Business Economics MA(SocSci)

Advanced Macroeconomics. ECON4040

  • Academic Session: 2022-23
  • School: Adam Smith Business School
  • Credits: 15
  • Level: Level 4 (SCQF level 10)
  • Typically Offered: Semester 2
  • Available to Visiting Students: Yes
  • Available to Erasmus Students: Yes

Short Description

With the ultimate aim of understanding the causes and consequences of fluctuations in macroeconomic activity, this course sets out the micro-foundations of modern macroeconomic theory by analysing the optimising choices of households, firms and the government in the markets for goods, labour, capital and public bonds. This is achieved in a general equilibrium framework by examining the interaction in all markets simultaneously.


Lectures: 10 x 2-hour lectures.

Seminars: 9 hours.

Excluded Courses



ILO (covered)

Are reassessment opportunities available for all summative assessments? Not applicable for Honours courses

Reassessments are normally available for all courses, except those which contribute to the Honours classification. Where, exceptionally, reassessment on Honours courses is required to satisfy professional/accreditation requirements, only the overall course grade achieved at the first attempt will contribute to the Honours classification. For non-Honours courses, students are offered reassessment in all or any of the components of assessment if the satisfactory (threshold) grade for the overall course is not achieved at the first attempt. This is normally grade D3 for undergraduate students and grade C3 for postgraduate students. Exceptionally it may not be possible to offer reassessment of some coursework items, in which case the mark achieved at the first attempt will be counted towards the final course grade. Any such exceptions for this course are described below.

Course Aims

The aims of this course are to:

■ Using the representative agent model, Part 1 introduces students to the micro-founded approach to modern Macroeconomics.

■ To this end, we will analyse the optimising choices of households and firms in the markets for goods, labour and capital.

■ We will achieve this in a general equilibrium framework by examining the interaction in all three markets simultaneously.

■ Finally, we will apply the theory to the study of economic policy, e.g. (i) productivity policy and growth; (ii) moral hazard and unemployment benefits; (iii) unemployment benefits as insurance; (iv) taxes and employment policy; (v) savings rate, permanent income and the debt crisis; and (vii) capital policy and business cycles.

Intended Learning Outcomes of Course

■ By the end of Part 1, you will be able to:


1. Specify the behaviour of households and firms in the key markets comprising modern general equilibrium macroeconomic models.

2. Apply the tools required to set up and solve a general equilibrium model at the steady-state considering the simultaneous interaction of multiple agents in multiple markets.

3. Evaluate the motives, constraints and consequences of government policy.

4. Critically assess the usefulness of macroeconomic models for understanding aggregate fluctuations and the effects of economic policy.


Course Aims: Part 2 (Heterogeneous Agent Models, Richard Foltyn)


■ Building on Part 1, in Part 2 we extend the analysis to (simple) heterogeneous agent models, i.e. we no longer assume that the economy is populated by a single representative household.


1. This allows us to study how household choices depend on the life cycle (working age vs. retirement) and the presence of risk, e.g. earnings risk.

2. This framework allows us to examine to what extent households themselves can insure against risk or whether government policy is required to provide such insurance (e.g. unemployment benefits).

3. We will frequently use a partial equilibrium approach as solving heterogeneous agent models in general equilibrium analytically is only possible for special cases.


  Learning Outcomes: Part 2 (Heterogeneous Agent Models, Richard Foltyn)


■ By the end of Part 2, you will be able to:


1. Analyse inequality in terms of consumption, income and wealth observed in the data.

2. Understand how household choices depend on age (e.g. working vs. retired), employment, etc.

3. Understand how households use savings to insure against risk or periods without income.

4. Evaluate how different types of households are affected by government policy.

5. Work collaboratively in a group to produce a combined piece of coursework, by liaising with other class members, allocating tasks and co-ordinating group meetings.

Minimum Requirement for Award of Credits