Macroeconomics Course Summary: An Essential Guide to Understanding Economic Performance and Policy

Macroeconomics


June 19, 2025




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Contents
1 Lecture 1: Introduction 4
1.1 practical information on the course . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2.1 GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2.2 unemployment rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2.3 Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 short, medium, and long run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Lecture 2: goods markets, financial markets 8
2.1 Goods market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.1 Consumption (C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1.2 Investment (I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1.3 Government spending (G) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1.4 equilibrium in the goods market . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1.5 Goods market: graphically . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Financial markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2.1 demand for money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2.2 Financial markets equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2.3 Financial market graphically . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2.4 bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2.5 The liquidity trap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3 Lecture 3: IS/LM model 17
3.1 ↬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 IS curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 LM curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3.1 IS and LM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.4 Fiscal & monetary policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4 Lecture 4: IS/LM & labour market 23
4.1 Labour market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1.1 employee wage setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1.2 Firm price setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1.3 equilibrium in the labour market . . . . . . . . . . . . . . . . . . . . . . . . 25

5 Lecture 5: AS/AD model 27
5.1 AS (aggregate supply) relation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2 AD (aggregate demand) relation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 equilibrium in AS/AD model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31




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6 Lecture 6: Phillips curve, inflation/unemployment trade-off & facts of growth 34
6.1 Phillips curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.1.1 wage-price spiral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.2 summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 measuring standard of living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

7 Lecture 7: Growth & Innovation 38
7.1 A basic model of growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.2 technological progress and growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

8 Lecture 8: Expectations and spending 44
8.1 Expectations and investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.2 beyond hyperrationality: "Economics +" . . . . . . . . . . . . . . . . . . . . . . . 46

9 Lecture 9: Policymakers and monetary & fiscal policies 47
9.1 Political business cycle (PBC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.2 Monetary and fiscal policy rules and constraints . . . . . . . . . . . . . . . . . . . 48
9.2.1 fiscal policy rules and gvt debt . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.2.2 Financing fiscal policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49




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1 Lecture 1: Introduction
1.1 practical information on the course
10 Lectures, 1 is a response lecture
6 tutorial meetings, compulsory attendance.
3 mathematics tutorials
Emails need to have "MacroEN" as first 7 characters of subject line.
Practice MC questions are best example of what to expect on exam, exam is completely MC
questions.
Grade to pass = 5.5



1.2 Introduction
Macroeconomics is a branch of economics dealing with the performance, structure, be-
haviour and decision making of an economy as a whole rather than individual markets.
It has features of national, regional and global economics.

Microeconomics studies individual actors such as firms or consumers etc.
Macroeconomics:

• Studies the functioning of an economic system

• Has a top-down perspective

• Distinguishes between short, medium and long run

• Studies aggregated indicators to consider how a system changes.

Micro-macro link: Use intuitive insight on how actors behave to understand macro econ-
omy.

We want to know about the economy because it concerns your job, government and you
as a consumer.

Major aggregated indicators:

• Gross domestic product (GDP)

• Unemployment rate

• Inflation rate

• Interest rate


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