EC 171 Intermediate Macroeconomics University of Vermont

University of Vermont
Department of Economics
EC 171 Intermediate Macroeconomics
Fall 2011
Tuesdays and Thursdays, 11:30am – 12:45pm
Lafayette 302
Professor Stephanie Seguino
 Email: [email protected]
 Telephone: 802.656.0187
 Office: Old Mill 340
 Website: www.uvm.edu/~sseguino
 Office hours: T and Th 10:00-11:15am and by appointment
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Required Textbooks



Blanchard, Olivier. 2010. Macroeconomics (Fifth Edition). Upper Saddle River, NJ:
Prentice-Hall. (Package includes Findlay, David. Study Guide and Tutorial for Blanchard.
Upper Saddle River, NJ: Prentice-Hall). ISBN 0132167352. [This book will also be on 24hour reserve at Bailey-Howe library].
Bougrine, Hassan and Mario Seccareccia. 2010. Introducing Macroeconomic Analysis.
Toronto, Canada: Edmond Montgomery Publications.
Rajan , Raghuram. 2010. Fault Lines: How Hidden Fractures Still Threaten the World Economy.
ISBN 0691152632.
Recommended: Loose-leaf binder to keep homeworks, handouts, in-class exercises, and news/blog
reactions.
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Course Description
This class explores the theoretical background for understanding macroeconomic problems and
policy options. Topics include the IS-LM and AS-AD general equilibrium systems, money,
unemployment, inflation, and interest rates. We will be emphasizing the historical context of our
tools as well as highlighting real world applications of them. We will compare and contrast the
major macroeconomic theories, including Keynesian, Classical, New Classical, and PostKeynesian models.
The use of models to develop an understanding of how macroeconomies work requires algebra
and calculus. The models are used to explore a number of questions about the price level,
aggregate output, and unemployment. What explains recessions? What causes inflation? What
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are the macroeconomic effects of tax cuts? Does increased income inequality have
macroeconomic effects? Can we raise wages and promote economic growth? And what was
behind the global crisis of 2008? It is assumed that you have a good understanding of the
fundamental concepts of Demand and Supply, Unemployment, Inflation, Gross Domestic
Product, Business Cycles, and Fiscal and Monetary Policy.
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Prerequisites
All students registering for this course must have taken EC 11 and 12 as well as Math 19 (or 21) in
order to have the level of preparedness in economic theory and math required to successfully
complete this course. You must have a valid UVM email account. If you have a private account,
you should forward your UVM email to that account. A number of articles for this class as well as
the syllabus will be posted on Blackboard (denoted BB below).
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Class Requirements
Students will be evaluated based on their performance in the following categories:
(1) Class participation. You are required to attend all lectures, and to be prepared to participate
in class discussions and complete in-class problem solving exercises. Preparation necessitates
reading the newspaper and/or economics blogs (specific blogs noted below) on current US
and global macroeconomic issues, and doing the course reading in advance. As part of your
preparation, you will write weekly commentaries on blog or news articles (see below for
details).
(2) Homeworks. Homeworks will be submitted in class on the due date assigned, and in some
cases will be graded in class. If not submitted in class (or prior, in the case of an excused
absence), it will be docked 20 points for each day late.
(3) Three exams. Two mid-term exams, October 6 and November 8, and a final on December 15. Please
take note and arrange your travel schedules accordingly. There are no make-up exams except
in case of documented medical emergency. I would expect that to study well for these exams,
you would need to put in at least 9-12 hours of work.
(4) Study Guide. You should do questions in the Study Guide on your own as practice and in
preparation for exams. These will help you to understand the material with greater depth
and to identify areas on which you need additional help. You are encouraged to work in
groups on these problems. These will not be graded.
Weights of these course requirements in your final grade are:
Class participation and blog assignment
Homeworks
Exams (3)
10% of final grade
15% of final grade
25% of final grade, each
Student responsibility
I have tried to give you a good idea of what the course involves and the timetable on which we
will work through the material. I reserve the right to change readings, times, and other aspects of
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the syllabus as needed, however. You are responsible for reading your syllabus to keep abreast of
the schedule, and staying current on any other changes to the syllabus, which will be announced
in class.
For most students this is a challenging class, so doing well requires a sustained effort. That effort
includes coming to EVERY class, taking clear detailed notes, reading chapters before class
lectures, reading the newspaper every day (ok, skip Saturdays), and doing supplemental
questions in the study guide. Two important pieces of advice: 1) Come see me when you have
problems with the material. If you can’t understand something on your own, it is very
dangerous to just let it slide by rather then coming to get help; 2) Attend all classes; 3) Study at
least 3 hours per week (which includes time for reading the newspaper), and at least 9 hours per
exam; 4) Form a study group to work on study guide questions.
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Syllabus
Date
Aug. 30 –
Sept. 1
Day
Lecture
T, TH
1
Sept. 6
T
Topic
Introduction,
Measurement of
Macroeconomic
Performance
Calculus review
Reading
Blanchard, Chs. 1-2, and
Appendices.
Homeworks
On Sept. 6, bring to class the
data assignment found at the
end of this syllabus.
Sept. 8 - 15
TH, T,
TH
2
The Short Run: The
Goods Market
Sept. 20 - 22
T, TH
3
Financial Markets
Blanchard, Ch. 3
Bougrine and Seccareccia,
Chs. 3 & 4
Blanchard, Ch. 4 & Ch. 22.1
Sept. 27 –
Oct. 6
T, T
4
The IS-LM Model
Blanchard, Ch. 5
Also, bring to class answers to
Study Guide [SG] problems 1, 2,
and 5 on pp. 13-14.
On Sept. 15, bring to class
answers to problems 1, 5, and 7
on pp. 34-36 in SG.
On Sept. 22, bring to class
answer to problem 9 on p. 61 in
SG.
[No class on Oct. 4].
On Oct. 6, bring to class answers
to problems 5 and 12 on pp. 76
and 78 in SG.
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Oct. 11
Oct. 13 - 18
TH
TH, T
5
Oct. 20 - 25
TH, T,
6
Oct. 27-Nov.
1
TH, T
7
Nov. 3 –
Nov. 10
TH, T,
TH
8
Nov. 15
Nov. 17-29 -
TH
Dec. 1
T
9
Dec. 6
TH, T
10
Dec. 15
TH
TH, T
10:3012:30pm
Exam 1
The Medium Run:
The Labor Market
Blanchard, Ch. 6 (including
appendix)
David Howell, BB
Blanchard, Ch. 7
The Aggregate
Supply-Aggregate
Demand Model
The Phillips Curve
and the KeynesianMonetarist Debate
Blanchard, Ch. 8, 9, & 27
Bougrine and Seccareccia,
Ch. 5.
Open Economy
Macro: Goods Market
Implications
Exam 2
Lecture 8 continued
and Interest and
Exchange Rates in the
Open Economy;
Exchange rate
regimes
Debts and Deficits:
Problem or Solution?
Blanchard, Ch. 18 & 19
On Nov. 10, bring to class
answers to problems 2 and 9,
pp. 245-246 in SG and problems
2 and 5 on p. 260 in SG.
Blanchard, Ch. 20 & 21
Bougrine and Seccareccia,
Chs. 11 & 12
On Nov. 29, bring to class
answers to problem 9 on p. 277,
and problem 10 on p. 290 in SG.
Palley, T. 2009. “The Fiscal
Austerity Trap.” [BB]
On Dec. 1, bring to class, US
debt and deficit data since 1960,
in a table as well as graph. In a
separate pie chart, identify the
major components of the federal
budget.
Turn in homework questions on
Rajan on Dec. 6 (see questions at
the end of the syllabus).
The Global Economic
Crisis
Blanchard, Ch. 28.
Rajan, all.
Comprehensive
Final Exam
Location: Lafayette 302
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On Oct. 18, bring to class
answers to problems 6, 7, 8 and
9 on pp. 91-92 in SG.
On Oct. 25, bring to class
answers to problems 5 and 12 on
pp. 76 and 78 in SG.
TBA
Current economic events analysis assignment
As part of integrating theory with real world events, regularly read a major newspaper or
economics blog. See the list of blogs to choose from, and their websites, below.
Assignment:
1. Select an article or entry from a different blog clearly related to macroeconomics. Choose
from the list below. [You may on occasion choose to write on an article in a major paper,
including the New York Times, The Guardian, La Repubblica (Italy), Le Monde (France), Die
Zeit (Germany), The China Times].
2. Every two weeks, write a one-page reaction to this article. This should be typewritten.
Clearly identify the source of the article; identify the main argument of the article; and
provide your analytical reaction to it. You may, for example, note the linkages between
the issues discussed in the article and the theoretical material we are covering in class. Or
you may compare the event with economic events in other countries or regions. Or you
may offer a critique of how the author is analyzing a particular issue.
3. The article should be clearly connected to our course material should be crystal clear. If it
is not, choose a different article.
4. These should be completed by every other Tuesday, beginning with September 6. You
should turn them in, in a notebook, on the dates of each of the three exams this semester.
[No late assignments accepted, no exceptions]. There may be a temptation to wait until
the last minute to do these assignments, but do not give in. Be prepared each Thursday to
discuss your article in class if called on. Altogether, you should have 7 such reaction
papers by the end of the semester, due on the following dates: Sept. 6, 20, Oct. 4, 18, Nov.
1, 15, Dec. 6.
Economics Blogs
US Economic Issues (and some Europe)
Economix: http://economix.blogs.nytimes.com/
Economist’s View: http://economistsview.typepad.com/
Economists’ Forum: http://blogs.ft.com/economistsforum/#axzz1U6P9jYef
Nancy Folbre: http://economix.blogs.nytimes.com/author/nancy-folbre/
Jamie Galbraith: http://utip.gov.utexas.edu/JG/Comments%20and%20Interviews.html
Grasping Reality with Both Hands: http://delong.typepad.com/
Greg Mankiw's Blog: http://gregmankiw.blogspot.com/
Paul Krugman: http://krugman.blogs.nytimes.com/
Planet Money: http://www.npr.org/blogs/money/
Global Economic Issues
The Daly Blog: http://steadystate.org/learn/blog/
Dani Rodrik: http://rodrik.typepad.com/
The Guardian: http://www.guardian.co.uk/commentisfree/america
IMFdirect: http://blog-imfdirect.imf.org/
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Naked Keynesianism: http://nakedkeynesianism.blogspot.com/
New Deal 2.0: http://www.newdeal20.org/
Real World Economics Review Blog: http://rwer.wordpress.com/
Triple Crisis Blog: http://www.triplecrisis.com/
Vox EU: http://www.voxeu.org/
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Data assignment due September 6
This assignment is intended to give you hands-on experience with macroeconomic indicators and
national income accounting. You will amass data on Greece, France, and the US for 1990 to 2009,
using the Bailey-Howe library website to access the World Development Indicators.
1. You know that GDP = Y = C + I + G + (X-M). Your job is to find GDP data for each of the
2.
3.
4.
5.
6.
three countries listed above, and for C, I, G, X-M as a percentage of GDP. Also, collect
information on annual inflation, unemployment, and GDP growth rates for each of these
countries for the period 1990-2009. Compare the results for each country.
Go to the library’s webpage and enter “World Development Indicators” . Scroll down
and click onto “World Development Indicators (WDI) 2010.”
Click onto the weblink
http://databank.worldbank.org.ezproxy.uvm.edu/ddp/home.do?Step=12&id=4&CNO=2
You will see that you can select the countries, time period, and series. Countries to select
are Greece, France, and the US. The time periods are 1990—2009. The series are the
following:
a. GDP per capita (constant $US)
b. GDP per capita growth (annual %)
c. Household final consumption expenditure (% GDP). This is C.
d. Gross fixed capital formation (% GDP). This is I.
e. General government final expenditure (% GDP). This is G.
f. Exports of goods and services (% GDP). This is X.
g. Imports of goods and services (% GDP). This is M.
h. Inflation, GDP deflator (annual %)
i. Unemployment rate, total (% of total labor force).
When you have selected countries, time period, and series, you will arrive at a screen that
gives you 2 options to retrieve the data: export and view. Select “export” and then
“Excel.” You can print out the tables to bring to class either by country or by variable (by
country is easier).
There are two interesting ways to look at these data: as trends over time in each country,
and as a comparison across countries. Look at the graph on p. 11 in Blanchard. Use this
format to create your own graphs (make sure axes are labeled and the table has a title) to
compare trends in the following variables from 1990-2009 between France, Greece, and
the US:
a. If your last name begins with the letters A-D, inflation and per capita GDP
growth [same graph];
b. Letters E-H, unemployment and per capita GDP growth [same graph];
c. Letters I-M, gross fixed capital formation and general government final
expenditure (% GDP) [two separate graphs];
d. Letters N-R, net exports as % of GDP, and per capita GDP growth rates (same
graph);
e. Letters S-Z, household consumption as % of GDP and per capita GDP in $2000
(two separate graphs).
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Assignment for December 6
1.
2.
3.
4.
Read all of Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram
Rajan.
Rajan argues there are several causes of global economic instability:
a. Rising inequality within the US and its political implications
b. Export-led development strategies employed by Germany, China, India, and
Japan.
c. Class of “financial cultures” on the international stage.
d. Acute sensitivity of US politics to job growth because of the country’s weak
safety nets.
e. Pressure on financial institutions to “create alpha” and take on tail risk.
Identify the consequences of each of these issues for global economic stability. Define in
your own works how each of the problems present themselves ,why they exist and how
they impact the global financial order.
Be able to summarize Rajan’s perspective on what is required for global economic
stability.
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