MACROECONOMIC THEORY

Course Outline
MS ECONOMICS/ BS EM 6/ MS 1
Spring, 2017

Instructor: Dr. Qazi Masood Ahmed

Section 1 : Re-visiting nuts and bolts of Macroeconomics (3 Lectures)

School of Thoughts in Macroeconomics

Issues in Pakistan National Income Accounts
Ingredients of Keynesian Theory of Employment
Introduction to IS-LM framework

Section 2 : Macroeconomic Framework (Lectures 10)

Equilibrium in Labor Market (Ch 2 AB)

Production Function
Determinants of Labor Demand
Determinants of Labor Supply
Derivation of FE curve

Long-Run Economic Growth (Ch 5 AB)

Sources of Economic Growth
Growth Accounting
Fundamental Determinants of Growth and Welfare in Pakistan

Equilibrium in Commodity Market (Ch 3 AB, Ch 10 DFS)

Consumption Function and Multiplier
Derivation of IS curve
Implications of Slope of the IS curve

Equilibrium in Money Market (Ch 6 AB, Ch 10 DFS)

Equilibrium in money market
Derivation of LM curve
Implications of Slope of the LM curve

General Equilibrium in complete aggregate demand and Supply (Ch 8 AB,

Ch 10 DFS)
Aggregate supply framework.
Determinants of Aggregate supply curve
Aggregate demand framework.
Determinants of Aggregate demand curve
Equilibrium in Aggregate demand Aggregate supply.
Derivation of AD curve
Implications of Slope of the AD
Section 3 : Behavioral Foundation of macroeconomics (Lectures 4)

SAVING AND CONSUMPTION

Determinants of Saving
Multi Period Saving Decisions
Classical Consumption Models
The Life-Cycle/Permanent-Income Hypothesis
BUSINESS INVESTMENT
Accelerator Theory

Neoclassical Investment Models

Investment and the Cost of Capital
Jorgenson Model

The Q-Theory of Investment (Tobins q)

Tobins q and Aggregate Investment

Section - 4 : Macroeconomic Policies in IS - LM Framework (Lectures 6)

Demand for money

Theory of Demand for money
Further Aspects of Demand of Money Behavior

Money Supply Dynamics

Principles of Money Supply Determination
Money Multiplier

Targets of the Monetary Policy

Rules vs Discretion in conducting Monetary Policy
Stabilization of the economy through Monetary Policy
Ingredient of Fiscal Policy
Fiscal Policy in Practice
Stabilization of the economy through Fiscal Policy

Section 5 : Macroeconomic Issues IS - LM Framework (Lectures 4)

Growth
Business cycle
Unemployment
Inflation
Philips Curve
Books Material/ Suggested websites:

1 Macroeconomic (8th Ed.) Abel and Bernanke (AB)

2. Dornbush, Fisher and Stratz, Macro Economics (DFS) 11th Edition.
3. Macroeconomics by N. Gregory Mankiw (GM) 7th Edition
4. Pakistan Economics Surveys, Annual Issues.
5. www.spdc.org.pk
6. www.pide.org.pk
7. www.aerc.org.pk

Grading Plan:

1. Class Participation 10

2. Viva Exams (10+10) 20

3. Term Examination(15+15) 30

2. Final Exam 40

Initial List of Papers to be discussed in the class

Ahmed, Q. M., & Hyder, K. (2007). Determinants of Total Factor Productivity in Pakistan. Working
Papers/Research Report 68, Social Policy and Development Center.

Friedman, M. (1957). Consistency of the Permanent Income Hypothesis with Existing Evidence on
the Relation between Consumption and Income: Time Series Data. In A Theory of the Consumption
Function (pp. 115-156). Princeton University Press.

Hall, R. E., & Jorgenson, D. W. (1967). Tax Policy and Investment behavior. American Economic
Review, 57, No. 3 (June); 391-414.

Hyder, K., & Ahmed, Q. M. (2003). Why private investment in Pakistan has collapsed and how it
can be restored. Lahore Journal of Economics, Vol. 9, No. 1 (15. June 2004): pp. 107-128.

Khan, A. H. (1980). The demand for money in Pakistan: Some further results. The Pakistan
Development Review, 25-50.

Khan, A. A., Ahmed, Q. M., & Hyder, K. (2007). Determinants of recent inflation in Pakistan.
Working Papers/Research Report 66, Social Policy and Development Center.

Somers, H. M. (1950). A Theory of Income Determination. The Journal of Political Economy, 523-
541.
References (from Developing Economies specially Pakistan Economy)

Section 2

1) Qazi Masood Ahmed and Kalim Hyder (2007), Determinants of Total Factor Productivity
in Pakistan. Research Report No 68. Social Policy and Development Centre.
www.spdc@org.pk
2) Muhammad Omer (2009), Stability of money demand function in Pakistan. Munich
Personal RePEc Archive

3) Friedman, M. (1957). Consistency of the Permanent Income Hypothesis with Existing

Evidence on the Relation between Consumption and Income: Time Series Data. In A Theory
of the Consumption Function (pp. 115-156). Princeton University Press.
4) Hall, R. E., & Jorgenson, D. W. (1963). Tax policy and investment behavior: The American
Economic Review,
5) Hyder, K., & Ahmed, Q. M. (2003). Why private investment in Pakistan has collapsed and
how it can be restored.
6) Khan, A. H. (1980). The demand for money in Pakistan: Some further results. The Pakistan
Development Review, 25-50.
7) Khan, A. A., Ahmed, Q. M., & Hyder, K. (2007). Determinants of recent inflation in Pakistan.
8) Somers, H. M. (1950). A Theory of Income Determination. The Journal of Political Economy,
523-541.

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