• Detailed analysis of its
components: Keynesian
cross
• Saving and Wealth
• Multiplier and different taxes
• Real GDP, Chained GDP Price
Indexes, and Inflation
• Interest Rates
2&3 Productivity, Output, and Employment
• The Demand for Labour
• The Supply of Labour
• Labour Market Equilibrium
• Unemployment
• Okun’s Law
4&5 Consumption, Saving, and Investment
• Consumption and Saving
• Goods Market Equilibrium
6&7 Saving and Investment in the Open
Economy
• Balance of Payments
Accounting
• Goods Market Equilibrium in
an Open Economy
• Saving and Investment in
Large and Small Open
Economies
• Fiscal Policy and the Current
Account
8&9 The Asset Market, Money, and Prices
• Definition of Money
• Portfolio Allocation and the
Demand for Assets
• The Demand for Money
• Asset Market Equilibrium
• Money Growth and Inflation
Objectives/Application
Recommended
Readings
Chapter 2 (MK), and • To familiarize with the practical issues
section 10.1 (MK) Chapter involved in measuring macroeconomic
1,2 (AB), indicators
• To provide a clearer understanding of
relationships that exist among the key
macroeconomic variables and among
different sectors of the economy
• To show the equivalence in the
product, income and the expenditure
approach of measuring GDP
Chapter 6 (MK) and • To analyze the factors that affect the
Chapter 3 (AB) long term performance of the
economy including the rate of
economic growth, productivity, living
standards, levels of employment and
unemployment and rate of inflation
Chapter 16 (MK) and • To explore the determinants of the
Chapter 4 (AB) economy wide demand for goods and
services
• To examine the factors affecting
saving and capital formation
Chapter 5 (AB) • To explore how desired national
savings and investments help
determine patterns of international
trade and lending
• To determine the factors affecting
current account balances of
economies
Chapter 18 (MK) and • To explore the motives of holding
Chapter 7 (AB) money and determine the factors
affecting money demand
• To understand the role of central bank
and commercial banks in determining
the money market equilibrium
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• Walras Law

10 & 11 Business Cycles Chapter 14 (MK) and • To show the basic characteristics of
• Introduction to Business Chapter 8 (AB) business cycles
Cycles • To analyze the impact of demand and
• Business Cycles and rational supply shocks on the real economic
expectations variables
• Aggregate Demand Shocks
• Adverse supply shocks
11, 12, 13 The IS-LM/AD-AS Models Chapter 10,11 & 13 (MK) • To develop the IS-LM model using the
& 14 • The FE Line: Equilibrium in and Chapter 9 knowledge from the previous chapters
the Labour Market (AB) • To derive the AD-AS model using the
• The IS Curve: Equilibrium in IS-LM framework
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 IS-
LM models
• Aggregate supply models in
the short run
• Phillips curve
• Deflation path
• Cost of deflation and
inflation policy

Textbook(s)/Supplementary Readings

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

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