Stabilization Policy and Expectations: Extensions: Handout
Stabilization Policy and Expectations: Extensions: Handout
October 13, 2005 at 09:01 PM | Permalink
The Phillips curve, expectations, and monetary policy
Inflation expectations
The natural rate of unemployment
October 13, 2005 at 09:00 PM | Permalink
October 13, 2005 at 09:00 PM | Permalink
Last time we started with our behavioral relationships:
C = C0 + Cy(1-t)Y; consumption function
I = I0 - Irr; business investment demand
G = G; government purchases
IM = IMyY; import demand
X = XfYf + Xee; export demand
e = e0 + er(rf - r)
And we made the key sticky-price assumptions:
r is now a fixed, given variable--the result of Federal Reserve policy (or of the current money stock and money demand) plus other influences
C + I + G + (X - IM) = Y is now an equilibrium condition--not an identity
And we derived:
Output as a function of autonomous spending A:
A = I + G + X + C0
Y = A/(1-(Cy(1-t) - IMy))
The multiplier: 1/(1-(Cy(1-t) - IMy))
Now let's go one step further...
Investigating the dependence of autonomous spending on the real interest rate r, and thus of output on the real interest rate r...
Interest Rates and Planned Expenditure
The IS Curve
Equilibrium
Using the IS curve to understand the U.S. economy
October 13, 2005 at 08:59 PM | Permalink
We now consider a time span too short for wages and prices to adjust to guarantee "full employment"...
So output Y is not necessarily equal to full-employment potential-output Y*...
We need a new equilibrium condition. Here it is: businesses adjust employment and production to keep their inventories stable--to match aggregate demand...
Other than this change of equilibrium condition, the model remains pretty much the same--but it behaves very differently.
We still have our behavioral relationships:
C = C0 + Cy(1-t)Y; consumption function
I = I0 - Irr; business investment demand
G = G; government purchases
IM = IMyY; import demand
X = XfYf + Xee; export demand
e = e0 + er(rf - r)
But there are two differences:
r is now a fixed, given variable--the result of Federal Reserve policy (or of the current money stock and money demand) plus other influences
C + I + G + (X - IM) = Y is now an equilibrium condition--not an identity
October 13, 2005 at 08:59 PM | Permalink
Last time we started with our behavioral relationships:
C = C0 + Cy(1-t)Y; consumption function
I = I0 - Irr; business investment demand
G = G; government purchases
IM = IMyY; import demand
X = XfYf + Xee; export demand
e = e0 + er(rf - r)
And we made the key sticky-price assumptions:
r is now a fixed, given variable--the result of Federal Reserve policy (or of the current money stock and money demand) plus other influences
C + I + G + (X - IM) = Y is now an equilibrium condition--not an identity
And we derived:
Output as a function of autonomous spending A:
A = I + G + X + C0
Y = A/(1-(Cy(1-t) - IMy))
The multiplier: 1/(1-(Cy(1-t) - IMy))
Now let's go one step further...
Investigating the dependence of autonomous spending on the real interest rate r, and thus of output on the real interest rate r...
Interest Rates and Planned Expenditure
The IS Curve
Equilibrium
Using the IS curve to understand the U.S. economy
October 02, 2005 at 08:02 PM | Permalink
We now consider a time span too short for wages and prices to adjust to guarantee "full employment"...
So output Y is not necessarily equal to full-employment potential-output Y*...
We need a new equilibrium condition. Here it is: businesses adjust employment and production to keep their inventories stable--to match aggregate demand...
Other than this change of equilibrium condition, the model remains pretty much the same--but it behaves very differently.
We still have our behavioral relationships:
C = C0 + Cy(1-t)Y; consumption function
I = I0 - Irr; business investment demand
G = G; government purchases
IM = IMyY; import demand
X = XfYf + Xee; export demand
e = e0 + er(rf - r)
But there are two differences:
r is now a fixed, given variable--the result of Federal Reserve policy (or of the current money stock and money demand) plus other influences
C + I + G + (X - IM) = Y is now an equilibrium condition--not an identity
October 02, 2005 at 07:41 PM | Permalink
September 30: Lecture: First Midterm
October 02, 2005 at 07:41 PM | Permalink
Money
"Outside" money
"Inside" money
Money as readily-spendable wealth
Its convenience yield
Avoids the problem of the coincidence of wants
Medium of exchange
Store of value
Unit of account
The Quantity Theory of Money
Demand for money
The quantity equation: MV = PY
Money and prices
October 02, 2005 at 07:39 PM | Permalink
September 23 Lecture CANCELED
October 02, 2005 at 07:38 PM | Permalink
Full-Employment Equilibrium
Using the Model: Examples
October 02, 2005 at 07:38 PM | Permalink
For the past couple of weeks we have been looking at long-run growth. Now we turn to looking at much shorter-run phenomena: business cycles. For the next couple of weeks we are going to be in a halfway house: looking at the economy over a period short enough that we can take its productive capacity to be fixed, but long enough that we can take wages and prices to be sufficiently flexible that supply and demand in the labor market balance and that the economy is as a result at "full" or "normal" employment.
Potential Output
Domestic Spending
Consumption spending
Investment spending
In this our model, we say that consumption depends on Y (but not on r) and that investment depends on r (but not on Y). If we have time we may relax this assumption and allow both to depend on both)
Government purchases G we leave to the political scientists
The International Sector
Today we have done nothing but build up the behavioral relationships that are the building blocks of our flexible-price full-employment business-cycle model. Putting the pieces of this model together we will do on Wednesday.
Even after Wednesday, we will still be far from having a complete picture of business cyles. We won't have integrated cycles with growth; we won't have even started to think about demand-driven fluctuations in output and unemployment; and we won't have thought about the price level and the inflation rate.
October 02, 2005 at 07:37 PM | Permalink
Productivity Speed-Ups and Slow-Downs...
More Heads vs. Exhaustion of Ideas...
Important Things Left Out of the Solow Model
The Problems of Intellectual Property...
Paying for Goods with Increasing Returns...
October 02, 2005 at 07:36 PM | Permalink
*We live in a world in which output per worker levels vary by a factor of nearly 100--evenat purchasing power parities.
We live in a world in which America today is roughly eight times as rich as China today...*
Using the Solow growth model to decompose differences in productivity today:
This model provides a framework for understanding and evaluating differences in growth...
The case for neoliberalism and free trade as a way of maximizing economic and cultural contact--and we don't know how else to aid technology-and-organizational transfer.
October 02, 2005 at 07:36 PM | Permalink
How to Use the Solow Model: Three Steps
Basic Formulas:
(K/Y)(t) = [(s/(n+g+d)) + [(K/Y)(0) - (s/(n+g+d))]exp[-(1-a)(n+g+d)]]
(Y/L)(t) = ((K/Y)(t))^(a/(1-a))E(0)exp(gt)
Steady State:
(K/Y)* = s/(n+g+d)
(Y/L)* = (s/(n+g+d))^(a/(1-a))E(0)exp(gt)
Numerical Experiments:
October 02, 2005 at 07:35 PM | Permalink
The handout here http://www.j-bradford-delong.net/macro_online/gt_convergence.pdf serves as lecture notes for this lecture.
September 08, 2005 at 09:38 PM | Permalink
U.C. Berkeley Economics 101b, Fall 2005
The East African Plains Ape Becomes Human
(Some) Humans Move Out of Africa
Hunter gatherers * Pretty ferocious--even East African Plains Apes of two million years ago could drive hyenas from their dens * Sophisticated Cro-Magnon technology * Sophisticated Cro-Magnon culture--doing a lot of things that mark them as fully human * Life was nasty, brutish, and short--but athletic * Cro-Magnon hunter-gatherers * Average menarche at 16? * Life expectancy of 25? * Seven pregnancies to term? * But infinitesimal population growth means ferocious infant mortality * But they were buff: adult male heights of 5'8" or so
Neolithic Revolution
What Is Agricultural Life Like?
By the Yeqr 1, the Human Race Was Biologically and Technologically Successful--But Pretty Miserable
September 07, 2005 at 08:04 AM | Permalink | Comments (11) | TrackBack (0)
U.C. Berkeley Economics 101b, Fall 2005
Macroeconomics and Microeconomics: Similarities
Macroeconomics and Microeconomics: Differences
Six Key Macroeconomic Variables
Uncle Simon Kuznet and the Creation of the National Income and Product Accounts
The Circular Flow of Economic Activity
September 07, 2005 at 08:02 AM | Permalink | Comments (0) | TrackBack (0)
Brad DeLong delong@econ.berkeley.edu Office Hours: W 11-1 Evans 601, or by appointment http://www.j-bradford-delong.net/
Suresh Naidu snaidu@santafe.edu Office Hours: MW 11-12 place tba
Lecture Meets: MWF 10-11, 70 Evans
Sections Meet: MW 9-10, WF 8-9, 41 Evans
This is the syllabus for the first half of Economics 101b, Macroeconomics. It carries the course up until October 12. The syllabus for the second half will be distributed at the end of September. It will depend on (a) how well the class does in the month of September, and (b) what are currently "hot topics" in the economic news. The U.S. budget deficit, the looming possibility of a major U.S. dollar-financial crisis, the dilemmas of Federal Reserve policy, and the ongoing industrial revolutions in East and South Asia will certainly be on the second-half syllabus, but there will be other topics as well.
This is the go-faster and do-more version of macroeconomics--the study of the determination of output, production, income, employment, and prices in the economy as a whole. Four books are required:
If you want alternative takes at the subject matter, let me recommend two alternative textbooks: Greg Mankiw's Macroeconomics http://www.amazon.com/exec/obidos/ASIN/0716752379, and Olivier Blanchard's Macroeconomics http://www.amazon.com/exec/obidos/ASIN/0131860267/.
Since this is a go-faster do-more course, we will go faster and do more. As a group, the class will be made up of people comfortable using calculus, so we'll feel free to use it in lectures, handouts, and in problem sets (and on exams). If you aren't comfortable using calculus, you probably don't belong here and may well not have a good time...
We--Suresh Naidu and I are keenly aware that almost everybody signing up for this course could alternatively take and do very well in Economics 100b. We are anxious not to have students vote with their feet for an easier course and learn less because they fear the consequences of lowering their grade point average. Therefore this course will have a high curve: the idea is that nobody should get a lower grade than they would have gotten had they decided to take Economics 100b instead: Grades will be based on the following:
No makeup exams will be offered. Students who miss one of the three exams will have their scores for the other exams reweighted to add up to 70%. Students who miss two of the three exams should not expect to pass.
Preliminaries
Readings:
Classes:
M Aug 29: Introduction to Course, and National Income Accounting
W Aug 31: The Index Number Problem, and Key Economic Variables F Sep 2: How Macroeconomists Think (problem set 1 issued)Sections: erosion of Okun's Law Handout http://www.j-bradford-delong.net/movable_type/2003_archives/002121.html.
Long-Run Economic Growth
Readings:
Classes:
W Sep 7: Patterns of Economic Growth and Divergence: Facts
F Sep 9: Theories of Economic Growth and Divergence: The Solow Model (problem set 2 issued/problem set 1 due)Sections: only one section this week.
M Sep 12: Using the Solow Model
W Sep 14: Inadequacies of the Solow Model
F Sep 16: Extensions and Puzzles (problem set 3 issued/problem set 2 due)Sections: Kremer (1993) QJE on the question was an industrial revolution inevitable?
If There Were No Business Cycles Proper
Readings: DeLong and Olney (2005), Macroeconomics, chs. 6-7.
Classes:
M Sep 19: Components of Aggregate Demand: C, I, G, NX
W Sep 21: Flexible-Price Equilibrium
F Sep 23: Using the Flexible-Price Model (problem set 3 due/mock midterm handed out)Sections: Go over problem set 2. Cover wealth in the consumption function; behavioral theories of consumption; cash flow and investment.
Monetary Economics When Prices Are Flexible
Readings: DeLong and Olney (2005), Macroeconomics, ch 8.
Classes:
M Sep 26: The Quantity Theory of Money
W Sep 28: FIRST MIDTERM EXAMSections: one section only this week.
Business Cycles Proper
Readings:
Classes:
F Sep 30: Sticky Prices, Consumption, and the Multiplier (problem set 4 issued)
M Oct 3: Investment and the IS Curve
W Oct 5: Using the IS Curve to Understand the Economy
F Oct 7: Inflation and the Phillips Curve (problem set 5 issued/problem set 4 due)Sections. Go over midterm. Cover Blanchard (1981).
M Oct 10: The Natural Rate of Unemployment and the Federal Reserve
W Oct 12: From the Short Run to the Long Run
F Oct 14: Understanding American Business Cycles Using the Phillips Curve/Monetary Policy framework (problem set 6 issued/problem set 5 due)Sections: go over problem set 4, and supply shocks.
August 29, 2005 at 06:31 AM | Permalink | Comments (16) | TrackBack (0)