This course examines macroeconomic performance in the short and long run based on the economy’s institutional and policy environment. First, we will develop a model of macroeconomy in the short run when the price level has its own momentum and does not respond much to supply and demand forces. Then, we’ll begin analyzing the long-run equilibrium by examining the foreign exchange market. The third module examines the drivers of aggregate output in the long run and the mechanisms of adjustment from the short run to the long run. Finally, we will discuss the characteristics of desirable macroeconomic policies and the reasons why actual policies deviate from them.
You will be able to:
• Understand how the market for aggregate goods and services interacts with the money market to shape the macroeconomic equilibrium which determines income, interest rate, and exchange rate in the short run
• Assess the dynamic effects of macroeconomic policies and understand the roles of globalization, government policies, institutions, and expectations in macroeconomic outcomes
This course is part of Gies College of Business’ suite of online programs, including the iMBA and iMSM. Learn more about admission into these programs and explore how your Coursera work can be leveraged if accepted into a degree program at https://degrees.giesbusiness.illinois.edu/idegrees/.
You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course.
Module 1: Aggregate Expenditure and GDP in the Short Run When Prices Are "Sticky"
What determines the GDP? In the previous course on Macroeconomic Variables and Markets, we saw how the exchange rate and the interest rate are determined given the real income, aggregate price level, and expectations about the future. This module focuses on GDP determination in the short run, which is a critical step in understanding macroeconomic fluctuations and the role of stabilization policies. Long-run trends, expectations, and price level movements will be examined in subsequent modules.
Module 2: Expectations and the Long-Run Exchange Rate
Where do expectations about the future of economic variables come from? This question is important because expectations matter a great deal in the choices made by economic agents at every point in time. This is quite easy to see in the connection between the exchange rate in the spot market at each moment and the expected exchange rate in the future spot market. In this module, we examine the formation of exchange rate expectations based on a model of long-run equilibrium in the foreign exchange market. The model turns out to be very insightful regarding the factors that drive the real exchange rates and competitiveness of economies over the years.
Module 3: Long-Run Economic Performance and Short-Run Adjustments
Why are some nations so much poorer than others? Why do some countries manage to grow fast over decades while others stagnate? What determines the real per capita income in a country in the long run? One goal of this module is to examine these fundamental questions in economics. The module also discusses the relationship between short-run and long-run equilibria and shows how the process of adjustment may lead to macroeconomic instability. It ends by examining the role of monetary and fiscal policies in stabilizing or destabilizing the economy as it goes through the adjustment process.
Module 4: Institutions and Macroeconomic Policies
Some countries seem to be much more prone to macroeconomic crises and stagnation than others. Why do policymakers in some countries fail to follow more productive and stabilizing policies? What roles do a country’s politics and institutions play in the policy choices by the government and the central bank? What factors and variables do we need to know about in order to be able to assess a country’s long-term macroeconomic prospects?