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Michael Olafusi

MIT: Principles of Macroeconomics

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You can register on MIT for Principles of Macroeconomics at https://ocw.mit.edu/courses/economics/14-02-principles-of-macroeconomics-spring-2014/

About the course

This course provides an overview of macroeconomic issues: the determination of output, employment, unemployment, interest rates, and inflation. Monetary and fiscal policies are discussed. Important policy debates such as, the sub-prime crisis, social security, the public debt, and international economic issues are critically explored. The course introduces basic models of macroeconomics and illustrates principles with the experience of the U.S. and foreign economies.

Why do economies expand sometimes, raising employment and living standards and shrink at other times? What is a recession? What happened in 2008–09 when the world economy was hit by the worst recession since the Great Depression of the 1930s? How did a crisis initially limited to the financial market eventually hit the entire economy? And what caused the financial market crisis in the first place? How did government policy respond to the crisis and was this response effective?

More generally, can government policy make economies grow or stop them from shrinking? Why do we have inflation? Is inflation a bad thing? Is there anything we can do to reduce inflation? Why do we have unemployment? Is unemployment a bad thing? Do policies to reduce unemployment work? Why do countries borrow from abroad? How are exchange rates determined and why are they so volatile? Is exchange rate volatility a bad thing? Should we have a single currency for the entire world, as Europeans have done for some members of the European Union?

These are some of the questions that keep macroeconomists up at night. If you are curious about the answers, then this is the course for you.

The course is organized in three parts:

  • Part 1: The first seven lectures are dedicated to understanding the interactions between financial markets and the "real" economy. This is probably the hardest part of the course. But you are fresh from the Winter break, and it will be lots of fun;
  • Part 2: The following 10 lectures build up a macro model starting from the Short Run, then moving to the Medium Run and finally opening up the economy to the rest of the world;
  • Part 3: In the last seven lectures, we shall study the effectiveness of the government's intervention through fiscal and monetary policies.


L = Lecture session

R = Recitation session

L1 Models of the financial crisis: Leverage No readings  
R1 Balance sheets and leverage No readings  
L2 Models of the financial crisis: Holmstrom-Tirole I No readings  
L3 Models of the financial crisis: Holmstrom-Tirole II No readings  
R2 Holmstrom-Tirole model No readings Pset 1 posted (leverage, Holstrom-Tirole, Diamond-Dybvig)
L4 Models of the financial crisis: Diamond-Dybvig I No readings  
L5 Models of the financial crisis: Diamond-Dybvig II No readings  
R3 Diamond-Dybvig model No readings Pset 1 due
L6 Models of the financial crisis: Tirole No readings  
L7 Models of the financial crisis: Kiyotaki-Moore No readings  
R4 Kiyotaki-Moore model No readings Pset 2 posted (Kiyotaki-Moore and IS-LM)
L8 Core: National accounts [Macro] Chapters 1 and 2.  
L9 Core: The IS-LM model [Macro] Chapters 3–5.  
R5 IS-LM No readings Pset 2 due
L10 Core: The IS-LM model (cont.) [Macro] Chapters 3–5.  
L11 Core: The IS-LM model (cont.) [Macro] Liquidity trap section, pp. 473–6.  
  Quiz 1 on lectures 1–11 No readings  
L12–13 Core: The medium run [Macro] Chapters 6–9.  
R6 Medium run No readings Pset 3 posted (Medium run)
L14 Core: The medium run (cont.) [Macro] Chapters 6–9.  
L15 Core: The open economy [Macro] Chapters 18–21.  
R7 Open economy No readings Pset 3 due
L16–17 Core: The open economy (cont.) [Macro] Chapters 18–21.  
  Quiz 2 on lectures 12–17 No readings  
L18 The Mundell-Fleming model [Macro] Chapter 20. Pset 4 posted (Open economy)
L19 Fixed and flex exchange rates [Macro] Chapter 21.  
R8 Fiscal policy

[Macro] Chapter 21.

L20 Fiscal policy (cont.)

[Macro] Chapter 23.

Pset 4 due
R9 Fiscal policy exercise No readings Pset 5 posted (Fiscal and monetary policy)
L21–22 Monetary policy and the crisis [Macro] Chapters 9 and 24.  
 R10 Monetary policy and the crisis exercises No readings  
L23 The state of the U.S. economy after the crisis—Bob Hall No readings Pset 5 due
L24 Review for the quiz No readings  
  Quiz 3 on lectures 18 to 24 No readings  

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