BAYLOR UNIVERSITY Economics 3307 MACROECONOMIC THEORY AND POLICY Fall 2011 Dr. Thomas M. Kelly Office: A.301.2 Hankamer Phone: 710-4543 Fax: 710-6142 E-mail: tom_kelly@baylor.edu Office Hours: TR 9:00 – 11:00 or by appointment COURSE OBJECTIVES: This course examines fundamental topics associated with an understanding of the macroeconomy. Economic models are examined to illustrate relationships among endogenous measures of economic performance and exogenous influences, including macroeconomic policy. The first major topic examines the Solow and Romer models that explain how market economies achieve economic growth in the volume of production over time. With a basic understanding of forces affecting the potential output of an economy we will then focus on our second major topic which is to develop a model to explain the dynamics of business cycle forces that affect instability in short-run relative to potential output. The third major area applies our models in order to understand various influences on aggregate output, such as the role of the central bank and the government in affecting macroeconomic policy, the role of inflation expectations on real versus nominal interest rates, causes of and solutions to the global financial crisis, the future impact of the government debt-GDP ratio, and real versus nominal exchange rates in an open economy If we are successful in this class, at the end of the semester you should be able to: (i) understand and evaluate media stories about the economy; (ii) analyze a wide range of macroeconomic issues, including those not discussed in class; and (iii) communicate clearly your understanding of macroeconomic facts, concepts, and reasoning techniques. TEXTBOOK/CLASS PREPARATION: Charles I Jones Macroeconomics, 2nd edition. W.W. Norton & Company, (2010) Read the textbook chapter from the attached schedule before coming to class. Also, refer to Supplements for ‘Students on the web site: http://www.wwnorton.com/college/econ Students are advised to use the study plan for each chapter and to read current articles on Economics in the News from the same location in preparation for class. I also would encourage you to read the Wall Street Journal that may be accessed from the Baylor Business School web site. GRADE DETERMINATION: At the end of the term, I will compute a FINAL NUMERICAL TOTAL following scores: EXAM I: EXAM II: FINAL EXAM: ASSIGNMENTS based on the 100 points 100 points 100 points 20 points The exam dates are given below. If you have a question about the grading of an exam, you must see me about it within one week after I return the exam to you to be eligible for any additional points that may be warranted. I will ASSIGN COURSE GRADES on the basis of the distribution of final point totals. A final total of 288 (90%) or over will guarantee a course grade of “A”, a final average 256 (80%) or over will guarantee a course grade of “B”, 224 a “C”, etc. After reviewing the distribution these guaranteed marginal requirements could be lowered. Grades near the threshold of the next highest letter grade will received a + on their letter grade. In AWARDING FINAL GRADES, I also give "consideration" to the following: class attendance, class participation, and improvement over the semester. All such consideration must be fair to other students and is made entirely at my discretion. Over the course of the semester you will receive homework assignments. These assignments are designed to reinforce and extend the basic concepts covered in class. Unless otherwise noted, assignments will be due at the beginning of class period one week after receiving the assignment. Late assignments will be penalized. Each assignment will be worth 5 points, resulting in 20 additional points No assignment grade will be dropped in this calculation. MAKE-UP EXAMS: I will permit a student to take a make-up exam if the reason for rescheduling the exam is a compelling one, such as being out of town on a Baylor-related trip (letter from sponsor, coach, or advisor required), serious illness (note from health center or personal physician required), death in the family, or severe psychological or other problems. ABSENCES: Baylor policy requires you to attend at least 75% of the course meetings. A TuesdayThursday class meets 29 times, and 75% of that is 21.75. Thus the policy is that you must attend at least 22 meetings of the course. In the absence of compelling circumstances, you will receive a course grade of "F" for the course if you have 8 or more absences. “Compelling circumstances must be accompanied by verification by a University, doctor, or some other official. 2 SCHEDULE The schedule below should be regarded as tentative. If necessary, I will update it as the semester progresses. I will give you advance notice of at least one week prior to the date of an exam. Class Period 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Topic (Chapter in Jones) Introduction & overview of the course (1) Measuring the macroeconomy (2) Overview of long-run economic growth (3) A model of production (4) The Solow growth model (5) Growth and Ideas: the Romer model (6) Exam I on chapters 1-6 (The Long Run Determinants of Output, Employment, and Inflation) The labor market, wages, and unemployment (7) Inflation (8) Introduction to the short run (9) The Great Recession: A First Look (10) The IS Curve (11) The MP curve: monetary policy and Phillips Curve (12) Stabilization Policy and the AS/AD framework (13) Exam II on chapters 7-13 (Employment, Inflation and Determinants of Short-run Output) The Global Financial Crisis and the short-run model (14) Microfoundations and applications: consumption (15) Investment (16) The government and the macroeconomy (17 International trade and foreign borrowing (18) Exchange rates and international finance (19) Parting thoughts (20) Final Exam on macroeconomic issues (Chapters 14-20) 3