M.Sc. in Environmental and Natural Resource Economics Faculty of Economics, Chulalongkorn University

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1 M.Sc. in Environmental and Natural Resource Economics Faculty of Economics, Chulalongkorn University Course Outline and Advanced Economics Theory II ( ) (Macroeconomics) Assoc. Prof. Paitoon Kraipornsak, Ph.D. 22 August 16 August 2005

2 Course objectives Macroeconomics Theory is one of the compulsory core courses in all Economics Programmes at Faculty of Economics, Chulalongkorn University. The course is designed to provide students a comprehensive view of Macroeconomics Theory adequately to understand the Thai economy and the world economy. The course deals with important major components; i.e., aggregate demand, aggregate supply, inflation and unemployment, external factors and government policy. The sequence of the course will run following time frame of macroeconomic analysis from the short run, the medium run to the long run. The structure of the course basically consists of four core components: the short run, the medium run, the long run and the open economy. Although, in the light of the fact, Macroeconomics has quite little thing to do much with the environmental issues, by no doubt, as an economist, we have to understand our current economic situation. Most importantly, we should be able to anticipate what would be consequences of any government policy actions taken place from time to time so that we can manage strategies and plan our environmental policy and management properly. Nevertheless, the course also provides some applications related to environmental issues, when applicable. The tool of Macroeconomics Theory, naturally, involves Mathematics and graphs as the important tools for analysis and discussion. As many students in the Programme are from various academic backgrounds, they might be uncomfortable to learn using mathematical approach. This course tries to avoid using mathematical expression unless they are quite critical parts for the discussion and analysis. It is however noted that inadequate mathematical skill will not be an excuse for students to learn this course. All students did basic economics theory during the pre-sessional courses. Everyone is equal to the teaching at the time being regardless of his or her previous background. Class Schedule and Content i. The Short Run 1. Goods market and determination of equilibrium output -Composition of GDP -Conceptual framework of well-being -Environmental applications. Conceptual framework of well being. Environmental Accounting -Demand for goods -Equilibrium output in the good market Blanchard, CH 3 DFS, CH 9 NESDB, Conceptual of Well being. 1

3 Grafton, R.Q., W.Adamowicz, D. Dupont, H. Nelson, R.J. Hill, and S. Renzetti, Environmental Accounting, in The Economics of the Environment and Natural Resources, Chapter 12, Blackwell Publishing. Monday 22 August 2005, hours Tuesday 23 August 2005, hours 2. Financial markets and determination of interest rate -Demand for money -Supply of money -Equilibrium interest rate Blanchard, CH 4 DFS, CH Friday26 August 2005, hours 3. Goods and financial markets -Goods market equilibrium and IS curve -Financial market and LM curve -IS-LM framework Blanchard, CH DFS, CH 10 Romer, CH 5.1, 5.2 Saturday 27 August 2005, hours 4. Monetary policy and fiscal policy -Monetary policy and the interest rate Transmission mechanism Liquidity trap -Fiscal policy and the interest rate Crowding out -Policy mix and its dynamics Composition of output and policy mix 2

4 Blanchard, CH 5.4 DFS, CH 11 Recession and recovery Clinton Greenspan policy mix German unification Monday 29 August 2005, hours ii. The Medium Run 5. Labour market -Unemployment -Wage determination -Price determination -Natural rate of unemployment -Application. Thai labour market: overview Blanchard, CH 6 DFS, CH 7 Tuesday 30 August 2005, hours 6. The equilibrium of the economy -Aggregate demand -Aggregate supply -Equilibrium output in the economy in the short run and the medium run -Examples of analysis:. Fiscal and monetary policy under alternative supply assumption. Effects of a monetary expansion. Effects of a fiscal policy expansion. Change in price of oil Blanchard, CH 6-7 DFS, CH 5, 6.1 3

5 Romer CH 5.4 Friday 2 September 2005, hours Saturday 3 September 2005, hours 7. The Phillips curve: the medium run supply side -Inflation, expected inflation, and unemployment -Output inflation trade off -The Phillips curve -Expectation Augmented Phillips Curve -Warnings -Phillips curve and aggregate supply curve -Supply shock Blanchard, CH 8 DFS, CH , 6.6 Romer, CH 5.5 Monday 5 September 2005, hours 8. Inflation, and monetary expansion -Output, unemployment and inflation: Okun law -Effects of a monetary expansion -Disinflation -Stagflation, expected inflation and the Inflation-Expectations Augmented Phillips Curve Blanchard, CH 9 DFS, CH 6.5, 6.7 Tuesday 6 September 2005, hours iii. The Long Run 9. The fact of growth and its theory -Growth in rich countries vs poor countries 4

6 -A primer framework of growth analysis -Interactions between output and capital -Saving and alternative saving rates -Physical and human capital Blanchard, CH 11 DFS, CH 3-4 Romer, CH 1 Friday 9 September 2005, hours Saturday 10 September 2005, hours 10. Technical progress and growth -Technological progress and growth rate -Determinants of technological progress -Capital accumulation vs technical progress -Technological progress, wages and unemployment -Environment and the economy: Growth and the Environment Blanchard, CH 13 Grafton, R.Q., W. Adamowicz, D. Dupont, H. Nelson, R.J. Hill, and S. Renzetti, Growth and Environment, in The Economics of the Environment and Natural Resources, Chapter 11, Blackwell Publishing. Monday 12 September 2005, hours iv. The Open Economy 11. Goods market in an open economy -IS relation in the open economy -Equilibrium output and trade balance -Increases in domestic demand and foreign demand -Depreciation, trade balance and output: Marshall-Lerner condition -Dynamic J-Curve -Environmental Application. Trade and Environment 5

7 Blanchard, CH DFS, CH Grafton, R.Q., W.Adamowicz, D. Dupont, H. Nelson, R.J. Hill, and S. Renzetti, Trade and Environmental, in The Economics of the Environment and Natural Resources, Chapter 13, Blackwell Publishing. Tuesday 13 September 2005, hours 12. Output, interest rate and exchange rate -Equilibrium in the goods market -Equilibrium in the financial market -Fiscal policy effects in an open economy -Monetary policy effects in an open economy -Fixed exchange rates and fiscal policy -Fixed exchange rates and adjustment of real exchange rate -Mundell-Flemmings Model Blanchard, CH 20 DFS, CH Wednesday 14 September 2005, hours V. New Keynesian Macroeconomics 13. The New Macroeconomics -Rational expectation -Random Walk of GDP -Random Walk of GDP and role of aggregate demand -Real Business Cycle Theory -New Keynesian Models -Rational expectation revolution -Imperfect information of aggregate supply curve DFS, CH 8 Romer, CH Thursday 15 September 2005, hours 6

8 Final Examination Saturday 24 September 2005, hours There will be two written examinations: take home mid-term examination and final examination. The mid-term examination will account for 40% and the final examination will account for 60%. The mid-term examination will be given in the class and it will be returned on the next meeting class. The late submission will not be accepted. It expectedly has at least one take home mid-term examination. Main texts There are 3 books in the teaching course. All of them are available in the faculty library. Blanchard is however recommended being the main text throughout the course. The other books can also be used simultaneously in some chapters. 1. Blanchard, O Macroeconomics. 2 nd edition, New Jersey: Prentice-Hall. 2. Dornbusch, R., S. Fisher, and R. Startz, 1998., Macroeconomics, Boston: McGraw Hill. 3. Romer, D., Advanced Macroeconomics, Singapore: McGraw-Hill. Articles (will be provided in the class) 1. National Economic and Social Development Board, Indicators of Well-Being and Policy Analysis, a newsletter, Development Evaluation Division, periodically disseminated information on research of indicators of the Thailand's 8th National Economic and Social Development Plan. 2. Grafton, R.Q., W.Adamowicz, D. Dupont, H. Nelson, R.J. Hill, and S. Renzetti, Environmental Accounting, in The Economics of the Environment and Natural Resources, Chapter 12, Blackwell Publishing. 3. Grafton, R.Q., W.Adamowicz, D. Dupont, H. Nelson, R.J. Hill, and S. Renzetti, Growth and Environmental, in The Economics of the Environment and Natural Resources, Chapter 11, Blackwell Publishing. 4. Grafton, R.Q., W.Adamowicz, D. Dupont, H. Nelson, R.J. Hill, and S. Renzetti, Trade and Environmental, in The Economics of the Environment and Natural Resources, Chapter 13, Blackwell Publishing. 7