This course discusses how macroeconomic variables affect individuals’ personal, professional, and public activities and lays the foundation for the analysis of the mechanisms that drive macroeconomic variables. It start in its first module by introducing the key macroeconomic variables and explaining how they are defined and measured in order to enable the students to interpret macroeconomic data properly.
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In the second module, the course offers a perspective for separating out various parts of the economy driven by different processes and for combining those components to develop a richer view of the whole. In particular, it applies this approach to the analysis of the relationship of the trade deficit with the budget deficit and private savings, offering insights about some key determinants of the balance of payments.
The third and fourth modules focus on the analyses of the foreign currency and money markets to provide fundamental models of the interest rate and exchange rate determination. They also discuss how these variables interact with each other and with the macroeconomic conditions, particularly monetary policy and the expectations about the future trends in the economy. These analyses lay the foundation for more comprehensive models of the macroeconomy in the next course of the Managerial Economics and Business Analysis Specialisation.
At the end of this course, you will be able to:
• Systematically assess the national and international economic environment in which you live and work.
• Analyze macroeconomic issues using key tools.
• Be a more effective professional in your line of activity.
Course 3 of 7 in the Managerial Economics and Business Analysis Specialization.
Syllabus
WEEK 1
Course Orientation
You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course.
Key Macroeconomic Indicators and Their Measurement
What do macroeconomic indicators like GDP, the unemployment rate, and inflation really mean? How are they measured? How should the figures for such variables be interpreted?
WEEK 2
GDP Components, Twin Deficits, and Balance of Payments
Expenditure is often different from income for individuals, but for the economy as a whole, aggregate income is always identical to aggregate expenditure. This has important implications for the functioning of the macroeconomy and the way policies affect it. The income-expenditure identity is also fundamental to the ways various part of the economy with different processes interact with each other. For example, it sheds a lot of light on the formation of the trade deficit and its connection with budget deficit and private savings.
WEEK 3
The Foreign Exchange Market
How does the exchange rate affect the trade balance and foreign payments of an economy? How does the exchange rate interact with domestic and foreign prices to determine the competitiveness of an economy’s producers? Where does the exchange rate come from? Since currencies are assets that can be bought and resold at different times, their exchange rates must depend on expectations and futures markets. How do the spot and forward exchange rates interact with the expected rates of future dates?
WEEK 4
Money, Interest Rate, and the Exchange Rate
The interest rate determines the exchange rate, the cost of capital, and the opportunity cost of using money. How is the interest rate determined? What factors drive the supply and demand for money? What constitutes money? What role do banks play in the monetary system? How do central banks influence the money market and the interest rate?
