Firms and the Macroeconomy: Production, Finance, Market Power

Catalog description

Firms are at the center of economic activity: They produce the goods and services we consume every day. They employ workers. They decide which investment projects to realize and how to finance them. And they generate profits for their owners in the process. In recent decades, U.S. firms have seen major changes in how they conduct business: The share of labor in production has declined. Market concentration has increased. Data have become a valuable asset and a crucial input for decision making. And the stock price of some companies has skyrocketed. These trends raise questions about the consequences of technological change and corporate market power in product and labor markets. Finding answers requires us to analyze how individual firms make decisions about production, investment, prices, and wages, and how these decisions shape and are shaped by aggregate trends in the economy. This course provides an introduction to the economics of firms from a Macroeconomic perspective. It is structured in three parts: In the first part, we study how firms produce and how they choose their inputs. In the second part, we turn to firms' investment decisions and how they finance themselves. In the third part, we study firms' decision of which prices to charge for their products, which wages to pay their workers, and how this depends on their market power. The course material is half theory and half facts from data. In each section, we first introduce theoretical models of firm behavior, confront these with empirical evidence from micro and macro data, and then show how they allow us to explain aggregate outcomes in the economy.