Economics 101 Macroeconomics
Summer 2009
Mr. Morgan
Course Outline and Reading List
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Office Hours: NH 3028 |
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Phone Ext: 2152 |
This Classpage is: http://www.econ.ucsb.edu/econ101 |
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Resources |
Assignments |
As
your second course in macroeconomics, we will cover familiar ground--the
general workings of the aggregate economy with special emphasis on
unemployment, inflation, productivity, output, interest rates and the foreign
sector. To provide the foundation and theoretical basis, we will cover
approximately 15 chapters in the textbook over the next 6 weeks. Unfortunately,
some of the most interesting material on open economies (Chs. 6,12,14) is
omitted. I encourage you to read these on your own. A good way to prepare for
this course is to go over your notes/book from Econ 2.
In addition to the usual
"textbook theory" this course will include three additional
components. First, because much of current applied macro is based on
econometric analysis, each student will be involved in a macroeconomics
estimation project. This project will involve you using information from your
previous statistics course(s). Second, reading about macro is not enough, so
the class will become familiar with the structure of a large (136 equation)
working macro Model (FAIRMODEL) of the
All consumption model work
will be performed in the microcomputer lab (MCL). In summary, this class will
be conducted on two levels simultaneously, the theoretical and empirical with
an appropriate increase in your enjoyment and understanding of macroeconomics.
Other details:
1.
The required textbook is, Robert J. Gordon, Macroeconomics, Addison
Wesley, 2008, 11th ed. Amazon has new copies at about 75% of US prices. Many
other web sites exist with reduced prices for books. I have asked for used
books to be available. There is one copy in the RBR. I require everyone to have
read the material before I discuss it in class. I only cover major
topics including some topics and analyses not found in the text, thus
many areas are left for the student to develop. A review of your economics
principles material would be helpful. FAIRMODEL and readings supplements are
available on the class web page.
2. I expect you to keep up
with current macro news. This can be done by reading the business section of
newspapers, or by going online to get AP or Reuters summaries of current events
and by keeping a macro-journal (see below). These provide more detail of class
discussions. Try:
http://money.cnn.com. Look under Jobs and
Economy. They also have an economic calendar and list some indicators they
think important.
http://moneycentral.msn.com. Look under
Top stories and Latest News. See also MSNBC News, CNBC Market Dispatches, and
News by Topic: Economy
The
Macro-Economics Journal:
ASAP get a journal notebook with bound pages. (Stapled sheets or spiral
bound notebooks are not acceptable.) Best is the black and white lab or composition
book with bound pages. Never tear out a page; this defeats the idea of a journal.
Write your name on the front cover. Begin each week with Week 1 (dates) at the
top of a page. The journal will give you a chance to work with macroeconomic
and financial news and data and be rewarded for it. The journal will have two
types of entries: (1) the week's macro data and short analysis and (2) a longer
analysis of a single news article (News Analysis Entry) or editorial that
appeared that week.
1. The week's macro-data entries
should be made daily. Many newspapers and weekly (online and print) magazines
indicate on Monday the major macro data that will be announced that week.
For example: Every Monday the LA Times include
the major macro information or data to be released during the week in their
"Week at a Glance" column. Each week has a different grouping of data
released which repeats every month. See example presented in class.
For each entry (a) Describe the agency that collects
and reports the information, (b) define the data presented, (c) indicate
why data is important for macroeconomics, and (d) describe how the data
information fits into C,I.G,X,IM,Ms,P,i, and Y, i.e., the aggregate
macro economy as discussed in class and the text.
Essay format for the integration into macro economy
and assessment. Credit given for conscientious record keeping, integration with
class discussion to data (analyses will become more detailed as the class
progresses), for learning to identify relevant news (in addition to Mondays'
announcements) and (perhaps extra points) for an insightful analysis.
In addition to the "new" macro data each
week record the 2-year treasury yield, the 10-year treasury yield, the 30-year
fixed mortgage rate and the TIPS 10-year yield. Calculate the difference
between the 2- and 10-year treasuries (the spread), and the difference between
the 10-year treasury and 10-year TIPS, the expected inflation rate. Write one sentence
on shape of yield curve and the expected rate of inflation for each week.
2. The News Analysis Entry
should be made once a week. At the top of the page indicate date, source and
author. For each entry, focus on an event or news item that is relevant for macro-economics.
Briefly define the subject of your entry, then provide your own
analysis.
The first news analysis (week one) must be an analysis of the "Housing crisis". Research three or four articles on this event and summarize the results as your first news analysis. In your summary include definitions of a mortgage, a sub-prime mortgage, an alt-A mortgage, the secondary mortgage market, collateralized debt obligations (CDOs), housing starts and house prices.
To get you started, ask yourself: Did the Fed take a
policy action? Did markets move in a way that was reportedly due to Fed policy?
Did a Fed official make a significant speech? And importantly, do you have an
informed opinion about this news-more than restating what you have read? Once
you have picked a topic: Why is the respective item interesting and relevant
to the class? Are the events consistent with how the world should work
according to the textbook and/or class? Why or why not? (This is integration.)
Length/style: Short essay. One or two paragraphs
should suffice, or more if the story justifies it. Relevance and logical
reasoning are weighted heavily in the grading, i.e., your ability to identify
information central to macro-economics, to distinguish facts from opinions and
rumors, and to apply economic arguments. Good, thoughtful writing is valued
implicitly as credit is given for clear and understandable arguments.
Overall, I expect the journal to be a valuable
learning experience, and grade-improving for most students. I may give extra
credit if appropriate. (Note: Whenever I give extra credit, it's applied
after grade cutoffs are set, in fairness to others.) If timed exams are not
your strength, this is your chance to do well!
Important rules:
·
Bring your diary
to section on Thursday 9 July for mid term grading and to class on Wed.
29 July for final collection and grading.
·
Cite all sources,
notably the sources for your data and for news stories, and for commentary or
analysis you may have read. You may comment on the analysis of others, provided
you distinguish your views from those of the sources. Copying the analysis of
others without citation is cheating.
·
All entries must
be written with a non-erasable pen, dated, and in your own hand writing.
This is to obtain a record of your learning and to give you an incentive to
think before you write. Back-dated entries are considered cheating. Notably,
you may not keep separate notes and transfer them to the diary later.
Each entry must be dated when you enter it in the bound diary.
·
If you believe an
earlier entry was flawed, you may cleanly strike it out (so the original is
still readable), note the strike-out date on the margin, and add a new dated
entry to explain your new thinking. (The strike-out date will tell me where to
find the update.) If your revision is an improvement, you will get credit both
for the original entry and for the revision. Other types of erasure (e.g.
ripped out pages) would be weighted negatively.
3. Homework from the end of chapter questions and problems will be assigned in class over the first 4 weeks and turned in for compliance. Each student is to make a Xerox copy of their homework to be retained for discussion purposes during the discussion session. Answers to assigned problems will be found in the RBR the day after they are due. Try to use Smartmoney.com or similar site to enhance your understanding. A “Guide to the Data” is on page 28 of the text with useful URLs.
There will be E-views review
sessions during the 2nd week on M, T or Wed. Locations and time will
be announced in class during the 2nd week. See: E-views Quick
Reference and Dataset variables. Bring these to the training sessions.
4. Discussion sections are required.
Section is used to go over homework problems, to discuss new material, to
familiarize you with the microcomputer lab, to present oral reports on
econometric estimations and econometric simulations, to give quizzes and exams,
and, most importantly, to answer your questions. I will join the TAs
from time to time in section.
5. Exams
and grades: I will have one midterm scheduled for Wednesday July 15, 2009 (4th
week) which will cover material through Chapters 4 and 15, including interest
rates and other embedded chapter references.
The
regularly scheduled comprehensive 2.5 hour final over two days on Wednesday
29 and Thurs. 30 July in the classroom. An alternative will be a single
final on Thursday 30 July.
Assignment
1 is due in class Wed. July 8. This
is an Introduction to Consumption Functions paper.
The
Macro-Journal is due in section Thurs.
July 9, 2009 and returned the following week. I will collect all Journals on
July 29, 2009 in class for final grading.
In summary – July is a busy
month…
July 8 Assignment 1 due in class
July 9 Bring Journals to class for quick grading
July
15 Midterm in class , bring blue book,
ink, calculator
July 29 Journals turned in for final grading
July 29 1st 1.25-hour final
July
30 2nd 1.25-hour final
Do not plan a wedding or any
trips before completing the FINAL! Midterm will count 25%, the final 45% and
homework computer project and Journal 30% of grade.
There is no “curve” assigned.
If everyone writes A and B exams, everyone gets A’s and B’s. The whole number
line is used for grading, and to earn a C the student should have a score of 50%
of the person(s) with the highest grade on the exam.
There are no makeup or
early exams. Exams are typically the short essay type where I expect you to discuss
the economic process, and answer the questions of how and why
you arrived at your answers. You must tell the "economic story". Just
shifting curves without any explanation does not merit a grade greater than
“C”. Copies of old exams are on reserve (RBR).
6. Plagiarism
Statement
The Campus Regulations, in case
you have not read them recently, have the following to say about plagiarism:
"Representing the words, ideas, or concepts of another person without
appropriate attribution is plagiarism. Whenever another person's written work
is utilized, whether it be a single phrase or longer, quotation marks must be
used and sources cited. Paraphrasing another's work, i.e., borrowing the ideas
or concepts and putting them into one's 'own' words, must also be
acknowledged." In addition, submitting the same paper to two classes is
also considered cheating because the work is not original for both classes. Any
act of plagiarism or other form of cheating will be rewarded with an automatic
"F" and referral to the administration for further punishment
(typically a two-quarter suspension for plagiarism). In practical terms, this
means that you must learn to use footnotes and citations for your term papers.
You can find details about citation styles in Diana Hacker's A Pocket Style
Manual.
Tentative Course Outline
It is your responsibility to
know where we are at all times.
The best way to do this is to
read ahead.
Chapter 1 -
What is Macroeconomics
Know: Read several times to develop meaning and use of jargon.
Review your Econ 2 notes/text. Business cycles, Ch. 3 also; real GDP, actual
(Y) and natural (YN); SR vs LR; central macro concepts. Name target
variables and policy instruments. The extremes discussed are interesting –
think about them. Terms are often covered in greater detail in Ch. 2. Open vs.
closed economies.
We will be discussing
interest rates earlier than usual. The readings from the text are:
Types pgs. 77-8;
Financial instruments pgs. 421-2; Discount rate pg. 430; Monetary Policy pgs.
104-5; Nominal and real pgs. 287-90; and Consumer credit pg. 506; TIPS pgs. 295.
Yield Curve – class and Google
name to view their discussion of the yield curve.
Chapter 2 -
Measurement of Income, Prices & Unemployment
Know: Circular flow; GDP definition; expenditure approach; income
approach and all components of C and I; injections vs leakages; value added,
complete definition of income, GDP to disposable income, know well the content
of Table 2.1. Real vs nominal; GDP deflator; U-rate measurement , CPI equation,
PPI, PC deflator, Boskin reports, LF participation rate, employment ratio,
Okun’s Law. You do NOT have to know the actual calculation of the chain
GDP. Tables 2.2. Growth Rates, calculation. Read Ch.9 - Sect 9.7 &
9.8.
Chapter 3 –Spending,
Income and Interest Rates, Aggregate Expenditure Analysis
Read:
Blanchard, “Going Empirical” found in the RBR. This is necessary for assignment
1 due 3rd week.
Know:
Endogenous vs exogenous; consumption function - autonomous, MPC, MPS, APC; saving
rate changes; equilibrium, and role of inventory investment; all algebra,
multiplier, with round-by-round; (you must know this cold) tax changes and
multiplier, i.e., fixed tax multiplier. In this class the multiplier we will
use is the one discussed in Problems 3 and 4, i.e., use an endogenous tax
function. Problems will be worked in section. Investment in micro model,
relation to IS curve; also Chapter 6
- section 6.7, pgs. 180-182 for the foreign sector. Be sure to know IS curve,
definition and operation, role of interest rates. Must know the logic behind
the IS schedule.
Chapter 15 -
To page 501. Consumption Behavior. Add, Box page 503, Case Study 15.8-to pg. 514.
Know: Forward looking theories, PIH & LCH; intertemporal decision making (not in text), conflict in SR & LR empirical results, Friedman, adaptive expectations; role of assets, 15-8 Case Study, wealth effect.
FAIRMODEL -
Eqs. 1,2,3,4,12,20 covering consumption and investment sectors
Chapter 4 -
IS-LM Model and
Chapters 13 and 4 combine the material on money and I cover them simultaneously. The LM
model is based on a fixed financial wealth, divided between bonds and money.
Know: Must
know derivation of IS from midterm and LM; monetary policy - role always on LM
curve; fiscal policy; crowding out, portfolio choice NOT in text, slopes
of IS curve. Know various interest rates from 1st week, yield curve,
additional information on bonds and yield curve. Monetary policy for 2001-04.
Monetary/fiscal mix for growth.
Chapter 13 -
Money and Financial Markets to page 433 plus section 13.8, Fed and interest
rates, and pages 436-7.
Know: Possibly the most important chapters. You must know
cold the derivation and use of IS-LM model. Monetary and fiscal policy in IS/LM
context. Financial intermediaries, definitions of money, M1, M2, MZM; simple
deposit multiplier, money multiplier, OMO, Fed Reserve, Fed’s instruments for
changing MS , Section 13.8 – Why Fed sets interest rates, GDP
target.
Chapter 16 - Investment Behavior to page 532 plus Section 16-10
[this is important]
Know: Demand for capital; components of I; simple
accelerator hypothesis, gross and net I; neo-classical approach, user cost of
capital, tax incentives - ITC, accelerated depreciation, corporate profits tax.
Link to short run model Chapters 3 & 4. The discussion of investment demand
was covered above in Chapter 16; add these results to Ap model in Ch.3.
FAIRMODEL – Eqs. 4 & 12
Chapter 5 – If
time, National Saving and Gov’t Budget - to page 139 and section 5-7, pages
147-150. Important for Chapter 10.
KNOW: budget deficits - cyclical and structural.
Very Long Run Model - Economic Growth
Chapter 10 -
Economic Growth – to page 339.
Know:
Standard of living; Solow model and components of production function plus
demand side, plus capital identity. How the model works, solving for steady
state.
The Solow residual - and puzzles. Solow residual, how calculated, meaning.
Chapter 11 - if time permits. Big Questions of Economic Growth-
to page 343. Begin 350 to pg. 364. Other factors for growth. Know:
Assigned if time permits
Return to Short/Medium Run Model and Policy
Chapter 7 - Aggregate Demand Supply - to page 203 – skip AS
derivation, begin pg. 210-216
Know: Derivation of AD; IS/LM with YN constant.
AS curve (shape for P effects), fiscal and monetary expansion in SR and LR.
Discussion of supply side effects.
Chapter 9 – Monetary and inflation – to
page 296. Tie this with AD/AS from
Chapter 14 -
Stabilization Policy to page 460
Know: Instruments; policy rules; Lags - pgs. 456-459
Chapter 8 -
Phillips Curve - if time
Under “Know” is a partial
list of terms and concepts that you are responsible for. Many are interrelated
and this must be included in your learning process. Other concepts have simple
formulas or relationships which you must be able to know and use in an
intelligent fashion.