Country Level Economics: Policies, Institutions, and Macroeconomic Performance by University of Illinois at Urbana-Champaign

About this course: This course examines macroeconomic performance in the short run and the long run based on the economy’s institutional and policy environment. The first module develops a model of macroeconomy in the short run when the price level has its own momentum and does not respond much to supply and demand forces. The model enables one to see how GDP, interest rate, and exchange rate are determined in the short run and how they respond to macroeconomic shocks and policies. The second module starts the analysis of long-run equilibrium by examining the foreign exchange market. It then connects the long-run outcome with expectations about the future trends in the exchange rate at each moment, which constitute a key driver of the spot exchange rate in the short run. The methodology developed for this purpose can be applied to expectations concerning other macroeconomic variables as well. Finally, the long-run foreign exchange model is employed to derive a number of important lessons for the long run trends in currency values and competitiveness of producers in various countries. The third module examines the drivers of aggregate output in the long run and the mechanisms of adjustment from the short run to the long run. The model provides insights about why some countries are much richer than others and why some economies grow faster than others over decades. The analysis also sheds light on why inflation varies across countries or over time in the same country. The model is employed to analyze the sources of macroeconomic instability and the roles of fiscal and monetary policies in stabilization or destabilization of the macroeconomy. The final module discusses the characteristics of desirable macroeconomic policies and the reasons why actual policies deviate from them. It connects these deviations to country characteristics that one needs to take into account when assessing a country’s long-term macroeconomic environment. The module ends with a discussion of the institutional conditions that help bring about better fiscal and monetary policies. At the end of this course, you will be able to: • Understand how the market for aggregate goods and services interacts with the money market to shape the macroeconomic equilibrium that determines income, interest rate, and exchange rate in the short run. • Understand the links between the short-run and long-run processes. • Assess the dynamic effects of macroeconomic policies and understand the roles of globalization, government policies, institutions, and expectations in macroeconomic outcomes. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and

University of Illinois at Urbana-Champaign
Created by:   University of Illinois at Urbana-Champaign
Hadi Salehi Esfahani
Taught by:    Hadi Salehi Esfahani, Professor of Economics and Professor of Business Administration
Department of Business Administration, College of Business

Basic Info
Commitment4 weeks of study, 4-6 hours/week
How To PassPass all graded assignments to complete the course.
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Average User Rating 4.3See what learners said
Course Orientation
You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course. 

1 video5 readings1 reading
  1. Video: Welcome to Country Level Economics: Policies, Institutions, and Macroeconomic Performance!
  2. Reading: Syllabus
  3. Reading: About the Discussion Forums
  4. Reading: Glossary
  5. Practice Quiz: Orientation Quiz
  6. Reading: Updating Your Profile
  7. Discussion Prompt: Getting to Know Your Classmates
  8. Reading: Social Media
Module 1: Aggregate Expenditure and GDP in the Short Run When Prices Are "Sticky"
What determines the GDP? In the previous course on Macroeconomic Variables and Markets, we saw how the exchange rate and the interest rate are determined given the real income, aggregate price level, and expectations about the future. This module focuses on GDP determination in the short run, which is a critical step in understanding macroeconomic fluctuations and the role of stabilization policies. Long-run trends, expectations, and price level movements will be examined in subsequent modules.

7 videos2 readings3 readings
  1. Reading: Module 1 Overview
  2. Reading: Module 1 Readings
  3. Video: Module 1 Introduction
  4. Video: 1-1.1. The Determinants of "Preferred" Consumption Expenditure
  5. Video: 1-1.2. The Determinants of "Preferred" Investment and Net Exports
  6. Practice Quiz: Lesson 1-1 Practice Quiz
  7. Video: 1-2.1. Aggregate "Preferred" Expenditure and Equilibrium Income
  8. Video: 1-2.2. Interest Rate and Equilibrium Income
  9. Practice Quiz: Lesson 1-2 Practice Quiz
  10. Video: 1-3.1. Equilibrium Income and Fiscal and Monetary Policies in the Short Run
  11. Video: 1-3.2. Aggregate Demand Shocks and Policy Responses in the Short Run
  12. Practice Quiz: Lesson 1-3 Practice Quiz
Graded: Module 1 Peer Review Assignment
Graded: Module 1 Quiz
Module 2: Expectations and the Long-Run Exchange Rate
Where do expectations about the future of economic variables come from? This question is important because expectations matter a great deal in the choices made by economic agents at every point in time. This is quite easy to see in the connection between the exchange rate in the spot market at each moment and the expected exchange rate in the future spot market. In this module, we examine the formation of exchange rate expectations based on a model of long-run equilibrium in the foreign exchange market. The model turns out to be very insightful regarding the factors that drive the real exchange rates and competitiveness of economies over the years.

4 videos2 readings2 readings
  1. Reading: Module 2 Overview
  2. Reading: Module 2 Readings
  3. Video: Module 2 Introduction
  4. Video: 2-1.1. Expectations
  5. Practice Quiz: Lesson 2-1 Practice Quiz
  6. Video: 2-2.1. Modeling the Long-Run Exchange Rates
  7. Video: 2-2.2. Finding The Drivers of the Real Exchange Rate in the Long Run
  8. Practice Quiz: Lesson 2-2 Practice Quiz
Graded: Module 2 Quiz
Module 3: Long-Run Economic Performance and Short-Run Adjustments
Why are some nations so much poorer than others? Why do some countries manage to grow fast over decades while others stagnate? What determines the real per capita income in a country in the long run? One goal of this module is to examine these fundamental questions in economics. The module also discusses the relationship between short-run and long-run equilibria and shows how the process of adjustment may lead to macroeconomic instability. It ends by examining the role of monetary and fiscal policies in stabilizing or destabilizing the economy as it goes through the adjustment process.

8 videos2 readings2 readings
  1. Reading: Module 3 Overview
  2. Reading: Module 3 Readings
  3. Video: Module 3 Introduction
  4. Video: 3-1.1. Understanding the Long-Run Output
  5. Video: 3-1.2. The Determinants of Production Capacity: Resources and Technology
  6. Video: 3-1.3. The Determinants of Production Capacity: Institutions
  7. Practice Quiz: Lesson 3-1 Practice Quiz
  8. Video: 3-2.1. Equilibrium Income and the Production Capacity: The Short Run vs. the Long Run
  9. Video: 3-2.2. Aggregate Demand Shocks and Macroeconomic Stabilization Policies
  10. Video: 3-2.3. Aggregate Supply Shocks and Macroeconomic Stabilization Policies
  11. Video: 3-2.4. Applying the Macroeconomic Model to the Analysis of US Economy
  12. Practice Quiz: Lesson 3-2 Practice Quiz
Graded: Module 3 Peer Review Assignment
Graded: Module 3 Quiz
Module 4: Institutions and Macroeconomic Policies
Some countries seem to be much more prone to macroeconomic crises and stagnation than others. Why do policymakers in some countries fail to follow more productive and stabilizing policies? What roles do a country’s politics and institutions play in the policy choices by the government and the central bank? What factors and variables do we need to know about in order to be able to assess a country’s long-term macroeconomic prospects?

4 videos2 readings3 readings
  1. Reading: Module 4 Overview
  2. Reading: Module 4 Readings
  3. Video: Module 4 Introduction
  4. Video: 4-1.1. Desirable Monetary and Fiscal Policies
  5. Practice Quiz: Lesson 4-1 Practice Quiz
  6. Video: 4-2.1. Macroeconomic Policies and Political Decision-Making
  7. Practice Quiz: Lesson 4-2 Practice Quiz
  8. Video: 4-3.1. How Can Countries Commit to Good Macroeconomic Policies?
  9. Practice Quiz: Lesson 4-3 Practice Quiz
Graded: Module 4 Quiz

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