ECON-352

MACROECONOMIC THEORY III

 

Summer Term 2026
Instructor: Staff	Total sessions: 35 Sessions
Office Hours: TBA	Session Length: 145 Minutes
Classroom: TBA	Credits: 3 Units
Class Length: 7 Weeks	Language: English

Course Overview

This course develops advanced undergraduate macroeconomic theory through formal models of aggregate behavior, equilibrium determination, cyclical fluctuations, and macroeconomic policy.

The course emphasizes the analytical foundations of modern macroeconomics, including intertemporal choice, labor supply, firm behavior, competitive equilibrium, and dynamic responses to shocks.

Students examine how consumption, saving, investment, output, employment, prices, and policy variables interact in closed-economy settings, and they evaluate the explanatory power of alternative macroeconomic frameworks against observed data.

Special attention is given to business-cycle measurement, fiscal policy, monetary policy, financial intermediation, and real business cycle reasoning, with sustained use of graphs, equations, and economic intuition.

Required Material

Primary Textbook

Mankiw, N. Gregory. Macroeconomics. 11th ed. New York: Worth Publishers, 2022.

Supplementary Textbook

Williamson, Stephen D. Macroeconomics. 7th Canadian ed. Toronto: Pearson Canada, 2026.

Used as a supplementary reference

 

Learning Objectives

1. Apply optimization methods to household and firm decisions in static and dynamic macroeconomic models.

2. Formulate consumer choice, labor-leisure allocation, saving behavior, and investment behavior under explicit constraints.

3. Derive and interpret competitive equilibrium conditions in macroeconomic settings with goods, labor, credit, and money markets.

4. Explain major empirical regularities of business cycles and connect them to theoretical mechanisms.

5. Assess how technology, fiscal disturbances, monetary changes, uncertainty, and other shocks affect macroeconomic aggregates.

6. Compare alternative macroeconomic theories in terms of assumptions, internal logic, and empirical relevance.

7. Analyze the transmission and welfare implications of fiscal and monetary policies in a closed economy.

8. Use graphs, algebra, and verbal economic reasoning to interpret comparative statics and dynamic responses in advanced macroeconomic models.

Course Outline

Week 1: Macroeconomic modeling and business-cycle measurement

Lectures 1-5

Lecture 1: Course orientation and the role of macroeconomic models

1. Introduces course structure, model-based reasoning, assumptions in macroeconomics, and the relationship between theory and aggregate data.

Lecture 2: Key aggregate variables and cyclical indicators

1. Reviews output, consumption, investment, employment, prices, inflation, interest rates, and measurement issues relevant to macroeconomic analysis.

Lecture 3: Defining and measuring business cycles

1. Examines expansions, recessions, trend-cycle decomposition, and stylized facts from national and international macroeconomic data.

Lecture 4: Disagreements across macroeconomic schools

1. Surveys contrasting views on fluctuations, adjustment mechanisms, and the role of policy intervention.

Lecture 5: Evidence-based macroeconomic reasoning

1. Connects macroeconomic facts to model selection and prepares students for formal intertemporal analysis.

 

Diagnostic exercises and participation activities begin.

Week 2: Consumption, saving, and intertemporal choice

Lectures 6-10

Lecture 6: Two-period consumption-saving framework

1. Builds the basic intertemporal household model with budget constraints, endowments, borrowing, and lending.

Lecture 7: Preferences, indifference curves, and optimal consumption plans

1. Analyzes utility assumptions and derives optimality conditions for consumption allocation across time.

Lecture 8: Interest rates, substitution, and income effects

1. Studies how changes in the real interest rate influence saving decisions and current versus future consumption.

Lecture 9: Functional forms and analytical solutions

1. Works through explicit examples using common utility specifications to obtain closed-form household choices.

Lecture 10: Permanent income reasoning and consumption smoothing

1. Introduces forward-looking consumption behavior and the logic of smoothing in response to temporary and permanent income changes.

Quiz or short problem set on intertemporal choice.

Week 3: Credit markets, equilibrium, and fiscal policy in endowment settings

Lectures 11-15

Lecture 11: Credit market equilibrium and real interest rate determination

1. Links household saving and borrowing decisions to market-clearing outcomes. Lecture 12: Competitive equilibrium in a simple macro model

1. Identifies endogenous variables, equilibrium conditions, and graphical interpretation of decentralized equilibrium.

Lecture 13: Fiscal policy and household behavior

1. Examines taxes, public borrowing, and the transmission of government policy through intertemporal budget constraints.

Lecture 14: Ricardian equivalence and its limits

1. Assesses the benchmark neutrality result and discusses conditions under which it may fail.

Lecture 15: Social insurance, public transfers, and exam-oriented applications

1. Extends intertemporal analysis to public programs and structured problem-solving practice.

 

Seminar discussion on fiscal policy interpretation.

Week 4: Static real macroeconomic model with endogenous production

Lectures 16-20

Lecture 16: Household labor-leisure choice

1. Derives labor supply from utility maximization under time and budget constraints. Lecture 17: Firm optimization and labor demand

1. Develops production-side decisions under profit maximization and competitive factor pricing.

Lecture 18: Goods and labor market interaction

1. Combines household and firm behavior to determine output, employment, wages, and consumption in static equilibrium.

Lecture 19: Comparative statics in the static model

1. Studies the effects of productivity shifts, government expenditure, and taxes on equilibrium allocations.

Lecture 20: Efficiency and Pareto considerations

1. Evaluates the welfare properties of competitive equilibrium in the static real economy.

Midterm-style analytical practice.

Week 5: Dynamic real macroeconomics and investment

Lectures 21-25

Lecture 21: Intertemporal production economy

1. Introduces a dynamic macro model with household choice, capital accumulation, and firm investment.

Lecture 22: Consumption, labor supply, and capital decisions in dynamic settings

1. Derives household and firm optimality conditions over time and interprets Euler- type relationships.

Lecture 23: Investment behavior and capital adjustment

1. Explains how expected returns, productivity, and capital stocks shape investment demand.

Lecture 24: Competitive equilibrium in the dynamic real economy

1. Solves for equilibrium paths and clarifies market-clearing conditions across time. Lecture 25: Propagation of real shocks

1. Uses the dynamic model to explain responses to capital destruction, fiscal disturbances, and technology changes.

Midterm examination or equivalent major test.

 

Week 6: Money, banking, and monetary policy

Lectures 26-30

Lecture 26: Introducing money into macroeconomic equilibrium

1. Explains why money matters, the role of exchange, and how monetary variables enter an intertemporal framework.

Lecture 27: Banking, credit, and price determination

1. Analyzes financial intermediation, money demand, and interactions between banking activity and the macroeconomy.

Lecture 28: Monetary neutrality and non-neutral channels

1. Distinguishes long-run neutrality from short-run transmission mechanisms and policy relevance.

Lecture 29: Conventional monetary policy tools

1. Examines policy rates, liquidity management, and the macroeconomic effects of monetary tightening and easing.

Lecture 30: Unconventional monetary policy and crisis conditions

1. Discusses balance-sheet policies, disruptions in financial markets, and stabilization during severe downturns.

Applied policy memo or quiz on monetary transmission.

Week 7: Business-cycle theory, evidence, and synthesis

Lectures 31-35

Lecture 31: Real business cycle logic

1. Presents the core mechanism of real business cycle models and their interpretation of aggregate fluctuations.

Lecture 32: Evaluating shocks in business-cycle models

1. Compares technology, news, uncertainty, and policy shocks in terms of predicted co-movements and persistence.

Lecture 33: Empirical strengths and criticisms of modern macro models

1. Assesses the ability of competing models to explain observed data and key macroeconomic episodes.

Lecture 34: Macroeconomic lessons from crises and major disruptions

1. Uses large-scale disturbances, including pandemic-type and financial events, to test the scope of theoretical frameworks.

Lecture 35: Integrated review and final synthesis

1. Draws together consumption, production, money, policy, and business-cycle analysis in preparation for the final evaluation.

Final review, seminar synthesis, and cumulative preparation.

 

Grading Assessment

 

Component	Weight
Online Quizzes / Reading Checks	10%
Problem Sets	15%
Midterm Examination	25%
Policy Analysis Assignment	10%
Final Examination	30%
Seminar Participation	10%
Total	100%

 

Assignments

Intertemporal Choice Problem Set: students solve analytical exercises on two-period consumption-saving choice, utility maximization, and real interest rate effects using both graphical and algebraic methods.

Competitive Equilibrium Worksheet: students derive household supply, firm demand, and market-clearing conditions in a static or dynamic macro model and explain the economic intuition behind each equilibrium relationship.

Fiscal Policy Brief: students prepare a short written analysis evaluating taxation, public debt, Ricardian equivalence, or social insurance within an endowment or real macroeconomic model.

Monetary Policy Note: students interpret a current or historical monetary policy episode using money demand, banking, price adjustment, and stabilization concepts covered in class.

Attendance

Students are required to attend a weekly seminar led by TA to focus on the week's topic and deepen understanding. Seminar time assigned by TA. Seminar attendance counts toward the final grade.

 

Exams

The examinations in this course consist of multiple choice and problem-solving questions. The final exam is cumulative.

Final Evaluation

Letter Grade	Percentage (%)	Letter Grade	Percentage
A+	>=95	C+	64-67
A	89-94	C	60-63
A-	84-88	C-	56-59
B+	79-83	D+	54-56
B	73-78	D	50-53
B-	68-72	F	<=50

 

 

General Policies Academic integrity

Academic integrity is the cornerstone of academia and requires students and researchers

to maintain honesty, fairness, trust and responsibility in all academic activities. It includes not only avoiding dishonest behaviors such as plagiarism, cheating, and falsifying data, but also requires taking responsibility for one's own academic actions and ensuring that all work is done independently and accurately cites the research of others. Violations of academic integrity can result in severe academic penalties, such as zero grades, suspension or even expulsion, and can cause serious damage to an individual's reputation and future career. Upholding academic integrity is therefore essential to promoting a fair academic environment and facilitating the authentic dissemination of knowledge.

Accessible Resources Policy

The policy ensures that all students, especially those with disabilities, are able to participate equally in school learning and activities. The school provides a wide range of accessibility resources including, but not limited to, specialized classrooms, hearing aids, Braille textbooks, assistive technology, and flexible testing arrangements. Students are

 

required to apply to the school in advance and provide appropriate medical or psychological evaluations so that an individualized support plan can be developed for them. This policy is designed to remove barriers in the academic environment and to ensure that every student has access to equitable learning opportunities.

Withdrawal Policy

Students may choose to withdraw from a course within a specified period of time, and may not be able to do so after the expiration date. When withdrawing from a course, students are required to fill out a withdrawal form with a reason, which will be reviewed and processed on a case-by-case basis. Withdrawal from a course may not affect the student's academic performance. If a student withdraws from a course with incomplete requirements, a "W" may be assigned instead of a grade, depending on the course.