Berkeley Econ 101b Spring 2008

February 1 Econ 101b Lecture: Current Events: The Employment Report

Lecture Audio File

• Business cycles since WWII
• Inflation since WWII
• Monetary policy since WWII
• Recent monetary policy
• Housing construction since 1960
• Dealing with financial crises
• The morning news...

Notes for January 30: Applying the Solow Growth Model

• Lecture Audio

Overheads for Applying the Solow Growth Model:

• http://delong.typepad.com/delongslides/2008/01/the-success-of.html
• http://delong.typepad.com/delongslides/2008/01/the-success-o-1.html
• http://delong.typepad.com/delongslides/2008/01/remember-longes.html
• http://delong.typepad.com/delongslides/2008/01/convergence-mad.html
• http://delong.typepad.com/delongslides/2008/01/divergence-once.html
• http://delong.typepad.com/delongslides/2008/01/the-world-in-19.html
• http://delong.typepad.com/delongslides/2008/01/the-world-in--1.html
• http://delong.typepad.com/delongslides/2008/01/greg-clark-engl.html
• http://delong.typepad.com/delongslides/2008/01/greg-clark-mala.html

Web Assignment 3

Visit:

The Gapminder World 2006

Explore the dataset therein.

Then write a paragraph or two as a comment on this webpost telling your fellow students something interesting you have learned from Gapminder.

Notes for January 28: Solow Growth Model II: Econ 101b: Intermediate Macro: UC Berkeley: Spring 2008

• Lecture Audio
• Lecture Slides
• Introduction to the Theory of Economic Growth
• How Fast Does the Economy Head Toward Its Balanced-Growth Path?
• Two Additional Notes
• Web Assignment 2 out (due Feb 4) Solow Growth Models Scenario Spreadsheet

Web Assignment 2

• Due before lecture on Feb 4
• Download the Solow Growth Models Scenario Spreadsheet
• Read through it
• Conduct an experiment--enter your own values into the grey "initial conditions," "shocks," and "capital share," boxes, and examine the tables and charts that result.
• Write a paragraph and post it as a comment on this web page describing what you did and what it told you--or what went wrong and why you were unable to accomplish the assignment.

Notes for January 25: Solow Growth Model

• Lecture Audio
• Lecture Slides
• Introduction to the Theory of Economic Growth
• How Fast Does the Economy Head Toward Its Balanced-Growth Path
• Two Additional Notes
• Problem Set 1 out (due Feb 1)

Problem Set 1: National Income Accounting

Due at start of lecture, Feb 1 2007:

Economics 101b Problem Set 1

Spring 2008, U.C. Berkeley

Brad DeLong
Marc Gersen

Text-only version: http://www.j-bradford-delong/2008_pdf/20080128_ps1.txt

1. Explain whether or not, why, and how the following items are included in the calculation of GDP:

   • Increases in business inventories.
   • Fees earned by real estate agents on selling existing homes.
   • Social Security checks written by the government.
   • Building of a new dam by the Army Corps of Engineers.
   • Interest that your parents pay on the mortgage they have on their house.
   • Purchases of foreign-made trucks by American residents

2. Calculating real magnitudes:

   • When you calculate real GDP, do you do so by dividing nominal GDP by the price level or by subtracting the price level from nominal GDP?
   • When you calculate the real interest rate, do you do so by dividing the nominal interest rate by the price level or by subtracting the inflation rate from the nominal interest rate?
   • Are your answers to the two parts the same? Why or why not?

3. Suppose that the appliance store buys a refrigerator from the manufacturer on December 15, 2007 for $600, and that you then buy that refrigerator on February 15, 2008 for $1000:

   • What is the contribution to GDP in 2008?
   • How is the refrigerator accounted for in the NIPA in 2008
   • What is the contribution to GDP in 2007
   • How is the refrigerator accounted for in the NIPA in 2007?

4. Why do DeLong and Olney think that the interest rate and the level of the stock market are important macroeconomic variables?

5. What are the principal flaws in using GDP per worker as a measure of material welfare? Given these flaws, why do we use it anyway?

6. Suppose a quantity grows at a steady proportional rate of 3% per year. How long will it take to double? Quadruple? Grow 1024-fold?

7. Suppose we have a quantity x(t) that varies over time following the equation: dx(t)/dt = -(0.06)x + 0.36.

   • Without integrating the equation, tell me what the long-run steady-state value of x--that is, the limit of x as t approaches in infinity--is going to be.
   • Suppose that the value of x at time t=0, x(0), equals 12. Once again, without integrating the equation, tell me how long it will take x to close half the distance between its initial value of 12 and its steady-state value.
   • How long will it take to close 3/4 of the distance? 7/8 of the distance? 15/16 of the distance?

8. Now you are allowed to integrate dx(t)/dt = -(0.06)x + 0.36.

   • Write down and solve the indefinite integral.
   • Write down and solve the definite integral for the initial condition x(0) = 12.
   • Write down and solve the definite integral for the initial condition x(0)=6.

9. What is the difference between the nominal interest rate and the real interest rate? Why do DeLong and Olney think that the real interest rate is more important?

10. Which do you think is a more important macroeconomic variable, real GDP per capita or the unemployment rate? Why?

Web Assignment 1

Join (if you do not already belong) Facebook: http://www.facebook.com/.

Then join the Berkeley network, and then join the Econ101b group at <http://www.facebook.com/group.php?gid=8834189518

Email me at to inform me that you have accomplished this.

Include in this email a sentence or two that you would like me to remember you by.

Append to the comments on this page http://delong.typepad.com/berkeley_econ_101b_spring/2008/01/web-assignment.html a public sentence or two that you would like your classmates to remember you by.

Do this before class on Friday January 25, 2008.

Notes for First Lecture: Substance: Why Macroeconomics?

"Why Macroeconomics?" Introductory Lecture for Spring 2008 Economics 101b, Intermediate Macroeconomics

J. Bradford DeLong

• ppt slides
• ppt movie
• audio file

Schedule and Readings

Schedule and Readings

Brad DeLong: delong@econ.berkeley.edu: 925 708 0467: W 2-4 Evans 601, M 1:30-2 Evans 601
Marc Gersen: mgersen@econ.berkeley.edu: aim:mgersen08: 510-541-2326: ??

• Lecture: 247 Cory 9-10 AM M, W, and most F
• Section: MW 8-9 AM 237 Cory
• Section: WF 11-12 AM 61 Evans
• Section: ??

Introduction

W Jan 23: INTRODUCTION: The Problems of Macroeconomics

• J. Bradford DeLong and Martha Olney (2005), Macroeconomics (New York: McGraw-Hill/Irwin), chs. 1-3.
• Notes: Introduction: Why Macroeconomics?
• Web assignment 1 out (due Jan 25) Introductions

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Theory (with Examples and Illustrations)

The Long Run: Economic Growth

F Jan 25: The Solow Model: Capital and Equilibrium

• Macroeconomics, 4
• Introduction to the Theory of Economic Growth
• Notes for Jan 25
• Problem Set 1 out (due Feb 1)

M Jan 28: The Solow Model: Dynamics and Feedback

• How Fast Does the Economy Head Toward Its Balanced-Growth Path
• Two Additional Notes
• Web Assignment 2 out (due Feb 4) Solow Growth Models Scenario Spreadsheet

W Jan 30: How Much of Today's World Can We Explain with the Solow Growth Model?

• Macroeconomics, 5
• Web Assignment 2 out (due Feb 4) Solow Growth Models Scenario Spreadsheet

F Feb 1: Current Events

• Problem Set 2 out (due Fed 8)

M Feb 4: From Malthus to Modernity

• Macroeconomics, review 5.1
• Notes: Resources and Malthus, and Industrial Revolutions
• Explorations in the Theory of Economic Growth
• Malthusian Scenarios
• Web Assignment 3 out (due Feb 11) The Gapminder Data Visualization Tool

W Feb 6: Understanding the Industrial Revolution

• Notes: From Malthus to the Industrial Revolution
• Notes: Invention Transition
• Optimal Innovation

F Feb 8: Current Events

• Notes

M Feb 11: Measuring Economic Growth

• Notes

W Feb 13: The Productivity Slowdown of the 1970s

• Notes

F Feb 15: PROFESSORIAL REALITY CHECK EXAM Midterm I Summary

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The Medium Run: Economic Fluctuations with Flexible Prices

W Feb 20: Components of Aggregate Demand

• Notes
• Macroeconomics, 6
• Problem Set 3 out (due Feb 29)

F Feb 22: Full-Employment Equilibrium

• Notes
• Macroeconomics, 7
• Using the Flexible Price Model

M Feb 25: The International Side--Plus Government Budgets and Investment Booms

• Macroeconomics, review 6.3, review 7.5
• Web Assignment 4: Reading the Financial Press I due Friday February 29 9 am

W Feb 27: The Monetary Side: The Quantity Theory of Money, Inflation, and Expectations

• Notes
• Background and Models
• Macroeconomics, 8
• Web Assignment 5: Medium-Run Model Spreadsheet (due Mar 7)

F Feb 29: Quantity Theory Continued; Current Events

• Notes
• Problem Set 4 out (due Mar 7)

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The Short Run: Economic Fluctuations with Sticky Prices

M Mar 3: Sticky Prices and Aggregate Demand

• Notes
• The Circular Flow
• Macroeconomics, 9

W Mar 5: The IS Curve and Employment

• Notes
• Reading: Macroeconomics, 10 including 10a
• Problem Set 5 out (due Mar 12)

F Mar 7: What happened this week in the macroeconomy?

• Notes

M Mar 10: CLASS CANCELLED--PROFESSOR SICK

W Mar 12: The Phillips Curve, Inflation, and Monetary Policy

• Notes
• Dynamic Phillips Curve and Expectations Spreadsheet
• Macroeconomics, 12, including 12a (optional: 11)

F Mar 14: Tying Up the Short-Run and the Medium Run

• Inflation, Unemployment, and Stabilization Policy
• Mock Exam Out

F Mar 14: What happened this week in the macroeconomy?

M Mar 17: Loose Ends

• Notes: Core Theory Loose Ends

W Mar 19: CORE THEORY EXAM

• Problem Set out (due Apr 7) Stabilization Policy and Central Banking

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APPLICATIONS

March 31: Markets for "Lemons"

Notes: Lecture Audio. Adverse Selection in Lending Markets.

Readings:

• George A. Akerlof (Aug. 1970). "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism". Quarterly Journal of Economics 84 (3): 488–500 http://links.jstor.org/sici?sici=0033-5533%28197008%2984%3A3%3C488%3ATMF%22QU%3E2.0.CO%3B2-6
• J. Bradford DeLong, "Dealing with Adverse Selection in the Mortgage Market"
• Mark Thoma, "Adverse Selection, Loan Defaults, and Credit Rationing"
• J. Bradford DeLong, Comment on Lawrence Summers, "Safeguarding America's Economy from Adverse Consequences of Financial Crisis"
  • Hoisted from Comments: Bank Capitalization

April 2: Models of Financial Crises

Notes: Lecture Audio
Readings: David Greenlaw (Morgan Stanley), Jan Hatzius (Goldman Sachs), Anil Kashyap (Chicago GSB) and Hyun Shin (2008), "Leveraged Losses Lessons from the Mortgage Market Meltdown" http://www.chicagogsb.edu/usmpf/docs/usmpf2008confdraft.pdf

April 4: Ways of Dealing with Financial Crises

Lecture Audio
Readings:

• "Fedspeak": Janet Yellen, "The U.S. Economy: Prospects and Puzzles"
• Ben S. Bernanke, "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression" http://links.jstor.org/sici?sici=0002-8282%28198306%2973%3A3%3C257%3ANEOTFC%3E2.0.CO%3B2-0

Problem set: Adverse selection and financial markets. Clean Version

Memo: Midterm 2 Grading Scale

April 7: How Are We Dealing with This Financial Crisis?

Notes: Lecture Audio http://delong.typepad.com/berkeley_econ_101b_spring/2008/04/what-we-are-doi.html

April 9: What Should We Be Doing in This Financial Crisis that We Are Not?

Notes: Lecture Audio: http://www.j-bradford-delong.net/2008_MOV/20080409_123925.mp3

Readings:

• Arguments Against Lender-of-Last-Resort Operations http://delong.typepad.com/delongslides/2008/04/arguments-again.html
• Paul Krugman's "Cartoon Model" http://krugman.blogs.nytimes.com/2008/03/10/a-cartoon-model-of-the-crisis-more-serious-wonkery/
• A Subprime Primer http://gregmankiw.blogspot.com/2008/03/subprime-primer.html

April 11: International Finance and "Global Imbalances": Introduction

Notes: Lecture Audio http://www.j-bradford-delong.net/2008_mov/20080411_091301.mp3

Readings:

• Raghuram Rajan, "Global Current Account Imbalances: Hard Landing or Soft Landing?" http://www.imf.org/external/np/speeches/2005/031505.htm
• Maurice Obstfeld, "Global Imbalances" http://www.econ.berkeley.edu/~obstfeld/280c_sp07/adjustment.pdf
• Hamid Faruqee, "Narrowing Global Imbalances?" http://www.imf.org/external/pubs/ft/survey/so/2008/RES021908A.htm

April 14: Risks of International Financial Crisis

Notes:

• Global Imbalances: http://delong.typepad.com/delongslides/2008/04/global-imbalanc.html
• Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080414_091122.mp3
• International Financial Crises: http://delong.typepad.com/delongslides/2008/04/foreign-exchang.html

Readings:

• "The International Financial Crises of the 1990s" http://j-bradford-delong.net/macro_online/ifc.pdf
• "Simple Analytics for a Hard Dollar Landing" http://www.j-bradford-delong.net/movable_type/pdf/hard_landing.pdf
• DeLong and Olney, chapter 15.

April 16: Risks of International Financial Crisis II

• Notes: Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080416_122152.mp3

• International Financial Crises Problem Set Clean Version. Due April 23

April 21: Why Is Asia Gambling on Bretton Woods II?

Notes: Slides: http://delong.typepad.com/delongslides/2008/04/econ-101b-april.html; Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080421_091146.mp3

Readings:

• Barry Eichengreen,"China's Exchange Rate Regime: The Long and Short of It" http://www.econ.berkeley.edu/~eichengr/research/short.pdf
• C. Fred Bergsten, "The Dollar and the Renminbi" http://www.iie.com/publications/papers/paper.cfm?ResearchID=747

• Institute for International Economics, "China: The Balance Sheet" http://www.petersoninstitute.org/publications/chapters_preview/04648/01pa04648.pdf

• Problem Set Out: Auxiliary Readings

April 23: The Chinese Economy

Notes: Slides: http://delong.typepad.com/delongslides/2008/04/econ-101b-april.html; Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080423_091349.mp3

Readings:

• Barry Eichengreen,"China's Exchange Rate Regime: The Long and Short of It" http://www.econ.berkeley.edu/~eichengr/research/short.pdf
• C. Fred Bergsten, "The Dollar and the Renminbi" http://www.iie.com/publications/papers/paper.cfm?ResearchID=747
• Institute for International Economics, "China: The Balance Sheet" http://www.petersoninstitute.org/publications/chapters_preview/04648/01pa04648.pdf

April 25: Long-Run Growth Revisited: Endogenous Growth

Notes: Lecture Audio; “Infant Industries,” Industrial Policy, and Development in a Model of Productive Variety http://www.j-bradford-delong.net/2008_pdf/20080424_industrial_policy.pdf

Readings:

• Paul Krugman, "Review of David Warsh, 'Knowledge and the Wealth of Nations'" http://www.nytimes.com/2006/05/07/books/review/07krugman.html
• US Economic Development Administration, "New Growth Theory, Technology and Learning: A Practitioner’s Guide" http://www.eda.gov/ImageCache/EDAPublic/documents/pdfdocs/1g3lr_5f7_5fcortright_2epdf/v1/1g3lr_5f7_5fcortright.pdf
• Paul Romer, "Economic Growth" http://www.stanford.edu/~promer/EconomicGrowth.pdf

April 30: "Conservative" Central Bankers

Notes: Lecture Audio

Readings:

• Macroeconomics, review 10.3, review 12.4, 13, 14, 16.1-16.4.
• "Central Bank Consistency and Credibility: The Analytics"

May 2: The Long-Run Fiscal Situation

Notes: Lecture Audio

Readings:

• CBO, The Long-Run Fiscal Situation http://www.cbo.gov/doc.cfm?index=3521&type=0 http://delong.typepad.com/delongslides/2008/04/the-projected-r.html
• The "Golden Rule" and National Savings.
• How Fast Should an Economy Head for the “Golden Rule? Some Simple Math

• Macroeconomics, 14.2, 14.3

• Mock Applications Exam out: Apologies. This should have gone up on Friday, but for some reason was not copied over: http://www.j-bradford-delong.net/2008_pdf/101bpracticeexammay9.pdf

May 5: The Long-Run Fiscal Situation: Theory and Practice

Notes: Lecture Audio

Readings:

• CBO, The Long-Run Fiscal Situation http://www.cbo.gov/doc.cfm?index=3521&type=0 http://delong.typepad.com/delongslides/2008/04/the-projected-r.html
• From Solow to Ramsey

May 7: The Long-Run Fiscal Situation: Theory and Practice II

Notes: Lecture Audio; Solow and Ramsey

May 9: "Applications" Exam

May 12: Review

• Mock final out: http://delong.typepad.com/berkeley_econ_101b_spring/2008/05/practice-final.html

May 14: Review

May 16: FINAL EXAM 8-11 277 Cory

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DROPPED AND REPLACED...

Applications (with Additional Theory)

Domestic Monetary and Fiscal Policies

M Mar 31: Stabilization Policy since WWII

• Macroeconomics, review 10.3, review 12.4, 13, 14.1, 16.1-16.4

W Apr 2: Should Conservatives Be Central Bankers? * Notes: Central Bankers: Stabilizers, Credible Inflation-Fighters, and Lenders of Last Resort * Central Bank Consistency and Credibility: The Analytics * Macroeconomics, review 13.6, review 13.7

F Apr 4: What happened this week in the macroeconomy?

M Apr 7: Looking Back at the Great Depression: What Went So Wrong?

• Macroeconomics, 16.3, 16.5
• Notes on the Great Depression
• Notes on Liquidity Traps
• Problem Set out (due Apr 14) Credit Channels

W Apr 9: Is There a Political Business Cycle?

• Macroeconomics, review 13.6

F Apr 11: What happened this week in the macroeconomy?

M Apr 14: U.S. Long-Run Budget Balance

• Notes: Fiscal Policy in the Long Run
• The "Golden Rule" and National Savings
• Macroeconomics, 14.2, 14.3
• Problem Set out (due Apr 21) The Aging of America

W Apr 16: "Fixing" Social Security

• Notes on Social Security

F Apr 18: What happened this week in the macroeconomy?

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Growth and Distribution

M Apr 21: Productivity Speed-Ups and Slow-Downs

• Macroeconomics, review 5.2
• Notes: Understanding the Productivity Slowdown
• Notes: Understanding the Productivity Speed-up
• Growth Accounting
• Modeling the High-Tech Computer Revolution of the 1990s
• Problem Set 10 out (due Apr 28) Productivity Growth

W Apr 23: U.S. Income Distribution

• Notes: American Income Distribution

F Apr 25: What happened this week in the macroeconomy?

M Apr 28: European Youth and Structural Unemployment

• Macroeconomics, 16.5
• Notes: The Western European Macroeconomy
• Web Assignment out (due May 5) Behavioral Finance

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Domestic and International Finance

W Apr 30: "Animal Spirits": Understanding the Stock and Real Estate Markets

• Notes: Animal Spirits
• On Robert Barro's (2005) "Rare Events and the Equity Premium" and T.A. Rietz's (1988) "The Equity Risk Premium: A Solution" http://delong.typepad.com/print/20070213_note_barro_rietz.pdf
• The Gordon Equation, Earnings Yields, and Stock Returns http://delong.typepad.com/sdj/2007/05/a_teaching_note.html
• Equity Premium Handout http://www.j-bradford-delong.net/Teaching_Folder/Econ_202b/Handouts/equity.pdf
• "Bubbles" Handout http://www.j-bradford-delong.net/teaching_folder/Econ_202b/Handouts/bubbles.pdf

F May 2: What happened this week in the macroeconomy?

M May 5: Global Imbalances

• Notes: Global Imbalances
• The International Financial Crises of the 1990s
• Simple Analytics for a Hard Dollar Landing
• Web Assignment out (due May 12) Managing Global Imbalances

W May 7: APPLICATIONS EXAM

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Summary and Review

F May 9: What happened this week in the macroeconomy?

• Web Assignment out (due May 16) Feedback and Recommendations

M May 12: FINAL REVIEW

F May 16: FINAL EXAM 8-11

Notes for First Lecture: Administration

Course website: available through http://bspace.berkeley.edu or http://delong.typepad.com/berkeley_econ_101b_spring/

This is a go-faster do-more course--intended for people who would be bored in Economics 100b (and, I think, not nearly enough people take it). The curve will be high--the idea is that nobody should get a grade lower than they would have gotten in Econ 100b. You will, however, work harder. And the harder you all work, the higher will be the median grade in the class.

Basics:

• Daily in-class reaction feedback (40)--what was confusing/boring/interesting about today...
• Weekly web assignments (10)...
• Weekly problems sets (10)--due at start of Friday lecture...

• How many people are on Facebook?

• MW lectures--spend them on theory and tools

• F lectures--spend them on current events

• W sections... do problems like those on the next problem set...

• FM sections... go over last problems and clean-up from the destruction and unclarity left by the previous week's lecture...

• Read Jeff Zax on what a discussion section leader really does

• Facebook: http://www.facebook.com/group.php?gid=8834189518 join the Berkeley network, and then join the group...

• Lecture: 247 Cory 9-10 AM M, W, and most F

• Section: MW 8-9 AM 237 Cory
• Section: WF 11-12 AM 61 Evans

Marc Gersen aim:mgersen08 mgersen@econ.berkeley.edu 510-541-2326 office hours:
Brad DeLong delong@econ.berkeley.edu 925-708-0467 office hours: W 2-4 Evans 601

Grading

• Exams
  • Early professorial reality check exam...
  • Pre-spring break core theory exam...
  • Late applications exam...
  • (Short) final to be thought of as a makeup or recovery exam...
  • Take the first exam, and two of the other three...
• Problem Sets (10)
• Web Assignments (10)
• In-Class Reactions (40)
• Points
  • 101 points in all
  • 2 points per problem set x 10 = 20
  • 1 point per web assignment x 10 = 10
  • 1/4 point per in-class reaction x 40 = 10
  • 10 points for section participation
  • 51 points for exams