Course Syllabus

Course Number/Section/Name: ECON 6306/61,62/Macroeconomics Professor: Dr. Rex Pjesky Class Days/Times/Location 225 Office Location:214D Classroom Center Office Hours: TWTh 12:00-2:30; W 3:30-6:00 Office Phone: 651-2996 E-Mail: [email protected]

WTAMU College of Business (COB) Mission Statement

The mission of the College of Business is to provide high quality undergraduate and graduate business education with a global perspective and ethical awareness. We accomplish this through emphasis on excellence in teaching, which is strengthened by faculty scholarship and supported by professional service.

A student's continued enrollment in this course signifies acknowledgment of and agreement with the statements, disclaimers, policies, and procedures outlined within this syllabus and elsewhere in the WTClass environment. This Syllabus is a dynamic document. Elements of the course structure (e.g., dates and topics covered, but not policies) may be changed at the discretion of the professor.

Course Description

This class’ primary purpose is to build models of the U.S. economy that will help us describe and predict the performance of the economy. These models will explain and predict economic variables such as interest rates, output, growth, inflation, and unemployment.

Course Materials (Text, calculator, etc.)

Robert Barro: Modern Macroeconomics

Learning Goals for the MBA Program

The College of Business at West Texas A&M University seeks to prepare students in the MBA degree program for careers in business and to foster their professional growth and advancement via the key learning goals. The key learning goals for the MBA are as follows:

• Goal 1: Professional Communication: Graduates of the MBA program will communicate effectively as managers. • Goal 2: Leadership: Graduates of the MBA program will be leaders.

• Goal 3: Business Environment: Graduates of the MBA program will be knowledgeable of ethical, global, and social trends affecting business decisions.

• Goal 4: Business Integration: Graduates of the MBA program will be able to integrate quantitative and qualitative techniques from business functional areas.

Learning Goals for the MPA Program

The College of Business at West Texas A&M University seeks to prepare students in the Master of Professional Accounting (MPA) degree program for careers in business and to foster their professional growth and advancement via the key learning goals. The key learning goals for the MPA are as follows:

• Goal 1: Professional Communication: Graduates of the MPA program will be effective communicators.

• Goal 2: Critical Thinking: Graduates of the MPA program will be analytical thinkers and problem solvers.

• Goal 3: Business Environment: Graduates of the MPA program will be aware of ethical, global, and social ramifications of business and accounting decisions.

• Goal 4: Accounting Integration: Graduates of the MPA program will be knowledgeable in accounting and its functional support of organizations.

Learning Goals for the MSFE Program

The College of Business at West Texas A&M University seeks to prepare students in the Master of Science in Finance and Economics (MSFE) degree program for careers in business and to foster their professional growth and advancement via the key learning goals. The key learning goals for the MSFE are as follows:

• Goal 1: Professional Communication: Graduates of the MSFE program will be effective communicators.

• Goal 2: Critical Thinking: Graduates of the MSFE program will be analytical thinkers and problem solvers.

• Goal 3: Business Environment: Graduates of the MSFE program will be aware of ethical, global, and social ramifications of business and economic decisions.

• Goal 4: Finance and Economics Integration: Graduates of the MSFE program will be knowledgeable of advanced theoretical and applied concepts in economics and finance.

Course Objectives

1. Describe how economic output and growth are measured 2. Identify the causes for differing levels of output and growth among nations 3. Review how market supply and demand discover prices 4. Interpret current economic models of consumption, saving and investment 5. Categorize the causes of recessions and the business cycle 6. Assess the government’s and the Fed’s actions to stabilize the business cycle 7. Evaluate the effect government spending, taxation and debt has on economic activity 8. Examine the role money has in the economy 9. Evaluate government macroeconomic policy using microeconomic foundations

Map from COB Learning Goals to Objectives for this course

MBA

The objectives in Econ 6306 map to MBA Learning Goal 4: Graduates of the MBA program will be able to integrate quantitative and qualitative techniques from business functional areas. Also, the objectives map to MBA Learning Goal 2: Graduates of the MBA program will be knowledgeable of ethical, global, and social trends affecting business decisions.

MPA

The objectives in Econ 6306 map to MPA Learning Goal 2: Graduates of the MPA program will be analytical thinkers and problem solvers. Also, the course objectives map to MPA Learning Goal 3: Graduates of the MPA program will be aware of ethical, global, and social ramifications of business and accounting decisions.

MSFE

The objectives in Econ 6306 map to MSFE Learning Goal 2: Graduates of the MSFE program will be analytical thinkers and problem solvers. Also, the objectives in Econ 6306 map to MSFE Learning Goal 4: Graduates of the MSFE program will be knowledgeable of advanced theoretical and applied concepts in economics and finance. The course objectives map to MSFE Learning Goal 3: Graduates of the MSFE program will be aware of ethical, global, and social ramifications of business and economic decisions.

Course Grading Policies

Grading

The course grade is determined by the student’s performance on the following opportunities: (i) In class oral quizzes (ii) a critical thinking/writing/ethics assignment and (iii) two exams (a mid-term and a final). In Class Oral Quizzes (Daily): 30 points Mid Term Exam: 30 Critical Thinking Assignment 10 Final Exam: 30 Total: 100 points

Under no circumstances will extra credit be awarded, so make the most of these opportunities. Each opportunity is described below.

Course Assignment, Examination, and or Project Policies

Class Format

Weekly assignments are to be obtained from WTClass. STUDENTS ARE EXPECTED TO PREPARE ANSWERS FOR EACH WEEK’S ASSIGNMENT PRIOR TO COMING TO CLASS. Class will consist primarily of oral quizzing of the students by the professor. See below.

In-Class Oral Quizzes

Your class participation grade will consist of the grading of your class responses to oral quizzing. Each response will be graded with either a “0” or a “1”. Students will be called on randomly in class. If you are absent for a particular class in which your name is called, and you do not furnish me with a University authorized excuse, then you will receive a “0” for your response grade for all the questions you were called on during that class. You may refer to notes in answering questions, but you are not allowed to refer to the textbook or photocopies of the textbook or other materials. Only your hand-written notes are allowed for use during class.

Mid-Term Exam

There will one midterm in this class. It may consist of essay questions, problems, and a few multiple choice questions to satisfy the college’s assessment requirements. This exam will count 30 percent of your grade.

Critical Thinking Assignment

Details to follow in class.

Final

The final will not be comprehensive. It is the same format and value as the midterm.

Make up Exams

No makeup exams will be offered.

Course Topics

Attached at the end of syllabus.

All original content in this document, all web-based course materials (be they text, audio, and/or video), and/or classroom presentations are © by Dr. Rex Pjesky. No distribution without the express written consent of the author. Students are prohibited from selling (or being paid for taking) notes during this course to or by any person or commercial firm without the express written permission of the professor.

COB Student Resources Link

The COB has developed a Student Resources repository (e.g., APA writing style information, business core reviews, facilities, and other helpful supplements) which can be found on the COB Website: http://www.wtamu.edu/academics/college-business-facilities-and-resources.aspx

Dropping the Course:

Should a student decide to drop the course, it is the student’s responsibility to be aware of the final drop dates and adhere to the WTAMU Ad/Drop policy. Any student participating in the course after the WTAMU posted drop date will be considered active and a grade will be administered at the end of the course for that student.

Repeating Course Work

Students are charged a fee for any course attempted for a third or subsequent time at WTAMU other than a non-degree credit developmental course or exempted courses.

COB Writing Component

Students earning a BBA degree must complete at least one course with a writing component outside of their major as part of the business core requirements. The COB writing component is a requirement in the following courses: CIDM 3320(Digital Collaboration and Communication), MGT 3335(Organizational Behavior), FIN 3350(Personal Financial Planning), FIN 4320(Investments), FIN 4321(Portfolio Theory), ECON 4342(Economic Development), and ECON 4370(Economics of Biotechnology and Healthcare). Students in a writing component course are explicitly required to demonstrate knowledge of communication skills. Specific objectives may include but are not limited to ©2011-12 =====Dr. Rex Pjesky =====. All rights reserved.

the following concepts put forth by the National Business Education Association: (1) ability to organize a written and an oral message coherently and effectively, (2) ability to use technology for communication, (3) ability to research a topic, prepare a report, and present the findings to all organizational levels, and (4) ability to demonstrate critical-thinking skills. Specific course requirements and the role of the writing component with respect to student grading policy are at the discretion of the course instructor of record.

Scholastic Dishonesty

It is the responsibility of students and instructors to help maintain scholastic integrity at the University by refusing to participate in or tolerate scholastic dishonesty. Commission of any of the following acts shall constitute scholastic dishonesty. This listing is not exclusive of any other acts that may reasonably be said to constitute scholastic dishonesty: acquiring or providing information for any assigned work or examination from any unauthorized source; informing any person or persons of the contents of any examination prior to the time the examination is given in subsequent sections of the course or as a makeup; plagiarism; submission of a paper or project that is substantially the same for two courses unless expressly authorized by the instructor to do so; submission of a paper or project prepared by another student as your own. You are responsible for being familiar with the University's Academic Integrity Code, as well as the COB Student Code of Ethics below.

WTAMU COB Student Code of Ethics

Each student enrolled in COB courses accepts personal responsibility to uphold and defend academic integrity and to promote an atmosphere in which all individuals may flourish. The COB Student Code of Ethics strives to set a standard of honest behavior that reflects well on students, the COB and West Texas A&M University. All students enrolled in business courses are expected to follow the explicit behaviors detailed in the Student Code of Ethics.

Code of Ethics:

• Do not use notes, texts, solution manuals, or other aids for a quiz or exam without instructor authorization. • Do not copy the work of others and/or allow others to view your answers or copy your work during a quiz, exam, or on homework assignments. • Do not allow other parties to assist in the completion of your quiz, exam, homework, paper, or project when not permitted. • Do not work with other students on projects or assignments without authorization from the course instructor. • Properly cite and specifically credit the source of text, graphic, and web materials in papers, projects, or other assignments. • Do not forge the signature of an instructor, advisor, dean, or another student. • Provide truthful information for class absences when asking faculty for excused absences or for a make-up for a quiz, exam, or homework. • Provide truthful information on your resume including work history, academic performance, leadership activities, and membership in student organizations. • Respect the property, personal rights, and learning environment of all members of the academic community. • Live up to the highest ethical standards in all academic and professional endeavors.

Students violating the Student Code of Ethics will be reported to the Dean’s office and are subject to penalties described in the West Texas A&M University Code of Student Life, which may include suspension from the University. In addition, a violator of the Student Code of Ethics may become ineligible for the following:

• Participation in student organizations sponsored by the COB. • Recognition for College academic honors, awards, and scholarships.

Technology Requirements

All technological requirements for the successful completion of this course are the responsibility of the student, including access to a working computer with broadband internet connection and state-of-the-art security. The student is responsible for all technological problems not related to WTAMU, including but not limited to equipment failures, power outages, and internet breakdowns. Furthermore, students are responsible for all necessary technical and operational skills for completing this course, and for being familiar with WTClass (the Angel Learning System) both in a general sense and in a specific sense as pertaining to this course and any materials stored within. The professor is not responsible for any technical matters related to WTClass. Students must contact WTClass if they have problems accessing and/or using Angel.

Viewpoints Disclaimer

The views expressed in this document, web-based course materials, and/or classroom presentations and discussions are those of the professor and do not necessarily represent the views of West Texas A&M University, its faculty and staff, or its students. Views expressed by students are likewise those of the person making such statements. It is understood and expected that each individual within this course will respect and allow individual difference of opinion.

External Websites Disclaimer

Neither the professor, the COB, nor WTAMU are responsible for the content of external websites discussed in the classroom and/or linked to via online course materials, emails, message boards, or other means. Referred websites are for illustrative purposes only, and are neither warranted nor endorsed by the professor, COB, or WTAMU. Web pages change frequently, as does domain name ownership. While every effort is made to ensure proper referencing, it is possible that students may on occasion find materials to be objectionable for reasons beyond our control.

Physical or Educational Access

West Texas A&M University seeks to provide reasonable accommodations for all qualified persons with disabilities. This University will adhere to all applicable federal, state and local laws, regulations and guidelines with respect to providing reasonable accommodations as required to afford equal educational opportunity. It is the student's responsibility to register with Student Disability Services (SDS) and to contact faculty members in a timely fashion to arrange for suitable accommodations. Contact Information: Student Success Center, CC 106; www.wtamu.edu/disability; phone 806-651-2335.

Evacuation Statement

If you receive notice to evacuate the building, please evacuate promptly but in an orderly manner. Evacuation routes are posted in various locations indicating all exits, outside assemble area, location of fire extinguishers, fire alarm pull stations and emergency telephone numbers (651.5000 or 911). In the

event an evacuation is necessary: evacuate immediately do not use elevators; take all personal belongings with you; report to outside assembly area and wait for further information; students needing assistance in the evacuation process should bring this to the attention of the instructor at the beginning of the semester.

Chemical and Equipment Safety Statement

Safety is everyone's responsibility. Material Safety Data Sheets (MSDSs) are provided for all chemicals used in this class. MSDSs provide information about physical properties, health risks, fire explosion data, and other important information associated with these chemicals. Before handling or using a chemical, you should refer to the MSDS for that chemical. It is your responsibility to inform the instructor in writing of any health conditions that may prevent you from safely using a chemical (pregnancy, auto immune deficiency, etc.). It is also the responsibility of the student to report any spill or problems found while storing or using a chemical. If you are unsure about a chemical, always ask. If you see any unsafe condition, notify your instructor immediately. If you are unsure about the proper and safe operation of any piece of equipment, ask your instructor for proper instruction. All injuries, spill of materials and unsafe conditions must be reported to the instructor immediately.

* Syllabus template approved by COB Curriculum Committee 5-30-2011. Annual review of the syllabus is a formal part of the COB continuous improvement process.

West Texas A&M Univ. Dr. Pjesky

Macroeconomics Spring 2012

Week #1 assignment

January 18, 2011

Skim through chapters one and two and answer the questions. Also, familiarize yourself with the list of key terms and concepts at the end of the chapters.

1) How do we use Mathematics to get the information in figure 1.2 from figure 1.1?

2) What was the mean growth rate in Real Gross Domestic Product from

1870-2005?

3) What was the mean growth rate in Real Per Capita Gross Domestic Product from 1870-2005?

4) Was every year’s growth rate equal to the average? Explain what this means to economists.

5) How many recessions/depressions has the U.S. had since 1870?

6) Is there a relationship between the unemployment rate and economic growth?

7) Have there been any significant changes in the growth rate, unemployment rate, and the price level in the last 140 years or so? Is this remarkable?

Explain.

8) What are endogenous variables?

9) What are exogenous variables?

10) What role do endogenous and exogenous variable play in economic models?

11) What is the central idea in a macroeconomic model?

12) What are “microeconomic foundations?”

13) What do the terms “price taker,” “perfect competition,” and “demand curve” mean?

14) In the supply and demand model of perfect competition, what are the exogenous variables? What are the endogenous variables?

15) What does the term “market clearing” mean?

16) Is there a consensus among economists about the market clearing nature of markets?

17) John Keynes thought that prices were “sticky.” What does this mean?

And what does it mean for macroeconomic models?

18) What is a flow variable? Come up with five examples.

19) Why is nominal GDP misleading? Understand table 2.1.

20) How does the calculation of real GDP make the GDP concept meaningful?

21) What are the weaknesses of GDP as a measure of welfare?

22) What are the three ways of measuring GDP?

23) In the end, does it matter what approach is taken?

24) When calculating GDP by expenditure, what are the four categories of “spenders?”

25) Sometimes, a macro model will omit one of the four categories. Which is omitted and why.

26) Is the CPI a good measure of how prices on average change over large time periods? Why?

27) What is substitution bias? Give an example.

28) Does the CPI control for quality changes? Explain.

29) How does the introduction of new product cause an upward bias in the CPI? Why is it a “bias?”

West Texas A&M Univ. Dr. Pjesky

Macroeconomics Spring 2012

Week #2 assignment

January 25, 2012

Skim through chapters three and four and answer the questions (skip the appendix for both chapters). Also, i) familiarize yourself with the list of key terms and concepts at the end of the chapters and ii) familiarize yourself with each number equation even if they are not the subject of a specific question.

1) Why is economic growth so important?

2) What is poverty?

3) What two factors determine the number of people living in poverty in a society?

4) Summarize the information in figures 3.2 and 3.3.

5) Contrast “inequality” with “poverty.”

6) What is the story of economic growth since 1970?

7) Summarize the information in figure 3.4.

8) What part of the world is in the direst poverty? Why?

9) Explain why growth matters in rich countries.

10) What questions have been established in the first 46 pages of the text?

11) What is a production function? The simplified model of the production has what two inputs?

12) What do the symbols “L,” “K,” and “A” mean?

13) How do we write the simplest production function? Explain what it tells us.

14) How are the concepts MPK and MPL related to our model?

15) What is the diminishing marginal product of capital? Of Labor?

16) What is constant returns to scale?

17) What is “growth accounting?”

18) What do the parameters α and β mean?

19) Be able to derive equation 3.4

20) What are the simplifying assumptions of the Solow growth model?

21) In equation 3.4, why is the parameter on labor’s share of national income 1-α?

22) What is the key result in equation 3.8?

23) What does a change in the nation’s capital stock depend on?

24) True or False: in the Solow model, real saving = net investment. Derive.

25) Describe how equation 3.15 was obtained from equations 3.13, 3.14, and 3.7.

26) Derive equation 3.16 from equation 3.15.

27) According to equation 3.16, what does the growth in the capital stock per worker depend on?

28) In the Solow model, are average and marginal products of capital correlated?

29) (Begin chapter 4) How do differences in the saving rate affect economic growth?

30) How does a change in the technology level affect economic growth?

31) How does a change in labor input and/or the population growth rate affect economic growth?

32) What is convergence?

33) What effects k*?

34) Two economies with different initial GDP levels will converge if .

35) What is the problem with the convergence theory in the Solow model?

36) What is conditional convergence?

37) Explain conditional convergence in the Solow model.

38) Compare absolute convergence with conditional convergence. Do we see absolute convergence when we look at a wide array of economies since 1960? Why?

39)What doesn’t the Solow model explain?

West Texas A&M Univ. Dr. Pjesky

Macroeconomics Spring 2012

Week #3 assignment

February 1, 2012

Listen to Russ Robert’s talk with Paul Romer and be prepared to discuss in class. The following questions will help you:

The link to the podcast is: http://www.econtalk.org/archives/2007/08/romer_on_growth.html

1. Why is growth important?

2. Is there a “moral” component to growth? In other words, is growth “good”?

3. Why is China growing fast?

4. Why did (is) the US grow(ing) faster that the UK?

5. Do we “need” to be the leader in every (or any) technology?

6. Contrast what could be called the “economics of ideas” with the “economics of physical stuff.”

7. Does Romer prefer the word “produce” or “rearrange?” Explain.

8. What did Romer say about the Soviet Union and diminishing returns?

9. Why are new ideas (and more people looking for new ideas) important?

10. Why do market economies outperform planned economies?

11. “Everyone favors growth but rejects change.” Comment

12. Why is there no “tragedy of the commons” in ideas?

13. What is the difference between property rights for an idea and property rights for, say, land?

14. How do we provide both efficiency in the realm of ideas and give people an incentive to create them? Why might there be a conflict?

15. Many people think that workers for multinational corporations in developing countries are exploited. (The worker in a Nike shoe factory, for instance.) What does Romer say about this?

16. Many people think that a pair of 150 Nikes made by someone who is poor compared the buyer of the shoes represents a horrible immoral thing in our society. What does Romer say about this?

17. Do 200,000,000 Indian business people, scientists, and engineers threaten you?

19. Should we be optimistic?

Skim through chapter five and answer the questions (skip the appendix) Also, i) familiarize yourself with the list of key terms and concepts at the end of the chapters and ii) familiarize yourself with each numbered equation even if they are not the subject of a specific question.

20) Equation 4.9 sums up many issues concerning conditional convergence.

Explain it in “real world” language.

21) Now, do the same for equation 5.1.

22) What is the “idea” of equation 5.1? In other words, how have economists used it?

23) What do we learn from figure 5.1?

24) What is held constant in figure 5.1?

25) Since 1990, what are some of the factors that have received attention as causes of convergence or growth?

26) Give some examples of conditional convergence.

27) How does the concept of conditional convergence explain how the poorest countries in the world (in sub Saharan Africa) have had the lowest rates of growth?

28) What doesn’t the Solow model explain (well, at least not yet in our text.)

29) Read pages 101-103 (no questions, though)

31) Is technical progress in Solow’s model exogenous or endogenous? Explain.

32) Why are Romer’s models called endogenous growth models?

33) These models typically focus on____ .

34) In Endogenous growth models, ____drives technical progress.

35) Although was study investments in R and D like investments in the physical capital stock, there are differences. Be able to discuss these differences and why they are important. Be sure you can define “rival good,” “non rival good,” “copyright,”, “patent,” and “intellectual property right.”

36) In Romer’s original 1990 paper, even with intellectual property rights, who gets most of the benefit from an important discovery?

37) Explain what determines the rewards from discoveries? How does an increase in reward increase growth?

38) Does the empirical literature on growth rates of different countries confirm Romer’s models? Explain.

39) Why, according to the green box on page 112, must drugs and music be priced at significantly more than marginal cost?

40) Why are drugs so cheap in Canada?

41) What is necessary for a smaller economy to be successful at innovation?

42) What are the two ways to raise A?

43) What does the term “diffusion of technology” mean?

44) Read the article found at: http://www.pittsburghlive.com/x/pittsburghtrib/s_376496.html

45) How, according to Boudreaux, are middle class citizens of any industrial economy super rich?

46) What is the source of wealth?

47) Boudreaux claims that technology isn’t the cause of wealth. Why?

48) How does Boudreaux define economic freedom?

49) What is the relationship between economic freedom and wealth?

50)What would Bourdreaux say about the diffusion of technology?

51) On page 116, there is a great summation for part 2 read it carefully.

West Texas A&M Univ. Dr. Pjesky

Macroeconomics Spring 2012

Week #4 assignment

February 8, 2012

Skim through chapter six and answer the questions (skip the appendix). Also, i) familiarize yourself with the list of key terms and concepts at the end of the chapters and ii) familiarize yourself with each numbered equation even if they are not the subject of a specific question.

1) What are some examples of microeconomic choices?

2) What is a key assumption of the model that we will develop in part 3?

3) How do the market demand and supply for labor behave as the real wage rises?

4) The model assumes that price (that is, real wage) is ___.

5) What is the simplification of the model? Why does this simplification make sense?

6) What are the two reasons a household would buy goods?

7) How do we measure labor? Is labor a flow?

8) What two hats do each household wear?

9) The third market we consider is the rental market. Briefly describe the rental market.

10)The final market we consider is the bond market. Briefly describe the bond market.

11)What are the characteristics of money in our model?

12)In the goods market, households exchange their finished goods for ____.

13)The price in the goods market, P, is our ______. We assume that inflation is ____.

14)Y equals ____. PY equals ____.

15)M/P equals____.

16)If a variable is divided by P, then it is in ____ _ terms.

17)If a household earns $200 and the price of the good it buys in $2, then the real income of the households is ____.

18)If the dollar (nominal) wage is $5 and the price is $2, then the real wage is ____.

19)Do household decisions depend on the wage or the real wage? Why?

21)What is a bond in our model?

22)What are the assumptions we place on the bond market in our model?

23)How does an inflation rate of zero simplify the bond market in our model?

24)Another assumption is that all bonds are alike (that is, they pay the same interest). Detail what differences must be ignored to make sure that all bonds would be alike.

25)A higher interest rate makes it easier for the (lender/borrower) to (lend/borrow).

26)A lower interest rate makes it easier for the (lender/borrower) to (lend/borrow).

27)What are the sources of funds for a household?

28)What are the uses of funds for a household?

29) What is the important point?

30) What are the four sources of income?

31) What is profit?

32) What is so useful about equation 6.2?

33) What is the nominal wage?

34) What is the rate of return on capital?

35) What is the total interest income for the economy? Why?

36) Household nominal consumption is ?

37) Key equation 6.6 tells us that the rate of return on bonds equals the rate of return on ownership of capital. Why?

38) The result of equation 6.6 ignores risk (or stipulates that all risk is equal).

What happens if all risk is not equal?

39) Explain what point 1, 2 and 3 mean in figure 6.2.

40) Why is the slope of the budget line -1?

41) What are the two business decisions a household makes?

42) Therefore, the household will demand quantities of .

43) Where does labor demand come from?

44) A household chooses to hire labor up to a point where_____ equals ____.

45) How will the labor market clear?

46) Where does the demand for capital come from?

47) How does the capital market clear?

48) Why are the supplies of labor and capital vertical lines?

49) Why is equation 6.16 a key equation?

50) In this model, real profit (equation 6.18) equals zero. Explain what this means.

West Texas A&M Univ. Dr. Pjesky

Macroeconomics Spring 2011

Week #5 assignment

February 15, 2012

Read Chapter 7 and answer the questions.

1) Again, why is real profit zero?

2) If I were to say that there was a constraint in a household’s budget, what would I mean?

3) We think of a household’s choice as one between consuming and saving, but what choice does a household really face?

4) In words, what is the difference between 7.2 and 7.3?

5) Explain figure 7.2.

6) Explain figure 7.2 and 7.3 using terms “stock” and “flow.”

7) Explain the economic intuition in equations 7.4 and 7.5.

8) I’ll derive equations 7.6, 7.7, 7.8 and 7.9 in class, but spend about 15 minutes and try it yourself.

9) What is the concept of present value?

10) Why do you suppose that we need to talk about present value at this point in the class?

11) What is a discount factor?

12) If you did not care AT ALL about tomorrow (thus, you ONLY cared about today) what would your discount factor be?

13) If you did not care AT ALL about today (thus, you only cared about tomorrow) what would your discount factor be?

14) What is utility? What is a utility function?

15) What does “smooth consumption path” mean?

16) What are income effects? What happens to consumption in year C1, C2, C3, etc when V rises?

17) Explain how changes in the interest rate cause the intertemporal substitution effect.

18) Explain the effect of a change in the interest rate on saving.

19) Explain the two income effect of an increase in the interest rate.

20) If the interest rate increases in year 1, will consumption increase in year one? Explain.

21) The multiyear budget constraint is useful because it ______.

22) What is “propensity to consume?”

23) What is Milton Friedman’s “permanent income?”

24) What would be the propensity to consume an increase in income if that increase in income was permanent (that is, you income is higher this year and will be at this new (higher) level forever)? Explain.

25) What would be the propensity to consume an increase in income if that increases in income was temporary?

26) What happens in year one if you expect an increase in income in year 2.

27) As of January 24th, it looks like that households will get a tax rebate of

300/person with a cap of 1200/household (other income and work status restrictions apply). If people believe this to be a one time thing, what will the propensity to consume of the tax rebate?

28) Summarize the finding on the “Empirical evidence on the propensity to consume” box on page 165. Does empirical evidence confirm the theory?

29) Do the same for the box on page 166. Does empirical evidence confirm the theory of how households respond to anticipated changes in income?

Read Chapter 8 and answer the questions.

30) We can think of real GDP as having two parts. What are they?

31) In the long run, economic ___ is more important than economic ___ _.

32) In the short run, economic ___ are more important than economic ___ .

33) Figure 8.3 gives us a clearer picture of economic fluctuations. Why.

34) Fluctuations reflect ___in the “_____ model.”

35) We call it the equilibrium business cycle (EBC) model because _____ .

36) The most famous EBC is the _____ .

37) Why is it called the real business cycle model (RBC)?

38) Fluctuations in the RBC depend on sudden increases or decreases in technology. It’s easy to think about learning new things, but how can we think about forgetting how to do something?

39) List some things that would behave like decreases in A.

41) What is the real challenge of this (and any other) macro model?

42) An increase in A will raise the demand for because it raises the marginal .

43) If the real wage were fixed, increases in technology would only increase the

______.

44) However, if the supply of labor were fixed (as it is in our model), increases in

A increase the ___.

45) So the first prediction is that an economic boom will create a relatively high

______.

46) An increase in A will raise the demand for ___because it raises the marginal_____.

47) If the real rental price of capital were fixed, then increases in technology would only increase the ______.

48) However, if the supply of capital were fixed (as it is in our model), increases in A increase the ____.

49) So, the second prediction is that an economic boom will create a relatively high ____.

50) Directly from what we learned in chapter 6, booms will _____interest rates.

51) An increase in A will ______real wage income.

52) An increase in A will ______real asset income.

53) An increase in A will leave income from bonds_____ for the aggregate of society.

54) If the increase in A is permanent, then any increase in C should also be ____ _. MPC from this increase in income should be nearly ____.

55) What is a procyclical variable?

56) What is a countercyclical variable?

57) What is an acyclical variable?

58) Is consumer spending procyclical like our model predicts?

59) Is investment spending procyclical like our model predicts?

60) Real investment fluctuates ___ than GDP.

61) We see in figures 8.9 and 8.10 that investment fluctuates much, much more than consumption or GDP. Does our model predict this result? Explain.

62) Is the real wage rate procyclical?

63) Is the real rental price of capital procyclical?

64) If a change in A were temporary, would we expect to see the same strong procyclical pattern that we saw earlier? Think about the current (that is January2008) stimulus package that reduces taxes and increases real incomes for one year only. Are we sure that spending will increase?

65) Our model is not truly powerful unless we can explain the cyclical nature of______.

66) Describe the substitution effect for leisure and consumption.

67) For a given quantity of labor supplied, a higher real wage means a higher ______.

68) A permanent increase in the real wages results in a ______income effect.

69) A higher interest rate today means that consumption and leisure tomorrow are ______. Therefore, the household substitutes toward the cheaper things _____ and ______and away from the more expensive ones _____ and ___ .

70) Does the empirical evidence confirm the theory?

71) Hours worked and total employment move almost in lock step with___ .

72) Because of these results, we can now drop the assumption of a ____ supply curve.

73) The labor supply curve does not ___ _ with changes in A, but the quantity of______does move with A.

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2012

Week #6 assignment

February 22, 2011

Read Chapter 9 up to page 219 and answer the questions. Skim pages 219-229.

I’ll do a traditional lecture on that section.

1) What is the capital utilization rate? What have we assumed it to be so far?

2) Explain equation 6.13.

3) Explain equation 9.2.

4) How would an increase in A increase the demand for capital?

5) Who owns all the capital?

6) How do owners of capital choose the utilization rate of capital?

7) In words, explain what the net real income from supplying capital services is.

8) In words, explain the rate of return from owning capital.

9) In figure 9.3, the green line (R/P)*k is straight. Why?

10) In figure 9.3, the blue line d(k) is curved. Why?

11) Why does the green line go through the origin while the blue line does not?

12) The “cost” of using capital is ______.

13) Give the mathematical explanation for why the capital utilization rate increases with the real wage.

14) Explain why figure 9.4 yields the upward sloping supply of capital curve we see in figure 9.5.

15) Give three reasons why real GDP rises in a boom and falls in a recession.

16) Explain why the interest rate is procyclical.

17) Does empirical evidence confirm our theory that the capital utilization rate is procyclical?

18) Is L procyclical?

19) In simple economic terms (like in econ 101) explain how the labor market clears?

20) What is the cyclical behavior of the US labor force, the employment rate, and average weekly hours worked with real GDP?

22) What might influence the reservation real wage?

23) Are ω and the real wage related? Explain.

24) How does ω influence the job finding rate and the duration of unemployment?

25) Considering the entire section (the last part of chapter 9), why do we have unemployment?

Listen to this and answer the questions: http://www.econtalk.org/archives/2009/12/kling_on_prospe.html

26) What is Econ 2.0?

27) What is the story of “traditional” econ texts?

28) What don’t we teach in economics?

29) ____and___are very important in econ 2.0.

30) How was the dotcom bubble an econ 2.0 example?

31) Growth has been a story of ______. What is wrong with that model?

32) Can capital accumulation explain large difference across countries in intangible wealth?

33) How could someone have negative intangible wealth?

34) What is capital in econ 1.0?

35) What is capital in econ 2.0?

36) Why might it have taken 200 years to think about econ 2.0?

37) Do most people “make widgets?” What do most people do? What impact should this have on economic modeling?

38) What does econ 2.0 say about “We can’t get rich doing other people’s laundry?”

39) What does econ 2.0 say about laundry?

40) Econ 1.0 has a fear of perm. press. What is econ 2.0’s response to that fear?

41) People get replaced by machine. People get replaced by ideas. Contrast.

42) What is the problem with intellectual property rights in Econ 2.0. Why is this problem not a problem in econ 1.0?

43) Hardware/Software. Discuss. What “bugs” to societies put in their “operating systems”?

44) Is there an optimal institutional arrangement?

45) What policy(ies) should a “new” country copy from the US?

46) Can we really know if a certain policy helps or not? Explain. How could we really know?

47) How does the dynamic reality of the economy change the way we think of scarcity? How is the 2.0 concept of scarcity the same as 1.0’s view?

48) What have we learned in the last 50 years?

49) What do we need to learn in the next 50?

50) Searching vs. Planning in foreign aid. Explain.

51) What is microfinance?

52) What might have China, Russia, and India done right and wrong?

53) Why is China’s saving rate so high?

54) Does comparative advantage still apply in econ 2.0?

55) What is the big advantage of trade in econ 2.0?

56) Why is studying differences in incomes across countries more important than studying the business cycle in an individual country?

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2012

Week #7 assignment

February 29, 2012

Read chapter 10 and answer the questions.

1) What is fiat money?

2) What is commodity money?

3) We use fiat money in our model. Why? Does this give you any insight as to why fiat money might be better than commodity money in the real world?

4) What is legal tender? What is its limitation(s)?

5) What happened to the ratio of currency to GDP in most countries from 1960-

2000?

6) In our model, what is the interest rate paid on money?

7) Why are bonds better stores of value than money?

8) In the budget constraint, a household uses money to buy ____ and spend money on___.

9) How would one maintain a low money balance?

10) Is it possible for society as a whole to lower or raise their money balance?

11) What does the household’s choice of a money balance entail?

12) What is the “demand for money?”

13) If a household’s income were to double, it would increase its money holdings by ____ double. Why?

14) Money demand is a function of ____ .

15) Why can we expect the nominal quantity of money supplied equal to nominal quantity of money demanded?

16) What is general equilibrium? In our current model, what three conditions must be met simultaneously?

17) Is there something goofy about figure 10.1? What in the world is going on?????

18) What is the effect on the price level of a one time, sudden doubling of the money supply?

19) What is the effect on the nominal wage and real wage of a one time, sudden doubling of the money supply?

20) What is the effect on the nominal and real rental price of capital level of a one time, sudden doubling of the money supply?

21) What is the effect on the interest rate of a one time, sudden doubling of the money supply?

22) To sum up, a doubling of the money supply _____.

23) What is the neutrality of money?

24) What might affect the real demand for money?

25) A decrease in the real demand for money is exactly like an increase in the nominal supply of money with one exception. Explain this exception.

26) The interest rate tends to fall in a recession. What effect does this have on the demand for money? Explain.

27) The GDP deflator (the best measure of prices) is____ and _____ variable than Real GDP.

28) The first result in 27 is counterintuitive, especially given what you learned in econ 101. What feature of the EBC (or RBC) model makes this so? In other words, what is the difference between the Keysnian model and EBC model? According to empirical evidence in figure 10.4, which is the better model?

29) What is exogenous money? What is endogenous money? Does our economy have exogenous or endogenous money? Explain.

30) What’s the idea behind equation 10.8?

31) The long term (trend) growth in the money supply depends on growth in______. (See equation 10.8)

32) According to the EBC, if the monetary authority wants to keep the price level constant, money should be a ___ variable. (Pro/acyclical) Do you think this is good policy advice?

Read Chapter 11.

33) We assume that the money supply is set___ by the monetary authority.

34) What can cause a decline in the (real) demand for money?

35) “Declines in the real quantity of money can cause inflation.” True or False?

Explain.

36) Did any country experience deflation from 1960 to 2000?

37) Did the (nominal) money supply grow for all countries during this time period?

39) For most countries, the nominal rate of increase in the money supply exceeded the growth rate of prices. So _ money balances .

40) A successful fight against inflation is a rare occurrence. What country(ies) have been successful in the last two generations?

41) What causes inflation? (Hint: Quote Milton Friedman.)

42) 11.3 and 11.4 are basic economic concepts. Make sure you get them.

43) Why must households forecast inflation? What are these forecasts called?

44) What are household forecast mistakes called?

45) What are rational expectations?

46) What is the nominal interest rate? Why don’t households care?

48) What is the expected real interest rate in mathematical terms?

49) What is the expected real interest rate in “real world” language?

50) What are the three ways of measuring expected inflation?

51) What are shortcomings of the first two?

52) What has happened to make the third approach so effective?

53) Are the opinions of economists useful in predicting inflation?

54) ALEGRBRA ALERT! Derive 11.9.

55) What are the two major objectives of extending the model (EBC) to include inflation?

56) For the rest of chapter 11, the expected inflation rate equals .

57) How do lump sum transfers affect how much people work and consume?

58) The expected real interest rate has intertemporal-substitution effects on ___ _ and ___.

59) What is the real interest rate on money?

60) The real interest rate has the _____ , but the nominal interest rate influences

_____ .

61) Your economist buddy says “Money is neutral.” What does that mean?

62) Why does a change in the inflation rate have an income effect?

63) ALEGRBRA ALERT! Derive 11.12 and 11.13.

64) When Mt grows at a steady rate, Pt will ___ .

65) What two conditions does equilibrium require?

66) The price level equals ____ .

67) What are the five results? Explain.

68) Why is the assumption of an unchanging money demand unrealistic?

69) What causes Mt/Pt to rise over time?

70) Does the data in figure 11.8 confirm our theory?

71) If we assume zero growth in RGDP/person, if the money supply has been growing at μ forever and everyone expects this to continue, then inflation will equal ______.

72) If the monetary authority suddenly surprises everyone by increasing the rate of growth in the money supply, inflation will increase also. But in figure 11.9, there is a sudden jump in the price level. Why?

73) If households expect the change in monetary policy, then the jump will occur

_____ .

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2012

Week #8 assignment

March 7, 2011

Your midterm will be due this week. Class will NOT meet this week.

The midterm will be made available to you on or before March 1.

Drop your midterm in the drop box on WTClass by 5:00 March 11th.

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2011

Week #10 assignment

March 21, 2011

This week will briefly discuss the exams. Also, read chapter 12 and answer the questions.

1) What are the trends in US government total expenditures, total transfers, total purchases, and total interest payments?

2) What are the trends in state and local government purchases?

3) We had no questions about the government getting revenues from printing money, so review that part of chapter 11, please.

4) What is the government’s budget constraint? How does the government use money? How does it get money?

5) What is missing in the budget constraint? (We’ll add it later, I’d bet ;-))

6) What kind of tax system does the government use?

7) In our simplified model that ignores a government production function, how does government behave? In other words, instead of producing anything the government just _____.

8) This assumption (in 7) is not realistic. But does it matter? When would it matter?

9) How are government purchases of public services related to the household’s production and utility?

10) What is the hypothetical case we begin with?

11) How does the household’s budget constraint change when we include government transfers and taxes?

12) Very simply, what have we done in equation 12.6 and 12.7? (Hint, look at the paragraph right after 12.7).

13) If government purchases increase by one, then household’s real income _____.

14) And consumption will ______.

15) Do government purchases affect supply and demand for capital? Explain.

16) Does a permanent increase in government purchases affect real GDP? Explain.

17) Does a permanent increase in government purchases affect real wages? Explain.

18) Does a permanent increase in government purchases affect gross investment? Explain.

19) Does figure 12.7 provide confirmation to our theory? Explain.

21) What are the ideas that have been advanced about the supply of labor during wartime? Explain each one.

22) We predict that real wages will fall during war. Has this been true?

23) Our model predicts that interest rates should rise during war. Has this been true?

Advanced Macroeconomics Spring 2012

Week #11 assignment

March 28, 2011

Read Chapter 13. This chapter is difficult, so don’t let the scarcity of questions fool you.

1) What have been the trends in government revenues since 1930?

2) Is there anything interesting in figures 13.2 and 13.3?

3) What is the difference between the marginal tax rate and the average tax rate?

4) What is perhaps the key feature of the US’s income tax?

5) Why might the income tax in the US be less graduated that the rates suggest?

6) Other than the “traditional” income tax, what other type of tax is earned income subject to in the US?

7) What is a flat rate tax?

8) What is the trend in the average marginal income tax rate?

9) Why is this important?

10) In short, if our model had a varying income tax rate schedule that workers could anticipate, then what would be the affect on labor supply from year to year?

11) The real taxes paid equals the ____ X ____ .

12) What is the key force that determines labor supply? Explain.

13) What is now the new consideration?

14) So, the substitution effect on labor supply depends on .

15) So, an increase in marginal taxes will ______quantity of labor supplied, ___ _ consumption, and_____ leisure.

16) What is the income effect on an increase in marginal taxes? Explain. Is this somewhat surprising? (The stuff on page 328 and 329 is difficult and may not be intuitive for you. I’ll lecture about it in class.)

17) On page 330, what is the conclusion to all the stuff on page 328 and 329?

18) In our model, we assume that all forms of assets are taxed at the same ____ .

19) When a household chooses between C1 and C2, what matters?

20) What is the short run effect on real GDP of an increase in the marginal tax rate on assets? What do you think the long run affect would be? Why is there a difference?

21) What is the key result of an increase in the marginal tax rate on assets?

22) What is the overall effect of a rise in G on the quantity of labor supplied? Explain.

Read Chapter 14. This chapter’s questions are harder than most…I expect you to do more than just repeat sections of the book.

1) What is a budget deficit?

2) Briefly describe the history of public debt in the US and UK.

3) What is new in equation 14.1?

4) What is real government expenditure?

5) Describe equation 14.3.

6) Real national saving equals ____.

7) How do we modify the results of chapter 12?

8) Any income effects in equation 14.7 must involve ____or ____.

9) What are the simple, unrealistic assumptions that lead us to Ricardian Equilivance?

10) Under the assumptions, what is the government’s budget constraint in year one?

11) What is the simple logic behind equation 14.10?

12) Explain why the government’s budget deficit does not affect the present value of real taxes? In other words, explain the simplest version of the Ricardian equivalencetheorem.

13) Why doesn’t the deficit affect real national saving?

14) How does Barrow make the argument for Ricardian equivalence more general?

15) How do the results change?

16) How, then, does Barrow make the argument for Ricadian equivalence even more general?

17) How do the results change?

18) What is the really important assumption?

19) What is simulative fiscal policy?

20) Summarize the effect of simulative fiscal policy taken as a cut in lump sum taxes.

21) Summarize the effect of simulative fiscal policy taken as a cut in year 1’s labor income.

22) What about cutting the tax on asset income?

24) What do budget deficits and surpluses do?

25) What is tax rate smoothing?

26) When would a government have unusually high deficits?

27) Describe the view that economists have of the Regan budget deficits.

28) How can a politician use his/her ideology on the size of government to influence future politicians?

29) What is the opinion of economists that reject Ricardian equivalence on budget deficits?

30) Describe their assumptions/conclusions.

31) What is the theoretical link between the standard view of debt and a higher real interest rate?

32) Detail why finite lifetimes give credence to the standard view of public debt.

33) Detail why imperfect credit markets give credence to the standard view of the debt.

34) What is the empirical evidence on the macro economic effects of budget deficits (page 364?)

35) Read the section on social security. Given what this section discusses, in terms of macroeconomics, what is the biggest concern of the US social security system?

36) Compare and contrast “pay as you go” and “fully funded.”

37) How does the usual argument go?

38) In the EBC model, one would treat a pay as you go retirement program just like______.

39) A big result of social security is the “strongly diminished...tendency of” ____ .

40) Does social security affect savings and investment?

41) What are open market operations?

42) What do we know from chapter 10? (3 things)

43) Are open market operations like Milton Friedman’s helicopter?

West Texas A&M Univ. Dr. Pjesky

Week #12 assignment

April 4, 2012

Read Chapter 15. This chapter’s questions are harder than most…I expect you to do more than just repeat sections of the book.

1) What was the most important result from chapter 10?

2) What was the most important result from chapter 11?

3) In the EBC model, money demand ____.

4) According to the EBC, if the monetary authority wants to stabilize prices, it will adjust money .

5) While the EBC holds that money in neutral, empirical evidence suggests that money is only mostly neutral. What model explains this?

6) An increase in the real wage rate makes households want to work .

7) What is necessary for the labor supply curve to slope upward?

8) The price perceptions model is a model about ______information about prices.

9) Try to put the price perceptions (PPM) model in story form.

10) What is the difference between the long run and the short run in the PPM?

11) What is an important result of the PPM?

12) Why is systematic monetary policy difficult in the PPM model? Tell me a story.

13) Tell me a story about the Lucas hypothesis on monetary shocks.

14) What did we imagine in our EBC model? Then what did we do?

15) Be able to describe table 15.1, focusing on comparing and contrasting the EBC and PPM models.

16) The leaders of empirical studies in monetary policy are Milton Friedman and Anna Schwartz. What are their conclusions?

17) What is Barrow’s contribution to this question?

18) What is the main disturbance in the EBC model?

19) What is the impact of an increase in technology in the EBC model?

20) What is the impact of an increase in technology in the PPM?

21) How are they different? Explain.

22) Unanticipated money shocks can affect the real economy in the _____ run.

23) Why is inflation high under discretionary policy?

24) What is absolutely essential for a policy rule to be effective at achieving low inflation?

25) What is arguably the most important feature that distinguishes the public institutions of successful economies from those of economies that are not successful?

Read Chapter 16. This chapter’s questions are harder than most…I expect you to do more than just repeat sections of the book. This chapter is somewhat dense—it tries to give you an entire semester of intuition in 17 pages. You may have to read it more slowly and carefully.

1) What, perhaps, is the most important common assumption of the EBC model and the PPM?

2) What, perhaps, is the greatest contribution of Keynes to macroeconomic modeling?

3) What are the two main ingredients for sticky prices?

4) Explain what a menu cost is. What are they important?

5) Explain what imperfect competition is. What is it important?

6) Skim through equations 16.1-16.7. Realize that this is the same process you learned (or will learn) in microeconomics. The exception to this similarity is that macro economists tend to think of a “markup ratio.” What is the markup ratio?

7) What is the important point?

8) If nominal prices are wages are fully flexible, then we would have money in a model characterized by imperfect competition.

9) But if prices are sticky, then we see quickly that money is not ______.

10) Explain why, with sticky prices, an increase in the money supply increases labor demand by each firm?

11) This causes GDP to rise. Why?

12) The predictions of the New Keynesian model (NKM) are similar to the PPM. The major difference is the predictions of the real wage rate. The prediction concerning the real wage rate in the NKM is superior to the prediction in the PPM. What about the NKM drives this result?

13) What is labor hoarding? Why have NKMs included labor hoarding?

14) What about price adjustments in the long run? What do NKMs predict about the neutrality of money in the long run?

15) What is the significant difference between the long and short run in the NKM?

16) What is the significant difference between the long and short run in the PPM?

17) What is the significant difference between the long and short run in the EBC model?

18) Does the evidence support the NKM’s ability to explain economic fluctuations? Why?

19) Evaluate the NKM using table 16.1.

20) Typically, the NKM is not concerned with shocks to the money supply, but shocks to____.

21) What is the concept of the multiplier?

22) What is the reasoning behind the multiplier?

23) What is the case against the multiplier?

24) How do central banks express monetary policy?

25) What are the two interest rates of interest to the Fed?

26) Carefully read the rest of the chapter….I’ll do my best to interpret it for you in class.

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2012

Week #13 assignment

April 11, 2012

Read chapter 17 and answer the questions.

1. What have we neglected so far? Why was it O.K. to limit our model this way?

2. What is globalization?

3. What is the difference between an open, intermediate, and closed economy?

4. What are our assumptions?

5. What is the law of one price?

6. What is the result of our assumptions in terms of world markets?

7. What is direct foreign investment?

8. Explain 17.2 and 17.3.

9. Describe 17.4 and 17.5.

10. Define current account deficit and surplus.

11. Describe 17.7.

12. Describe (very generally) the history of the US’s current account balance.

13. Suppose an economy is closed. Then it opens to find that its interest rate is thesame as the world’s. What happens?

14. Now suppose that the home country experiences a positive technology shock. Describe what happens.

15. What is the role of “adjustment cost of capital?”

16. What happens to the current account balance?

17. What happens to Yt-Ct?

18. The real current account balance is .

19. Summarize the results (3 points.)

20. These results are surprising. Why?

21. Why do nearly permanent positive technology shocks increase national savings?

22. During recessions, the real current account balance is _____ .

23. Does evidence match the theory? What about the current recession?

24. Despite 22, we should NOT conclude _____.

25. Why? Give an example.

26. If our current account deficit increases as the stimulus package is implemented, then is this a sign of a good economy?

27. Can we learn anything from a developing nation’s future growth possibility from its current account?

28. Read the section on borrowing and lending.

29. In a Ricardian case,______.

30. What are twin deficits? Are they a feature we should expect? How do you know?

31. So, why was the US current account deficit so large in 2000-6?

32. The chapter has focused on the current account but there is one aspect of trade that is important but missing so far. What is it?

33. What are the “terms of trade?”

34. Let’s say your country is a massive oil net consumer and the price of oil drops. Your current account should move toward _____.

35. Lowering trade barriers is exactly like ______.

Listen to the following podcast and answer the questions: http://www.econtalk.org/archives/2008/01/don_boudreaux_o.html

Keep in mind that this is a somewhat nonlinear conversation. The answers might not be in perfect order.

1. How does trade create wealth? Smith’s answer(s)? Ricardo’s answer?

2. What is the ultimate resource?

3. Is Ricardo’s idea just a “pet theory” or is it very real world? How do you know?

4. Summarize the four reasons specialization is good.

5. What is the deep insight in Ricardo’s idea?

6. What is extraordinary about Simth’s idea?

7. “Trade hurts some people.” Criticize.

8. What is true in any dynamic economy?

9. How can one insulate him/herself from trade and economic change?

10. What are James Buchanan’s (1986 Nobel Prize in Economic) thoughts on this? (This is very profound)

11. What role do you suppose national borders play in Buchanan’s exchange nexus?

12. Is a tenured professor of economics, with job protection, allowed to spout such ideas?

13. How does even a tenured professor face job peril?

14. What is the challenge of the protectionists?

15. What is Smith’s insight about money? How does peoples’ ignorance about money fuel their desire for protectionism?

16. Is money wealth?

17. Why would a Canadian want (or accept) US dollars in exchange for exports to the US?

18. Current Account Balance + Capital Account Balance = _____.

19. “’Foreigners’ are now in control of our assets.” What’s Boudreaux’s opinion?

20. Another point about the trade deficit? Trade deficits are not ____. Explain.

21. Do you think Barro would agree with the thoughts in the podcast?

22. Discuss the time travel example. What do you think your great, great Grandparent would think of Bill Gate’s house?

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2012

Week #14 assignment

April 18, 2011

Read chapter 18 and answer the questions.

1. What is our new market?

2. What is an exchange rate?

3. What is PPP?

4. If equation 18.1 does not hold, then what happens?

5. What does 8.2 mean?

6. When might PPP not hold? Must it?

7. What is the Balassa-Samuelson hypothesis?

8. How do Taylor and Taylor suggest we forecast long run exchange rates?

9. If China grows, it will either endure high or must lower .

10. Skip to 455. What are fixed exchange rates? What was Bretton Woods?

11. How does an international gold standard work?

12. If an advanced country fixes its nominal exchange rate with the US, then its_____must also be equal to the US’s.

13. What are international reserves? How are they important in a regime of fixed exchange rates?

14. What is devaluation and revaluation?

15. What is the relationship between domestic inflation and devaluation?

16. What are flexible exchange rates?

17. There are four bullet points comparing fixed and flexible exchange rates. Summarize each one.

Listen to the following podcast and answer the questions: http://www.econtalk.org/archives/2008/01/munger_on_the_n.html

Keep in mind that this is a somewhat nonlinear conversation. The answers might not be in perfect order.

1. Explain the paradox.

2. What do markets do?

3. What is the role of price?

5. Explain the paradox again?

6. Firms are islands of .

7. In the 20s and 30s socialism was thought to be _____.

8. Hayek’s position?

9. Learner’s position?

10. Why is a belief in free markets so counter-intuitive?

11. Why is a belief in planning so natural?

12. What is the 3rd factor?

13. What is necessary for planning to work?

14. What is that paradox again?

15. Is there an element of truth to the “Dilbert Principle?”

16. How is a centralized economy like a firm.

17. What are the blunt instruments that firms use as incentives?

18. Why is a department store a strange thing?

19. How do we know Macy’s way is better?

20. So, do managers maximize profits? Why or why not?

21. What about Macy’s and the Mall? Why are Malls so strange?

22. Discuss the outsourcing manager. Think Janitorial, Accounting, Computer maintenance.

23. How can he outsource “to bunny slippers?”

24. How does that work out?

25. Why isn’t it possible?

26. So, how do we go from outsourcing everything to annual salaries?

27. What is the heart of Coase’s 70 year old article?

28. Firms exist when it is .

29. Everybody sources most things. Explain.

30. Do all economists take the cheapest bid?

31. Why isn’t the low bid the low bid?

32. Is the price system free to use? Explain.

33. What is so extraordinary about all this?

34. How is the “centralized” way of making pins disciplined?

35. How is service different?

36. What is the trade off with the Yang River?

37. Why might the workers hire a monitor?

38. What are some other ways to solve the problem of the monitor?

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2011

Week #15 assignment

April 25 , 2011

Listen to the following podcast and answer the questions: http://www.econtalk.org/archives/_featuring/steve_fazzari/

Keep in mind that this is a somewhat nonlinear conversation. The answers might not be in perfect order.

1. What is Keynes’ view of the business cycle?

2. What is the problem now?

3. What is so special about consumer spending?

4. What is the problem with someone stopping spending?

5. Short run/Long run distinction?

6. So, is a recession a time where people want to take more leisure?

7. What if people wanted to work the same, save more and consume less? In other words, why doesn’t investment (saving) stimulate the economy?

8. What is the deep intuition of the “paradox of thrift?” (Personal note….this is new way of explaining of a paradox of thrift.)

9. So, what’s going on now (again?)

10. Roberts asks: Isn’t the money saved by the people who no longer eat out invested into things that create new stuff for the future? What is Fazzari’s response?

11. What is the challenge of macroeconomics?

12. What is the error that many make when thinking about economics?

13. In the short run, higher saving will create _ , then drive down until enough is stimulated and we are back to a __ demand.

14. The time it takes to move from the beginning to the end of the story in 13 is the difference between the ___ and ___ run.

15. Roberts: if we decided to allocate more resources from current consumption to future consumption, won’t that leave aggregate demand unchanged? What was Fazzari’s response in the short run?

16. State again the paradox of thrift.

17. Why aren’t there additional funds into the banking system.

18. Why is there a decrease in total income?

19. What is the thought experiment?

20. Roberts keeps coming up with the same objection. What is it?

21. What does the market see and what does not see.

22. A change in policy that increases saving is good only if there is .

23. What is not automatic in Keynes’ world?

24. What is the key question to a mainstream Keynesian?

25. What is the role of the Fed in a Keynesian world?

26. Why does Fazzari think the economy has been good this generation?

27. What is his concern?

28. Why is a generalized deflation bad?

29. What’s Fazzari’s advice? What is his case for stimulus?

30. Does a Keynsian care if a stimulus package has “bridges to nowhere” in it?

31. Where does the money come from?

32. How does digging holes and filling them in increase real activity?

33. What did Freidman argue?

34. Why does Fazzari think that hiring people is better than giving out money?

35. Why might an increase in the money supply not be inflationary?

36. What is the evidence that this kind of stimulus will work?

37. Why is hard evidence hard to find?

38. How should a person confront the difficulty of interpreting history given the bias we carry in us?

Listen to the following podcast and answer the questions: http://www.econtalk.org/archives/_featuring/john_taylor/

Keep in mind that this is a somewhat nonlinear conversation. The answers might not be in perfect order.

1. What should an educated person know about the Fed’s objective(s)?

2. Is the job of the Fed to steer the economy?

3. The goal of low inflation has given us…what?

4. Does the Fed control interest rates or the money supply? Explain?

5. How does the Fed influence the Fed Funds Rate?

6. Why does the Fed buy and sell T-bills?

7. Again, why does the Fed focus on short term interest rates instead of the money supply?

8. What is the first thing?

9. What is the Taylor Rule?

10. What is “should” thing?

11. What should the Fed look at?

12. Where did Taylor come up with the 1 ½ an ½ % interest rate change rules of thumb?

13. How is the Taylor Rule “positive” or descriptive?

14. What is one way to respond? What is Taylor’s response?

15. Why might the Taylor rule not work forever?

16. What happens when there are large deviations from Taylor’s prescription in monetary policy?

17. 1987? 1998?

18. Would Taylor implement his rule mechanically?

19. Does the Taylor rule satisfy Milton Friedman?

20. How dangerous did Taylor think the economy was? Explain.

21. What is the source of the risk?

22. What is the role of failing house prices in the current crisis?

23. Why did we bailout Bear Sterns? Why worry?

24. What must we do to clarify the future? Did they do it?

25. Do we need more regulation? Transparency?

26. Risk/Spillover tradeoff. Comment.

West Texas A&M Univ. Dr. Pjesky

Advanced Macroeconomics Spring 2012

Week #16 assignment

May 2, 2011

Catch up and hand out/discuss final.