Intermediate Macroeconomics
(Econ 122a)
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Today’s plan
1. Describe the course
2. Introduction and major questions of macro
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Course Syllabus
DESCRIPTION AND PREREQUISITES
• The course covers business cycles, economic growth, major macro
topics, and their application to fiscal and monetary policy and
history.
• This course is to be taken after completing both terms of
Introductory Economics. Exceptions will be rare. Calculus will be
used.
• Course web page is
www.econ.yale.edu/~nordhaus/homepage/Econ122_Fall2013.htm
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Readings
•
• TEXTBOOK.
– Greg Mankiw, Macroeconomics, eighth edition, Worth 2012.
• For textbook options, see web page.
• There are many supplemental readings, available online or on the
course web site.
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Schedule
• We will generally meet M W 11:35-12:50
• We will occasionally meet on Friday for optional special
sessions. You should make sure you are available on
Fridays.
• Lectures will be posted after the class.
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Tests and Grading
• There will be one mid-term examination in class on
Wednesday, October 9 The final examination will be
three hours and is Dec 13.
• There will be eight required problem sets (half randomly
graded). A short paper is due at the end of the semester.
• The grade is based circa 50 percent on the final exam, 20
percent on the hour tests, and 30 percent on the
problems and paper.
• Grade distribution (verbal description in class).
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Sections
• There will be sections led by teaching fellows from
Department of Economics. Each student will be assigned
to a section.
• Sections will go over the analytical material from the
course, cover questions raised by students, and review
problems and exams.
• Tentative section times are:
Wednesday 7:00-7:50 and 8:00-8:50 pm
Thursday 4:00-4:50 and 5:00-5:50 pm
Thurs 7:00-7:50 and 8:00-8:50 pm
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Limited enrollment
• Limit to 120 students (more or less) .
• The following is the priority list:
•
All those who got bumped last year*; senior*, then
junior economics majors*; other seniors* and juniors;
sophomores who are declared economic majors.
• Oversubscribed groups will be selected by lottery.
• Freshmen are not eligible.
* Based on historical experience, * are likely to get in, un*
are either in a lottery or unlikely.
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Alternative macroeconomics courses:
Econ 122b (Moscarini). Same course, different textbook.
Econ 126b. Intensive version. More analytical and
mathematical.
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For those who
have had enough
macroeconomics
for today...
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Question for you
Take out a piece of paper and answer the
following. Put your name on the paper, and pass it
in:
What macroeconomic question would you most
like to answer or learn about this term?
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What is macroeconomics?
• Macroeconomics is the study of the overall behavior of
economies (output, inflation, unemployment, trade
balance, financial markets, …)
• A critical point is that the total behaves differently from
simple adding up of the parts
– Think of revolutions
– or bank runs
– or avalanches
See http://www.youtube.com/watch?v=B0RWLxOFGLY
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Major themes
There are two major recurrent themes running through
macro:
i) Business cycles
ii) Economic growth
Virtually every macroeconomic issue revolves around
these issues, or a confusion concerning them.
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The fundamental problem of cycles
“The resources of nature and man’s devices are just as
fertile and productive as they were.
The rate of our progress towards solving the material
problems of life is not less rapid.
But today we have involved ourselves in a colossal
muddle, having blundered in the control of a delicate
machine, the working of which we do not understand.”
[ J.M. Keynes, The Great Slump of 1930 ]
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Business cycles
One major set of issues involves the business cycle. These
are the short-run changes in output, employment, and
inflation.
Important business cycle questions:
1.What caused the global financial crisis of 2008? Why
did it lead to the Great Recession that is still going
on?
2.Why has unemployment risen so sharply and
remained so high?
3.Should governments increase or cut spending today?
4.How does the Fed affect output and inflation?
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Origins of the Great Recession (2007 - ???)
• Housing prices peaked in mid 2006 and then fell about 40
percent. On average, households lost $60,000.
• In 2007, investors suddenly discovered that subprime mortgages
were much riskier than had been supposed.
• This led to financial problems, especially for highly leveraged
financial intermediaries (banks, investment banks, etc.).
• Risk premiums increased, credit was tightened, and there was a
series of financial panics in 2007 - 2008.
• These led to bank runs and multiple bankruptcies or near-ones in
2008.
• The Fed responded forcefully. The Congress passed a bailout bill
in 2008 and a major “stimulus package.”
• The federal deficit and debt shot up with recession and stimulus.
• But the economy is stuck at high unemployment and relative
stagnation.
• The end is not in sight….
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Unemployment rate over the cycles
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Shaded areas are NBER recessions.
Real GDP over the cycle
17,000
Potential GDP
Actual GDP
16,500
16,000
15,500
15,000
Large
GDP “gap”
14,500
14,000
13,500
2005
2006
2007
2008
2009
2010
2011
2012
2013
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120
Net federal debt/GDP (%)
100
60
40
Recession
and stimulus
World War II
80
20
0
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020
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Today’s macro dilemma
• Because short-run interest rates are zero, the Fed cannot
use conventional monetary policy .
• It today relies on controversial “quantitative easing.”
• Fiscal policy is more effective in today’s environment.
• But fiscal expansion will increase the large and growing
government debt; and faces strong opposition from
conservatives and deficit hawks.
You will understand each of these when you
finish Econ 122
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Economic growth
Economic growth concerns the trend in output over the
long run.
Important growth questions:
Why is average American 10x richer than Americans
100 years ago? What are the sources of growth?
How will the growing government debt affect growth
over the medium term?
In macroeconomics, we use the neoclassical growth model
to understand economic growth.
Per capita output 3 big regions
Per capita output (2005 US$)
40,000
United States
China
Sub-Saharan Africa
4,000
400
1980
1985
1990
1995
2000
2005
2010
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Per capita growth trends in 3 big regions
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International macro
In a world of rapid globalization, international macro
becomes increasingly important.
Role of exchange rates, international trade, currencies.
The biggest issues today are:
• What are “global imbalances?” Why does the US have
such a huge current trade deficit while China has such a
large surplus? How will these resolve?
• What is the reason for the Euro crisis? Will the
Eurozone fall apart, or evolve closer to a standard fiscal
union? Is disaster waiting around the corner?
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