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Faculty of Economics

 

The Advanced Diploma in Economics is a nine month taught course (from the last week in September to the end of June) for students whose first degree contains little or no economics.  It provides a qualification equivalent to a second bachelor’s degree in economics and serves two different purposes.

First, the Diploma serves as a preliminary qualification for people wishing to continue advanced education in economics at the master’s level, at the University of Cambridge or elsewhere. Diploma students may therefore apply to continue with the MPhil programme in economics after the Diploma examinations. Continuation is conditional on a good examination performance.

Second, the Diploma serves as a stand-alone education for those who want a rigorous introduction to economics and want to complement their existing degree with knowledge of economics but who do not wish to pursue further studies.

Since modern economics makes frequent use of formal (mathematical and statistical) analysis, a good mathematical background is essential for applicants to the Diploma programme. Please see the "Entry Requirements" section for details of the background required.


Preparatory Course

Course Requirements

There is a compulsory preparatory course that runs for one week at the end of September. The aim of the course is to provide an introduction to microeconomics, macroeconomics and econometrics.

Microeconomics

The aims are to introduce students to microeconomic issues and problems, including the application of optimisation methods to the analysis of economic behaviour and market outcomes. After completing the course, students should have an understanding of (i) utility maximisation; (ii) comparative statics; (iii) positive and normative analysis; (iv) cost minimisation; (v) profit maximisation; (vi) supply and demand analysis; (vii) market equilibrium; (viii) basics of competitive equilibrium theory and welfare economics; (ix) elementary game theory and industrial organisation.

Macroeconomics

This introductory course focuses on the macro economy as a general equilibrium system and discusses how goods, money and factor markets interact to determine national income and its components. The topics to be covered are: macroeconomic data, the neo-classical model of economic growth, equilibrium unemployment, monetary system, money neutrality and inflation, macroeconomic equilibrium in the short-run, and elementary Keynesian models.

Econometrics

The main purpose of the course is to prepare students for the Econometrics courses. There are two components of the course: Probability and Statistics. The Probability component covers probability of events, probability distributions and random variables, bivariate distributions, expectations, convergence concepts, law of large numbers and central limit theorem. For statistics, the course would cover methods of data description, measures of location and dispersion, random sampling, sampling distributions, the concept of an estimator, unbiasedness, consistency, asymptotic normality, confidence intervals, hypothesis testing, scatter plots, correlation and linear regression.


The Diploma

Course Requirements

The Diploma is made up of lectures from the second year of the Economics Tripos, and dedicated Diploma Lectures run by Faculty and Classes run by Teaching Assistants. From the lectures given in the Tripos there are 32 hours of teaching for Microeconomics; 40 hours for Macroeconomics; and 55 hours for Econometrics. The dedicated Classes, which are meant to act as supervisions for the material covered in the Tripos, add another 40 hours of teaching in each of the three subjects.

The Diploma Classes cover the following material:

Paper 1: Microeconomics

This paper provides candidates with a thorough, and technically rigorous grounding in the core principles of microeconomics: consumer demand; the theory of the firm; competitive and imperfectly competitive markets; general equilibrium and the foundations of welfare economics. Students then go on to examine the implications of relaxing certain key assumptions underlying the benchmark model, most notably allowing for uncertainty, externalities and imperfect information.

Paper 2: Macroeconomics

This paper applies a rigorous approach to the study of the behaviour of the economy as a whole. The areas of study to be covered in this course fall under six broad headings: long-run theory of economic growth; intertemporal macroeconomics including the behaviour of consumption and investment; labour markets, unemployment and inflation; monetary economics, interest rates and the operations of the banking system; open economy macroeconomics including foreign exchange rate fluctuations; macroeconomic policy. The course pays particular attention to the linkages between macroeconomic theories and the underlying microeconomic behavioural foundations.

Paper 3: Econometrics

This paper is intended to allow students to confront the theories learnt in the other two papers with observed data.  The primary, but not exclusive emphasis of the paper is on random variables and random samples in econometric techniques.  Students acquire a basic understanding of the multiple regression model, hypothesis testing, time series; stationary and non-stationary variables; simple diagnostic tests.  Practical experience of the application of econometric techniques is an integral part of this paper.  The specific statistical techniques covered by the paper are as follows:

  • Regression: simple properties of OLS estimators and sampling distributions of regression coefficients and correlation coefficients; elementary analysis of variance; testing of hypotheses; estimation and interpretation of multiple regression coefficients; multicollinearity; elementary analysis of and tests for misspecification, specifically serial correlation, heteroscedasticity and structural change; introduction to the method of maximum likelihood; maximum likelihood estimation of the linear regression model; elementary examples of generalised least squares estimation.
  • Forecasting: conditional and unconditional forecasts and confidence intervals.
  • Economic time-series: elementary representations of time-series specifically first-order AR and MA representations; random walks; elementary time-series forecasting.
  • Cross-section techniques and panel data: measurement error and the use of instrumental variables; simple binary response models and their application; elementary panel data models.

Continuation to MPhil

Continuation to the MPhil in Economics or the MPhil in Finance and Economics is conditional on obtaining an average of at least 65% in the Diploma examinations. Continuation to the MPhil in Economic Research is conditional on obtaining an average of at least 70% in the Diploma examinations.