GLOBAL ECONOMIC ENVIRONMENT

PROFESSOR: GERARDO JACOBS

DEGREE: BACHELOR IN BUSINESS ADMINISTRATION

ACADEMIC YEAR: 2016-2017
DEGREE COURSE YEAR: FIRST SECOND THIRD FOURTH
SEMESTER: 1º SEMESTER 2º SEMESTER
CATEGORY: BASIC COMPULSORY OPTIONAL
NO. OF CREDITS (ECTS): 6 3
LANGUAGE: ENGLISH SPANISH
E-MAIL: [email protected]
PREREQUISITES: MACROECONOMICS, MICROECONOMICS, MATHEMATICS I & II, INTRODUCTION TO
ECONOMICS. A PASSING GRADE IN THIS COURSES IS NOT MANDATORY. NEVERTHELESS, FAMILI-
ARITY WITH BASIC AND INTERMEDIATE ECONOMICS COURSES IS HIGHLY RECOMMENDED.

1. SUBJECT DESCRIPTION

Most business decisions are heavily influenced by the economic environment. The growth of the
economy, the distribution of income, fiscal incentives, the openness of specific markets, the regulatory
intervention of the government and the financial health of the banking sector will determinate the
strategy to be taken by a business firm. This course will analyze the economic environment an
administrator will have to take into consideration in order to design pertinent and successful business
strategies. During the past decades, the world has experienced tremendous growth in the economic
well being of many countries, thus affecting greatly the the shape of economic environment, at the
same time there has been an important transformation about the role the state plays when regulating
markets and creating the economic institutions that design the incentives that try to build a coherent,
efficient and more equitable society. Furthermore, in the past two decades, the world has become
more interconnected and international, with a tremendous increase in the volume of international
trade. The complete design a of a business plan must understand the increasing and changing role
of the state, and the new economic order dictated by the changing and increasing trade between
regions. This course will study the concepts that will guide students to a career in which the ability
to innovate will be matched with the ability too use Economic Theory tools in order to understand the
world in which business most survive and succeed.

2. OBJECTIVES AND SKILLS

The objective of this course is to become familiar with the factors that shape the economic
environment in which business decisions are taken. By the end of the course students should be able
to make country comparisons regarding specific factors of economic environment that are especially
relevant to concrete business decisions, and to make their own assessment regarding economic
conditions and economic policies.
A healthy economy is the one that experiences full employment, low inflation, a competitive financial
sector, sound public finances and a balanced external sector. By the end the course, students must
be able to identify the key steps towards a healthy economic environment that attracts foreign

Published by IE Publishing Department.

Last revised, Novemberr 2016.

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investment and promotes business initiatives. The student will understand the reasons for low
growth, high unemployment, cyclical swings, and imbalances in the public and external sectors, key
considerations when making business decisions.

3. SKILLS

Cognitive:
 Learning to interpret the main macroeconomic aggregates
 Learning the use and limits of economic models when making predictions
 Understanding how markets operate
 Knowing economic institutions and their economic role
 Knowing the most important economic policy tools
 Understanding the relationship between economic policies and performance
 Familiarity with economic language
 Familiarity with sources of economic data

Instrumental:
 Apply economic models to the analyze current economic events
 To use economic models to make policy analysis and recommendations
 Analyze and reason in a rigorous and systematic way about economic issues
 Ability to communicate economic analysis in precise and concise manner

Attitude:
 To think critically about the limits of any economic analysis
 To be able to question economist´s assessments with solid arguments
 To develop the ability to communicate and discuss economic issues
 To improve their confidence thru a better understanding of the environment where they live.

3. METHODOLOGY AND WEIGHTING

Sessions will combine theoretical issues and the analysis of current economic events. Interactions
between professor and students will be encouraged. The class will mainly employ Keynote
projections to cover the content of the program. The Keynote materials will be made available to
students AFTER the corresponding session. Additionally, group assignments will be appointed thru
the course. Students are encouraged to do the recommended readings before attending each theory
session. Students will have to devote time for out of class work. In order to fulfill the class
requirements, the following table suggest how a student should allocate its time dedication to the
course.
Teaching Methodology Weighting Time Dedication

Lectures (in class) (20)% 30 hours

Discussions (in class) (10)% 15 hours
Problem Sets (outside class) (10)% 15 hours
Group work (outside class) (30)% 45 hours
Individual studying (30)% 45 hours

TOTAL 100% 150 hours are required for a 6 ECTs course (30
sessions);

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4. CONTENTS (subject to change)

PART 1 (Sessions 1 - 4) ECONOMIC MODELS AND ANALYZING COUNTRY DATA

Introduction. The limits of Economic Theory. Good Theories and Bad Theories. Constructing an
Economic Model. Understanding Economic Aggregates. Discussing the National Income Accounts
of Select Countries.
Readings:
 Doc: Jacobs, G and Diaz-Gimenez, J, The Perfect Economy, Manuscript, 2013. (s-c)
 Doc: Jacobs, G and Diaz-Gimenez, J, The Basic Macroeconomic Model, Manuscript 2013. (s-c)
 Doc: Mankiw G., The Data of Macroeconomics (Chapter 2), Macroeconomics, 7th edition, Worth
Publishers (s-c)

PART 2 (Sessions 5 – 9) GOVERNMENT AND THE ECONOMIC ENVIRONMENT

The State as Producer of Goods and Services. The Optimal Size of the State. The Changing Role
of the State in Developed Economies. Government and Markets. Regulation: Law and Economics.
Do business Cycles matter? Business Cycles and Stabilization Policy. Progressive Tax Systems
and Reducing Income Inequality. Analyzing Fiscal Reforms. The limits of Fiscal Policy under the
2008 economic Crisis. The sustainability of Public Debt. Why do Risk Premiums exist?
Unemployment and the Economy. Unemployment Benefits: should they be reduced?

Readings:
 Doc: Mankiw G., Externalities and Public Goods (Chapters 10 and 11 ), Principles of Economics,
6th edition, South Western Publishers (s-c)
 Doc: Mankiw G., Unemployment (Chapters 6), Macroeconomics, 7th edition, Worth Publishers

SESSION 10 - REVIEW PARTS 1 AND 2

SESSION 11 - FIRST MIDTERM EXAM

PART 3 (Sessions 12 – 16) BANKS, MONETARY AUTHORITIES AND THE ECONOMIC

ENVIRONMENT
Money and the Economy. The road from barter to Fiat Money. The creation of Banks and Central
Banks. Banking Regulation and the Economy. Central Banking in practice. Prices, Money and
Inflation. Understanding Hyperinflation and some common fallacies. The 2008 Economic Crisis and
the limits of Monetary Policy. Liquidity Traps. Expanding the balance sheet of Central Banks. Central
Banking in the Eurozone.
Readings:
 Doc: Jacobs, G and Diaz-Gimenez, J, Monetary Policy, Manuscript, 2013. (s-c)
 Doc: Jacobs, G and Diaz-Gimenez, J, Money and Banking, Manuscript 2013. (s-c)

PART 4 (Session 17 - 21) THE ECONOMIC ENVIRONMENT OF AND OPEN ECONOMY

Balance of Payments and the sustainability of Foreign Debt. Protectionism and International Trade
Policy. What factors explain the flow of foreign direct investment (FDI)?Exchange Rates and the
Balance of Trade. Exchange Rate Regimes and Exchange Rate Policy. Cost and benefits of joining
a common currency area. Is the Eurozone and Optimum Currency Area? Emerging Markets:
Country Assessment, Opportunities and Risks.

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Readings:
 Doc: Mankiw G., The Open Economy (Chapters 5), Macroeconomics, 7th edition, Worth
Publishers (s-c)

SESSION 22 - REVIEW PARTS 3 AND 4

SESSION 23 - SECOND MIDTERM EXAM

PART 5 (Sessions 24 – 26) THE ECONOMIC ENVIRONMENT IN THE LONG RUN

Does Economic Growth promotes Human Development and Institutional Development?Reviewing
the Role of International Aid Agencies under the light of the Growth Models. Population Growth,
Human Capital and Technological Change. Common Falacies about Economic Growth. Does
immigration promotes economic growth? What explains the growth of some economies in the Past?
The growth cases of Japan, China, Spain and Germany.
Readings:
 Doc: Mankiw G., Economic Growth (Chapter 8), Macroeconomics, 7th edition, Worth Publishers
(s-c)

PART 6 (SESSIONS 27 – 30) GROUP ASSIGNMENTS

5. EVALUATION SYSTEM (ORDINARY AND EXTRAORDINARY)

Your final grade in the course will be based on both individual and group work of different
characteristics that will be weighted in the following way:

A. Class participation 10%

B. Group presentation & report 10%

C. Problem sets 15%

D. Two Midterm Exams 35%

E. Final Exam 30%

TOTAL 100%

A.CLASS PARTICIPATION
Two main criteria will be used in reaching judgment about your class participation: frequency and
quality. Up to ten extra points can be awarded for extraordinary participations or subtracted for class
misbehavior. Regular attendance is required in order to receive credit for class participation.
According to the University rules, students are required to attend at least 70% of all the sessions
scheduled in the course. Absences beyond this limit will automatically will result in a zero for the
course. No justifications will be necessary for the unattended sessions within the allowed limits.

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B. GROUP PRESENTATION AND REPORT
Each group must complete a research project. Topics will be chosen under the professor´s approval.
Projects will be presented during the scheduled sessions. Each group will submit a 10-12 pages
report. The project will give you the opportunity to reflect on what you have learnt in class and apply
it to some practical problems. You should complete a final project with your group and present it in
written form and as a Power Point (or Keynote) presentation. There is an upper limit of fifteen pages
of text (assuming 11-point font size, Times New Roman, double spacing). A hard copy of the
document must be delivered to the professor in class before the case discussion begins. You also
have to send a soft copy of the written report and the presentation to the professor via email. These
materials will be distributed to all students in class. More details of the project will be provided by the
start of the course.

C and D. QUIZZES AND PROBLEMS SETS

The course consists of five parts. For each one, either a quiz or a problem set will be assigned. The
problems sets are individual assignments.

E and F. MID-TERMS AND FINAL EXAM

The Midterm exams will consist of multiple choice questions and exercises. The questions will be
related to the theory as well as the exercises and problems seen during the course. The final exam
will be cumulative, that is, will contain all the material covered during the semester. The format will be
similar to the Midterms. In order to have a passing grade for the course, a grade of 50/100 or higher
must be obtained in the final exam.

RETAKE POLICY
 Each student has 4 chances to pass any given course distributed in two consecutive academic
years (regular period and June/July period).
 Students who do not comply with the 70% attendance rule will lose their 1st and 2nd chance, and
go directly to the 3rd one (they will need to enrol again in this course next academic year).
 Grading for retakes will be subject to the following rules:
 Students failing the course in the first regular period will have to do a retake in June/July. Dates
and location of the June/July retakes will be posted in advance and will not be changed. Please
take this into consideration when planning your summer.
 The June/July retakes will consist on a comprehensive exam covering the course content and with
a structure similar to those of the midterms and final exams. Students having to do a retake during
the ordinary period (third attempt) will be given the choice to take both the midterm and final exam
with the rest of the class or to go directly to the final exam. If two exams are taken, the two
midterms will be given a 40% weight and the final grade a 60%. The maximum grade that a student
may obtain in the retake will be 8 out of 10.

7. USE OF ELECTRONIC DEVICES IN CLASS

All cell phones and electronic devices must be turned off and out of sight during class; failure to do
so will be taken as misconduct and reflected in the evaluation for class participation. The subject
does not require the use of a laptop in class and, in fact, its use is discouraged, because it might be
a source of distraction for the student using it as well as for those around him. No laptops or electronic
devices will be allowed within sight during the midterm and final exams.

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8. BIBLIOGRAPHY (Other Recommended Reading)

Mankiw, N. G. and M. P. Taylor, Principles of Economics, South Western Cengage Learning 2010.

Baron, D.P. Business and Its Environment, Pearson Education International, 6th Edtion, 2011

O.J. Blanchard Macroeconomics by (2011), Pearson

Paul Wetherly and Dorron Otter, Economic Environment, Dorron Otter, Chapter 3, The Business
Environment, , Oxford University Press, 2008

Paul Krugman, A Country is Not a Company, Harvard Business Review, 1996

Williams Easterly, The Elusive Quest for Growth: Economists´Adventures and Misadventures in the
Tropics. 2001. Cambridge y Londres: MIT Press

Thierry Mayer, Policy Coherence for Development: A Background Paper on Foreign Direct
Investment, OECD, 2005 Working Paper 253

Taleb, Nicholas, The Black Swan: The Impact of the Highly Improbable, 2010 Random House

Although there is not textbook, during the course some highly recommended readings will be made
available to students one week prior to the corresponding session.

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9. PROFESSOR’S BIO

GERARDO JACOBS

Gerardo Jacobs holds a PhD in Economics from the University of Minnesota. In the academic area,
he is Professor of the Economics Department at Universidad Carlos III de Madrid and Adjunct
Professor at IESE Business School. He has been Professor at Vandebilt University, and Visiting
Professor at Kellogg School of Management (Northwestern University). Courses Taught (Graduate
and Undergraduate Programs): Money and Banking, Advance Topics in Microeconomics, Industrial
Organization, International Trade, Mathematical Economics, International Finance, Microeconomics,
General Equilibrium Theory, Monetary Economics, and Principles of Economics. He was Head of
the Department of Economics and ViceChancellor of Humanities at Universidad Iberoamericana
(México). Outside academia, he was Senior Researcher at the Central Bank of Mexico. His academic
research has been published extensively in Academic Journals and Book Chapters.

10. OFFICE HOURS AND CONTACT INFORMATION

Office Hours: by appointment

Contact details: [email protected]

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 CODE OF CONDUCT IN CLASS

1. Be on time: Students arriving more than 5 minutes late will be marked as “Absent”.
Only students that notify in advance in writing that they will be late for a specific session might be
granted an exception (to the discretion of the professor).
2. If applicable, bring your name card and strictly follow the seating chart. It helps faculty mem-
bers and fellow students learn your names.
3. Don’t leave the room during the lecture: Students are not allowed to leave the room during the
lecture. If a student leaves the room during the lecture, he/she will not be allowed to re-enter and,
therefore, will be marked as “Absent”.
Only students that notify that they have a special reason to leave the session early will be granted an
exception (to the discretion of the professor).
4. Do not engage in side conversation. As a sign of respect toward the person presenting the
lecture (the teacher as well as a fellow student), side conversations are not allowed. If you have a
question, raise your hand and ask it. It you do not want to ask it during the lecture, feel free to ap-
proach your teacher after class.
If a student is disrupting the flow of the lecture, he/she will be asked to leave the classroom and,
consequently, will be marked as “Absent”.
5. Use your laptop for course-related purposes only. The use of laptops during the lectures should
be authorized by the professor. The use of Facebook, Twitter, or accessing any type of content not
related to the lecture is penalized. The student will be asked to leave the room and, consequently,
will be marked as “Absent”.
6. No cellular phones: IE University implements a “Phone-free Classroom” policy and, therefore, the
use of phones, tablets, etc. is forbidden inside your classroom. Failing to abide by this rule entails
expulsion from the room and will be counted as one Absence.
7. Escalation policy: 1/3/5. Items 4, 5, and 6 above entail expulsion from the classroom and the
consequent marking of the student as “Absent.” IE University implements an “escalation policy”: The
first time a students is asked to leave the room for disciplinary reasons (as per items 4, 5, and 6
above), the student will incur one absence, the second time it will count as three absences, and from
the third time onward, any expulsion from the classroom due to disciplinary issue will entail 5 ab-
sences.

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