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LECTURE AND READING GUIDE

Note: Dates shown below are only approximate. Essential readings


are starred.

For preliminary reading students are referred to Chapter 1 of


Gordon. For those interested in current issues of the Australian
economy you are referred to the monthly Reserve Bank of Australia
(RBA) Bulletin, the quarterly statement of monetary policy and the
RBA Annual Report. They are available at
www.rba.gov.au/PublicationsAndResearch/. The Australian
Economic Review also publishes articles that are closely related to
material covered in the course.

Topic 1: National Accounting, the Keynesian Income-


Expenditure Model and Fiscal Policy
(Weeks 1 and 3, beginning 6 March and 20 March)*
The circular flow and national accounting; conception of
macroeconomic equilibrium; Keynesian Income-Expenditure Model
and Fiscal Policy Issues; an open economy model and trade balance
constraint

Reading:
* Gordon Chs 2 (25-50), 3 (pp. 58-80, 89-91), and 6 (pp. 168-97,
184-91).
* Stegman T. and Junor B. (1993) Introductory Macroeconomics,
Harcourt Brace-Jovanovich, Ch. 6 (pp. 84-113).

*No lectures in Week beginning 13 March as lecturer is absent


overseas.

Topic 2: The Financial System and Monetary Policy


(Week 4, beginning 27 March)
The demand for money, its supply and a financial market model; the
conduct of monetary policy and the key causal relationship between
interest rates and expenditure; the yield curve and the expectations
hypothesis

Reading:
* Gordon Chs 3 (pp. 76-83), 5 (pp. 129-60), 13 (pp. 446-57, 462-4).
* McLeay, M., Radia, A. and Thomas, R. (2014) Money Creation in a
Modern Economy, Bank of England Quarterly Bulletin, Q1, pp. 14-
27.
http://www.bankofengland.co.uk/publications/Documents/qu
arterlybulletin/2014/qb14q102.pdf

Lewis, M.K. and Mizen, (2000) The transmission mechanism,


Monetary Economics, Oxford University Press, Ch. 13.
Goodhart C. (1989) Monetary Base, The New Palgrave: Money,
Eatwell J, Milgate M & Newman P (eds), pp. 206-11.
2

Otto, G. (2007) Central bank operating procedures: How the RBA


achieves its target for the cash rate, Australian Economic Review,
40 (2), pp. 216-24.

Topic 3: The IS-LM Model and Macroeconomic Policy


(Week 5, beginning 3 April)
Constructing IS and LM curves on the basis of interest-setting
monetary policy; fiscal and monetary policy in the IS-LM model;
economic crisis and the policy response

Reading:
* Gordon Chs 3 (pp. 80-84), 4 (pp. 94-118), 5 (pp. 129-40, 147-60).
* Romer, D. (2000) Keynesian Macroeconomics without the LM
Curve, Journal of Economic Perspectives, 14 (2), pp. 149-169.

Topic 4: The AS-AD Model


(Weeks 6 and 7, beginning 10 & 24 April)
Short run and long run equilibrium; aggregate demand with an
interest rate rule using a price level target; aggregate supply and
the natural level of income; price-wage flexibility versus non-
flexibility; inflationary and deflationary shocks and policy responses

Reading:
* Gordon Ch 8 (pp. 243-73), 10 (pp. 353-62), 13 (pp. 464-72).
* Bernanke, B., Olekalns, N., and Frank R. (2005) The Reserve Bank
and the Economy, Principles of Macroeconomics, 2nd edition,
McGraw-Hill Irwin, Ch. 10, pp. 254-91.

Stegman and Junor (1993), pp. 248-67.

Easter Semester Break: Common Week, 17 21 April

Mid-Term Exam: Wednesday 26 April 2016

Topic 5: Inflation and Unemployment: The Phillips Curve


(Weeks 8 and 9, beginning 1 & 8 May)
Inflation, unemployment and the Phillips Curve analysis;
expectations and price inflation; the natural rate of unemployment;
anti-inflationary policy, hysteresis and central bank independence;
nominal and real interest rates and the Fisher hypothesis

Reading:
* Gordon Chs 9 (pp. 279-307) and 10 (pp. 330-43, 362-8).
* Dawson, G. (1996) Unemployment and Inflation, Economics and
changing economics, MacIntosh M, Brown
3

V, Costello N, Dawson G, Thompson G & Trigg A (eds), The Open


University, International Thomson Business Press, pp. 815-53.
Stevens, G. (2003) Inflation Targeting: A Decade of Australian
Experience, RBA,
www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_apr03/
bu_0403_3.pdf

Topic 6: Economic Growth


(Weeks 10 and 11, beginning 15 & 22 May)
The aggregate production function and the Swan-Solow growth
model; technological change and convergence theory; human
capital and endogenous growth theory; critique of supply driven
theories of growth and the alternative demand-led approach to
explaining growth and development

Reading:
* Gordon Chs 11 (pp. 376-98) and 12 (pp. 407-440).
* Jones, C. I. (2002) Introduction to Economic Growth, 2nd edn., New
York: W.W. Norton, Ch. 8 (pp. 156-68).

Kurz, H. and Salvadori, N. (2008) New Growth Theory and


Development Economics, International Handbook of Development
Economics, Dutt A K & Ros J (eds), Edward Elgar, ch. 15, pp. 207-22.

Topic 7: Consumption and Investment


(Week 12, beginning 29 May)
Theories of consumption: permanent income hypothesis, lifecycle
hypothesis & relative income hypothesis; theories of investment:
accelerator theory & the neoclassical theory; investment and
cyclical activity

Reading:
* Gordon Chs 14 (pp. 479- 510) & 15 (pp. 517-39)

Ceballero, R. (1999) Aggregate Investment, Handbook of


Macroeconomics, Taylor J B & Woodford M (eds), Elsevier, vol. 1B,
Ch. 12, pp. 813-62.
Petri, F. (2005) Capital Theory and Macroeconomics I: The Theory of
Aggregate Investment, General Equilibrium, Capital and
Macroeconomics, Edward Elgar, Ch. 7, pp. 256-81.

Topic 8: Open Economy Macroeconomics


(Weeks 12 and 13, beginning 29 May & 5 June)
Nominal and real exchange rates; the balance of payments;
international capital mobility and interest-rate parity conditions;
Mundell-Fleming (IS-LM) model and macroeconomic policy; fixed
versus flexible exchange rate regimes; optimal currency areas and
external adjustment issues
4

Reading:
*Gordon Ch 7 (pp. 201-37).
*Blanchard, O. and Sheen, J. (2008), Macroeconomics, Australian 3rd
edition, Pearson, pp. 421-5, 455-66.

Pomfret, R. (2005) Currency Areas in Theory and Practice, The


Economic Record, 81 (June), pp. 166-76.

STUVAC 12 16 June