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PPM-113M: Macroeconomic Policy

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Normed Course Outlines

PPM-113M: Macroeconomic Policy

Description: This normed course outline covers the principles and techniques of macroeconomic theory that are most useful in analyzing varies aspects of public policy. It includes studying the theoretical foundations of macroeconomics starting with interpreting various macroeconomic indices used to measure a given economy’s output, growth and labour market structures. The public policy elements of the study will include taxation, government expenditures and fiscal policies, money supply (and monetary policies), and employment issues.

Learning Outcomes: On successful completion of this course, students will have the skills and knowledge to be able to appropriately utilize and interpret results of the following theories and principles, taking account of the concepts noted below, to the analysis of public policy and management problems.

  • Macroeconomic Indicators and Reading Macroeconomic Forecasts
  • Understanding a Nation’s Fiscal Architecture: Building Appropriate Revenue and Expenditure Systems
  • The Economics of Taxation
  • Government Deficits, Government Debt, and Fiscal Consolidation
  • Monetary Policy
  • Fiscal Stabilization Policy

Concepts to be learned: Capital Spending; Expenditure Estimate of GDP; Gross Domestic Product (GDP); Gross National Product; Income Estimate of Gross Domestic Product; Macroeconomics; Tax Expenditure; Self-Financing; Budget Deficit; Budget Reserves; Budget Surplus; Debt; Deficit; Deficit Reduction; Fiscal Capacity; Public Accounts; Public Revenues; Aggregate Demand; Aggregate Supply Curve; Automatic Stabilizers; Business Cycle; Fiscal Policy; Involuntary Unemployment; Keynesian Economics; Labour Force; Labour Force Participation Rate; Multiplier Effect; Natural Rate of Unemployment; Stabilization Policy; Stabilization Policy Lags; Unemployment; Unemployment Rate; Central Bank; Inflation; Interest Rate Parity; Monetary Neutrality; Monetary Policy; Money Multiplier; Nominal Exchange Rate; Nominal GDP; Open Market Operations; Overnight Rate; Quantity Equation; Quantity Theory of Money; Real Exchange Rate; Real Interest Rate; Theory of Interest Rate Parity; Velocity of Money; Financial System; Progressive Tax; Quantity Tax; Sin Tax; Tax; Fixed Exchange Rate; Floating Exchange Rate; Net Exports; Open Economy; Trade Deficit; Trade Surplus; Net Capital Outflow (NCO); Tariff; Capital Spending; Expenditure Estimate of GDP; Gross Domestic Product (GDP); Gross National Product; Income Estimate of Gross Domestic Product; Macroeconomics; Tax Expenditure; Self-Financing; Econometrics.

Normed Topics in this Normed Course Outline

Like other normed topics on the Atlas, each of these has a topic description, links to core concepts relevant to the topic, learning outcomes, a reading list drawn from available course syllabi, and a series of assessment questions.

Course Syllabi Sources for this Normed Course Outline: University of Toronto: PPG-1003; Carleton PADM-5223 & PADM-5113; Harvard Kennedy School: PED-210; NYU Wagner School: GP-2138; Rutgers: 34:833:610;

Recommended Readings:

Week 1:  Macroeconomic Indicators and Reading Macroeconomic Forecasts

Baumol, William, and Alan Blinder. 2012. Microeconomics: Principles and policy, 12th edition. Cengage Learning. Chapter 5.

Blanchard O., Leigh D. (2013) “Growth Forecast Errors and Fiscal Multipliers,” IMF Working Paper 13/1, January.

Week 2: Understanding a Nation’s Fiscal Architecture: Building Appropriate Revenue and Expenditure Systems

Baumol, William, and Alan Blinder. 2012. Microeconomics: Principles and policy, 12th edition. Cengage Learning. Chapter 6-7.

Rosengard, Jay K. "Folly or Foresight: Strategic Options for Fiscal Policy in East Timor," in Hal Hill and João M. Saldanha, eds., East Timor: Development Challenges for the World’s Newest Nation (Singapore: Institute of Southeast Asian Studies, 2001), pp. 52-60.

Wallace, Sally. “Fiscal Architecture and the Analysis of Public Expenditure Needs and Revenue Capacity,” International Studies Program Working Paper 01-11 (Atlanta: Andrew Young School of Policy Studies, Georgia State University, April 2003). [http://siteresources.worldbank.org/INTTPA/Resources/WalacePaper.pdf]

Week 3: The Economics of Taxation

Slemrod, Joel, and Jon Bakija, "Introduction" and "An Overview of the U.S. Tax System," Chapters 1 and 2 in Taxing Ourselves: A Citizen’s Guide to the Great Debate over Tax Reform, Second Edition (Cambridge, MA: The MIT Press, 2001), pp. 1-48.

Keen, Micahel and Alejandro Simone. "Tax Policy in Developing Countries: Some Lessons from the 1990s and Some Challenges Ahead," Chapter 12 in Sanjeev Gupta, Benedict Clements, and Gabriela Inchauste, eds., Helping Countries Develop: The Role of Fiscal Policy (Washington, D.C.: International Monetary Fund, 2004), pp. 302-52.

Vito Tanzi and Howell Zee, Tax Policy for Developing Countries, Economic Issues No. 27 (Washington, D.C.: International Monetary Fund, March 2001), pp.1-13. http://www.imf.org/external/pubs/ft/issues/issues27/

Richard M. Bird and Arindam Das-Gupta, Public Finance in Developing Countries, draft working paper, June 30, 2012. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2111065

Week 4: Government Deficits, Government Debt and Fiscal Consolidation

Baldacci, Emanuele, Sanjeev Gupta, & Carlos Mulas-Granados, "Getting Debt under Control," Finance & Development, vol. 47, no.4 (December 10, 2010), pp. 18-21.

Baumol, William, and Alan Blinder. 2012. Microeconomics: Principles and policy, 12th edition. Cengage Learning. Chapter 11, 16.

Fisher, Ronald C. "Borrowing and Debt," Chapter 10 in State and Local Public Finance, Third Edition, pp. 230-263.

Gerst, Jeremy & Daniel Wilson, “Fiscal Crises of the States: Causes and Consequences,” FRBSF Economic Letter 2010-20, Federal Reserve Bank of San Francisco, June 28, 2010, pp. 1-5. [http://www.frbsf.org/publications/economics/letter/2010/el2010-20.html]

Ter-Minassian, Teresa & Annalisa Fedelino, Impact of the Global Crisis on Sub-National Governments’ Finances, Occasional Paper (Rome: Bank of Italy, March 2010). [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1985235]

United States Government Accountability Office (GAO), State and Local Governments’ Fiscal Outlook: April 2011 Update, GAO-11-495SP, April 2011. [http://www.gao.gov/new.items/d11495sp.pdf]

Week 5: Monetary Policy

Bank of Canada, Monetary Policy Report, January 2010. http://www.bankofcanada.ca/en/mpr/pdf/2010/mpr210110.pdf

Bank of Canada, Financial System Review, December 2009. http://www.bankofcanada.ca/en/fsr/2009/fsr_1209.pdf

Baumol, William, and Alan Blinder. 2012. Microeconomics: Principles and policy, 12th edition. Cengage Learning. Chapters 13-14.

Gordon Thiessen, The Thiessen Lectures, Bank of Canada Monograph, 1 – 91. http://www.bankofcanada.ca/en/pdf/thiessen-eng-book.pdf

Week 6: Fiscal Stabilization Policy.

Baumol, William, and Alan Blinder. 2012. Microeconomics: Principles and policy, 12th edition. Cengage Learning. Chapter 14-15.

Dodge, David A. "Reflections on the Role of Fiscal Policy: The Doug Purvis Memorial Lecture," Canadian Public Policy, Volume 24, Number 3, 1998, pp 275 – 289.

Federal Budget 2010 http://www.budget.gc.ca/2010/pdf/budget-planbudgetaire-eng.pdf

Economic and Fiscal Statement 27 November 2008. http://www.fin.gc.ca/ec2008/Speech/speech-eng.html

Parliamentary Budget Officer, Assessment of Budget 2010. http://www2.parl.gc.ca/sites/pbodpb/documents/Budget_2010_Outlook.pdf

Parliamentary Budget Officer, Fiscal Sustainability Report. http://www2.parl.gc.ca/sites/pbodpb/documents/FSR_2010.pdf

Sample Assessment Questions:

1a) Define the following terms: Fixed Exchange Rate; Floating Exchange Rate; Net Exports; Open Economy; Trade Deficit; Trade Surplus; Net Capital Outflow (NCO); Tariff; Capital Spending; Expenditure Estimate of GDP; Gross Domestic Product (GDP); Gross National Product; Income Estimate of Gross Domestic Product; Macroeconomics; Tax Expenditure; Self-Financing; Econometrics. 1b) What is gross domestic product? Why is this an important measure of macroeconomic performance? What is the difference between the income-based and expenditure-based estimate of a jurisdiction's GDP? 1c) What is meant when we refer to a country's trade balance? How does the concept of a trade deficit differ from the concept of a budget deficit?

2a) Define the following terms: Capital Spending; Expenditure Estimate of GDP; Gross Domestic Product (GDP); Gross National Product; Income Estimate of Gross Domestic Product; Macroeconomics; Tax Expenditure; Self-Financing 2b) Identify three major sources of revenue upon which governments in advanced democracies rely. In each case, identify one potential advantage and one potential drawback of relying heavily on each source of revenue. 2c) Some economists argue that there are tensions inherent to tax policy between the objectives of efficiency in equity. Write a short 1-3 page paper either in support of or against this proposition. 2d) What is fiscal stimulus? When do governments rely on economic stimulus? What are some of the arguments that have been presented against the extensive use of this policy instrument during and in the wake of the Great Recession?

3a) Define the following terms: Progressive Tax; Quantity Tax; Sin Tax; Tax 3b) What is a progressive income tax? 3c) What is a pigouvian tax? What are the main arguments in favour of pigouvian taxes? 3d) What is the deadweight loss of taxation? Describe this concept using a diagram.

4a) Define the following terms: Budget Deficit; Budget Reserves; Budget Surplus; Debt; Deficit; Deficit Reduction; Fiscal Capacity; Public Accounts; Public Revenues 4b) What is meant by the term "fiscal consolidation?" Explain this concept making use of one example of a government that has successfully pursued a policy of fiscal consolidation. 4c) Economists often measure a jurisdiction's fiscal health by examining its net debt as a share of GDP. Why is this considered a useful indicator of the sustainability of a jurisdiction's debt load?

5a) Define the following terms: Central Bank; Inflation; Interest Rate Parity; Monetary Neutrality; Monetary Policy; Money Multiplier; Nominal Exchange Rate; Nominal GDP; Open Market Operations; Overnight Rate; Quantity Equation; Quantity Theory of Money; Real Exchange Rate; Real Interest Rate; Theory of Interest Rate Parity; Velocity of Money; Financial System 5b) What is monetary policy? What is the difference between monetary and fiscal policy? 5c) What is a central bank? What is the relationship between the central bank and the sitting government?

6a) Define the following terms: Aggregate Demand; Aggregate Supply Curve; Automatic Stabilizers; Business Cycle; Fiscal Policy; Involuntary Unemployment; Keynesian Economics; Labour Force; Labour Force Participation Rate; Multiplier Effect; Natural Rate of Unemployment; Stabilization Policy; Stabilization Policy Lags; Unemployment; Unemployment Rate. 6b) What are automatic stabilizers? Explain, with an example, the role of automatic stabilizers in the fiscal policy of advanced economies. 6c) What is meant by the term "Keynesian fiscal policy," and why is this concept important? 6d) What is the business cycle, and what is the role of fiscal policy in influencing the business cycle?

 

Page created by: James Ban on 7 July 2015


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School of Public Policy and Governance