ECONOMIC POLICY 2005/6



INTRODUCTION TO ECONOMIC POLICY

Lecturers Module 1: Professor Antoin E. Murphy

Room 3035, Arts Building

Email: aemurphy@tcd.ie

Module 2: Ms. Mary Brew

The Policy Institute

Email: mabrew@tcd.ie

Course objectives

This course will be presented by Professor Antoin E. Murphy and Ms. Mary Brew. The first part of this course, presented by Professor Murphy, aims to provide students with a comprehensive outline of some of the core elements of economics and their implications for economic policy. By the end of the course it is hoped that students will be able to use their knowledge of economic theory and policy so as to have a better understanding of how an economy functions and to help their decision making processes in later life.

Course Outline

(1) What is economics? The issue of scarcity. Opportunity cost. Economic models and abstraction . The difference between macroeconomics and microeconomics.

(2) The evolution of economic ideas. Isms in economics – mercantilism, liberalism, Marxism, Socialism, Communism, Keynesianism, monetarism, etc.

(3) Great economic thinkers – Petty, Law, Cantillon, Hume, Turgot, Smith, Ricardo, Marx, Walras, Marshall, Keynes, Von Neumann and Morgenstern, Friedman, Cantillon and Adam Smith on the differences between market price and natural price; the role of the price mechanism as an allocative mechanism. Self interest versus social interest.

(4) The market. The laws of supply and demand. Movements along the supply and demand curves, shifts in the supply and demand curves. The concept of elasticity.

(5) Markets in action. Interferences in the market. Should the market be regulated? The role of the entrepreneur. Externalities, adverse selection and moral hazard,

(6) The interrelationships of markets. The circular flow of income model.

(7) The macroeconomic ‘big board’. The macroeconomic alphabet. National income measurement. The interrelationships between consumption, investment and income. The closed economy. The closed economy with a government sector. The open economy with a government sector. Keynes’s General Theory. Is the economy self-equilibrating? The case for government intervention in the economy.

(8) The Celtic Tiger phenomenon. What caused it and will it go on? Implications of the Celtic Tiger for the housing market.

(9) What is money? The role of money in the economy. Banks and financial intermediaries. The determination of the rate of interest.

(10) What causes inflation? Monetarism

(11) The role of inflationary expectations. Rational expectations. From monetarism to new classical macroeconomics. The policy ineffectiveness rule.

(12) The Euro and the European Central Bank. Monetary targeting and inflation targeting.

(13) The economics of global warming.

Reading

Given the different backgrounds of students in the class it is difficult to recommend one textbook. For those starting the international edition of Karl E. Case and Ray C. Fair’s Principles of Economics (Prentice Hall) is recommended. I intend concentrating on the following chapters in the early part of these lectures:

1. The Scope and Method of Economics

2. The Economic Problem: Scarcity and Choice

3. Demand , Supply, and Market Equilibrium

4. The Price System, Demand and Supply, and Elasticity.

The second part of the lectures will involve discussion of key elements of the macroeconomy and will consider chapters such as the following:

▪ Introduction to Macroeconomics

▪ Aggregate Expenditure and Equilibrium Output

▪ The Money Supply

▪ Money Demand, the Equilibrium Interest Rate

▪ Inflation

There are a multitude of basic textbooks on economics. Students should browse in the Lecky to consult some of these. Bade and Parkin’s Foundations of Macroeconomics is worth consulting. Students could profitably use Dermot McAleese’s Economics for Business (Prentice Hall), part 2 pages 264-416. For those wishing to learn about the background to economic theories they could read Paul Strathern’s A Brief History of Economic Genius (Texere, London and New York, 2001), Todd G. Buchholz’s New Ideas from Dead Economists (Penguin 1989; re-print 1999) and Robert Heilbroner’s classic The Worldly Philosophers (1953; re-print Simon and Schuster, 1991)

Students should also obtain a copy of the latest Central Bank of Ireland Quarterly Bulletin (available free of charge at the Central Bank, Dame Street).

Collecting Economic Data

International Reports

OECD Economic Outlook

World Economic Report (IMF - annual)

International Financial Statistics (IMF – published monthly)

International Financial Statistics Yearbook

Economic Report of the President (U.S.)

Ireland

Central Bank of Ireland Quarterly Bulletin

Quarterly Commentary of the Economic and Social Research Institute

Internet sites

OECD ()

The Economist ()

Economic Report of the President. The statistical tables of this report may be found at

The Macroeconomics Resources Site at the Harvard Business School ()

This site provides links with a number of other potentially interesting Web sites.

Bill Goffe, University of Mississippi () - Provides useful guide to data sources for economic information.

ASSESSMENTS

One short test will be given at the end of Michaelmas Term (10th week) and Hilary Term. Each of these will account for 10% of the total marks. The final examination in June will account for 90% of the total marks. A non-graded ‘self-assessment’ test will also be given halfway through each module.

TEACHING ASSISTANT AND ADVICE

A teaching assistant, Mr. Graham Stull, will give tutorials each week throughout the academic year. Times and locations will be given at the start of the course.

Professor Murphy is available during term to see students in Room 3035 on Mondays between 16.00 and 17.00 and Wednesdays between 11.00 and 12.00. His e-mail address is aemurphy@tcd.ie.

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