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DRPS : Course Catalogue : Business School : Business Studies

Postgraduate Course: Macroeconomics (MBA) (BUST11208)

Course Outline
SchoolBusiness School CollegeCollege of Humanities and Social Science
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityNot available to visiting students
SCQF Credits10 ECTS Credits5
SummaryThis course is designed to provide a sufficient understanding of macroeconomics to allow an understanding of relevant articles in the Financial Times, Economist, etc and reports by government agencies, the World Bank, or consultants. This is seen as essential to an understanding of business because Macroeconomics affects all companies by

(a) level of demand for products;

(b) interest rates - with their effect on the costs of the firm;

(c) the exchange rate - which tends to intensify or reduce competition even for firms not overtly engaged in trade;

(d) and each of these elements interact both with themselves and with other factors, such as government policy.
Course description Demand, Supply and the Market
The "Market"; demand and supply curves; behind the demand curve; Tastes, Prices and Incomes; behind the supply curve: technology, input costs and government regulations.


The Determination of National Income

The circular flow of income; actual values of consumption, investment, saving, government expenditure, and foreign payments. Components of aggregate demand: planned amounts of consumption, planned investment spending; aggregate demand; equilibrium output; the equality of planned savings and planned investment expenditures.

The Multiplier, Fiscal Policy and Foreign Trade

a) The Multiplier
The multiplier; the paradox of thrift.

b) Fiscal Policy and Foreign Trade
The government and aggregate demand; the balanced budget multiplier; the government budget; deficits and the fiscal stance; automatic stabilisers; the limitations on active fiscal policy; The National Debt and the deficit; foreign trade and income determination.

Money and Modern Banking

Money and its functions; commercial banks and the money supply; the money multiplier; competition between banks. The demand for money.

Interest Rates and Monetary Transmission
The Bank and the money supply; reserve requirements; the discount rate; open market operations; the repo market; the lender of the last resort. Equilibrium in financial markets.

Monetary control; the targets and instruments of monetary policy; the transmission mechanism: wealth effects and the credit channel.

Aggregate Supply and Inflation
Aggregate demand; aggregate supply; equilibrium inflation. Labour market and wages. Short run aggregate supply. Adjustment to equilibrium, supply and demand shocks.


Definition of inflation. The Phillips curve in the long run and in the short run, supply shocks. Costs of inflation; controlling inflation.

Exchange Rates and the Balance of Payments

The Forex market; Exchange rate regimes; the balance of payments, determinants of the current account; the capital account; speculation and interest rate parity; internal and external balance. Long run equilibrium, the role of foreign debt or assets.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements For Business School PG students only, or by special permission of the School. Please contact the course secretary.
Course Delivery Information
Not being delivered
Learning Outcomes
Knowledge and Understanding:

┐ The elements measured by GNP, GDP and National Income

┐ The role of savings and investment - and more generally the role of leakages (savings, taxation and imports) and injections (Investment, Government expenditure and Exports) in determining the level of GDP

┐ The implications of rising GNP for tax revenues and the current account of the balance of payments

┐ The role of government in expanding aggregate demand through fiscal policy

┐ The creation of money by the banking system and the limits due to reserve requirements

┐ The role of the interest rate in affecting the demand for money

┐ The role of money supply in inflation

┐ The use of monetary policy to control inflation and the role of the central bank

┐ The determinants of changes in the current and capital accounts of the balance of payments ┐ and their impact on exchange rates

This course complements other courses in the Programme as follows:

(a) Finance courses - by providing an understanding of the determinants of interest and exchange rates in the economy.

(b) Strategic Management - by providing the analysis of demand, interest rates, inflation, and foreign exchange rates which influence many strategic decisions.

More widely, macroeconomics is probably the clearest example of systems thinking and as such provides many students with a new approach to analysis.

Cognitive Skills:

This course is principally geared to providing an understanding of the macro-economy. Skills training is not explicitly part of the course. However, developing this understanding inevitably develops and exercises the following important skills:

(a) Logical thought in analysing cause and effect in the presence of interdependence

(b) Clarity of exposition in explaining complex systems

(c) The use of symbols and simple equations to model real-world phenomena

(d) Understanding data in the presence of multi-causal phenomena (in which it complements the course on statistical analysis)

Reading List
'D Begg, G Vernasca, S Fischer & R Dornbusch, Economics, 10th edition, McGraw Hill, 2011.

Those who find the course very difficult may find the following useful;

D Begg, S. Fischer and R. Dornbusch, Foundations of Economics, 5th Edition McGraw Hill, 2013.'

D Begg and D Ward Economics for Business, 3rd Edition McGraw Hill, 2009.
While these are useful sources of orientation, they are at a lower level of detail than desirable.

Because of the international nature of the MBA, the empirical details are not useful to many of the group. For an understanding of the recent developments of the UK economy and amplification of your theoretical understanding by empirical example, see:

Griffiths, Alan and Wall, Stuart, Applied Economics, 11th Edition Prentice Hall, 2007

For alternative explanations of the same concepts see:
J Sloman and A. Wride, Economics, 7th Edition Prentice Hall, 2009.

Demand, Supply and the Market
Reference: BFD Chapter 3, pp42-60


The Determination of National Income
Reference: BFD Chapter 15, Sections 15-3 to 15-4 only, pp362-373 and Chapter 16, sections 16-1 to 16-5, pp383-392.

The Multiplier, Fiscal Policy and Foreign Trade

a) The Multiplier
The multiplier; the paradox of thrift.

Reference: BFD Chapter 16, sections 16-6 and 16-7, pp392-395

b) Fiscal Policy and Foreign Trade
Reference: BFD Chapter 17, pp398-417.

Money and Modern Banking
Reference: BFD Chapter 18 pp420-438

Interest Rates and Monetary Transmission
Reference: BFD Chapter 19 pp441-460

Bank of England Quarterly Bulletin, (1997) ┐Comparing the monetary transmission mechanisms in France, Germany and the United Kingdom: Some issues and results┐ May, pp 152-161.

Aggregate Supply and Inflation
Reference: BFD Chapter 21, pp481-500.

Reference: Bank of England, Minutes of the Monetary Policy Committee Meeting 2nd and 3rd August 2006, Published 16th August


Reference: BFD Chapter 22, pp501-524.

Exchange Rates and the Balance of Payments
Reference: BFD Chapter 24, pp549-568

Additional Information
Graduate Attributes and Skills Not entered
KeywordsMBA macro
Course organiserProf Jonathan Crook
Tel: (0131 6)50 3802
Course secretaryMiss Kate Ainsworth
Tel: (0131 6)51 3854
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