DEPARTMENT OF ECONOMICSUNIVERSITY OF GHANA

Second Semester 2016/2017 Academic YearECON 212: Elements of Economics II

3 CREDITS

Lecturers: Dr. Monica P. Lambon-Quayefio Email: mplambon-quayefio@ug.edu.gh

Dr. (Mrs.) Nkechi S. Owoo Email: nowoo@ug.edu.gh

Mr. Kwame Adjei-Mantey Email: kadjei-mantey@ug.edu.gh

Time: Thursdays- 9.30- 11.20am (NNB1)

Course Objectives and description The basic objective of the course is to understand the factors that influence the forces that determine how national income (GDP) changes over relatively short periods of time. During any particular period of time, actual output may deviate from its long-run trend. It is such deviations that are major causes of unemployment and inflation. The causes, effects and management of these deviations are the topics which are discussed in short-run macroeconomic analysis (in contrast with long-run macroeconomic analysis which focuses on forces that that determine how national income changes over long periods of time, i.e., on economic growth).

The course builds on ECON 102. It begins with a review of the simple Keynesian model of national income determination that includes the government and external sectors (in addition to households and firms) which is then extended in several ways. Topics covered include the determination and determinants of aggregate output (GDP), operation of the monetary system, fluctuations in GDP and the price level, the role of government in stabilizing the economy, and issues in international trade and finance. As a policy oriented course, the extent to which government policies affect macroeconomic variables are emphasized.

Specific objectives:By the end of this course, students are expected to:

Become familiar with the basic models of national income determination

Understand how fiscal policy operates, its tools, and its advantages and disadvantages.

Understand how monetary policy operates, its tools, and its advantages and disadvantages.

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Understand how fiscal and monetary policies are used in stabilizing a market- driven economy.

Identify and analyze how international economic issues and problems impact on our domestic economy.

Acquire the ability to analyze hypothetical and current events using macroeconomic models

Course DeliveryThe course would be delivered largely through two-hour lectures on topics detailed in the course syllabus. The lectures will usually be supplemented with tutorials on specific aspects of topics treated in class as well as problem sets.

Plagiarism PolicyPlagiarism in any form is unacceptable in the University of Ghana and shall be treated as a serious offence. Appropriate sanctions, as stipulated in the Plagiarism Policy, will be applied when students are found to have violated the Plagiarism policy.

EvaluationEvaluation will be based on continuous assessment (30%) and end of semester examination (70%). Continuous assessment will be based on one class test. The date, time and venue of the test will be announced during the semester.

Grading Scale: Students’ performance on the course shall be graded as follows:

Recommended textsPage 2 of 4

R. G. Lipsey & K. A. Chrystal, Economics, Tenth Edition, 2004, Oxford University PressCase and Fair, Principles of Economics , 8th Edition, 2006, Prentice HallSloman, J. Wride, A. and Garratt, D., Economics, 8th Edition, 2011, PearsonDavid Begg, S. Fischer & R. Dornbusch, Economics, The McGraw-Hill Companies

Outline

1. THE THEORY OF NATIONAL INCOME DETERMINATION: THE KEYNESIAN EXPENDITURE MODEL IN AN OPEN ECONOMY WITH GOVERNMENT

Desired expenditure (spending) Desired expenditure functions The aggregate desired expenditure function. The marginal propensity to spend

Determination of equilibrium national income: the Income-Expenditure Approach The equilibrium condition: Y=AE The graphical approach The algebraic approach Numerical illustration

Determination of equilibrium national income: The Augmented Investment-Saving Approach Leakages and injections The equilibrium condition The graphical approach The algebraic approach

Changes in equilibrium national income Changes in desired aggregate spending The multiplier.

Fiscal policy Changes in government expenditure Changes in taxes Government expenditure and tax multipliers The balanced budget multiplier Lessons and limitations of the Simple Keynesian Model

2. MONEY AND MONETARY INSTITUTIONS Money and its Functions The origin of money Modern money and definition of monetary aggregates How money gets into the economy The Central Bank and its functions Commercial Banks and Money Creation

3. THE SUPPLY OF MONEY, THE DEMAND FOR MONEY, AND EQUILIBRIUM IN THE MONEY MARKET

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The supply of money

Interaction of the banking system and the non-bank private sector Temporary assumption of fixed money supply

The demand for money The Transactions Demand for Money The Precautionary Demand for Money The Speculative Demand for Money The Demand for Money Function

Equilibrium in the money market Financial assets The price of bonds and the interest rate Monetary equilibrium and the equilibrium interest rate Monetary Policy and Interest Rates

4. AGGREGATE DEMAND, AGGREGATE SUPPLY, AND MACROECONOMICEQUILIBRIUM

Aggregate Demand The Aggregate Demand Curve and its Slope Shocks to the Aggregate Demand Curve Fiscal Policy and Shifts in the Aggregate Demand Curve Monetary Policy and Shifts in the Aggregate Demand Curve

Aggregate Supply

The Aggregate Supply Curve and its Slope The Keynesian Aggregate Supply curve Shifts in the Aggregate Supply Curve

Macroeconomic Equilibrium (The Determination of real GDP and the Price Level)

Macroeconomic Equilibrium and Aggregate Demand (AD) Shocks: short run Macroeconomic Equilibrium and Aggregate Supply (AS) Shocks: short run The Size of the Expenditure Multiplier when the Price Level Varies Macroeconomic Equilibrium, AD and AS shocks: long-run Fiscal policy, monetary policy, and economic stabilization

5. INTRODUCTION TO OPEN ECONOMY MACROECONOMICS The Balance of Payments Accounts The Foreign Exchange Market Exchange Rate Regimes Determination of Exchange Rates and Changes in exchange rates

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