Macroeconomic Theory 1

Module code: EC7085

In this module you will study theoretical concepts and analytical techniques that can help you understand the framework of modern dynamic macroeconomic theory. At the heart of modern macroeconomic theory is a model of competitive general equilibrium in which all markets clear simultaneously, all prices are determined simultaneously and all relevant economic actors do the best they can. We will consider the implications of relaxing the assumption of competitive markets and introducing rigidities and frictions that do not allow some of the markets to clear. This can often cause undesirable problems like unemployment or inadequate credit for investors. Ultimately, all models in science are judged against the evidence. We will also note the limitations of existing macroeconomic models and how they fit the evidence on human behaviour.

Topics covered

• Representative agent model
• Overlapping-generations model
• Rational expectations
• Optimal consumption under certainty and uncertainty
• New Keynesian models with particular reference to nominal and real rigidities
• Unemployment with reference to monopolistic competition, wage staggering, and efficiency wages