Spring 2005 Course Description

Political Economy

Section Title: Economics and Politics of Macroeconomics and Policy
Instructor(s): Robert Auerbach
Course: P A 693B - Political Economy
Unique Number: 62860
Day & Time: Tuesdays, 9:00 AM - 12:00 PM
Room: SRH 3.110
Waitlist Information:For LBJ Students: UT Waitlist Information

Description: Macroeconomic theories, their policy implications, and practical policymaking in the U.S. government will be discussed. The course will cover explanations of changes in important economic variables such as employment, national income, financial assets and inflation that play a critical role in the determination of economic welfare and the formation of public policy. The important differences between national income accounting and common usage of concepts of income that includes transfers and capital gains will be discussed.

Explanations will use several different approaches. Using the concepts of market clearing and micro-foundations an interesting and surprisingly succinct equilibrium statement of consumers? intertemporal consumption and saving choices will be discussed. Impediments to freely clearing markets that assumes free and complete information will also be discussed. This discussion will use the concept of asymmetrical information to explain problems in the commercial loan market and the international capital markets.

Keynesian models that attempt to explain changes in aggregate demand for goods and services will be described using an extension of those theories: the IS/LM model. This model will be extended to include factors affecting the supply of goods and services, and to an economy with international transactions.

Supply-side explanations of the effects of taxes and transfers, monetarist emphasis on the effects of changes in the money supply, and the real business cycle theory will be discussed.

The policy positions based on an explanation that fully expected changes in some policy variables can annihilate the variables? effects will be discussed. The view that expectations of changes in variables predicted by simple models change the parameters of these models also be described.

In addition, the reaction of government officials and the media to perceived business cycle changes and their use of economic theories will be casually treated. The institutional nature of U.S. government entities that signal changes in and implement monetary and fiscal policy will be briefly described.

The course will use Robert Barro?s Macroeconomics (MIT Press, 2000) and material written by Robert Auerbach.

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