Economy in the Short Run: Business Cycle, Aggregate Demand & Aggregate Supply

… a core topic in Macroeconomic Policy

BusinessCycleTopic description

This topic covers fundamental concepts that are crucial to understanding macroeconomics in the short run. Ideally, this topic will be covered after topics regarding long-run have been covered as the concepts covered in this particular course build off from concepts like unemployment and inflation.

Topic learning outcome

Students will be able to gain a sophisticated understanding of how the macroeconomic economy operates in the short run and how public policies affect it and are affected by it.

Core concepts associated with this topic

Aggregate Demand; [MORE TO COME]

Recommended readings in MPP and MPA courses

Rutgers (Bloustein): 34:833:610 (Macroeconomics for Public Policy)

  • William J. Baumol and Alan S. Blinder, Macroeconomics Principles and Policy, 12th Edition, Thomson, Southwestern, 2012. Chapter 8 (Aggregate Demand and the Powerful Consumer), Chapter 9 (Demand-Side Equilibrium) & Chapter 10 (Chapter 10: Bringing in the Supply Side)

University of Michigan: Public Policy 556 (Macroeconomics)

  • Mankiw, N. Gregory. 2013. Macroeconomics, Eighth Edition, New York: Worth Publishers. Chapter 10 (Introduction to Economic Fluctuations) & Chapter 11 (Aggregate Demand I: Building the IS-LM Model)
  • Daly, M. and B. Hobijn, “Okun’s Law and the Unemployment Surprise of 2009” March 8, 2010, FRBSF.
  • “Are We All Keynesians Now?” The Economist, Debate March 10-13, 2009.
  • Romer, D. Short Run Fluctuations, preface and chapter 1 only
  • U.S. Monetary Policy: Part 2: What Are The Goals Of U.S. Monetary Policy? January 23, 2004 FRBSF Economic Letter.
  • U.S. Monetary Policy: Part 3: How Does Monetary Policy Affect The U.S. Economy? January 30, 2004 FRBSF Economic Letter.
  • U.S. Monetary Policy: Part 4: How Does The Fed Decide The Appropriate Setting For The Policy Instrument? February 6, 2004 FRBSF Economic Letter.
  • New York University Wagner School: GP.21380 (Macroeconomics, Global Markets, and Policy)
  • Krugman and Wells (2013). Macroeconomics, 3rd edition, Worth Publishers. Chapter 10 (Savings, Investment Spending, and the Financial System), Chapter 12 (Aggregate Demand and Aggregate Supply)
  • Bernanke B.S. (2004) “The Great Moderation,” remarks at the meetings of the Eastern Economic Association, Washington, DC February 20.

Harvard University Kennedy School: API-121 (Macroeconomic Theory and Policy)

  • Macroeconomics, Seventh Edition by N. Gregory Mankiw, New York: Worth Publishers, 2010. Chapter 9 (Introduction to Economic Fluctuations) & Chapter 10 (Aggregate Demand I: Building the IS-LM Model)
  • “No Short Cuts,” The Economist, Oct 27, 2012.

University of Toronto: PPG-1003 (Macroeconomics for Policy Analysis)

  • Principles of Macroeconomics – (Sixth Canadian Edition) by N. Gregory Mankiw, Ronald D. Kneebone and Kenneth J. McKenzie. Thomson-Nelson 2013. Chapter 14 (Aggregate Demand and Aggregate Supply) & Chapter 15 (The Influence of Monetary and Fiscal Policy on Aggregate Demand)

Supplementary Required Readings:

Sample assessment questions:
  1. 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.
  2. 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.
  3. 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?

Page created by: Sean Goertzen and Ben Eisen on 17 April 2015, supplemented by James Ban on 4 September 2015 and last modified by Ian Clark on 17 December 2015.

Image: RDC Econ 101, at,+Recession,+Depression, accessed 17 December 2015.