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					                               SABANCI UNIVERSITY
                            ECON 202 – MACROECONOMICS
                                    Course Syllabus

Semester / Section: Summer 2010 / A
Instructor: Mehmet Tütüncü
Office / Phone / e-mail: FASS 2025 / 9273 / mtutuncu@sabanciuniv.edu
Teaching Assistants: (to be announced)
Office Hours: Tuesdays and Thursdays 13:40-15:30, or by appointment

Lectures:      Tuesdays 08:40-11:30 at FASS 1103, Thursdays 08:40-11:30 at FENS G 035
Recitation:    Group 1 – Fridays 12:40-14:30 at FENS L 045
               Group 2 – Fridays 12:40-14:30 at FENS L 045


Contents/Description: This is a fundamental course in the curriculum of any economics
program. It provides a survey of the main theories which try to explain what happens in an
economy in general. In other words, macroeconomics takes an overall view of the economy.
This means that, instead of looking at the production of hazelnuts, or of cars, or of health
services, etc, we look at the total production of all goods and services; instead of looking at
the price of hazelnuts, or of cars, or of health services, etc, we look at the average level of
prices of all goods and services; instead of looking at the wages and salaries earned by farm
workers, or by factory workers, or by doctors, etc, we look at the wages earned by all workers
and employees in general, etc. Even though, in a typical economy, there are millions of
different kinds of goods and services produced, thousands of different types of labor hired,
and many different types of financial assets held, macroeconomics sees the economy as a
system that consists of only four, instead of millions of, markets. These four markets are the
so-called “goods”, “labor”, “money”, and “bond” markets. By studying the interactions
between these four markets, we try to understand / explain how economic variables like the
total production, the average level of prices, the unemployment rate, the wage rate, the
interest rate, and the exchange rate are determined.


Textbook: Andrew B. Abel and Ben S. Bernanke, Macroeconomics, Pearson Addison
Wesley, 5th or 6th edition.

Course web site: See the website for Econ202 in SUCourse, sections titled Problem Sets for
Recitations and Sample Exams from Past Semesters and Additional Study Questions, both
placed under Learning Modules.

Evaluation: About 10 unannounced quizzes (10 %), one midterm exam (40 %), and one
final exam (50 %). Attendance will not be graded but it is absolutely important to attend
classes regularly because (a) lecture notes (which are currently under revision) will not be
provided, (b) each quiz question will cover the material introduced in the lecture on the same
day, (c) the answers to problem sets solved in recitation hours as well to the questions solved
in class will not be provided outside the classroom.

Midterm Date: (to be announced)
Important Notice: Students are expected to know Sabancı University regulations about
cheating in examinations. Violations will imply an “F” in this course and a disciplinary
action according to the rules.
COURSE OUTLINE (for those who have the 5th edition of the textbook)

The chapters and sections and the page numbers in the outline below refer to chapters,
sections, and pages in the textbook.

Pages          Chapters and sections

               Chapter 1 - Introduction to macroeconomics
2-11           Section 1.1 - What macroeconomics is about
               Long-run economic growth, Business cycles, Unemployment, Inflation, The
               international economy, Macroeconomic policy, Aggregation
12-15          Section 1.2 - What macroeconomists do
               Macroeconomic forecasting, Macroeconomic analysis, Macroeconomic
               research
16-20          Section 1.3 - Why macroeconomists disagree
               Classicals versus Keynesians, A unified approach to macroeconomics

             Chapter 2 - The measurement and structure of the national economy
24-27        Section 2.1 - National income accounting: The measurement of production,
             income, and expenditure
             Why the three approaches are equivalent
28-37        Section 2.2 - Gross Domestic Product
             The product approach to measuring GDP (market value, newly produced goods
             and services, final goods and services, GNP versus GDP), the expenditure
             approach to measuring GDP (consumption, investment, government purchases
             of goods and services, net exports), the income approach to measuring GDP
             (compensation of employees, proprietors’ income, rental income of persons,
             corporate profits, net interest, indirect business taxes, depreciation, net factor
             payments, private sector and government sector income)
37-41, 44-45 Section 2.3 - Saving and Wealth
             Measures of aggregate saving (private saving, government saving, national
             saving), the uses of private saving, relating saving and wealth (national wealth)
45-50        Section 2.4 - Real GDP, price indexes, and inflation
51-53        Section 2.5 - Interest rates
             Real versus nominal interest rates (the expected real interest rate)

               Chapter 3 - Productivity, output, and employment
               (skip Section 3.1 - The production function)
72-79          Section 3.2 - The demand for labor
               The marginal product of labor and labor demand, a change in the wage, the
               marginal product of labor and the labor demand curve, factors that shift the
               labor demand curve, aggregate labor demand
79-85          Section 3.3 - The supply of labor
               The income-leisure trade-off, Real wages and labor supply (A pure substitution
               effect: a one-day rise in the real wage, A pure income effect: winning the
               lottery, The substitution effect and income effect together: a long-term increase
               in the real wage, Empirical evidence on real wages and labor supply), The
               labor supply curve (Factors that shift the labor supply curve), Aggregate labor
               supply
88-93          Section 3.4 - Labor market equilibrium
          Full employment output
94-99     Section 3.5 - Unemployment
          Measuring unemployment, Changes in employment status, How long are
          people unemployed, Why there always are unemployed people (Frictional
          umemployment, structural unemployment, the natural rate of unemployment)
99-101    Section 3.6 - Relating output and unemployment: Okun’s law

          Chapter 4 - Consumption, Saving, and Investment
111-125   Section 4.1 - Consumption and saving
          The consumption and saving decision of an individual, Effect of changes in
          current income, Effect of changes in expected future income, Effect of changes
          in wealth, Effect of changes in the real interest rate (Taxes and the real return
          to saving), Fiscal policy (Government purchases, Taxes)
127-138   Section 4.2 - Investment
          The desired capital stock (The user cost of capital, Determining the desired
          capital stock), Changes in the desired capital stock (Taxes and the desired
          capital stock), From the desired capital stock to investment (Lags and
          investment), Investment in inventories and housing
138-144   Section 4.3 - Goods market equilibrium
          The saving-investment diagram (Shifts of the saving curve, shifts of the
          investment curve)

          Chapter 5 - Saving and investment in the open economy
175-182   Section 5.1 - Balance of payments accounting
          The current account (Net exports of goods and services, Net income from
          abroad, Net unilateral transfers, Current account balance), The capital and
          financial account (The official settlements balance), The relationship between
          the current account and the capital and financial account, Net foreign assets
          and the balance of payments accounts
184-185   Section 5.2 - Goods market equilibrium in an open economy
185-190   Section 5. 3 - Saving and investment in a small open economy
          The effects of economic shocks in a small open economy (A temporary
          adverse supply shock, an increase in the expected future marginal product of
          capital)
          (skip Section 5.4 - Saving and investment in large open economies)
198-200   Section 5.5 - Fiscal policy and the current account
          The critical factor: the response of national saving, The government budget
          deficit and national saving (A deficit caused by increased government
          purchases, A deficit resulting from a tax cut)

          (skip Chapter 6 - Long-run economic growth)

          Chapter 7 - The asset market, money, and prices
245-252   Section 7.1 - What is money?
          Functions of money (Medium of exchange, store of value, unit of account),
          Measuring money: the monetary aggregates (M1, M2, M3, weighted monetary
          aggregates), The money supply
252-253   Section 7.2 - Portfolio allocation and the demand for assets
          Expected return, Risk, Liquidity, Asset demands
253-261   Section 7.3 - The Demand for money
              The price level, Real income, Interest rates, The money demand function,
              Other factors affecting money demand (Wealth, Risk, Liquidity of alternative
              assets, Payment technologies), Elasticities of money demand, Velocity and the
              quantity theory of money
263-266       Section 7.4 - Asset market equilibrium
              Asset market equilibrium: an aggregation assumption, The asset market
              equilibrium condition
266-270       Section 7.5 - Money growth and inflation
              The expected inflation rate and the nominal interest rate

              Chapter 8 - Business cycles
276-279       Section 8.1 - What is a business cycle?
279-287 ???   Section 8.2 - The american business cycle: the historical record ???
              The pre-world war I period, The great depression and world war II, Post-world
              war II period, The long boom, Dating the peak of the 2001 recession, Have
              american business cycles become less severe?
287-297       Section 8.3 - Business cycle facts
              The cyclical behavior of economic variables: direction and timing, Production,
              Expenditure, Employment and unemployment, Average labor productivity and
              the real wage, Money growth and inflation, Financial variables, International
              aspects of the business cycle
297-304       Section 8.4 - Business cycle analysis: a preview
              Aggregate demand and aggregate supply: a brief introduction (Aggregate
              demand shocks, Aggregate supply shocks)

              Chapter 9 - The IS-LM / AD-AS model: A general framework for
              macroeconomic analysis
308-310       Section 9.1 - The FE line: Equilibrium in the labor market
              Factors that shift the FE line
310-315       Section 9.2 - The IS curve: Equilibrium in the goods market
              Factors that shift the IS line
315-322       Section 9.3 - The LM curve: Equilibrium in the asset market
              The interest rate and the price of a nonmonetary asset, The equality of money
              demanded and money supplied, Factors that shift the LM line (Changes in the
              real money supply, Changes in the real money demand)
322-326       Section 9.4 - General equilibrium in the complete IS-LM model
              Applying the IS-LM framework: a temporary adverse supply shock
326-333       Section 9.5 - Price adjustment and the attainment of general equilibrium
              The effects of a monetary expansion (The adjustment of the price level, Trend
              money growth and inflation), Classical versus Keynesian versions of the IS-
              LM model (Price adjustment and the self-correcting economy, Monetary
              neutrality)
333-340       Section 9.6 - Aggregate demand and aggregate supply
              The aggregate demand curve (Factors that shift the AD curve), The aggregate
              supply curve (Factors that shift the aggregate supply curve), Equilibrium in the
              AD-AS model, Monetary neutrality in the AD-AS model

              Chapter 10 - Classical Business Cycle analysis: Market-clearing
              macroeconomics
355-358       Section 10.1 - Business cycles in the classical model
          The real business cycle theory, The recessionary impact of an adverse
          productivity shock, Real business cycle theory and the business cycle facts,
362       Are productivity shocks the only source of recessions?
366-372   Fiscal policy shocks in the classical model (Should fiscal policy be used to
          dampen the cycle?), Unemployment in the classical model
373-376   Section 10.2 - Money in the classical model
          Monetary policy and the economy, Monetary nonneutrality and reverse
          causation, The nonneutrality of money: additional evidence
376-384   Section 10.3 - The misperceptions theory and the nonneutrality of money
          Monetary policy and the misperceptions theory (Unanticipated changes in the
          money supply, anticipated changes in the money supply), Rational
          expectations and the role of monetary policy, Propagating the effects of
          unanticipated changes in the money supply

          Chapter 11 - Keynesianism: The macroeconomics of wage and price
          rigidity
393-400   Section 11.1 - Real-wage rigidity
400-406   Section 11.2 - Price stickiness
407-414   Section 11.3 - Monetary and Fiscal policy in the Keynesian model
          Monetary policy (Monetary policy in the Keynesian IS-LM model, Monetary
          policy in the Keynesian AD-AS model), Fiscal policy (The effect of increased
          government purchases, The effect of lower taxes)
414-422   Section 11.4 - The Keynesian theory of business cycles and macroeconomic
          stabilization
          Keynesian business cycle theory (Procyclical labor productivity and labor
          hoarding), Macroeconomic stabilization (Difficulties of macroeconomic
          stabilization), Supply shocks in the Keynesian model

          Chapter 12 - Unemployment and Inflation
434-447   Section 12.1 - Unemployment and Inflation: Is there a trade-off?
          The expectations-augmented Phillips curve, The shifting Phillips curve
          (Changes in the expected inflation, changes in the natural rate of
          unemployment, supply shocks and the Phillips curve, the shifting Phillips
          curve in practice), Macroeconomic policy and the Phillips curve, The long-run
          Phillips curve
          Section 12.2 - The Problem of Unemployment
449-452   The long-term behavior of the unemployment rate (The changing natural rate)
454-455   Policies to reduce the natural rate of unemployment
          Section 12.3 - The problem of inflation
459-462   Fighting inflation: the role of inflationary expectations (Rapid versus gradual
          disinflation, Wage and price controls, Credibility and reputation)

          Chapter 13 - Exchange rates, Business Cycles, and Macroeconomic policy
          in the open economy
468-476   Section 13.1 - Exchange rates
          Nominal exchange rates, Real exchange rates, Appreciation and depreciation,
          Purchasing power parity, The real exchange rate and net exports (The J curve)
478-483   Section 13.2 - How exchange rates are determined: A supply-and-demand
          analysis
              Macroeconomic determinants of the exchange rate and net export demand
              (Effects of changes in output (income), Effects of changes in real interest rates)
483-490       Section 13.3 - The IS-LM model for an open economy
              The open-economy IS curve, Factors that shift the open-economy IS curve
              (Effect of an increase in government purchases on the open-economy IS curve,
              Effect of an increase in net exports on the open-economy IS curve), The
              international transmission of business cycles
490-496       Section 13.4 - Macroeconomic Policy in an open economy with flexible
              exchange rates
              A fiscal expansion, A monetary contraction (Short-run effects on the domestic
              and foreign economies, Long-run effects on the domestic and foreign
              economies)
496-511 ???   Section 13.5 - Fixed exchange rates ???
              Fixing the exchange rate, Monetary policy and the fixed exchange rate, Fixed
              versus flexible exchange rates, Currency unions
COURSE OUTLINE (for those who have the 6th edition of the textbook)

The chapters and sections and the page numbers in the outline below refer to chapters,
sections, and pages in the textbook.

Pages          Chapters and sections

               Chapter 1 - Introduction to macroeconomics
2-11           Section 1.1 - What macroeconomics is about
               Long-run economic growth, Business cycles, Unemployment, Inflation, The
               international economy, Macroeconomic policy, Aggregation
11-15          Section 1.2 - What macroeconomists do
               Macroeconomic forecasting, Macroeconomic analysis, Macroeconomic
               research
15-19          Section 1.3 - Why macroeconomists disagree
               Classicals versus Keynesians, A unified approach to macroeconomics

             Chapter 2 - The measurement and structure of the national economy
23-26        Section 2.1 - National income accounting: The measurement of production,
             income, and expenditure
             Why the three approaches are equivalent
27-37        Section 2.2 - Gross Domestic Product
             The product approach to measuring GDP (market value, newly produced goods
             and services, final goods and services, GNP versus GDP), the expenditure
             approach to measuring GDP (consumption, investment, government purchases
             of goods and services, net exports), the income approach to measuring GDP
             (compensation of employees, proprietors’ income, rental income of persons,
             corporate profits, net interest, indirect business taxes, depreciation, net factor
             payments, private sector and government sector income)
37-40, 41-42 Section 2.3 - Saving and Wealth
             Measures of aggregate saving (private saving, government saving, national
             saving), the uses of private saving, relating saving and wealth (national wealth)
46-48, 50-52 Section 2.4 - Real GDP, price indexes, and inflation
52-54        Section 2.5 - Interest rates
             Real versus nominal interest rates (the expected real interest rate)

               Chapter 3 - Productivity, output, and employment
               (skip Section 3.1 - The production function)
72-79          Section 3.2 - The demand for labor
               The marginal product of labor and labor demand, a change in the wage, the
               marginal product of labor and the labor demand curve, factors that shift the
               labor demand curve, aggregate labor demand
79-85          Section 3.3 - The supply of labor
               The income-leisure trade-off, Real wages and labor supply (A pure substitution
               effect: a one-day rise in the real wage, A pure income effect: winning the
               lottery, The substitution effect and income effect together: a long-term increase
               in the real wage, Empirical evidence on real wages and labor supply), The
               labor supply curve (Factors that shift the labor supply curve), Aggregate labor
               supply
87-93          Section 3.4 - Labor market equilibrium
          Full employment output
93-98     Section 3.5 - Unemployment
          Measuring unemployment, Changes in employment status, How long are
          people unemployed, Why there always are unemployed people (Frictional
          umemployment, structural unemployment, the natural rate of unemployment)
99-100    Section 3.6 - Relating output and unemployment: Okun’s law

          Chapter 4 - Consumption, Saving, and Investment
110-125   Section 4.1 - Consumption and saving
          The consumption and saving decision of an individual, Effect of changes in
          current income, Effect of changes in expected future income, Effect of changes
          in wealth, Effect of changes in the real interest rate (Taxes and the real return
          to saving), Fiscal policy (Government purchases, Taxes)
127-138   Section 4.2 - Investment
          The desired capital stock (The user cost of capital, Determining the desired
          capital stock), Changes in the desired capital stock (Taxes and the desired
          capital stock), From the desired capital stock to investment (Lags and
          investment), Investment in inventories and housing
139-144   Section 4.3 - Goods market equilibrium
          The saving-investment diagram (Shifts of the saving curve, shifts of the
          investment curve)

          Chapter 5 - Saving and investment in the open economy
174-182   Section 5.1 - Balance of payments accounting
          The current account (Net exports of goods and services, Net income from
          abroad, Net unilateral transfers, Current account balance), The capital and
          financial account (The official settlements balance), The relationship between
          the current account and the capital and financial account, Net foreign assets
          and the balance of payments accounts
184-185   Section 5.2 - Goods market equilibrium in an open economy
185-190   Section 5.3 - Saving and investment in a small open economy
          The effects of economic shocks in a small open economy (A temporary
          adverse supply shock, an increase in the expected future marginal product of
          capital)
          (skip Section 5.4 - Saving and investment in large open economies)
199-202   Section 5.5 - Fiscal policy and the current account
          The critical factor: the response of national saving, The government budget
          deficit and national saving (A deficit caused by increased government
          purchases, A deficit resulting from a tax cut)

          (skip Chapter 6 - Long-run economic growth)

          Chapter 7 - The asset market, money, and prices
247-253   Section 7.1 - What is money?
          Functions of money (Medium of exchange, store of value, unit of account),
          Measuring money: the monetary aggregates (M1, M2, M3, weighted monetary
          aggregates), The money supply
253-256   Section 7.2 - Portfolio allocation and the demand for assets
          Expected return, Risk, Liquidity, Asset demands
256-264   Section 7.3 - The Demand for money
              The price level, Real income, Interest rates, The money demand function,
              Other factors affecting money demand (Wealth, Risk, Liquidity of alternative
              assets, Payment technologies), Elasticities of money demand, Velocity and the
              quantity theory of money
266-269       Section 7.4 - Asset market equilibrium
              Asset market equilibrium: an aggregation assumption, The asset market
              equilibrium condition
269-273       Section 7.5 - Money growth and inflation
              The expected inflation rate and the nominal interest rate

              Chapter 8 - Business cycles
282-285       Section 8.1 - What is a business cycle?
279-290 ???   Section 8.2 - The american business cycle: the historical record ???
              The pre-world war I period, The great depression and world war II, Post-world
              war II period, The long boom, Dating the peak of the 2001 recession, Have
              american business cycles become less severe?
290-300       Section 8.3 - Business cycle facts
              The cyclical behavior of economic variables: direction and timing, Production,
              Expenditure, Employment and unemployment, Average labor productivity and
              the real wage, Money growth and inflation, Financial variables, International
              aspects of the business cycle
301-306       Section 8.4 - Business cycle analysis: a preview
              Aggregate demand and aggregate supply: a brief introduction (Aggregate
              demand shocks, Aggregate supply shocks)

              Chapter 9 - The IS-LM / AD-AS model: A general framework for
              macroeconomic analysis
310-312       Section 9.1 - The FE line: Equilibrium in the labor market
              Factors that shift the FE line
313-317       Section 9.2 - The IS curve: Equilibrium in the goods market
              Factors that shift the IS line
317-324       Section 9.3 - The LM curve: Equilibrium in the asset market
              The interest rate and the price of a nonmonetary asset, The equality of money
              demanded and money supplied, Factors that shift the LM line (Changes in the
              real money supply, Changes in the real money demand)
325-328       Section 9.4 - General equilibrium in the complete IS-LM model
              Applying the IS-LM framework: a temporary adverse supply shock
330-336       Section 9.5 - Price adjustment and the attainment of general equilibrium
              The effects of a monetary expansion (The adjustment of the price level, Trend
              money growth and inflation), Classical versus Keynesian versions of the IS-
              LM model (Price adjustment and the self-correcting economy, Monetary
              neutrality)
336-343       Section 9.6 - Aggregate demand and aggregate supply
              The aggregate demand curve (Factors that shift the AD curve), The aggregate
              supply curve (Factors that shift the aggregate supply curve), Equilibrium in the
              AD-AS model, Monetary neutrality in the AD-AS model

              Chapter 10 - Classical Business Cycle analysis: Market-clearing
              macroeconomics
360-364       Section 10.1 - Business cycles in the classical model
          The real business cycle theory, The recessionary impact of an adverse
          productivity shock, Real business cycle theory and the business cycle facts,
367       Are productivity shocks the only source of recessions?
371-376   Fiscal policy shocks in the classical model (Should fiscal policy be used to
          dampen the cycle?), Unemployment in the classical model
378-380   Section 10.2 - Money in the classical model
          Monetary policy and the economy, Monetary nonneutrality and reverse
          causation, The nonneutrality of money: additional evidence
380-388   Section 10.3 - The misperceptions theory and the nonneutrality of money
          Monetary policy and the misperceptions theory (Unanticipated changes in the
          money supply, anticipated changes in the money supply), Rational
          expectations and the role of monetary policy, Propagating the effects of
          unanticipated changes in the money supply

          Chapter 11 - Keynesianism: The macroeconomics of wage and price
          rigidity
398-405   Section 11.1 - Real-wage rigidity
406-411   Section 11.2 - Price stickiness
412-419   Section 11.3 - Monetary and Fiscal policy in the Keynesian model
          Monetary policy (Monetary policy in the Keynesian IS-LM model, Monetary
          policy in the Keynesian AD-AS model), Fiscal policy (The effect of increased
          government purchases, The effect of lower taxes)
419-430   Section 11.4 - The Keynesian theory of business cycles and macroeconomic
          stabilization
          Keynesian business cycle theory (Procyclical labor productivity and labor
          hoarding), Macroeconomic stabilization (Difficulties of macroeconomic
          stabilization), Supply shocks in the Keynesian model

          Chapter 12 - Unemployment and Inflation
444-457   Section 12.1 - Unemployment and Inflation: Is there a trade-off?
          The expectations-augmented Phillips curve, The shifting Phillips curve
          (Changes in the expected inflation, changes in the natural rate of
          unemployment, supply shocks and the Phillips curve, the shifting Phillips
          curve in practice), Macroeconomic policy and the Phillips curve, The long-run
          Phillips curve
          Section 12.2 - The Problem of Unemployment
459-461   The long-term behavior of the unemployment rate (The changing natural rate)
          Section 12.3 - The problem of inflation
466-469   Fighting inflation: the role of inflationary expectations (Rapid versus gradual
          disinflation, Wage and price controls, Credibility and reputation)

          Chapter 13 - Exchange rates, Business Cycles, and Macroeconomic policy
          in the open economy
476-485   Section 13.1 - Exchange rates
          Nominal exchange rates, Real exchange rates, Appreciation and depreciation,
          Purchasing power parity, The real exchange rate and net exports (The J curve)
487-492   Section 13.2 - How exchange rates are determined: A supply-and-demand
          analysis
          Macroeconomic determinants of the exchange rate and net export demand
          (Effects of changes in output (income), Effects of changes in real interest rates)
492-499       Section 13.3 - The IS-LM model for an open economy
              The open-economy IS curve, Factors that shift the open-economy IS curve
              (Effect of an increase in government purchases on the open-economy IS curve,
              Effect of an increase in net exports on the open-economy IS curve), The
              international transmission of business cycles
499-504       Section 13.4 - Macroeconomic Policy in an open economy with flexible
              exchange rates
              A fiscal expansion, A monetary contraction (Short-run effects on the domestic
              and foreign economies, Long-run effects on the domestic and foreign
              economies)
504-512 ???   Section 13.5 - Fixed exchange rates ???
              Fixing the exchange rate, Monetary policy and the fixed exchange rate, Fixed
              versus flexible exchange rates, Currency unions