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Prof. Sergio Nisticò - Part I

Prof. Gennaro Zezza - Part II

Contact information:,

Term: Second Semester

Overall Credits (ECTS): 12

Prerequisites: Basic economics

Language of Instruction: English

Class hours Part I: 42

Class hours Part II: 42

Overall Class hours: 84


Cognitive / Knowledge skills

  • Understand the cost-benefit approach to explaining individual economic choices;
  • Manage and understand, both graphically and analytically, the rational choice models of consumers’ behavior both under perfect information and uncertainty;
  • Manage and understand, both graphically and analytically, how firms’ behavior can be modelled;
  • Understand the notions of market failures and their implications for social welfare;
  • Develop an understanding of the concept of macroeconomic performance, both in terms of output and employment.
  • Evaluate the situation of any country on the basis of its macroeconomic data.
  • Understand the different roles of fiscal and monetary policies and of the main macroeconomic actors, the Government and the Central Banks;
  • Understand the working of the specific tools of monetary and fiscal policies.

Analytical / Critical Thinking Skills(Oral and Written)

  • Identify and solve constrained optimization problems;
  • Apply the relevant economic models to address real-world economic problems;
  • Be able to explain in non-technical terms the fundamental economic intuitions associated with the alternative models.
  • Be able to identify the assumptions, the logic and the economic policy suggestions of the different macroeconomic models;
  • Use macroeconomic theoretical frameworks as tools for the analysis of current events;
  • Analyze basic macroeconomic data referred to variables such as prices, money supply, government deficit and employment
  • Be able to assess the appropriateness of country specific fiscal and monetary policies relative to the main macroeconomic indicators and the declared objectives of the Government and of the Central Bank.


This course is structured in two modules that will be taught in parallel during the semester.

The first module deals with microeconomics, i.e. the set of tools economists use to study the choices made by individuals in their roles of consumers, employees, investors and business managers and the effects of individual choices on market outcomes.

In particular, this first module focuses on:

  • rational choice theory and its claim that changes in income and prices are the determinants of consumer’s consumption choices;
  • the expected utility theory approach, according to which choices under uncertainty can be modeled as lotteries;
  • the demand for insurance policies and the limitations of the rational choice theory;
  • the difference between short-run and long-run cost functions;
  • how firms choose inputs, output and prices according to the different market structures in which they operate;
  • the difference between partial and general equilibrium analysis and the two fundamental welfare theorems;
  • why public goods and externalities represent the two main reasons for market failures and government intervention.

The second module deals with the fundamental macroeconomics models, and their ability to interpret the real-world economic phenomena. The topics addressed by the instructor include the factors affecting changes in aggregate variables, such as GDP, unemployment rates, aggregate demand, aggregate supply, interest rates, price levels, and so on , in the context of contemporary monetary market economies.

In particular, this second module focuses on:

  • the fundamental building blocks of Keynes’s macroeconomic theory;
  • the structure and the logic of the IS-LM model as a tool to determine the general equilibrium and the impact of economic policies both in a closed and an open economy;
  • the determinants of aggregate variables and how both fiscal and monetary policies can be effective tools for dampening business cycle and counteracting the main pathologies affecting actual economic systems, such as recession, unemployment, and crisis;
  • the main causes of unemployment and how to promote employment according to the different theoretical approaches;
  • the main determinants of economic growth;
  • how financial markets affect the real economy;
  • the relation between short-term and long-term interest rates through the yield curve and how expectations of financial markets are influenced by the behavior of central bank and the level of economic activity.

With reference to all topics listed above, students will be asked to develop a critical attitude towards the realism and the soundness of the assumptions underlying the various models and the ability to use the relevant elements of the economists’ toolbox to specific case studies.


The class will meet for 2 hours (gross of interclass break), four times a week, for a total of 42 sessions. In every week, one of the sessions will be devoted to exercise and case studies. After an introduction aimed at providing the needed background, participants are required to read the materials related to the class and to be prepared prior to coming to class. Classes will consist of a lecture by the instructor, to be followed by a discussion of the main topics and, possibly, of the assignments.


Week 1 (Frank, chapters 1 and 2. Blanchard, chapters 1 and 2)

Part I
Introduction to the Course. Presentation of the Available materials. Clear Statement of Expected Mutual Requirements. The role of economic models. Thinking like an economist. Is Economics a Science? Graphing as one of the language of Economics: the budget constraint and indifference curves.

Part II
Introduction to the Course. Endogenous/exogenous variables and given factors. The distinction between short-run, medium-run and long-run models. Fundamental macroeconomic variables. Main economic indicators.

Week 2 (Frank, Chapters 2 and 3. Blanchard, chapter 3)

Part I
Axioms of rational choice theory. The opportunity cost and the marginal rate of substitution. The best feasible bundle. The utility function approach.

Part II
The goods market. Main assumptions of Keynes’s model. The determination of the equilibrium level of the aggregate output using the Keynesian cross-diagram. The concept of underemployment equilibrium level of the output.

Week 3 (Frank, appendix chapter 3 and appendix chapter 4. Blanchard, chapter 4)

Part I
The utility function approach. The income and substation effects of price change. The ordinary and the income compensated demand curve.

Part II
Financial Markets. Keynes’s theory of liquidity preference. Money supply and the determination of the equilibrium nominal interest rate. Two cases of ineffectiveness of expansionary monetary policy in Keynes’s model: Inelasticity of Investments and Liquidity Trap.

Week 4 (Frank, chapter 5. Blanchard, chapters 5 and 6)

Part I
Applications of rational choice theory. The intertemporal choice.

Part II
The IS-LM basic model for the determination of the general equilibrium position in a closed economy.  Assumptions and results. Structure of the model and differences with Keynes’s model. Graphical derivation of the IS and LM curves. Analysis of the impact of fiscal and monetary policies on the general equilibrium position. Policy mix. The extended IS-LM model. The relation between real interest rate, nominal interest rate and expected inflation. Financial shocks and economic policies.

Week 5 (Frank, chapter 6 and appendix. Blanchard, chapter 7 and appendix)

Part I
Incomplete information and choices under uncertainty. The expected utility theory and its limits

Part II
Neoclassical theory of employment versus Keynes’s theory of employment. New-Keynesian theories of the labour market. Contract theory and efficiency-wage theory. The natural rate of unemployment.

Week 6 (Frank, chapters 7 and 8. Blanchard, chapter 10)

Part I

Explaining altruism and concerns about fairness. Cognitive limitations and behavioral economics.

Part II
Solow’s model of growth. Assumptions and main results. The depreciation per worker and the investment per worker. The steady state position.


Mid-term exam on both part I and part II


Week 7 (Frank, chapter 9 and appendix; chapter 10. Blanchard, chapter 11 and appendix)

Part I
Production and costs in the short run. Production in the long run: isoquants, isocosts and returns to scale. Cost functions in the long run.

Part II
Output, investment and capital accumulation. The saving rate. The dynamics of capital and output. The effects of different saving rates on output per worker in an economy with and without technological progress.  The human capital. Exogenous and endogenous growth.

Week 8 (Frank, appendix chapter 10 and chapter 11. Blanchard, chapter 14)

Part I
Relationship between short-run and long-run cost curves. Cost minimization. The long-run industry supply curve in perfect competition

Part II
Financial markets and expectations. The determination of stock prices. Stock prices and economic activity. The analysis of the impact of economic policies on stock prices by using the IS-LM diagram. The speculative bubbles. The yield curve. The relation between short-term and long term interest rates.

Week 9 (Frank, chapter 12. Blanchard, chapters 17 and 18)

Part I
Monopoly and the divergence between price and marginal revenue. Mark up and price elasticity of demand. Price discrimination. Public policy towards monopoly.

Part II
The open economy. The equilibrium of the goods market in the open economy. The real exchange rate and the nominal exchange rate. The choice between domestic and foreign assets: the (uncovered) interest parity condition. 

Week 10 (Frank, chapter 13. Blanchard, chapters 19 and 20)

Part I
Imperfect competition, oligopoly and game theory. The notion of Nash equilibrium. The Cournot model of duopoly and other economic models of imperfect competition.

Part II
The extension of the IS-LM model to the open economy. Equations and diagrams. Exchange rate regimes and monetary and fiscal policies.

Week 11 (Frank, chapter 16 and chapter 18W. Blanchard, chapter 23)

Part I
Externalities, property rights and Coase theorem. Public goods. The general equilibrium model of exchange and the Edgeworth box. Pareto optimality and the two welfare theorems.

Part II
Monetary Policy. Money targeting. Inflation targeting. The interest rate rule. The Optimal Inflation rate. Conventional and unconventional monetary tools.



All students are expected to spend at least 2.5 hours of time on academic studies outside of, and in addition to, each hour of class time.



The instructors will use various forms of assessment to calculate the final grade you receive for this course. For the record, these are listed and weighted below. The content, criteria and specific requirements for each assessment category will be explained in greater detail in class. Any questions about the requirements should be discussed directly with your faculty well in advance of the due date for each assignment.




Class Participation        




Mid-Term Exam*


Final Exam




Class Participation:  This grade will be calculated to reflect your participation in class discussions, your capacity to introduce ideas and thoughts dealing with the texts, your ability use language effectively, and to present your analysis in intellectual, constructive argumentation. If you cannot attend classes your participation can be shown by interacting with your instructor during office hours, i.e. by asking about specific subjects of the syllabus and discussing assignments.

Assignments: Students will be required to submit home assignments timely. These will be exercises on analytical and/or graphing tools, comments on suggested readings on examples of economic challenges, opportunities, problems or risks faced by households, firms or nations.

Mid Term Exams*: The midterms are designed to establish and communicate to you the progress you are making towards meeting the course learning objectives on both Part I and Part II. Your abilities will be tested in two important areas of competency: the amount of information you master and the accuracy of the information you present.
Structure: A combination of 6 to 10tests on each part, possibly including ‘true or false’, open questions, analytical exercises and graph comprehension. Prior to the examinations, a comprehensive review will be given during class.

 Final Exam: Your abilities will be tested in three important areas of competency: the amount of information you master; the accuracy of the information you present, your ability to apply your knowledge to discussing real-world cases.

Structure: A combination of 12 tests, 6 on part I and 6 on part II, possibly including ‘true or false’, open questions, analytical exercises and graph comprehension. Prior to the examinations, a comprehensive review will be given during class. The final exam will generally include an oral discussion through which the instructor will assess the significance you ascribe to the facts and ideas you have integrated across your study in this course.

*For students not attending classes, the mid-term exams will be waived and the grade will be calculated attributing a 70% percentage to the final exam.



Professionalism and communications: As a student, you are expected to maintain a professional, respectful and conscientious manner in the classroom with your instructors and fellow peers.
You are expected to take your academic work seriously and engage actively in your classes. Advance preparation, completing your assignments, showing a focused and respectful attitude is expected of all students. Simply showing up for class or meeting minimum outlined criteria will not earn you a good grade in this course. Utilizing communications, properly addressing your faculty and staff, asking questions and expressing your views respectfully demonstrate your professionalism and cultural sensitivity.

Attendance and Classroom behavior: Although attendance is not compulsory, it is highly recommended. All students must have a respectful attitude towards the professor as well as the classmates.

Arriving late / departing early from Class: Once they have decided to attend, students must behave consistently. Arriving late or leaving class early is disruptive and shows a lack of respect for instructor and fellow students.

Make-up classes: The instructors reserve the right to schedule make-up classes in the event of an unforeseen or unavoidable schedule change. Make-up classes may be scheduled outside of typical class hours, as necessary. 

Missing Examinations: Examinations will not be rescheduled. Pre-arranged travel or anticipated absence does not constitute an emergency and requests for missing or rescheduling exams will not be granted.

Use of Cell Phones, Laptops and Other Electronic Devices: Always check with your instructors about acceptable usage of electronic devices in class. Inappropriate usage of your electronic devices will result in a warning and may lead to a deduction in participation grades. Use of a phone either to take pictures or to send/receive phone calls, text messages, emails or any other purposes during class is impolite, inappropriate and hence prohibited. Faculty determines whether laptops will be allowed in class. The use of a laptop, tablets or of cell phones is prohibited during all tests and exams, unless otherwise specified by your instructor.  


Listed below are the required course textbooks and additional readings. These are required materials for the course and you are expected to have constant access to them from the very beginning of the course for reading, highlighting and note-taking. It is required that you have unrestricted access to each. Access to additional sources required for certain class sessions may be provided in paper or electronic format consistent with applicable copyright legislation.

Required texts:

Frank, R.H. Microeconomics and Behavior, Mc Graw Hill, 7th(or later)edition.

Blanchard, Macroeconomics, Chapters 1-7, 10-11, 14, 17-19, 20, 23. Pearson 2017, 7th edition

Recommended readings (to be selected and assigned throughout the semester): The following primary and secondary materials, articles and readings are either available on the web or will be provided in Pdf format by the instructor through the GOMP and/or MOODLE platforms.

A series of Robert H. Frank’s articles published on the New York Times

Ball, L. The case for 4% inflation,VOX CEPR's Policy Portal, May 24, 2013

Blanchard, O. What Size Fiscal Deficits for the United States?, Peterson Institute for International Economics, Nov 21, 2016.

Blanchard, O. The State of Advanced Economies and Related Policy Debates: A Fall 2016 Assessment,Peterson Institute for International Economics, Policy Brief, 16-14 2016.

Blanchard, O. How the Eurozone Can Be Strengthened After Brexit, Peterson Institute for International Economics, June 27, 2016.

De Long, B.  We Really Do Need a 4%/Year Inflation Target, Grasping Reality with Both Hands, May 26, 2013

Feldstein, M. Japan's growth strategy is all wrong, Project Syndicate, Jan 18, 2013

Krugman, P. Japan Steps out,The New York Times,Jan13, 2013


Online Reference & Research Tools:


The website of The Economist contains data updated twice a day on output, unemployment, exchange rates, inflation, interest rates and stock prices for a large number of countries.


The website of the International Monetary Fund provides data on 187 member countries. A particularly useful publication is the World Economic Outlook, which is published twice a year and describes major economic events in the world and in specific member countries.

Specific and updated data on monetary aggregates and policies are also to be found on the  websites of the US Federal Reserve and the European Central Bank:





[Ultima modifica: giovedì 18 marzo 2021]