This course is a continuation of Macroeconomics I, and it aims to examine important issues of macroeconomic theory and policy. After successful completion of the course, students are expected to:

• Understand how an open economy operates and how it may react to policy changes and exogenous shocks
• Understand the factors that generate growth
• Understand the factors that can lead to changes in aggregate consumption and investment
• Understand the dynamics of fiscal deficits, why a country may accumulate public debt, when the debt is unsustainable and what this may imply for the government-bond markets
• Are able to use functional relationships, diagrams, and the findings of empirical research to suggest ways to address/resolve key macroeconomic problems
• Are able to solve exercises, identifying equilibrium values for macroeconomic variables and calculating how they may change when external events or changes in economic policy occur

Open Economy: National income constraint, balance of payments, trade balance. Determinants of net exports. Interest rates, exchange rates, determinants of international capital flows. Equilibrium in the open economy. Analysis of effects of policy changes and external shocks. Role of the exchange rate system and the degree of international capital mobility. Growth: Growth accounting, Solow residual. Savings & productivity in the Solow model, dynamic adjustment and steady-state equilibrium. ‘Golden rule’ of capital accumulation. The extended Solow model. Technology, human capital, the public sector, globalization, poverty traps. Absolute & relative convergence of per capita incomes. Endogenous growth, the AK model. Consumption & Investment: Consumption and intertemporal choice. The life-cycle model, the permanent income model. Investment demand, expectations & uncertainty. Present-value model, accelerator model, neoclassical investment model, Tobin’s-Q model. Fiscal Policy, Deficits & Public Debt: The income constraint of the state, ways of financing public spending. Reasons for accumulating deficits, the dynamics of deficits, sustainable and unsustainable public debt. Monetization of public debt. The market for government bonds, risk premiums, speculation, rating.

Lectures (4 hours per week) and Tutorials (2 hours per week)

The overall course grade is the sum of: a) the final exam grade times 70% b) the (compulsory) mid-term exam grade times 30%, plus c) 20 percent of a mid-term (optional) exam grade.

The curriculum, samples of analytical questions, the assessment method of the course and other relevant material are available on the e-class platform and are accessible to all students.

Use of IT in teaching, and in communication with the students (e-class).