Professor: Hadi Salehi Esfahani
Office Phone: 217-333-2681
Email: Esfahani@uiuc.edu
Dates: 1/18/08 – 3/1/08
Course Number: ECON 568
Office Hours: Friday 5:00-6:00pm
The goal of this course is to enable you to assess the macroeconomic environment in which a business operates. Macroeconomic conditions play important roles in business decisions and performance: Aggregate income, unemployment, and inflation rate influence profitability, interest rates determine the cost of capital, and exchange rates affect international competitiveness.
This course pays particular attention to the macroeconomic consequences of globalization and the roles played by government policies, institutions, and the public's expectations about the future course of the economy. The emphasis on globalization is because international trade and investment are integral parts of business in today's world. Study of macroeconomic policies
(both fiscal and monetary) is a major theme in the course because those policies can influence macroeconomic performance in important ways. Businesses need to understand such effects in order evaluate the consequences of those policies for themselves. To do even better, businesses need to further understand the macroeconomic policymaking institutions, which are the rules and norms by which governments make their policies. This can help them form ideas about future policies and future performance, thus making more informed decisions about production and investment. Understanding market institutions and their roles in the macroeconomy also matters because performance is influenced by the manner in which markets and individuals respond to policies. This idea also tells us that the expectations about how policymakers may behave and how markets may respond to them play critical roles in current actions and plans of businesses and individuals. We examine how expectations about the future course of the economy are formed and how they interact with current macroeconomic conditions.

Country-level Economics Syllabus
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Besides lectures, we will maintain discussion on macroeconomic issues through Compass. The
Compass website for the course provide reading material and day-to-day information about the course. I encourage you to use the site for questions and messages at any time. I will be checking the site frequently to offer quick responses to your messages. However, in case an urgent problem arises, please do not hesitate to also send a regular email or call me to make sure no time is wasted.
The required readings for the course are Background Notes that are written specifically for this class and will be made available in print and on the Internet in advance of classes. Background
Notes are written in a very concise manner to optimize the time that you need to spend on this course. However, you should consult supplemental materials for the course as needed if you feel that the Notes do not provide you with adequate information and insight. These materials consist of two textbooks that are made available through the EMBA Program:
Paul R. Krugman and Maurice Obstfeld, International Economics , 7th ed., Addison
Wesley, 2005.
Gregory Mankiw, Macroeconomics , Sixth Edition, Worth Publishers, 2006.
The Economist and The Wall Street Journal also provide important resources on current macroeconomic conditions and will be referenced frequently during the course. In addition,
Professor Nouriel Roubini of New York University maintains an excellent website for an MBA macroeconomics course that contains web links for a variety of macroeconomic issues as well as lecture notes the address for this website is http://pages.stern.nyu.edu/~nroubini/MACRO5.HTM
. I encourage you to take advantage of this resource.
For learning and evaluation purposes, there will be three types of assignment. The first type is a series of 16 in-class quizzes designed to help you remain involved during the long class hours!
The second type is a series of four problem sets and the third type is a set of four exams, consisting of three mid-terms and one final. The problem sets and the exams will cover the material discussed in class in the sessions prior to them. They are all take home and open book. You can work on them in groups, but each student must write his/her own answers individually. To prepare you for the problem sets and exams, a set of (non-graded) practice questions are also provided on Compass.
The purpose of all these assignments is to help you master the material more effectively and receive fast and frequent feedback on your learning. Because some of you may be traveling or may just have "bad days," only 14 best quizzes, three best problem sets, and two best midterms will be taken into consideration for the overall grade. The lowest problem set and midterm grades will be discarded. This does not apply to the final, which is required.

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The grade in this course will be based on the results of in-class quizzes, problem sets, and exams as well as peer evaluation by co-team members. The breakdown of the total score for the course is as follows:
Fourteen best in-class quizzes
Three best problem sets
Two best mid-terms
Final
Study Group Peer Evaluation
14% of total grade (1% each)
30% of total grade (10% each)
32% of total grade (16% each)
16% of total grade
8% of total grade
The peer evaluation score will be based on the following procedure. At the conclusion of the course, you will be asked to complete the Executive MBA program Peer Evaluation form. On the form, you will be given 50 points for each of your group members (other than yourself). You will assign points to each of your group members based on your assessment of tha t person’s level of effort during the course and contribution to your group’s course-related activities. No group member may receive more than 100 points or less than zero. The total assigned points should equal the total points you have for distribution. You will also be asked to describe each group member’s contribution to the study group, and to suggest areas or attributes that the group might consider developing. You will receive the comments and point allocations given to you by your group members, along with summary statistics. You will not know which of your group members gave each comment or point allocation, just as your group members will not know which comments and point allocations you gave them.

Country-level Economics Syllabus
Date
Topic Learning Objectives
Sessions of January 18 and 19
Friday
Morning
1/18
Sessions
1 & 2
Saturday
Morning
1/19
Macroeconomics: Why and What?
GDP Components and
Twin Deficits
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Assignments
Why do you need to understand macroeconomics?
What are the key macroeconomic variables that matter for business?
How do we define and measure the macroeconomic variables?
Background Note 1
Recommended :
Krugman & Obstfeld, Ch.
12
Mankiw, Chs. 1
What are the key components of GDP?
What is the relationship between GDP, budget deficit, and trade defic
Submit Problem Set 1
Background Note 2
Recommended
Mankiw, Ch. 2
:
Krugman & Obstfeld, Ch. 13
Sessions
1 & 2
Sessions of February 1 and 2
Friday
Morning
2/1
Sessions
1 & 2
Saturday
Morning
Money, Interest Rate, and the Exchange Rate
2/2
Session 1
The Foreign Exchange
Market
What is the exchange rate and how does it affect business?
How is the exchange rate determined? (How do economic conditions and perceptions influence the exchange rate?)
Submit Exam 1
Background Notes 3 and 4
Recommended :
Krugman & Obstfeld, Ch. 13
What is the role of money in the economy?
How does money influence the rates of interest and exchange?
Submit Problem Set 2
Background Note 5
Krugman & Obstfeld, Ch. 14
(Skip pages 378-390)
Recommended :
Mankiw, Pages 271-280

Country-level Economics Syllabus
Saturday
Morning
2/2
Aggregate Expenditure and GDP in the Short
Run When Prices Are
"Sticky"
What factors affect the aggregate expenditure in the economy?
How is GDP determined in the short run when prices are sticky?
Session 2
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Background Notes 6
Krugman & Obstfeld,
Pages 433-450 and 470-
480
Recommended :
Mankiw, Pages 257-271
Sessions of February 15 and 16
Friday
Morning
2/15
Catch-up and Review
How is GDP determined in the short run when prices are sticky?
Submit Exam 2
Background Notes 6
Session 1
Friday
Morning
2/15
Fiscal and Monetary
Policies in the Short Run
When Prices are "Sticky"
How do monetary and fiscal policies affect
GDP and the exchange rate in the short run?
Background Notes 7
Krugman & Obstfeld, Pages
450-469
Recommended : Mankiw,Ch.
11
Session 2
Saturday
Catch-up and Review
Morning
How do monetary and fiscal policies affect
GDP and the exchange rate in the short run?
Submit Problem Set 3
Background Notes 7
2/16
Session 1
Saturday
Morning
Expectations and the
Long Run Performance of the Economy
2/16
Session 2
How are expectations about the future of the economy formed?
What drives aggregate output in the long run?
Background Notes 8

Country-level Economics Syllabus
Sessions of February 29 and March 1
Friday
Morning
2/29
Exchange Rate,
Inflation, and Interest
Rate in the Long Run
How is the exchange rate determined in the long run?
Is there a connection between productivity, economic growth, and the exchange rate?
Session 1
Friday
Morning
2/29
Price Instability:
Expectations,
Contracting, and
Macroeconomic Shocks
Session 2
How do prices adjust in the short run?
How does short run price instability interact with aggregate income?
What are the roles of expectations, contracting, and economic shocks in the process of output and price adjustment in the short-run?
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Submit Exam 3
Background Notes 9
Krugman & Obstfeld, Ch.
15
Background Notes 10
Recommended :
Mankiw, Chap. 13
Saturday
Morning
3/1
Sessions
1 & 2
Sunday
Wrap-up:
Macroeconomic Policies and Institutions
What are the characteristics of desirable macroeconomic policies?
Should macroeconomic policies be active or passive?
What is the role of budget and monetary institutions in macroeconomic policy and performance?
Submit Final
3/9 Background Notes 8-11
Submit Problem Set 4
Background Notes 11
Recommended :
Mankiw, Chs. 14 and 15